Guy Gottfried's Presentation on Glentel & Supremex: Value Investing Congress ~ market folly

Tuesday, September 17, 2013

Guy Gottfried's Presentation on Glentel & Supremex: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Guy Gottfried of Rational Investment Group.  He gave a presentation called "Needles in a Haystack: More Small Cap Values" that focused on Glentel and Supremex.

Guy Gottfried's Value Investing Congress Presentation

His picks at this event on average are up 60% & he pitched 2 Canadian stocks:

Glentel (GLN)

3.4% yield. Wireless retailer. Canada, US, Australia. Second largest Verizon retailer in US.  Carriers pay them a bounty/commission.  Profits from commissions, not phone hardware.

7.5x FCF, Management aligned with shareholders. Good capital allocation record.  Dividend while you wait. 
Why cheap?  Made a big acquisition. Wireless Zone. Confusing accounting. Some divisions making no money.  Lots of non-recurring items.  Arcane accounting; put obligation recorded on balance sheets, marked to market.  To make it look cheap, you have to do a lot of adjustments.

Family owns 46% of company.  Good record of acquisitions.  Deals with Costco, kiosks inside.  Some divisions with no cash flow but still valuable.  So many adjustments to income to get the valuation.

He gets $1.66 per share FCF, 7.5x when he adjusts share price for the amt segment. Lots of accounting tricks needed to make it look cheap.

Supremex (SXP)

Illiquid stock.  Canada's largest envelope maker. Declining industry.  60% market share. FCF up due to cost cutting.

3.1x FCF. 7.5% dividend yield, 23% payout ratio.  Cheap because no coverage, conference calls. Cut dividend by 90% a few years ago.

 Activist owns 45%.  Cut debt with FCF by 69%. 1.5x debt.

Catalysts: Likely big dividend hike. Insiders won't waste cash on bad acquisitions.  Could double it to 15% and still be paying less than 50% of FCF.  In the past, this would lead to 30-50% stock move.

Even in FCF decline of double digits, can sustain 15% yield for 5 years. Still cuts debt.

Q&A: How do you know it doesn't decline faster than you expect? A: Believes his double digit decline assumptions are realistic. 

Embedded below is Gottfried's PDF slideshow presentation on Supremex & Glentel:

Be sure to check out the other presentations from the New York VIC here.

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