The current market cap of TSCM is $83.6 million.
Now look at the B/S in 10Q as of March, 2009.
The most recent 10Q is not out yet.
What’s wrong?
Wednesday, September 23, 2009
Wednesday, September 9, 2009
Portfolio Notes: Adams Golf (ADGF) @ $2.85 - Buy
Buying ADGF.
The B/S is a good enough reason.
The shares are traded at 0.4 P/B. In other words, if the inventories/receivables are liquidated at discount, paying out all the payables, it’s worth a lot more than the current $18 million market value.
A classic Ben Graham stock, hard to find these days.
The down side is its low trading volume, maybe wide bid/ask spread. The $18 million market cap may have put it under the radar of most stock screeners.
Tuesday, September 8, 2009
Portfolio Notes: UNG – Speculative Buy
This is a note on United States Natural Gas Fund, or UNG, an ETF of nat gas futures that I recently added to my portfolio.
The only reason I am buying UNG is that the nat gas spot price is out of whack comparing to historical level.
The annual inventory level has been stable over the years, while fluctuating seasonally. The spot price, not inflation adjusted, was down to $2 during the 2001-02 recession, but quadrupled 1.5 years later. I thought it may happen again.
This is all I know about the U.S. nat gas market. It is admittedly a speculation, with the disadvantage of a contango in nat gas future.
Portfolio Notes: Burger King (BKC) @$18.10 - Buy
Adding BKC to my portfolio. This is a quick valuation note.
Share Performance
YTD, BKC has seriously underperformed the market and its peers.
Note that the share price nosedived in April and the price just stayed there. The only reason I can find for the drop was a sales miss.
Current market value $2.4 billion.
The Business
From AR 2009:
“[..]Our restaurant system includes restaurants owned by the Company and by franchisees. We are the world’s second largest fast food hamburger restaurant, or FFHR, chain as measured by the total number of restaurants and system-wide sales. As of June 30, 2009, we owned or franchised a total of 11,925 restaurants in 73 countries and U.S. territories, of which 1,429 restaurants were Company restaurants and 10,496 were owned by our franchisees. Of these restaurants, 7,233 or 61% were located in the United States and 4,692 or 39% were located in our international markets. Our restaurants feature flame-broiled hamburgers, chicken and other specialty sandwiches, french fries, soft drinks and other affordably-priced food items. During our more than 50 years of operating history, we have developed a scalable and cost-efficient quick service hamburger restaurant model that offers customers fast food at affordable prices.
We generate revenues from three sources: retail sales at Company restaurants; franchise revenues, consisting of royalties based on a percentage of sales reported by franchise restaurants and franchise fees paid to us by our franchisees; and property income from restaurants that we lease or sublease to franchisees.”
The Financials
I/S 2009:
Comparable sales growth:
There’s a $755 million debt and $122 million cash on the B/S.
The Valuation
EV/OpIncome = ($2.4 billion market-based equity + $0.6 billion debt) / ($0.34 billion operating income) = 8X.
P/E = $2.4 billion / $0.2 billion =12X.
Conclusion
If you like a medium term 8% C/D with growth potential, you’d like owning BKC.
Whatnots
Should find out peer performances.
Portfolio Notes: Simon Property (SPG) @ $63.5 - Dunno
This is a quick valuation of Simon Property (SPG). It’s the first REIT I looked at.
Stock Performance
$18 billion in market value. In 2008, Simon distributed $852 million in dividends.
What It Does
From 2008 AR:
“Simon Property Group, Inc. [..] own, develop, and manage retail real estate properties in five retail real estate platforms: regional malls, Premium Outlet Centers®, The Mills®, community/lifestyle centers, and international properties. As of December 31, 2008, we owned or held an interest in 324 income producing properties in the United States, which consisted of 164 regional malls, 70 community/lifestyle centers, 16 additional regional malls and four additional community centers acquired as a result of the 2007 acquisition of The Mills Corporation, or the Mills acquisition, 40 Premium Outlet Centers, 16 The Mills, and 14 other shopping centers or outlet centers in 41 states plus Puerto Rico. [..] We also own interests in four parcels of land held in the United States for future development. In the United States, we have one new property currently under development aggregating approximately 400,000 square feet which will open during 2009. Internationally, we have ownership interests in 52 European shopping centers (located in France, Italy, and Poland); seven Premium Outlet Centers located in Japan, one Premium Outlet Center located in Mexico, one Premium Outlet Center located in Korea, and one shopping center located in China. Also, through joint venture arrangements we have ownership interests in the following properties under development internationally: a 24% interest in two shopping centers in Italy, a 40% interest in a Premium Outlet Center in Japan, and a 32.5% interests in three additional shopping centers under construction in China.
We generate the majority of our revenues from leases with retail tenants including: Base minimum rents; Overage and percentage rents based on tenants' sales volume; and Recoveries of substantially all of our recoverable expenditures, which consist of property operating, real estate taxes, repair and maintenance, and advertising and promotional expenditures.”
It’s one of the largest REITs and a Fortune 500.
How It Makes Money
As you can see in the above I/S 2008, it develops and maintains shopping malls and earns rents from retailers.
A further breakdown of revenue source in the U.S. as follows:
Now look at the B/S:
Net investment properties ($19 billion) are almost 100% financed on debt ($18 billion), around $4 billion of which rolls over each year (see C/F statements in the later part).
Funding details as follows:
Weighted average financing cost is about 5.12% in 2008.
There’s additional debt taken by unconsolidated JVs.
The B/S composition leads me to the C/F statements:
You can say that it’s highly leveraged, with a strong operating cash flow.
A Quick Valuation
So here’s the story: Simon develops malls, financing all by mortgage and earning rents on them. The value is generated thru the race between ROA and funding cost (think bank).
The 2008 CF from operations was $1.6 billion after paying $1 billion interest on mortgages. CapEx 2008 was $874 million (see below).
So that in 2008 Simon generated $2.6 billion on invested properties of $19 billion, and ROA was roughly 2.6/19 =14%. Financing cost was a little above 5%. Net return was 14% – 5% = 9%. Not too bad.
An justification of the market value: on $1.6 billion CF from operations in 2008, if assuming 10% required rate of return and 2% growth, we have a P/CF of 12X, which leads to a market value of 1.6*12 = $19.2 billion, or 6% above the current market value of $17.9 billion. Remember that such valuation assumes Simon continues to financing all its properties thru debts.
There’s however risks. First is the financing cost. If mortgage rate increases by 1%, it takes away $200 million or about 12% from cash flow. Could Simon increase rents accordingly? Second, consumer spending, hence retailer income, is still depressed.
Simon’s 10Q of 2Q09 is showing both:
Funding cost was up around 0.5%..
..and rents are deteriorating.
Revenue of 1H09 was flat.
Conclusion
It seems to me that at the current state of economy Simon’s return does not justify the risks.
Alas, Mr. market thinks otherwise. At this moment, it is up 3.65% today.
Whatnots
- REITs seems having a special tax treatment: only paying corporate income taxes after dividends (see link here)
- Insignificant amount of preferred, convertibles on the B/S.
Wednesday, September 2, 2009
Portfolio Notes: Pride International (PDE) @25.68 - Buy
Adding PDE to my portfolio. This is a note.
Stock Performance
1 year performance compared to SP500:
The Business
Pride is “one of the world’s largest offshore drilling contractors operating, as of February 2, 2009, a fleet of 44 rigs, consisting of two deepwater drillships, 12 semisubmersible rigs, 27 jackups and three managed deepwater drilling rigs. We have four deepwater drillships under construction. [..] customers include major integrated oil and natural gas companies, state-owned national oil companies and independent oil and natural gas companies.”
It wins drilling contracts thru competitive bidding and earning daily fees for drilling services.
Pride is continuously focusing on deepwater drilling and is spending capitals accordingly.
Profit margin is good, though those of some competitors (RIG, NE) seems higher.
Looking at B/S, the company has $5 billion PP&E (I guess mostly boats, docks and related), so NI/PP&E is about 10%.
Valuation
Market cap is $4.5 billion, or 10X 2008 net income. Net debt is zero. It’s at fair value assuming 10% required return and no growth. But running at full capacity and recent capex indicates some growth.
Whatnots
Tax rate is unusually low. Treatment for oil drilling businesses?
Fannie Mae @ 1.48: A Review
I called on Fannie Mae (FNM) on August 30th and is down 28% since then. This is a review.
Conclusions first: Extremely risky as it is, I still believe Fannie is a good buy value-wise. I would be buying more when the sell-off wanes.
What worry you most would be the charge off and the potential government actions. While 2% net charge off would demise Fannie as I stated earlier and the possibility is higher than I initially thought after digging deeper, what the government would do about it put it into high volatility. I cannot predict the latter. Here is an example.
Value Drivers of Fannie
Tuesday, September 1, 2009
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