Seeking Alpha

specmine

specmine
Send Message
View as an RSS Feed
View specmine's Comments BY TICKER:
Latest  |  Highest rated
  • 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 http://bit.ly/1oO5GYJ
    Jun 13 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 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 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 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 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 03:14 AM | Likes Like |Link to Comment
COMMENTS STATS
6 Comments
6 Likes