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  • Peabody Energy Retains More Options To Pull Levers Than Its Peers [View article]
    Good way to get rid of the shorts; reduce Liquidity !
    Sep 3, 2015. 02:31 PM | Likes Like |Link to Comment
  • Peabody Energy Retains More Options To Pull Levers Than Its Peers [View article]
    Mining is all about long term best of class assets.

    BTU has best in class and this will allow them to prosper from this down turn.
    Companies knocked out of production will stay out of production. Assets get transferred, but they need a 3 year re-start cycle. Therefore coal supply will fall.

    The USA spends billions securing the world oil (energy) supply. Coal is energy.

    As a matter of national security; BTU can not be allowed to fail and will not fail; think about it.

    The utilities, will never let BTU fail. Utilities cost of coal is in the electrical rate base.

    Coal may supply 35% electric demand; but it is the base load factor, that is critical to consider.

    BTU can split its Australian assets and float them on the Australian & UK stock exchange duel listing, and pay down its 2018 debt.

    BTU Australian assets produce 35 Million tons; the capital replacement cost of such large scale mines, is about $10 Billion. This unit could and should be floated with BTU retaining at least 58% equity.

    The best investment BTU can make is to buy back its stock.
    Sep 3, 2015. 10:54 AM | 3 Likes Like |Link to Comment
  • Peabody Energy - A Few More Reasons To Invest [View article]
    Many people have discussed what is the best investment, BTU equity or Bonds; without taking into account that BTU has many ways to reduce debt. For example;

    BTU could reduce debt, by floating its Australian assets on the Australian stock exchange; let’s call its listing A-BTU. BTU could still retain 60% equity in A-BTU and load some debt on to A-BTU.

    BTU could sell A-BTU equity to Chinese government; and both could grow A-BTU to own more Australian coal assets. In this way the Chinese can secure coal supplies and control price of coal into China.

    The Chinese could take the A-BTU debt load, and take back payments in coal at a fixed price, similar to a metal stream.

    BTU would be the manager of the Australian Chinese joint venture.

    The Chinese have done this with TEK, the Canadian coal miner. The Chinese have a large equity position in TEK.

    The long term strategic value of the Australian coal assets are worth more than people realize.

    Long BTU.
    Sep 1, 2015. 07:29 PM | 4 Likes Like |Link to Comment
  • 2014 World Cup Investing By Country: South America [View article]
    Bill Gates buys 7% $ARCO putting in the bottom aprox $10.
    Like Buffet, Bill holds long term & keeps buying. see link
    Jun 13, 2014. 06:32 AM | 1 Like Like |Link to Comment
  • Arcos Dorados: Good Company, Bad Stock? [View article]
    I calculated the Net Present Value (NPV) of ARCO to determine my margin of safety.

    I wanted to make sure I did not screw up before committing capital.

    My NPV for ARCO = $20 per share is quite conservative

    I used a 6% (OTCPK:CAGR) compound annual growth rate for free cash flow. ARCO has been able to achieve this in the past and should be able to achieve this in the future especially as resource driven economies of South America improve.

    ARCO has restructured debt to lower interest rates and extended terms. Also, ARCO has upgraded most of its old restraunts over the past 5 years, thus lowering future operating expenses.

    My NPV calculations, give a very low value to ARCO asset base, which is actually huge in size and represents a formidable cost barrier for competition to build and compete.

    NPV calculations is just one of many ways to determine the value ARCO. I like to use it to guarantee my margin of safety.

    A simple method to make sure you’re doing nothing wrong is to use 10 x free cash flow as that is what buyout artist would use to buy out the complete company with the intent of making huge profits.

    2014 free cash flow = $274M x 10 = $2740M / 210M shares out = $13 per share

    12 X free cash flow is what a mutual fund manager would pay for a good long term growth investment.

    $274 x 12 = $3288M / 210M shares out = $15.65 per share

    In 2016 ARCO should have a free cash flow of $303M x 12 = $17.30 per share

    ARCO looks cheap when you work through the calculations.
    Mar 24, 2014. 01:56 AM | Likes Like |Link to Comment
  • Arcos Dorados: Good Company, Bad Stock? [View article]
    I used 9.74% for the NPV discount factor on ARCO future cash flows.

    I actually spent the time to calculate the Weighted Average Cost of Capital using the Capital Asset Pricing Model (CAPM).

    (CAPM), where: Cost of Equity (Re) = Rf + Beta (Rm-Rf).

    Cost of Equity = Re = Rf + Beta * (Rm -Rf)

    Rf - Risk-Free Rate - This is the amount obtained from investing in securities considered free from credit risk, such as government bonds from developed countries.

    ß - Beta - This measures how much a company's share price moves against the market as a whole.

    (Rm – Rf) = Equity Market Risk Premium - The equity market risk premium (EMRP) represents the returns investors expect, over and above the risk-free rate, to compensate them for taking extra risk by investing in the stock market.

    "Cost of Debt Compared to cost of equity, cost of debt is fairly straightforward to calculate. The rate applied to determine the cost of debt (Rd) should be the current market rate the company is paying on its debt. Therefore, the after-tax cost of debt is Rd (1 - corporate tax rate)."

    The WACC is the weighted average of the cost of equity and the cost of debt based on the proportion of debt and equity in the company's capital structure.

    The proportion of debt is represented by D/V, a ratio comparing the company's debt to the company's total value (equity + debt). The proportion of equity is represented by E/V, a ratio comparing the company's equity to the company's total value (equity + debt).

    "The WACC is represented by the following formula:

    WACC = Re x E/V + Rd x (1 - corporate tax rate) x D/V."

    A company's WACC is a function of the mix between debt and equity and the cost of that debt and equity.
    Mar 23, 2014. 02:24 PM | 1 Like Like |Link to Comment
  • Arcos Dorados: Good Company, Bad Stock? [View article]
    This article is seriously flawed in many ways.

    To set the base line for thinking, as a rule of thumb; to value a company one should use 15 x EPS or 10 x free cash flow for low growth and 12 x free cash flow for high growth ARCO type companies.

    Free cash flow should deduct debt interest and tax but include depreciation. As this is the cash low attributable to share owners.

    15 to 16 X EPS is the long term historical average of the S&P 500 and can be used for stable predictable non growth type companies. All others should use 10 to 12 x free cash flow as above.

    Using the above XL sheet ARCO will have an operating income of $258M + $120M Dep + Amt = $378M. Less $54M debt interest & $50M tax = $274M and this is the annual free cash flow attributable to owners.

    $274 x 10 = $2740M / 210M shares out = $13 per share

    $274 x 12 = $3288M / 210M shares out = $15.65 per share

    The above XL sheet should include Dep+Amt of $120M per year and tax should be $50M. Also ARCO has a cost of capital of 9.74% this should be used in Net Present Value Calculations.

    Importantly, when using NPV calculations to value a company, one must also include the NPV of the end liquidation value of the company after 10 years; adding current cash and deducting debt.

    ARCO owns 2060 restraunts many with land and buildings; 348 McCafé and 2,259 Dessert Centers, Food City, Training Center, Distribution buildings, Head Office and many other assets.

    Lets assume we give each Mac restaurant an end value of $2M and we give no value to anything else above for margin of safety.

    Then 2060 x $2M discounted at 8% long term bond rate, add cash and pay debt.

    The NPV of ARCO = $20 per share.

    Extremely Cheap on a NPV basis.
    Mar 23, 2014. 07:37 AM | 4 Likes Like |Link to Comment
  • Forget McDonald's: 5 Reasons To Be Bullish On Arcos Dorados Holdings [View article]
    One needs to work through the numbers for ARCO.

    To determine fair value, one must calculate Owners Earnings.

    If you add back depreciation & amortization; on an after tax and after debt payments basis, ARCO has a total free cash flow of 95 cents per share. This is pure free cash flow attributable to the owners.

    ARCO owners get $200 mil per year of usable cash flow to build out the company.

    I believe this $200 mil is a low end number as it is derived after upgrades and maintenance costs.

    Debt is hedged via currency hedges and such costs are part of debt payments.

    This $200 mill goes up and down in US$ dollar terms, however ARCO does not need to convert all earnings to US$ dollars to expand, as expansion is done in local currency.

    ARCO’s central operation base is Brazil, it is a very low cost point of operation and is a great source of low cost high quality beef.

    On all points, ARCO’s business model is working, it will continue to generate free cash flow for the next 20 years.

    At 10 times current free cash flow, ARCO looks cheap, especially given its high growth rate potential.
    Mar 5, 2014. 11:34 AM | Likes Like |Link to Comment
  • Apple Screwed Up Big Time [View article]
    Apple need to issue a Tablet with a thin stylus pen, thus competing directly head on with some nice things that Samsung and Microsoft has.

    Apple also needs to put a page heading on each page, so tablet pages are easily organized.

    It must be self obvious that more pages are required so users can easily organize Ipad into a more productive tool.

    The Ipad is a great entertainment tool, but Apple should focus the tablet to include high productivity tools, maybe give some software away for free with the high end models.

    Microsoft has the productivity edge, but does not have its act together; the new Microsoft CEO will probably be more mobile focused; and tablet productivity will probably be the name of the game.
    Jan 20, 2014. 03:14 AM | Likes Like |Link to Comment