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:
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.
