the Full Report

Transcription

the Full Report

Value-oriented Equity Investment Ideas for Sophisticated Investors
A Monthly Publication of BeyondProxy LLC  Subscribe at manualofideas.com
“If our efforts can further the goals of our members by giving them a discernible edge
over other market participants, we have succeeded.”
Investing In The Tradition of
Graham, Buffett, Klarman
Year V, Volume II
February 2012
When asked how he became so
successful, Buffett answered:
“We read hundreds and hundreds
of annual reports every year.”
Top Ideas In This Report
Capital Southwest
(Nasdaq: CSWC) ………………… 36
Rosetta Stone
(NYSE: RST) …………………….. 74
Vonage
(NYSE: VG) ……………………… 94
Also Inside
Editor’s Commentary ……………….. 9
Superinvestor Update …………….. 13
Small-Cap Idea Funnel ……………. 14
20 Small-Cap Value Ideas ………… 24
Presentation on Boyd Gaming …... 102
Ryan Morris on First Marblehead . 106
Favorite Value Screens ………….. 109
This Month’s Top Web Links …….. 118
About The Manual of Ideas
Our goal is to bring you investment
ideas that are compelling on the
basis of value versus price. In our
quest for value, we analyze the top
holdings of top fund managers. We
also use a proprietary methodology
to identify stocks that are not widely
followed by institutional investors.
Our research team has extensive
experience in industry and security
analysis, equity valuation, and
investment management. We bring a
“buy side” mindset to the idea
generation process, cutting across
industries and market capitalization
ranges in our search for compelling
equity investment opportunities.
IN MEMORY OF VICTOR P. FASCIANI
THE SMALL-CAP VALUE ISSUE
► The funnel — searching for small-cap ideas
► 20 companies profiled by MOI research team
► Proprietary selection of top candidates for investment
► Plus: Ryan Morris on First Marblehead
► Plus: Superinvestor holdings update
► Plus: Favorite stock screens for value investors
Small-cap companies mentioned in this issue include Almost Family,
American Equity, Ameristar Casinos, Astex Pharma, ATP Oil & Gas,
Aviat Networks, Avid Technology, Axcelis Technologies, AXT,
Banco Macro, Benchmark Electronics, BGC Partners,
Bridgepoint Education, C&J Energy, Calix, Callaway Golf,
Capital Southwest, Career Education, Celadon Group, China Yuchai,
Citi Trends, Comtech Telecommunications, Cray, Crexus Investment,
Crimson Exploration, CTC Media, Daily Journal, DepoMed, Digital River,
Exceed Company, First American, First Marblehead, FormFactor,
Fox Chase Bancorp, FXCM, Gleacher & Co., Global Sources,
Haverty Furniture, hhgregg, IDT Corp., Imation, Insperity, ITT Educational,
KBW, Kindred Healthcare, Korn/Ferry, Life Partners, Majesco, Medifast,
Medley Capital, Mesabi Trust, NACCO Industries, Nature’s Sunshine,
NeoPhotonics, Neutral Tandem, Nova Measuring, Office Depot,
OmniAmerican Bancorp, OmniVision, Oplink Comms, Pacific Biosciences,
PDL BioPharma, PennyMac Mortgage, PetMed Express, Power-One,
RadioShack, Rambus, RealNetworks, Rentrak, Rosetta Stone,
Rubicon Technology, Skechers, Skullcandy, Spirit Airlines, Stein Mart,
Stewart Information, Synaptics, Telular, Tessera Technologies,
TransGlobe Energy, TriQuint Semiconductor, Unisys, United Online,
Vanguard Health, Veeco Instruments, Vista Gold Corp., Vonage,
Winn-Dixie Stores, Winnebago, Xyratex, and more.
(analyzed companies are underlined)
Visit the Members Area at
http://members.manualofideas.com
Copyright Warning: It is a violation of federal copyright law to reproduce all or part of this publication for any purpose without the prior written consent of
BeyondProxy LLC. Email [email protected] if you wish to have multiple copies sent to you. © 2008-2012 by BeyondProxy LLC. All rights reserved.
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Table of Contents
REMEMBERING VICTOR P. FASCIANI ........................................................4
EDITORIAL COMMENTARY ..........................................................................9
SUPERINVESTOR HOLDINGS UPDATE ................................................... 13
THE FUNNEL: SEARCHING FOR SMALL-CAP IDEAS ............................ 14
SMALL-CAP EQUITIES ($10MN < MV < $2BN, TRADING CLOSE TO 52-W EEK LOW ) ..................... 14
SMALL-CAP EQUITIES (… AND TANGIBLE BOOK TO MARKET > 30%) ......................................... 16
SMALL-CAP EQUITIES (… AND TTM REVENUE / EV > 30%) ...................................................... 18
SMALL-CAP EQUITIES (… AND NEXT FY EPS YIELD > 0%)....................................................... 20
SMALL-CAP EQUITIES (… AND GROSS MARGIN > 30%) ............................................................ 22
PROFILING 20 SMALL-CAP VALUE OPPORTUNITIES ........................... 24
ATP OIL & GAS (ATPG) – ALETHEIA, SELDIN, SAMLYN, D.E. SHAW ......................................... 24
AXCELIS TECHNOLOGIES (ACLS) – DONALD SMITH, STERLING, DFA, ARTIS, RIMA.................... 28
CALLAWAY GOLF (ELY) – PERKINS, DFA, ROYCE, CLEARBRIDGE, FRANKLIN............................ 32
CAPITAL SOUTHWEST (CSWC) – BARES, CENTAUR, DFA, FIRST MANHATTAN, THIRD AVENUE .. 36
CAREER EDUCATION (CECO) – AQR, BLUM, INDEPENDENT FRANCHISE, KORNITZER ................ 40
CITI TRENDS (CTRN) – FRANKLIN, MFS, MORGAN STANLEY, RUTABAGA, SOUTHPOINT ............. 44
CRAY (CRAY) – CI GLOBAL, DFA, PARADIGM, ROYCE, WELLS FARGO ..................................... 48
CRIMSON EXPLORATION (CXPO) – AMERICA CAPITAL ENERGY, DFA, OAKTREE ....................... 51
DAILY JOURNAL (DJCO) – GUERIN FAMILY, CHARLIE MUNGER, ROSEMAN WAGNER ................. 55
KORN/FERRY (KFY) – BARROW HANLEY, LORD ABBETT, KORNITZER, ROYCE, T ROWE ............. 59
OFFICE DEPOT (ODP) – ALLIANCEBERNSTEIN, CHOU, IVORY, JP MORGAN, THORNBURG ........... 62
PETMED EXPRESS (PETS) – ARTISAN, BROWN, DFA, FMR, RENTECH, ROYCE, WELLINGTON .. 66
RADIOSHACK (RSH) – BRANDYWINE, CHOU, GLOBAL THEMATIC, LSV, PERKINS ....................... 70
ROSETTA STONE (RST) – ALLIANZ, ARTISAN, COURAGE, MFC GLOBAL, TAMRO ....................... 74
SKECHERS (SKX) – ARTISAN, CADIAN, DFA, LANE FIVE, PZENA, WEITZ, WELLINGTON .............. 78
TELULAR (WRLS) – CENTAUR, DFA, NORTH STAR, RENTECH, T2 PARTNERS .......................... 82
UNISYS (UIS) – CLEARBRIDGE, FMR, OPTIMUM, PUTNAM, STEEL PARTNERS ............................ 86
VEECO INSTRUMENTS (VECO) – EAGLE ASSET, JP MORGAN, KLEINHEINZ, PAULSON, ROYCE.... 90
VONAGE (VG) – AIG, BROOKSIDE, MANATUCK, NEA, RENTECH, TCS, WELLINGTON ................ 94
WINNEBAGO (WGO) – FMR, FRANKLIN, KILLEN, MAVERICK, ROYCE, TAMRO, T ROWE .............. 98
THE MANUAL OF IDEAS ON BOYD GAMING (BYD) ............................. 102
RYAN MORRIS ON FIRST MARBLEHEAD (FMD)................................... 106
FAVORITE SCREENS FOR VALUE INVESTORS.................................... 109
“MAGIC FORMULA,” BASED ON TRAILING OPERATING INCOME ................................................. 109
“MAGIC FORMULA,” BASED ON THIS YEAR’S EPS ESTIMATES ................................................. 110
“MAGIC FORMULA,” BASED ON NEXT YEAR’S EPS ESTIMATES ................................................ 111
CONTRARIAN: BIGGEST YTD LOSERS (DELEVERAGED & PROFITABLE) ..................................... 112
VALUE WITH CATALYST: CHEAP REPURCHASERS OF STOCK ................................................... 113
PROFITABLE DIVIDEND PAYORS WITH DECENT BALANCE SHEETS............................................ 114
DEEP VALUE: LOTS OF REVENUE, LOW ENTERPRISE VALUE ................................................... 115
DEEP VALUE: NEGLECTED GROSS PROFITEERS .................................................................... 116
ACTIVIST TARGETS: POTENTIAL SALES, LIQUIDATIONS OR RECAPS ......................................... 117
THIS MONTH’S TOP 10 WEB LINKS ....................................................... 118
© 2008-2012 by BeyondProxy LLC. All rights reserved.
February 2012 – Page 3 of 120
REMEMBERING VICTOR P. FASCIANI
Dear readers,
If you have been an attendee of Ciccio’s Value Investing Seminar, you certainly
would have met and heard from Victor Fasciani who passed away last week.
By some strange stroke of fate, this was the very week that we were getting
ready to publish an interview with Victor Fasciani.
While we cannot bring Victor back to life, we can send the message loud and
clear to Raquel, his surviving wife, and to his daughters, Gabby and Julia that we, his
professional colleagues and friends, are not neutral bystanders.
Vitaliy Katsenelson has set up a benevolent fund for Victor’s surviving children.
In addition to words from Tony Contrucci (reproduced below), we have received
expressions of regret from Guy Spier, Aaron Edelheit, Vitaliy and Alex Katsenelson,
Ken Shubin Stein, Marcelo Lima, and others.
Sincerely, John Mihaljevic
Message from Vitaliy Katsenelson:
Victor left behind two daughters – Gabby 9 and Julia 5. There is nothing we can
do about Victor’s untimely passing but we can help his kids. We set up a benevolent
fund for Gabby and Julia’s education. You can contribute to this fund by going to
this website http://bit.ly/fascianifamily (this link will take you to the PayPal
website where you will have an option to contribute using your PayPal account or a
credit card). Victor always valued education, and we know that he would be very
touched and appreciative that his friends and colleagues participated in the
educational journey of his daughters.
I keep going over in my head through conversations I had with Victor over the
years. I keep remembering a smart, funny, thoughtful, modest, compassionate human
being who was always there to cheer you up. Victor will be dearly missed!
Words from Anthony Contrucci:
It is with deep sadness that I write to inform you of the untimely passing of my
dear friend Victor P. Fasciani. Victor fell victim to what is believed to be a fatal
heart attack on Thursday, January 19th. He is survived by his wife Raquel and two
daughters, Gabby and Julia.
Victor was an amazing man, husband, father, friend and brother. His intellect
was only surpassed by that of the size of his heart. He lived life like a true Roman,
one of passion, honor, and integrity and was never afraid to be himself or fight for a
just cause.
Victor meant more to me than words can describe. He was a mentor, business
partner, and friend, whom I always called my brother. I love him very much and
know he is in a better place.
Victor was a student of Roman History and of Marcus Aurelius. He once shared
with me an excerpt that he found, one that I believe truly embodies how Victor lived
his life:
HOW TO ACT
Never under compulsion, or out of selfishness, without forethought, or with misgivings
Don’t fancy up your thoughts
No surplus words or unnecessary actions
Let the spirit within you represent a man, an adult, a citizen, a Roman, a ruler. Taking up his post like a soldier and patiently
awaiting his recall from life; needing no oath or witness
Cheerfulness; without requiring other people’s help to achieve it, nor serenity supplied by others
To stand up straight, not to be straightened
–Marcus Aurelius–
Tony’s funeral oration for Victor:
I know my dear friend Victor is here with us today… looking down from
Heaven and both eagerly awaiting how long I will speak for and how, as he put it,
flowery I will make it.
However, I will honor him, his memory, and his teachings today by utilizing his
favorite acronym… actually probably one of the only acronyms he liked…
EOM = Economy of Motion… And in this case, a slight variation, Economy of
Words
In my last conversation with Victor just a couple of weeks ago, after catching-up
for a while, I for some reason felt a need to thank him again for everything he has
done for me, taught me, and for how much he always believed in me. I went on to
apologize for not always being the best student and told him that I loved him. He
said, and I quote, “If all I ever taught you was economy of motion and ‘words’ then
that would be enough.”
Victor taught me many things. And it was an honor and a privilege to be a part
of his life. He was a great man! He was intelligent, honest, and loving. He had an
uncanny ability to share his vast knowledge on a variety of subject matters while
remaining humble and sincere. He detested hubris and always strived to be the best
version of himself that he could be regardless of what he was doing.
Victor was driven and led by example. He was full of passion… passion for
knowledge, for food, for life, bust most importantly passion for his family, for his
wife Raquel and beautiful daughters Gabby and Julia. He was passionate about
wanting to make a difference in the world and to work on projects that mattered.
What I hope he did not fail to notice was that he did make this world a better
place. He touched the lives of so many, always lending a helping hand when possible
and being a friend when needed. You could not but help to feel he was a man of
integrity, character and honesty. I owe so much of who I am today to him. He has
helped mold me into the man that stands before you today and I will continue ahead
with both Victor in my heart and his many cherished lessons in my mind.
I know that Victor is in a better place and that we will all be together again some
day. Only God knows the “why” and only God himself could have taken him from
his beautiful family… for he loved them more than words can say.
Interview with Victor Fasciani:
On December 27th, Victor Fasciani sent us the following responses to our interview
questions. By publishing the questions and answers below, we honor the memory of
Victor and remain forever indebted to him for his willingness to share and teach.
The Manual of Ideas: Tell us about the genesis of your firm. What goals did you
have at the outset, and what principles have guided you since then?
Victor Fasciani: As is the case with many managers, I began by managing my own
capital and soon after included family and friends. Initially, my goal was to manage
the small portfolio while I continued to perform my work in emerging markets,
primarily Eastern Europe. I’d been investing in equities on my own for several years,
and value investing appealed to me from the beginning. I was spending a lot of time
working with private companies and “business-like” investing made the most sense.
I’ve generally maintained the same operating principles since; I’d rather look at a
few companies and learn as much as I can about them than dilute my efforts. The
circle expands a bit each year; and I firmly believe that we, as investors, should
always be learning and maintaining our intellectual curiosity.
MOI: When it comes to stock selection, what are the key criteria you look for in
potential investments?
Fasciani: I’m primarily interested in a history of strong cash flow generation (and a
low price to FCF), or, in the case of E&P companies, a propensity to acquire core
assets that have the likelihood of producing strong cash flows. Strong balance sheets
(total debt to current asset ratio of one or less is ideal), significant insider ownership,
seasoned management with a strong track record. Those are my primary criteria,
beyond that there is more to be done in terms of valuing assets, assessing qualitative
information, etc. Sometimes stocks are cheap for a good reason.
MOI: How do you generate investment ideas?
Fasciani: I generate ideas in several ways. Some are typical (screens, Value Line,
and other high-quality sources). I have the privilege of communicating with some
great investors I’ve gotten to know over the years (too many to mention, don’t want
to leave anyone out, but I value their input immeasurably) — a valuable resource.
Perhaps more atypically, I read a lot of industry journals and websites (e.g. Oil
Drum, Rigzone, etc), and more general publications such as The Economist and FT.
These provide me with a 30K-meter view of things. From there I can identify themes
and ideas that are worthy of closer study.
MOI: You have discussed Contago Oil & Gas as an investment in the past. What is
your current view of natural gas exploration and production companies, and do you
have an updated thesis on Contango?
Fasciani: Since I presented Contango in the past, we have witnessed how far oil and
gas drilling technology has come. Difficult formations to develop, such as the
Barnett Shale in Texas and Marcellus in the Northeastern U.S., have become
productive due to advancements in fracking and horizontal drilling. The pace of this
activity has been astounding, and has clearly kept a lid on natural gas prices. This
relatively new supply of North American natural gas is clearly good news for end
users, but producers, onshore and offshore, face the challenge of operating their
businesses in a well supplied market. Contango Oil & Gas is no different in this
regard. What they do have going for them is their unique operating structure:
outsourced geological/exploration/recovery services, a debt-free balance sheet, high
insider ownership, $100 million stock buyback. With low natural gas prices and a
relatively slow recovery in industrial demand, it is critical to be a low-cost producer.
Contango is profitable and generates a 15% ROE (versus industry average of 11%),
even in this low price environment. Thus, the thesis has changed a bit based on lower
natural gas price assumptions, but I still believe it represents a solid investment in the
natural gas sector; even more so once natural gas demand improves and prices revert
more toward the mean (about $6 per MMBtu at Henry Hub).
MOI: How do you assess the quality and incentives of management, and what CEOs
do you admire most?
Fasciani: Track record and longevity of management is one of the best ways to
assess their effectiveness. Their ability to stay focused on the business and achieve
attainable goals is invaluable. Incentives are quite powerful, as Charlie Munger has
discussed in great detail, and are best evaluated by an investor in terms of how the
incentives align with measurable improvements in the company’s performance.
Some of the CEOs I most admire include Peter Rose of Expeditors International,
Ken Peak of Contango Oil & Gas, and Menderes Akdag of PetMed Express.
MOI: In investing, good ideas are only one piece of the success equation. Skilled
portfolio management is indispensable. What are the biggest challenges you face as a
portfolio manager? How do you manage risk?
Fasciani: One challenge we face is the ability to adapt to conditions we may never
have encountered before. Few managers have been around long enough to have
“seen it all.” I was around for the “dot com” bust, but never experienced anything
like 2008, for example. We, as value investors, tend to be a bit dogmatic about
simply picking companies that are significantly undervalued, hopefully with some
catalyst that will allow them to appreciate in value. At the same time, we must try to
be aware of what environment we are investing in. That can work fine much of the
time, but in a period such as 2008, it basically becomes irrelevant. The economic
environment became so fraught with peril that few stocks were immune, as we all
experienced to one degree or another. I do not believe we can become market
prognosticators or technical analysts (nor should we), but we can be mindful of
economic conditions and how they could affect our portfolio. This requires time and
experience and the ability to analyze our own mistakes as objectively as possible; so
managing risk comes down to paying some attention to the forest, not just the trees.
MOI: To what extent do you employ short-selling?
Fasciani: I have always employed short-selling. It can be a valuable tool when
employed properly. That’s often easier said than done. Theoretically, of course, a
short has unlimited loss potential. Momentum stocks are especially difficult to short,
because they can not only maintain an irrationally high price for an extended period
of time, but can climb even higher. There is a hedging element to shorting that can
be quite valuable and can’t be ignored. In selecting shorts, I try to stick to companies
that are suffering from severe impairment, extreme competitive pressures, combined
with excessive valuation. I do not short a stock based purely on excessive valuation.
During rare extremes (2000, for example), I was as much as 40% net short. Typically
that percentage would be closer to 20% net short.
MOI: How has market volatility over the past three years affected your investment
process, and have you tweaked your approach in any way as a result?
Fasciani: I’ve looked at data (it’s one data point, but very interesting) that shows
that market volatility has increased over the last six decades (and clearly over the last
three!). I believe it becomes more of a distraction than anything as far as long-term
returns are concerned. I still believe a stock will approach its intrinsic value over a
reasonable time period. The key is patience. Volatility clearly benefits short-term
traders. With high frequency trading becoming all too common, I would expect
volatility to be with us for the foreseeable future. Where it becomes a factor for value
investors, who tend to prefer more concentrated portfolios, is the appearance of
“lumpier” returns. If the investor can live with that, I think it’s less of an issue. Thus,
although I’m mindful of volatility, I haven’t really tweaked anything to counter it. It
does affect me in terms of my preference for small- and mid-cap equities, but thus
far over a rather short period of time.
MOI: What is the single biggest mistake that keeps investors from reaching their
goals?
Fasciani: In my view, the biggest mistake investors make is to deviate from their
original plan. This is not to say that one mustn’t diligently monitor their investments
to determine if anything significant has changed within their holdings, or re-examine
their thesis if they have made a mistake. However, in a world with a 24-hour news
cycle, multiple outlets for “news” and information, including the Internet (websites,
blogs, videos), it has become more important than ever to discipline oneself to tune
out the noise.
MOI: What books have you read in recent years that have stood out as valuable
additions to your investment library?
Fasciani: One that stands out recently is The Billion Dollar Mistake: Learning the
Art of Investing Through the Missteps of Legendary Investors by Stephen Weiss. I
happen to agree with the axiom that we learn more from our mistakes than from our
successes, and this book provides valuable insights into the investment mistakes of
otherwise highly successful investors.
Another is The Quest: Energy, Security and the Remaking of the Modern World
by Daniel Yergin. Despite the somewhat overwrought title (and over 800-page
length), this book provides some much needed context in terms of understanding
global energy markets/production and changing geopolitical factors.
To contribute to a benevolent fund
for Victor’s two surviving children:
http://bit.ly/fascianifamily
Editorial Commentary
This month we once again look for bargains in the small-cap arena, revisiting some
companies we’ve covered in the past and introducing you to a few new ideas as well.
Before we highlight three ideas we consider quite compelling, we are pleased to
bring you Aaron Edelheit’s thesis on Telular (WRLS), a company profiled in this
issue. We thank Aaron for sending us his take on Telular on short notice:
“Telular announced very good news into the end of the year. First, Telular
announced cash earnings grew 51% for fiscal 2011. Then the company increased
guidance on improved orders and then increased their dividend 10% to $0.44 per
year. Despite an already large yield, the company continued to grow cash on the
balance sheet as well.”
“In December, Telular surprised the market again, by announcing a large, very,
very accretive acquisition. The company is buying SkyBiz, a mobile resource
management provider for truck trailers, rail cars, rental equipment and more that is
very similar to its wireless alarm business in basic technology and more importantly
in recurring revenue and margins. In an absolute coup, the company through the use
of very cheap debt is only issuing one million new shares to get $4 million of
additional cash earnings. I now expect $15 to $16 million in cash earnings, up from
$9.6 million in fiscal 2011. The stock now has nearly a 6% dividend, and should see
earnings growth of 50-60% in this fiscal year. And it trades at around 8 times to
earnings. Telular is knocking the cover off the ball and is a much larger company
raising estimates, raising its dividend and yet it is the same price as it was February
of this year. If Telular were to trade at 12 times earnings, it would be an $11 stock,
for over a 40% gain from current levels in addition to its nearly 6% dividend. The
stock is cheap and is an excellent investment for today’s turbulent and low yielding
market environment.”

In addition to Telular, we find the following three companies worthy of attention:
Rosetta Stone (NYSE: RST, $7.60 per share; MV $160 million)
$35
$30
$25
$20
$15
$10
$5
$0
Jan 10
Jan 11
Jan 11
Rosetta Stone’s transition from a largely offline customer acquisition model to
an online subscription/services model has led to losses, management turnover, and a
steep decline in the share price. However, the market appears to be ignoring
Rosetta’s strong brand, growing non-U.S. markets, and fortress balance sheet (net
cash represents ~70% of market value). While high marketing costs are a concern,
they have added to brand recognition. The latter enables the pursuit of a licensing
model, which alone could support the recent enterprise value of ~$50 million. The
latter is too low relative to inherent earning power.
Vonage (NYSE: VG, $2.30 per share; MV $520 million)
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
Vonage was one of the VoIP calling services leader in the pre-Skype era.
However, once the company’s growth profile changed, it found itself with a bloated
cost structure and was left for dead by many investors. Led by highly incentivized
founder Jeffrey Citron as chairman, the company has accomplished an impressive
financial turnaround, achieving GAAP profitability and getting on track to generate
$105 million of FCF in 2011. The company has shifted its emphasis to international
long distance markets and has launched innovative mobile applications. We find the
valuation highly attractive.
Capital Southwest (Nasdaq: CSWC, $84 per share; MV $315 million)
We thank our contributor Ravi Nagarajan for writing the following extended thesis:
Capital Southwest is a publicly owned venture capital and business development
company founded in 1961. The company seeks to invest between $5-15 million of
equity capital in early-stage companies with excellent management and to make
larger investments in established companies with positive free cash flow. Unlike
many venture capital firms, Capital Southwest has no predefined “exit strategy” and
often retains holdings for many decades. The company focuses primarily on
companies in the Southwest, Southeast, Midwest, and Mountain regions of the
United States. Capital Southwest management serves on the boards of major
investees and provides direction and services to portfolio companies as needed. Over
the ten years ended March 31, 2011, Capital Southwest compounded net asset value
at 8.4% per annum versus 2.3% for the S&P 500 Index. However, the market price
of Capital Southwest shares lagged the advance in net asset value as the discount
increased substantially over this timeframe. Currently, Capital Southwest trades at
approximately 64% of stated net asset value as of September 30, 2011.
The company recently has a market value of $315 million and the stock recently
traded at $84 per share. As of September 30, 2011, management reported a net asset
value of $134 per share, which does not include a charge for deferred taxes on
unrealized capital gains. Including such a deferred tax charge, assuming a 20%
effective capital gains tax rate, estimated net asset value on September 30, 2011 was
$115 per share. Based on changes in the price of quoted securities in the portfolio,
we estimate Capital Southwest’s recent net asset value to be $145, or $124 net of
deferred income taxes. However, our valuation approach is more conservative and
estimates the intrinsic value of Capital Southwest at between $101-113 per share.
Estimated Fair Value per Capital Southwest Share, by Component
In the base scenario, fair value is $107 per share, of which $78 is represented by the
value of cash and other assets, RectorSeal, Whitmore, Encore Wire, and Alamo.
Cash and other
net assets, $15.51
The RectorSeal
Corporation,
$21.84
Other Privately
Held Investments,
$20.46
Other Quoted
Securities, $8.84
The Whitmore
Manufacturing
Company, $7.84
Alamo Group,
$13.05
Encore Wire,
$19.64
Source: Ravi Nagarajan analysis, The Manual of Ideas.
The “big four” industrial companies plus cash alone nearly justify the
recent market price. Although Capital Southwest is a business development
company specializing in funding early-stage companies, the vast majority of the
value of the company resides in four long-held investments. We refer to these
businesses as “the big four industrial companies”. They were initially funded at the
venture stage but matured into large and successful companies. The four companies
are The RectorSeal Corporation, Whitmore Manufacturing, Encore Wire (WIRE),
and The Alamo Group (ALG). RectorSeal and Whitmore are wholly-owned
subsidiaries of Capital Southwest while the company owns a large minority interest
in publicly traded Encore Wire and Alamo. Encore Wire is a manufacturer and
distributor of copper wire with a single manufacturing facility in Texas. Alamo
manufactures and distributes right of way equipment such as industrial mowers and
snow plows as well as agricultural equipment and replacement parts. In addition to
these four investments, Capital Southwest holds significant cash on the balance sheet
($53 million as of September 30, 2011). Based on our valuation assumptions and net
of estimated deferred taxes, we believe that the value of these four mature industrial
companies plus net cash and other assets is between $73 and $82 per Capital
Southwest share. In all scenarios presented (conservative, baseline, and aggressive),
the valuation of the four companies is lower than management’s estimates which
could already be quite conservative. The bottom line is we believe that the sum of
“the big four” plus net cash nearly accounts for the entire market cap of Capital
Southwest. Therefore, investors are paying very little for the other investments held
by Capital Southwest, including potentially promising early-stage ventures.
Other investments represent cheap upside potential. If our analysis of the
value of “the big four” mature industrial companies is accurate, the implication is
that buyers of Capital Southwest at the recent price are effectively paying “fair
value” for four mature industrial companies and cash on the balance sheet while
getting all of the other assets owned by Capital Southwest at nominal cost. We
categorize these other assets as “other quoted securities” and “other privately held
companies”. Other quoted securities include restricted shares of Heely’s (HLYS) and
unrestricted shares of Hologic (HOLX) and Texas Capital Bancshares (TCBI). Other
privately held companies include majority-owned investments in Balco, Cintara
Clean Technologies, Extreme International, and Media Recovery, along with
minority interests in a variety of companies. In addition, there are several
investments in venture capital and “seed” funds valued by management at $15
million. In total, we value other quoted securities at between $8 to $9 per Capital
Southwest share and other privately held securities at between $19 to $21 per Capital
Southwest share. There is a great deal of uncertainty involved in valuing the
privately held investments in immature companies. We discount management’s
stated valuations as an additional measure of conservatism.
Notable risks and concerns are as follows:
1. The “big four” industrial companies are obviously exposed to the macro
economy and could suffer in a recession. The Alamo Group in particular is exposed
to the European economy, which could suffer additional dislocations in the event of
a collapse of the Euro. More generally, investors in Capital Southwest are taking on
the risks that come with investing in mature industrial firms. Our valuation attempts
to be conservative but a deep recession would almost certainly cause the quoted
prices of Encore Wire and Alamo to decline while RectorSeal and Whitmore would
suffer earnings declines and potential valuation markdowns by management.
2. Venture-stage investments could fail. This is clearly a risk in any company
allocating capital toward new and unproven businesses. The risk is mitigated by the
fact that shares can be purchased at a substantial discount to our assessment of
Capital Southwest’s intrinsic value and our belief that the recent price assigns only
minimal value to the venture-stage investments.
3. Management may fail to exit mature investments if they become overvalued.
Management failed to exit Palm Harbor Homes before bankruptcy and did not
liquidate Heely’s shares when they were in a speculative bubble fueled by the “fad”
nature of Heely’s skate-shoes. Although the company’s multi-decade holding
timeframe may provide benefits going forward and has proven successful in the past,
more discipline in exiting speculative or overvalued investments could enhance
shareholder value.
4. Former CEO Bill Thomas stepped down in 2007 and passed away in 2008.
Under new management, the company’s cost structure has increased significantly,
although it is still well below typical private equity levels in terms of compensation.
However, more important than the escalation in cost structure is the fact that Mr.
Thomas was responsible for much of the company’s historical results. Current CEO
Gary Martin has been with Capital Southwest since 1972 but served in operational
roles in industrial subsidiaries (CEO of Whitmore) prior to taking the CEO position
of Capital Southwest in 2007. Although he was a board member of Capital
Southwest prior to 2007, Gary Martin may not have the same talent for identifying
early-stage opportunities as Bill Thomas. His five-year tenure is not a sufficiently
long period to judge competency in allocating capital to early-stage ventures that
may not play out for a decade or longer.
Summary. Capital Southwest appears to represent a very conservative “80-cent
dollar” based on our base case analysis. Rather than viewing Capital Southwest as a
venture capital company, we prefer to view it as paying conservative “fair value” for
a mature industrial conglomerate and $50 million of cash while obtaining the upside
represented by the company’s holdings in other quoted securities and privately held
companies at minimal additional cost. At the recent price of $84, the shares trade at a
steep discount to our intrinsic value range of $101-113 per share. Substantial
downside protection exists due to the “big four” industrial investments and cash,
while upside exists both due to the undervaluation of the shares and future potential
of the venture and seed-stage investments. The risk/reward appears quite compelling.

Sincerely,
John Mihaljevic, CFA
and The Manual of Ideas research team
Superinvestor Holdings Update
We recently profiled the holdings of 50+ top investment managers, based on their Schedule 13F-HR filings with the
Securities and Exchange Commission. On this page, we provide an update on the latest disclosed purchase and sale activity
by the same group of investors. This information is based primarily on Schedule 13G or 13D filings and Form 3 or 4 filings.
Increases in Superinvestor Holdings

Latest
Trade/
Filing
1/19/12
1/18/12
1/12/12
1/10/12
1/10/12
1/10/12
1/3/12
12/31/11
12/13/11
12/12/11
12/12/11
11/30/11
11/18/11
11/15/11
11/14/11
11/10/11
11/4/11
10/31/11
10/12/11
10/11/11
10/4/11
10/3/11
10/3/11
1/19/12
Filing
Type
4
4
4
13G
13G
4
13D
13G
13D
13D
13D
13G
13G
13G
13G
13G
13D
13D
13D
13G
13G
4
13D
4
Investor
Harbinger
Icahn
Second Curve
Southeastern
Southeastern
WL Ross
Icahn
Fairholme
Third Point
Pershing Sq.
Lane Five
Baupost
Pennant
Glenview
Gates Capital
Glenview
Leucadia
MSD
Atlantic
Southeastern
Pennant
MHR
Icahn
Harbinger
Company / Ticker
Spectrum Brands / SPB
WebMD Health / WBMD
Primus Guaranty / PRSG
Saks / SKS
Lamar Advertising / LAMR
EXCO Resources / XCO
CVR Energy / CVI
Orchard Supply / OSH
Yahoo! / YHOO
Canadian Natural / CNQ
Ambassadors / EPAX
Targacept / TRGT
Huntington Ingalls / HII
Take-Two / TTWO
Nortek / NTK
URS / URS
Jefferies / JEF
Bluenight Energy / BKEP
Owens Illinois / OI
InterContinental H. / IHG
Universal Stainless / USAP
Key Energy / KEG
Navistar / NAV
Spectrum Brands / SPB
Market
Value
($mn)
1,530
1,510
187
1,490
2,790
1,700
2,060
90
19,810
42,500
81
201
1,650
1,320
402
3,200
3,530
163
3,135
5,098
260
2,305
2,676
1,530
Stock Price ($)
Latest Filing ∆ since
Date
Date
Filing
29.58
29.39
1%
26.76
26.30
2%
5.30
5.11
4%
9.70
9.27
5%
30.00
28.50
5%
7.98
9.18
-13%
23.82
19.72
21%
15.02
25.00
-40%
15.97
15.42
4%
38.82
36.27
7%
4.59
4.52
2%
6.02
7.51
-20%
33.81
30.80
10%
15.19
14.17
7%
27.21
20.00
36%
40.17
33.85
19%
16.02
12.07
33%
7.19
6.00
20%
19.09
16.64
15%
17.78
16.75
6%
38.00
27.63
38%
15.29
8.70
76%
38.12
30.68
24%
29.58
29.39
1%
Shares Owned
Latest ∆ since
(mn)
6/30/11
28.0
0%
6.6
204%
6.1
16%
17.8
31%
8.1
24%
n/a
n/a
12.6
new
0.7
new
66.0
5%
24.2
498%
1.2
251%
5.6
new
2.7
new
5.5
155%
1.8
new
4.2
5%
58.0
3%
5.5
54%
8.4
new
32.2
new
0.7
191%
17.5
366%
7.1
new
28.0
0%
Holdings
as % of
Company
54%
12%
17%
12%
9%
n/a
15%
12%
5%
2%
7%
17%
6%
6%
12%
5%
26%
24%
5%
11%
10%
12%
10%
54%
Source: SEC filings, The Manual of Ideas compilation and analysis.
Decreases in Superinvestor Holdings

Latest
Trade/
Filing
12/22/11
12/19/11
12/15/11
10/18/11
10/11/11
Filing
Type
4
13D
4
4
13G
Investor
Paulson
Breeden
ValueAct
Scout
Paulson
Company / Ticker
American Capital / ACAS
Steris / STE
Gartner / IT
Domino’s Pizza / DPZ
American Capital / ACAS
Market
Value
($mn)
2,680
1,690
3,490
1,971
2,469
Stock Price ($)
Latest Filing ∆ since
Date
Date
Filing
7.95
7.16
11%
29.23
27.84
5%
36.73
35.65
3%
33.87
29.85
13%
7.16
6.71
7%
Shares Owned
Latest ∆ since
(mn)
6/30/11
n/a
n/a
1.8
-65%
-100%
5.8
new
35.0
134%
Holdings
as % of
Company
n/a
3%
0%
10%
10%
Source: SEC filings, The Manual of Ideas compilation and analysis.
Investors we track include Bill Ackman, Pershing Square; Lee Ainsle, Maverick; Chuck Akre, Akre Capital; Zeke Ashton, Centaur Capital; Brian Bares, Bares
Capital; Bruce Berkowitz, Fairholme; Richard Breeden, Breeden Capital; Tom Brown, Second Curve; Warren Buffett, Berkshire Hathaway; Francis Chou, Chou
Associates; Chase Coleman, Tiger Global; James Crichton, Scout; Ian Cumming and Joe Steinberg, Leucadia; Boykin Curry, Eagle; David Einhorn, Greenlight;
Phil Falcone, Harbinger; Alan Fournier, Pennant; Glenn Fuhrman and John Phelan, MSD Capital; Jeffrey Gates, Gates Capital; Tom Gayner, Markel Gayner; Kian
Ghazi, Hawkshaw; Ed Gilhuly and Scott Stuart, Sageview; Glenn Greenberg, Brave Warrior; John Griffin, Blue Ridge; Howard Guberman, Gruss; Andreas
Halvorsen, Viking Global; Mason Hawkins, Southeastern; Lance Helfert and Paul Orfalea, West Coast; Chris Hohn, TCI; Carl Icahn, Icahn; Rehan Jaffer, H
Partners; Seth Klarman, Baupost; John Kleinheinz, Kleinheinz Capital; Eddie Lampert, ESL Investments; Quincy Lee, Teton; Dan Loeb, Third Point; Steve Mandel,
Lone Pine; Sandy Nairn, Edinburgh Partners; Mohnish Pabrai, Pabrai Funds; John Paulson, Paulson & Co.; Boone Pickens, BP Capital; Mark Rachesky, MHR;
Lisa Rapuano, Lane Five; Larry Robbins, Glenview; Bob Rodriguez and Steven Romick, First Pacific; Wilbur Ross, WL Ross; Ken Shubin Stein, Spencer; Chris
Shumway, Shumway Capital; David Tepper, Appaloosa; Peter Thiel, Clarium; Prem Watsa, Fairfax; Wally Weitz, Weitz Funds; and David Winters, Wintergreen.
The Funnel: Searching For Small-Cap Ideas
Small-Cap Equities ($10mn < MV < $2bn, Trading Close to 52-Week Low)
Trading Data
(Click data to visit
relevant websites)
Navios Maritime / NNA.U
VSB Bancorp / VSBN
Marchex / MCHX
Daxor / DXR
Dynegy / DYN
Bill Barrett / BBG
Cherokee / CHKE
Hugoton Royalty / HGT
NCI / NCIT
Mesa Royalty Trust / MTR
Sonic Foundry / SOFO
Unity Bancorp / UNTY
American Biltrite / ABL
GenOn / GEN
Ferrellgas Partners / FGP
San Juan Basin / SJT
Comstock Resources / CRK
Duckwall-ALCO / DUCK
Maui Land Pineapple / MLP
Alliance Bankshares / ABVA
Park City Group / PCYG
Eastern Am. Nat. Gas / NGT
SoundBite Comms / SDBT
Quicksilver Resource / KWK
Star Gas Partners / SGU
Evolving Systems / EVOL
Gaming Partners / GPIC
Escalade / ESCA
SunOpta / STKL
Value Line / VALU
Cellcom Israel / CEL
Adventrx Pharma / ANX
Capital City Bank / CCBG
Ballard Power / BLDP
Claude Resources / CGR
GSI Technology / GSIT
Newport Bancorp / NFSB
Advantage Energy / AAV
Celsion / CLSN
Silicon Image / SIMG
First Clover Leaf / FCLF
Tuesday Morning / TUES
Greene County Banc / GCBC
Pennichuck / PNNW
Blue Square-Israel / BSI
JAKKS Pacific / JAKK
BankFinancial / BFIN
1st Century Banc / FCTY
InterGroup / INTG
Stock
Price
($)
2.70
9.85
4.89
9.00
2.23
28.57
10.47
13.99
7.80
36.99
7.11
6.30
4.16
2.08
17.40
18.15
12.41
7.97
3.77
7.86
3.40
3.02
23.08
2.15
5.34
4.59
5.37
6.00
4.40
4.27
10.30
15.96
0.58
9.76
1.11
1.37
4.73
12.48
3.45
1.71
4.39
6.00
3.19
17.43
28.99
3.98
13.92
5.51
3.51
18.10
∆ to Reach
52-Week
Low
0%
0%
0%
-1%
-1%
-1%
-1%
-1%
-1%
-1%
-2%
-2%
-2%
-2%
-2%
-2%
-2%
-2%
-2%
-3%
-3%
-3%
-3%
-3%
-3%
-3%
-3%
-3%
-3%
-3%
-3%
-3%
-3%
-4%
-4%
-4%
-4%
-4%
-4%
-4%
-4%
-4%
-4%
-4%
-4%
-5%
-5%
-5%
-5%
-5%
High
105%
32%
122%
25%
210%
82%
89%
76%
224%
36%
128%
22%
175%
109%
67%
54%
171%
76%
100%
168%
106%
91%
5%
47%
199%
31%
54%
40%
47%
101%
45%
113%
626%
41%
126%
112%
116%
17%
169%
156%
132%
25%
64%
12%
0%
170%
52%
73%
40%
52%
Market
Value
($mn)
Enter.
Value
($mn)
Public Market Valuation
EPS Yield
TTM
Tang.
Rev./
This Book/
EV
TTM
FY
MV
122
18
182
38
274
1,362
88
560
106
69
27
47
14
1,605
1,374
846
591
31
71
1,688
17
35
136
35
915
299
60
49
57
282
102
1,564
15
167
95
226
135
44
573
57
360
47
136
72
136
257
362
116
32
44
n/m
n/m
147
-6
4,606
2,067
87
n/m
167
n/m
24
-13
33
3,531
2,637
n/m
1,302
108
115
3,345
n/m
38
n/m
8
2,988
337
30
24
77
436
n/m
2,817
-23
n/m
72
204
79
n/m
860
35
205
n/m
144
n/m
192
1,385
221
n/m
n/m
161
n/m
n/m
93%
n/m
39%
35%
31%
n/m
369%
n/m
106%
n/m
627%
93%
97%
n/m
30%
448%
24%
21%
n/m
29%
n/m
510%
32%
472%
76%
262%
168%
242%
n/m
61%
n/m
n/m
106%
29%
116%
n/m
33%
6%
105%
n/m
567%
n/m
20%
238%
333%
n/m
n/a
32%
neg.
10%
1%
neg.
neg.
5%
7%
10%
18%
8%
neg.
1%
16%
8%
neg.
8%
neg.
4%
neg.
7%
2%
neg.
4%
neg.
40%
4%
2%
8%
8%
6%
37%
18%
neg.
4%
neg.
3%
10%
4%
neg.
neg.
1%
7%
5%
8%
3%
13%
9%
neg.
n/a
7%
n/a
n/a
6%
n/a
neg.
6%
n/a
n/a
14%
n/a
1%
n/a
n/a
neg.
2%
n/a
neg.
n/a
n/a
9%
n/a
n/a
n/a
neg.
3%
n/a
n/a
11%
n/a
n/a
n/a
17%
neg.
4%
n/a
7%
4%
4%
1%
neg.
4%
n/a
5%
n/a
n/a
n/a
3%
neg.
n/a
12%
144%
154%
34%
99%
871%
92%
6%
21%
3%
9%
6%
112%
343%
319%
n/m
2%
180%
340%
n/m
89%
198%
n/m
9%
95%
122%
7%
86%
88%
82%
71%
28%
n/m
278%
105%
58%
74%
97%
117%
220%
32%
48%
141%
186%
68%
42%
n/m
108%
190%
143%
21%
Operating Performance
∆ Revenue
% TTM Revenue
Rev./
Empl.
($000)
TTM
Last
Q
Gross
Profit
Adj.
EBIT
26,925
220
373
33
1,184
2,599
1,286
n/m
236
n/m
268
245
334
939
714
n/m
3,091
140
154
766
379
204
n/m
311
2,125
594
92
98
212
565
229
368
45
105
173
209
691
310
2,258
125
496
338
431
211
380
460
887
188
n/a
6,538
1230%
-6%
46%
-22%
-22%
4%
-13%
-10%
15%
-2%
24%
-9%
7%
39%
19%
-13%
7%
5%
-6%
15%
-14%
-33%
-12%
-1%
4%
31%
-17%
7%
9%
-3%
-28%
-19%
n/a
-10%
5%
6%
4%
-4%
2%
n/a
22%
-8%
-18%
5%
6%
73%
-2%
0%
n/a
9%
284%
-4%
65%
-40%
-33%
16%
-22%
5%
-22%
40%
24%
-7%
-2%
39%
35%
-6%
50%
3%
-13%
58%
-17%
0%
-10%
13%
9%
13%
-22%
11%
0%
25%
-33%
-4%
n/a
-10%
25%
16%
-22%
-5%
21%
n/a
-1%
-8%
-1%
3%
1%
68%
-5%
13%
n/a
13%
n/m
n/m
43%
50%
38%
81%
n/m
n/m
11%
n/m
71%
n/m
24%
-7%
27%
n/m
80%
30%
49%
85%
n/m
60%
n/m
59%
88%
22%
63%
32%
30%
13%
88%
49%
n/m
n/m
20%
42%
45%
n/m
68%
n/m
59%
n/m
38%
n/m
n/m
24%
33%
n/m
n/a
28%
26%
39%
5%
n/m
-16%
28%
30%
99%
6%
98%
3%
16%
0%
8%
4%
98%
-5%
1%
-9%
3%
23%
1%
69%
-7%
79%
4%
-1%
8%
4%
4%
19%
26%
n/m
13%
-48%
14%
19%
33%
1%
n/m
3%
22%
2%
36%
30%
2%
7%
-19%
n/a
13%
Trading Data
relevant websites)
Parkway Properties / PKY
Richardson Electron. / RELL
NTN Buzztime / NTN
Geo Group / GEO
Sigma Designs / SIGM
Rex Energy / REXX
ACNB Corp. / ACNB
AngioDynamics / ANGO
Arotech Corp. / ARTX
Covanta / CVA
Overstock.com / OSTK
Flanigans Enterprise / BDL
EZCORP / EZPW
United Bancshares OH / UBOH
Deswell Industries / DSWL
Christopher & Banks / CBK
Amyris / AMRS
SED International / SED
Partner Comms / PTNR
First Advantage Banc / FABK
Vestin Mortgage / VRTB
Pegasystems / PEGA
AMREP Corp. / AXR
Nexxus Lighting / NEXS
National West. Life / NWLI
Checkpoint Systems / CKP
Old Point Financial / OPOF
ValueVision Media / VVTV
Penn Virginia / PVA
Crown Media / CRWN
BSQUARE / BSQR
Dorchester Minerals / DMLP
Strattec Security / STRT
Ramtron / RMTR
United Community / UCBA
GMX Resources / GMXR
Resolute Energy / REN
PMC Commercial / PCC
Radio One / ROIAK
Union Bankshares / UNB
ESSA Bancorp / ESSA
Gencor / GENC
TigerLogic / TIGR
Skullcandy / SKUL
Auburn National Banc / AUBN
Patriot Nation. Banc / PNBK
Tootsie Roll / TR
Star Bulk Carriers / SBLK
Waterstone Financial / WSBF
Reliv International / RELV
Stock
Price
($)
9.46
12.11
0.21
17.22
5.82
10.16
13.98
13.27
1.17
13.57
6.95
6.75
26.69
7.10
2.11
2.11
10.45
2.45
9.02
12.65
1.09
27.32
5.97
0.89
137.75
11.18
9.54
1.59
4.47
1.19
3.34
22.14
20.08
1.99
5.63
1.15
11.12
7.29
0.97
19.25
10.42
7.05
2.08
12.58
19.25
1.73
24.41
0.92
1.84
1.22
∆ to Reach
52-Week
Low
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-5%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-6%
-7%
-7%
-7%
-7%
High
96%
27%
162%
57%
153%
77%
18%
30%
111%
31%
145%
40%
45%
50%
72%
237%
225%
132%
130%
10%
73%
74%
131%
390%
30%
106%
36%
449%
309%
171%
312%
36%
80%
74%
44%
463%
67%
30%
213%
16%
29%
15%
138%
86%
6%
47%
23%
197%
92%
105%
EPS Yield
Tang.
This Book/
TTM
FY
MV
Market
Value
($mn)
Enter.
Value
($mn)
TTM
Rev./
EV
208
205
13
1,078
188
451
83
333
18
1,868
162
13
1,344
25
34
76
476
12
1,412
58
14
1,030
36
15
501
449
47
77
204
428
36
679
66
69
44
70
679
77
44
86
126
67
59
343
70
66
899
74
58
15
1,249
44
11
2,572
88
596
n/m
203
19
3,912
106
17
1,362
n/m
-5
19
368
56
2,640
n/m
12
931
27
13
n/m
504
n/m
75
814
914
19
668
55
71
n/m
439
824
174
836
n/m
n/m
-7
50
342
n/m
n/m
871
320
n/m
12
19%
366%
225%
61%
249%
17%
n/m
110%
372%
42%
>999%
423%
66%
n/m
n/m
>999%
37%
>999%
72%
n/m
13%
42%
336%
72%
n/m
170%
n/m
792%
36%
34%
532%
10%
490%
92%
n/m
27%
26%
9%
40%
n/m
n/m
n/m
28%
63%
n/m
n/m
60%
34%
n/m
614%
neg.
2%
neg.
7%
neg.
neg.
10%
2%
neg.
4%
neg.
12%
10%
11%
neg.
neg.
neg.
12%
18%
4%
neg.
1%
neg.
neg.
14%
neg.
5%
neg.
neg.
57%
13%
5%
8%
neg.
0%
neg.
4%
6%
neg.
6%
4%
0%
neg.
neg.
7%
neg.
3%
38%
neg.
8%
neg.
3%
n/a
9%
neg.
4%
n/a
3%
neg.
4%
neg.
n/a
11%
n/a
n/a
neg.
neg.
n/a
17%
n/a
n/a
2%
n/a
neg.
n/a
4%
7%
neg.
neg.
n/a
6%
n/a
10%
n/a
n/a
neg.
3%
n/a
n/a
n/a
4%
n/a
n/a
7%
n/a
n/a
n/a
neg.
n/a
n/a
65%
103%
32%
29%
123%
65%
109%
62%
59%
18%
8%
124%
36%
204%
316%
159%
43%
172%
n/m
117%
343%
12%
194%
37%
255%
39%
180%
108%
428%
n/m
58%
20%
127%
64%
117%
187%
78%
192%
n/m
45%
127%
147%
11%
19%
92%
76%
47%
687%
298%
83%
∆ Revenue
% TTM Revenue
Rev./
Empl.
($000)
TTM
Last
Q
Gross
Profit
Adj.
EBIT
948
546
188
82
368
539
150
309
170
400
726
91
161
183
30
261
290
1,545
313
210
136
259
74
279
2,043
148
122
776
1,435
1,850
470
2,367
105
533
205
1,081
1,361
484
390
145
261
217
142
1,069
203
199
237
3,558
138
307
-9%
7%
-6%
31%
-23%
59%
-6%
3%
-8%
-14%
2%
3%
17%
-11%
-8%
-23%
97%
12%
-10%
0%
-44%
22%
-15%
70%
9%
3%
-27%
9%
16%
-8%
20%
5%
18%
-4%
-18%
24%
33%
-3%
22%
-18%
-4%
7%
1%
123%
-9%
-37%
2%
-8%
-10%
-7%
53%
-5%
-9%
24%
-49%
82%
-6%
9%
60%
7%
-2%
4%
14%
-13%
-25%
2%
50%
10%
6%
0%
0%
6%
-9%
75%
-39%
7%
-12%
2%
21%
18%
-5%
11%
11%
11%
-6%
15%
29%
-12%
40%
7%
-4%
56%
3%
57%
-8%
-19%
-2%
-12%
-13%
-7%
56%
29%
76%
24%
44%
70%
n/m
58%
23%
41%
17%
60%
62%
n/m
15%
27%
6%
5%
32%
n/m
n/m
59%
19%
27%
72%
39%
n/m
36%
77%
53%
21%
93%
16%
50%
n/m
90%
74%
75%
70%
n/m
n/m
16%
87%
52%
n/m
n/m
31%
59%
n/m
80%
8%
3%
-8%
12%
-20%
-17%
32%
8%
-8%
14%
0%
4%
21%
17%
-6%
-10%
n/m
1%
22%
27%
n/m
1%
3%
-49%
92%
4%
22%
-1%
-21%
33%
2%
59%
4%
-2%
-1%
60%
26%
30%
15%
31%
38%
-3%
-21%
10%
28%
-66%
11%
21%
18%
3%
MV = market value, EV = enterprise value, Rev. = revenue, GP = gross profit, NI = net income, TTM = trailing twelve months, Cap. Empl. = capital employed.
Small-Cap Equities (… and Tangible Book to Market > 30%)
relevant websites)
Navios Maritime / NNA.U
Stock
Price
($)
2.70
Trading Data
% ∆ to
Market
52-Week
Value
($mn)
Low
High
0
105
122
Enter.
Value
($mn)
n/m
TTM
Rev./
EV
n/m
EPS Yield
This Next
TTM
FY
FY
neg.
n/a
n/a
Tang.
Book/
MV
144%
Rev./
Empl.
($000)
26,925
∆ Revenue
% TTM Revenue
Last
Gross
Adj.
TTM
Q
Profit
EBIT
n/m 284%
n/m
26%
VSB Bancorp / VSBN
9.85
0
32
18
n/m
n/m
10%
n/a
n/a
154%
220
-6%
-4%
n/m
Marchex / MCHX
4.89
0
122
182
147
93%
1%
6%
7%
34%
373
46%
65%
43%
5%
Daxor / DXR
9.00
-1
25
38
-6
n/m
neg.
n/a
n/a
99%
33
-22%
-40%
50%
n/m
-16%
39%
2.23
-1
210
274
4,606
39%
neg.
neg.
neg.
871%
1,184
-22%
-33%
38%
28.57
-1
82
1,362
2,067
35%
5%
6%
4%
92%
2,599
4%
16%
81%
28%
Unity Bancorp / UNTY
6.30
-2
22
47
-13
n/m
1%
n/a
n/a
112%
245
-9%
-7%
n/m
16%
4.16
-2
175
14
33
627%
16%
n/a
n/a
343%
334
7%
-2%
24%
0%
GenOn / GEN
2.08
-2
109
1,605
3,531
93%
8%
neg.
neg.
319%
939
39%
39%
-7%
8%
12.41
-2
171
591
1,302
30%
neg.
neg.
2%
180%
3,091
7%
50%
80%
-5%
7.97
-2
76
31
108
448%
4%
n/a
n/a
340%
140
5%
3%
30%
1%
7.86
-3
168
1,688
3,345
21%
7%
9%
8%
89%
766
15%
58%
85%
3%
Alliance Bankshares / ABVA
3.40
-3
106
17
n/m
n/m
2%
n/a
n/a
198%
379
-14%
-17%
n/m
23%
2.15
-3
47
35
8
510%
neg.
neg.
0%
95%
311
-1%
13%
59%
-7%
5.34
-3
199
915
2,988
32%
40%
3%
neg.
122%
2,125
4%
9%
88%
79%
5.37
-3
54
60
30
76%
2%
n/a
n/a
86%
92
-17%
-22%
63%
-1%
6.00
-3
40
49
24
262%
8%
11%
14%
88%
98
7%
11%
32%
8%
Escalade / ESCA
4.40
-3
47
57
77
168%
8%
n/a
n/a
82%
212
9%
0%
30%
4%
SunOpta / STKL
4.27
-3
101
282
436
242%
6%
n/a
n/a
71%
565
-3%
25%
13%
4%
Adventrx Pharma / ANX
0.58
-3
626
15
-23
n/m
neg.
neg.
neg.
278%
45
n/a
n/a
n/m
n/m
Capital City Bank / CCBG
9.76
-4
41
167
n/m
n/m
4%
4%
4%
105%
105
-10%
-10%
n/m
13%
1.11
-4
126
95
72
106%
neg.
n/a
n/a
58%
173
5%
25%
20%
-48%
Claude Resources / CGR
1.37
-4
112
226
204
29%
3%
7%
16%
74%
209
6%
16%
42%
14%
4.73
-4
116
135
79
116%
10%
4%
5%
97%
691
4%
-22%
45%
19%
12.48
-4
17
44
n/m
n/m
4%
4%
4%
117%
310
-4%
-5%
n/m
33%
Celsion / CLSN
1.71
-4
156
57
35
6%
neg.
neg.
neg.
32%
125
n/a
n/a
n/m
n/m
4.39
-4
132
360
205
105%
1%
4%
7%
48%
496
22%
-1%
59%
3%
First Clover Leaf / FCLF
6.00
-4
25
47
n/m
n/m
7%
n/a
n/a
141%
338
-8%
-8%
n/m
22%
3.19
-4
64
136
144
567%
5%
5%
8%
186%
431
-18%
-1%
38%
2%
Greene County / GCBC
17.43
-4
12
72
n/m
n/m
8%
n/a
n/a
68%
211
5%
3%
n/m
36%
Pennichuck / PNNW
28.99
-4
0
136
192
20%
3%
n/a
n/a
42%
380
6%
1%
n/m
30%
13.92
-5
52
362
221
333%
9%
3%
8%
108%
887
-2%
-5%
33%
7%
BankFinancial / BFIN
5.51
-5
73
116
n/m
n/m
neg.
neg.
3%
190%
188
0%
13%
n/m
-19%
1st Century Banc / FCTY
3.51
-5
40
32
n/m
n/a
n/a
n/a
n/a
143%
n/a
n/a
n/a
n/a
n/a
Parkway Properties / PKY
9.46
-5
96
208
1,249
19%
neg.
neg.
neg.
65%
948
-9%
53%
56%
8%
12.11
-5
27
205
44
366%
2%
3%
4%
103%
546
7%
-5%
29%
3%
0.21
-5
162
13
11
225%
neg.
n/a
n/a
32%
188
-6%
-9%
76%
-8%
Dynegy / DYN
Bill Barrett / BBG
Newport Bancorp / NFSB
NTN Buzztime / NTN
5.82
-5
153
188
88
249%
neg.
neg.
neg.
123%
368
-23%
-49%
44%
-20%
Rex Energy / REXX
10.16
-5
77
451
596
17%
neg.
4%
4%
65%
539
59%
82%
70%
-17%
ACNB Corp. / ACNB
13.98
-5
18
83
n/m
n/m
10%
n/a
n/a
109%
150
-6%
-6%
n/m
32%
13.27
-5
30
333
203
110%
2%
3%
4%
62%
309
3%
9%
58%
8%
Arotech / ARTX
1.17
-5
111
18
19
372%
neg.
neg.
9%
59%
170
-8%
60%
23%
-8%
6.75
-5
40
13
17
423%
12%
n/a
n/a
124%
91
3%
4%
60%
4%
26.69
-5
45
1,344
1,362
66%
10%
11%
13%
36%
161
17%
14%
62%
21%
United Banc. OH / UBOH
7.10
-5
50
25
n/m
n/m
11%
n/a
n/a
204%
183
-11%
-13%
n/m
17%
Deswell Industries / DSWL
2.11
-5
72
34
-5
n/m
neg.
n/a
n/a
316%
30
-8%
-25%
15%
-6%
2.11
-5
237
76
19
>999%
neg.
neg.
neg.
159%
261
-23%
2%
27%
-10%
n/m
EZCORP / EZPW
10.45
-5
225
476
368
37%
neg.
neg.
neg.
43%
290
97%
50%
6%
2.45
-5
132
12
56
>999%
12%
n/a
n/a
172%
1,545
12%
10%
5%
1%
First Advantage / FABK
12.65
-5
10
58
n/m
n/m
4%
n/a
n/a
117%
210
0%
0%
n/m
27%
Amyris / AMRS
relevant websites)
Vestin Mortgage / VRTB
Stock
Price
($)
1.09
Trading Data
% ∆ to
Market
52-Week
Value
($mn)
Low
High
-6
73
14
Enter.
Value
($mn)
12
TTM
Rev./
EV
13%
EPS Yield
This Next
TTM
FY
FY
neg.
n/a
n/a
Tang.
Book/
MV
343%
Rev./
Empl.
($000)
136
∆ Revenue
% TTM Revenue
Last
Gross
Adj.
TTM
Q
Profit
EBIT
-44%
0%
n/m
n/m
AMREP Corp. / AXR
5.97
-6
131
36
27
336%
neg.
n/a
n/a
194%
74
-15%
-9%
19%
3%
0.89
-6
390
15
13
72%
neg.
neg.
3%
37%
279
70%
75%
27%
-49%
National West. Life / NWLI
137.75
-6
30
501
n/m
n/m
14%
n/a
n/a
255%
2,043
9%
-39%
72%
92%
11.18
-6
106
449
504
170%
neg.
4%
9%
39%
148
3%
7%
39%
4%
Old Point Financial / OPOF
9.54
-6
36
47
n/m
n/m
5%
7%
7%
180%
122
-27%
-12%
n/m
22%
1.59
-6
449
77
75
792%
neg.
neg.
neg.
108%
776
9%
2%
36%
-1%
Penn Virginia / PVA
4.47
-6
309
204
814
36%
neg.
neg.
neg.
428%
1,435
16%
21%
77%
-21%
3.34
-6
312
36
19
532%
13%
6%
11%
58%
470
20%
-5%
21%
2%
20.08
-6
80
66
55
490%
8%
10%
11%
127%
105
18%
11%
16%
4%
Ramtron / RMTR
1.99
-6
74
69
71
92%
neg.
n/a
n/a
64%
533
-4%
11%
50%
-2%
United Community / UCBA
5.63
-6
44
44
n/m
n/m
0%
n/a
n/a
117%
205
-18%
-6%
n/m
-1%
GMX Resources / GMXR
1.15
-6
463
70
439
27%
neg.
neg.
neg.
187%
1,081
24%
15%
90%
60%
Resolute Energy / REN
11.12
-6
67
679
824
26%
4%
3%
4%
78%
1,361
33%
29%
74%
26%
PMC Commercial / PCC
7.29
-6
30
77
174
9%
6%
n/a
n/a
192%
484
-3%
-12%
75%
30%
Union Bankshares / UNB
19.25
-6
16
86
n/m
n/m
6%
n/a
n/a
45%
145
-18%
7%
n/m
31%
ESSA Bancorp / ESSA
10.42
-6
29
126
n/m
n/m
4%
4%
6%
127%
261
-4%
-4%
n/m
38%
7.05
-6
15
67
-7
n/m
0%
n/a
n/a
147%
217
7%
56%
16%
-3%
19.25
-6
6
70
n/m
n/m
7%
n/a
n/a
92%
203
-9%
-8%
n/m
28%
BSQUARE / BSQR
Gencor / GENC
Auburn National / AUBN
1.73
-6
47
66
n/m
n/m
neg.
n/a
n/a
76%
199
-37%
-19%
n/m
-66%
24.41
-7
23
899
871
60%
3%
n/a
n/a
47%
237
2%
-2%
31%
11%
0.92
-7
197
74
320
34%
38%
neg.
neg.
687%
3,558
-8%
-12%
59%
21%
Waterstone Fin. / WSBF
1.84
-7
92
58
n/m
n/m
neg.
n/a
n/a
298%
138
-10%
-13%
n/m
18%
Patriot Nation. Banc / PNBK
Tootsie Roll / TR
1.22
-7
105
15
12
614%
8%
n/a
n/a
83%
307
-7%
-7%
80%
3%
OBA Financial / OBAF
14.45
-7
4
62
n/m
n/m
1%
n/a
n/a
126%
253
1%
0%
n/m
23%
Middleburg Fin. / MBRG
14.99
-7
27
105
n/m
n/m
5%
5%
6%
94%
138
-1%
5%
n/m
17%
Franklin Street / FSP
10.10
-7
55
838
1,169
12%
3%
5%
3%
111%
3,259
-5%
19%
75%
21%
MedCath / MDTH
7.18
-7
108
146
39
834%
neg.
n/a
n/a
212%
194
-18%
-1%
78%
0%
America First Tax / ATAX
5.15
-7
15
150
n/m
n/m
2%
n/a
n/a
92%
n/m
18%
22%
62%
27%
ENGlobal / ENG
2.17
-7
162
58
79
397%
neg.
3%
15%
63%
155
-15%
-2%
9%
-1%
BioMimetic Thera. / BMTI
2.01
-7
621
56
-10
n/m
neg.
neg.
neg.
107%
18
6%
0%
94%
n/m
Jacksonville Banc / JAXB
3.00
-7
134
18
n/m
n/m
neg.
n/a
n/a
225%
298
32%
37%
n/m
-38%
WVS Financial / WVFC
8.64
-7
22
18
n/m
n/m
9%
n/a
n/a
163%
283
-26%
-27%
n/m
26%
Ocean Shore / OSHC
10.55
-7
26
77
n/m
n/m
7%
7%
9%
130%
274
-1%
6%
n/m
39%
Naugatuck Valley / NVSL
7.25
-7
25
51
n/m
n/m
4%
n/a
n/a
162%
216
-3%
-4%
n/m
18%
Fidelity Southern / LION
6.20
-7
42
81
n/m
n/m
10%
11%
13%
149%
168
-2%
1%
n/m
25%
Motricity / MOTR
0.82
-7
2716
38
41
329%
neg.
neg.
neg.
56%
393
9%
-20%
65%
-8%
22.91
-7
23
39
n/m
n/m
9%
n/a
n/a
105%
192
-21%
-3%
n/m
38%
Salisbury Bancorp / SAL
2.18
-7
136
65
49
7%
neg.
n/a
n/a
30%
82
100%
40%
47%
n/m
12.10
-7
96
604
494
360%
neg.
neg.
4%
149%
706
-8%
-26%
39%
-2%
Lakes Entertainment / LACO
1.90
-7
72
50
12
331%
neg.
n/a
n/a
233%
1,773
54%
-96%
n/m
27%
Southern National / SONA
6.16
-8
30
71
n/m
n/m
3%
n/a
n/a
129%
297
0%
1%
n/m
13%
Somerset Hills / SOMH
7.69
-8
32
41
n/m
n/m
7%
n/a
n/a
98%
227
0%
3%
n/m
32%
CE Franklin / CFK
8.06
-8
26
149
154
338%
8%
n/a
n/a
92%
1,079
-6%
6%
16%
3%
SatCon Technology / SATC
0.52
-8
910
62
104
216%
neg.
neg.
neg.
38%
n/m
84%
-23%
20%
-13%
30.01
-8
3
117
n/m
n/m
9%
10%
10%
98%
302
-1%
-2%
n/m
46%
6.62
-8
164
227
161
2%
neg.
14%
22%
178%
108
n/m
n/a
n/m
n/m
20.18
-8
6
223
n/m
n/m
6%
6%
6%
96%
252
0%
3%
n/m
40%
Digirad Corp. / DRAD
1.92
-8
61
37
6
991%
neg.
n/a
n/a
115%
162
-23%
1%
27%
-3%
Pervasive Software / PVSW
5.61
-8
41
89
50
99%
3%
4%
5%
46%
195
7%
6%
86%
7%
BSD Medical / BSDM
Skechers / SKX
Bar Harbor Bank / BHB
Harvest / HNR
Territorial Bancorp / TBNK
Small-Cap Equities (… and TTM Revenue / EV > 30%)
relevant websites)
Marchex / MCHX
Stock
Price
($)
4.89
Trading Data
% ∆ to
Market
52-Week
Value
($mn)
Low High
0
122
182
Enter.
Value
($mn)
147
TTM
Rev./
EV
93%
EPS Yield
This Next
TTM
FY
FY
1%
6%
7%
Tang.
Book/
MV
34%
Rev./
Empl.
($000)
373
∆ Revenue
% TTM Rev.
Last
Gross
Adj.
TTM
Q
Profit
EBIT
46%
65%
43%
5%
2.23
-1
210
274
4,606
39%
neg.
neg.
neg.
871%
1,184
-22%
-33%
38%
-16%
28.57
-1
82
1,362
2,067
35%
5%
6%
4%
92%
2,599
4%
16%
81%
28%
4.16
-2
175
14
33
627%
16%
n/a
n/a
343%
334
7%
-2%
24%
0%
GenOn / GEN
2.08
-2
109
1,605
3,531
93%
8%
neg.
neg.
319%
939
39%
39%
-7%
8%
12.41
-2
171
591
1,302
30%
neg.
neg.
2%
180%
3,091
7%
50%
80%
-5%
7.97
-2
76
31
108
448%
4%
n/a
n/a
340%
140
5%
3%
30%
1%
2.15
-3
47
35
8
510%
neg.
neg.
0%
95%
311
-1%
13%
59%
-7%
5.34
-3
199
915
2,988
32%
40%
3%
neg.
122%
2,125
4%
9%
88%
79%
5.37
-3
54
60
30
76%
2%
n/a
n/a
86%
92
-17%
-22%
63%
-1%
6.00
-3
40
49
24
262%
8%
11%
14%
88%
98
7%
11%
32%
8%
Escalade / ESCA
4.40
-3
47
57
77
168%
8%
n/a
n/a
82%
212
9%
0%
30%
4%
SunOpta / STKL
4.27
-3
101
282
436
242%
6%
n/a
n/a
71%
565
-3%
25%
13%
4%
1.11
-4
126
95
72
106%
neg.
n/a
n/a
58%
173
5%
25%
20%
-48%
4.73
-4
116
135
79
116%
10%
4%
5%
97%
691
4%
-22%
45%
19%
4.39
-4
132
360
205
105%
1%
4%
7%
48%
496
22%
-1%
59%
3%
3.19
-4
64
136
144
567%
5%
5%
8%
186%
431
-18%
-1%
38%
2%
13.92
-5
52
362
221
333%
9%
3%
8%
108%
887
-2%
-5%
33%
7%
12.11
-5
27
205
44
366%
2%
3%
4%
103%
546
7%
-5%
29%
3%
0.21
-5
162
13
11
225%
neg.
n/a
n/a
32%
188
-6%
-9%
76%
-8%
5.82
-5
153
188
88
249%
neg.
neg.
neg.
123%
368
-23%
-49%
44%
-20%
13.27
-5
30
333
203
110%
2%
3%
4%
62%
309
3%
9%
58%
8%
1.17
-5
111
18
19
372%
neg.
neg.
9%
59%
170
-8%
60%
23%
-8%
Dynegy / DYN
Bill Barrett / BBG
NTN Buzztime / NTN
Arotech / ARTX
EZCORP / EZPW
6.75
-5
40
13
17
423%
12%
n/a
n/a
124%
91
3%
4%
60%
4%
26.69
-5
45
1,344
1,362
66%
10%
11%
13%
36%
161
17%
14%
62%
21%
2.11
-5
237
76
19
>999%
neg.
neg.
neg.
159%
261
-23%
2%
27%
-10%
10.45
-5
225
476
368
37%
neg.
neg.
neg.
43%
290
97%
50%
6%
n/m
2.45
-5
132
12
56
>999%
12%
n/a
n/a
172%
1,545
12%
10%
5%
1%
AMREP / AXR
5.97
-6
131
36
27
336%
neg.
n/a
n/a
194%
74
-15%
-9%
19%
3%
-49%
Amyris / AMRS
0.89
-6
390
15
13
72%
neg.
neg.
3%
37%
279
70%
75%
27%
11.18
-6
106
449
504
170%
neg.
4%
9%
39%
148
3%
7%
39%
4%
1.59
-6
449
77
75
792%
neg.
neg.
neg.
108%
776
9%
2%
36%
-1%
Penn Virginia / PVA
4.47
-6
309
204
814
36%
neg.
neg.
neg.
428%
1,435
16%
21%
77%
-21%
BSQUARE / BSQR
3.34
-6
312
36
19
532%
13%
6%
11%
58%
470
20%
-5%
21%
2%
20.08
-6
80
66
55
490%
8%
10%
11%
127%
105
18%
11%
16%
4%
Ramtron / RMTR
1.99
-6
74
69
71
92%
neg.
n/a
n/a
64%
533
-4%
11%
50%
-2%
Tootsie Roll / TR
24.41
-7
23
899
871
60%
3%
n/a
n/a
47%
237
2%
-2%
31%
11%
0.92
-7
197
74
320
34%
38%
neg.
neg.
687%
3,558
-8%
-12%
59%
21%
1.22
-7
105
15
12
614%
8%
n/a
n/a
83%
307
-7%
-7%
80%
3%
MedCath / MDTH
7.18
-7
108
146
39
834%
neg.
n/a
n/a
212%
194
-18%
-1%
78%
0%
ENGlobal / ENG
2.17
-7
162
58
79
397%
neg.
3%
15%
63%
155
-15%
-2%
9%
-1%
Motricity / MOTR
0.82
-7
2716
38
41
329%
neg.
neg.
neg.
56%
393
9%
-20%
65%
-8%
Skechers / SKX
12.10
-7
96
604
494
360%
neg.
neg.
4%
149%
706
-8%
-26%
39%
-2%
Lakes Entertainment / LACO
1.90
-7
72
50
12
331%
neg.
n/a
n/a
233%
1,773
54%
-96%
n/m
27%
CE Franklin / CFK
8.06
-8
26
149
154
338%
8%
n/a
n/a
92%
1,079
-6%
6%
16%
3%
SatCon Technology / SATC
0.52
-8
910
62
104
216%
neg.
neg.
neg.
38%
n/m
84%
-23%
20%
-13%
Digirad Corp. / DRAD
1.92
-8
61
37
6
991%
neg.
n/a
n/a
115%
162
-23%
1%
27%
-3%
5.61
-8
41
89
50
99%
3%
4%
5%
46%
195
7%
6%
86%
7%
Patriot Coal / PCX
7.51
-8
289
686
906
257%
neg.
neg.
neg.
117%
629
16%
18%
12%
0%
13.80
-8
27
45
34
405%
3%
n/a
n/a
61%
108
18%
18%
73%
3%
Ark Restaurants / ARKR
relevant websites)
Amedisys / AMED
Stock
Price
($)
9.92
Trading Data
% ∆ to
Market
52-Week
Value
($mn)
Low High
-8
292
292
Enter.
Value
($mn)
416
TTM
Rev./
EV
363%
EPS Yield
This Next
TTM
FY
FY
neg. 20% 10%
Tang.
Book/
MV
42%
Rev./
Empl.
($000)
n/m
∆ Revenue
% TTM Rev.
Last
Gross
Adj.
TTM
Q
Profit
EBIT
-8%
-7%
48%
8%
Ultralife / ULBI
4.21
-8
69
73
71
223%
neg.
neg.
11%
65%
135
-24%
-29%
24%
RealNetworks / RNWK
7.41
-8
122
254
82
430%
neg.
neg.
neg.
102%
268
-21%
-2%
63%
0%
AbitibiBowater / ABH
14.91
-8
105
1,509
1,926
253%
142%
10%
11%
245%
465
6%
3%
24%
4%
Digital River / DRIV
14.73
-8
171
550
240
160%
3%
7%
8%
62%
300
4%
12%
83%
6%
0.24
-8
100
28
22
115%
neg.
n/a
n/a
78%
93
24%
-2%
38%
7%
Elixir Gaming Tech / EGT
1%
4.75
-8
57
14
17
149%
7%
n/a
n/a
59%
334
26%
9%
18%
7%
DreamWorks / DWA
17.89
-9
72
1,495
1,345
57%
10%
6%
6%
87%
363
8%
-15%
32%
17%
Quad Graphics / QUAD
WSI Industries / WSCI
13.32
-9
240
624
2,283
197%
1%
17%
16%
50%
214
84%
-2%
24%
8%
Harvard Bioscience / HBIO
4.17
-9
50
119
119
92%
4%
4%
5%
31%
297
3%
0%
47%
8%
Flexsteel Industries / FLXS
14.31
-9
24
97
83
404%
10%
n/a
n/a
135%
257
-1%
-7%
23%
5%
Miller Industries / MLR
15.93
-9
34
179
143
268%
11%
12%
13%
81%
547
30%
31%
17%
10%
G. Willi-Food / WILC
4.66
-9
73
63
15
650%
9%
n/a
n/a
128%
415
8%
7%
27%
9%
RealD / RLD
8.63
-9
313
470
462
57%
3%
4%
4%
36%
2,314
22%
35%
43%
11%
1.10
-9
286
35
15
306%
neg.
neg.
neg.
103%
157
-13%
-46%
50%
-21%
18.33
-9
6
767
1,240
41%
5%
6%
6%
59%
442
9%
16%
61%
19%
Magellan Petroleum / MPET
0.98
-9
252
53
26
70%
neg.
n/a
n/a
79%
433
-43%
0%
43%
-45%
Aurizon Mines / AZK
4.99
-9
56
813
637
35%
3%
6%
11%
36%
2,223
30%
71%
56%
27%
Bowl America / BWL.A
13.23
-9
7
68
60
44%
2%
n/a
n/a
50%
106
-1%
-4%
64%
6%
Anaren / ANEN
17.47
-9
29
263
218
80%
6%
5%
8%
57%
168
0%
-13%
37%
11%
Daily Journal / DJCO
69.00
-9
16
95
23
150%
8%
n/a
n/a
68%
177
-8%
-11%
96%
31%
Frisch’s Restaurants / FRS
20.35
-9
20
101
128
236%
5%
10%
10%
123%
134
1%
0%
9%
4%
6.95
-9
68
225
142
152%
5%
7%
9%
56%
180
-17%
9%
50%
5%
62.92
-10
11
1,819
1,499
145%
3%
n/a
n/a
106%
136
0%
2%
51%
5%
Allied Healthcare / AHPI
3.41
-10
70
28
22
215%
1%
n/a
n/a
97%
148
-1%
-4%
23%
1%
Jewett-Cameron / JCTCF
8.25
-10
33
15
9
508%
11%
n/a
n/a
111%
882
4%
-20%
19%
9%
On Track Innovations / OTIV
California Water / CWT
SeaChange / SEAC
Wacoal Holdings / WACLY
8.76
-10
63
23
31
333%
1%
6%
9%
136%
170
6%
2%
17%
1%
AVEO Pharma / AVEO
14.42
-10
49
623
387
45%
9%
5%
neg.
40%
1,195
354%
-42%
n/m
27%
Primo Water / PRMW
2.74
-10
500
65
65
114%
neg.
neg.
9%
77%
593
88%
121%
27%
-9%
13%
Kewaunee Scientific / KEQU
9.62
-10
47
716
555
89%
6%
6%
7%
44%
844
-19%
-1%
39%
Versant / VSNT
10.00
-10
42
30
6
255%
2%
n/a
n/a
80%
267
3%
-9%
88%
6%
dELiA*s / DLIA
1.11
-10
94
35
19
>999%
neg.
neg.
neg.
170%
381
-1%
-4%
33%
-9%
22%
World Wrestling Ent. / WWE
20.04
-10
16
841
1,533
38%
7%
7%
7%
77%
769
-14%
7%
61%
Reading International / RDI
4.17
-10
41
96
273
89%
13%
n/a
n/a
84%
115
3%
10%
22%
7%
Constellation Energy / CEP
2.02
-10
78
48
140
63%
neg.
neg.
neg.
404%
691
-52%
-34%
65%
12%
Empire District / EDE
23.30
-10
12
433
741
31%
5%
4%
5%
57%
606
7%
5%
89%
20%
ClearOne Comms / CLRO
4.41
-10
109
40
27
173%
15%
10%
12%
85%
383
23%
11%
60%
10%
LeMaitre Vascular / LMAT
5.62
-10
33
87
64
92%
4%
5%
5%
43%
230
6%
7%
70%
9%
Enzon Pharma / ENZN
6.85
-11
73
331
135
38%
neg.
n/a
n/a
61%
403
-48%
-21%
n/m
-30%
STEC / STEC
9.30
-11
174
428
267
129%
9%
7%
1%
73%
425
18%
-16%
44%
14%
Transport. de Gas / TGS
3.02
-11
114
259
555
70%
7%
28%
28%
219%
468
-8%
-1%
51%
22%
RadioShack / RSH
10.24
-11
73
1,022
1,021
421%
10%
12%
13%
75%
123
2%
3%
43%
5%
Vascular Solutions / VASC
11.08
-11
24
189
171
52%
12%
4%
5%
30%
300
17%
22%
67%
18%
Standard Register / SR
2.53
-11
42
74
122
540%
14%
2%
8%
50%
254
-3%
-4%
31%
0%
Pinnacle Airlines / PNCL
0.84
-11
837
16
735
167%
neg.
neg.
10%
437%
188
31%
6%
20%
3%
Advantest / ATE
9.88
-11
127
1,972
1,649
88%
neg.
n/a
n/a
51%
325
29%
32%
48%
-1%
Paragon Shipping / PRGN
0.65
-11
418
39
222
44%
neg.
neg.
neg.
>999%
363
-18%
-27%
76%
7%
Concurrent Comp. / CCUR
3.60
-11
91
33
3
>999%
neg.
neg.
neg.
82%
215
1%
-17%
56%
-7%
8.05
-11
150
1,542
1,162
204%
4%
6%
8%
34%
216
8%
1%
33%
2%
39.88
-11
20
1,345
1,603
73%
5%
6%
6%
39%
178
5%
8%
28%
9%
SJW Corp. / SJW
Logitech / LOGI
West Pharma / WST
Small-Cap Equities (… and Next FY EPS Yield > 0%)
Trading Data
% ∆ to
Market
52-Week
Value
($mn)
Low High
0
122
182
Bill Barrett / BBG
28.57
-1
82
1,362
2,067
35%
5%
6%
4%
92%
2,599
4%
16%
81%
28%
12.41
-2
171
591
1,302
30%
neg.
neg.
2%
180%
3,091
7%
50%
80%
-5%
2.15
-3
47
35
8
510%
neg.
neg.
0%
95%
311
-1%
13%
59%
-7%
6.00
-3
40
49
24
262%
8%
11%
14%
88%
98
7%
11%
32%
8%
4.73
-4
116
135
79
116%
10%
4%
5%
97%
691
4%
-22%
45%
19%
4.39
-4
132
360
205
105%
1%
4%
7%
48%
496
22%
-1%
59%
3%
3.19
-4
64
136
144
567%
5%
5%
8%
186%
431
-18%
-1%
38%
2%
13.92
-5
52
362
221
333%
9%
3%
8%
108%
887
-2%
-5%
33%
7%
12.11
-5
27
205
44
366%
2%
3%
4%
103%
546
7%
-5%
29%
3%
13.27
-5
30
333
203
110%
2%
3%
4%
62%
309
3%
9%
58%
8%
1.17
-5
111
18
19
372%
neg.
neg.
9%
59%
170
-8%
60%
23%
-8%
26.69
-5
45
1,344
1,362
66%
10%
11%
13%
36%
161
17%
14%
62%
21%
0.89
-6
390
15
13
72%
neg.
neg.
3%
37%
279
70%
75%
27%
-49%
11.18
-6
106
449
504
170%
neg.
4%
9%
39%
148
3%
7%
39%
4%
2%
EZCORP / EZPW
TTM
Rev./
EV
93%
Tang.
Book/
MV
34%
Rev./
Empl.
($000)
373
∆ Revenue
% TTM Revenue
Last
Gross
Adj.
TTM
Q
Profit
EBIT
46%
65%
43%
5%
Marchex / MCHX
Arotech / ARTX
Enter.
Value
($mn)
147
EPS Yield
This Next
TTM
FY
FY
1%
6%
7%
Stock
Price
($)
4.89
relevant websites)
3.34
-6
312
36
19
532%
13%
6%
11%
58%
470
20%
-5%
21%
20.08
-6
80
66
55
490%
8%
10%
11%
127%
105
18%
11%
16%
4%
ENGlobal / ENG
2.17
-7
162
58
79
397%
neg.
3%
15%
63%
155
-15%
-2%
9%
-1%
Skechers / SKX
BSQUARE / BSQR
12.10
-7
96
604
494
360%
neg.
neg.
4%
149%
706
-8%
-26%
39%
-2%
5.61
-8
41
89
50
99%
3%
4%
5%
46%
195
7%
6%
86%
7%
Amedisys / AMED
9.92
-8
292
292
416
363%
neg.
20%
10%
42%
n/m
-8%
-7%
48%
8%
Ultralife / ULBI
4.21
-8
69
73
71
223%
neg.
neg.
11%
65%
135
-24%
-29%
24%
1%
AbitibiBowater / ABH
14.91
-8
105
1,509
1,926
253%
142%
10%
11%
245%
465
6%
3%
24%
4%
14.73
-8
171
550
240
160%
3%
7%
8%
62%
300
4%
12%
83%
6%
DreamWorks / DWA
17.89
-9
72
1,495
1,345
57%
10%
6%
6%
87%
363
8%
-15%
32%
17%
Quad Graphics / QUAD
13.32
-9
240
624
2,283
197%
1%
17%
16%
50%
214
84%
-2%
24%
8%
4.17
-9
50
119
119
92%
4%
4%
5%
31%
297
3%
0%
47%
8%
15.93
-9
34
179
143
268%
11%
12%
13%
81%
547
30%
31%
17%
10%
8.63
-9
313
470
462
57%
3%
4%
4%
36%
2,314
22%
35%
43%
11%
18.33
-9
6
767
1,240
41%
5%
6%
6%
59%
442
9%
16%
61%
19%
4.99
-9
56
813
637
35%
3%
6%
11%
36%
2,223
30%
71%
56%
27%
Anaren / ANEN
17.47
-9
29
263
218
80%
6%
5%
8%
57%
168
0%
-13%
37%
11%
Frisch’s Restaurants / FRS
20.35
-9
20
101
128
236%
5%
10%
10%
123%
134
1%
0%
9%
4%
SeaChange / SEAC
6.95
-9
68
225
142
152%
5%
7%
9%
56%
180
-17%
9%
50%
5%
Kewaunee Scientific / KEQU
8.76
-10
63
23
31
333%
1%
6%
9%
136%
170
6%
2%
17%
1%
Primo Water / PRMW
2.74
-10
500
65
65
114%
neg.
neg.
9%
77%
593
88%
121%
27%
-9%
13%
Miller Industries / MLR
RealD / RLD
Aurizon Mines / AZK
9.62
-10
47
716
555
89%
6%
6%
7%
44%
844
-19%
-1%
39%
20.04
-10
16
841
1,533
38%
7%
7%
7%
77%
769
-14%
7%
61%
22%
SJW Corp. / SJW
23.30
-10
12
433
741
31%
5%
4%
5%
57%
606
7%
5%
89%
20%
4.41
-10
109
40
27
173%
15%
10%
12%
85%
383
23%
11%
60%
10%
5.62
-10
33
87
64
92%
4%
5%
5%
43%
230
6%
7%
70%
9%
STEC / STEC
9.30
-11
174
428
267
129%
9%
7%
1%
73%
425
18%
-16%
44%
14%
3.02
-11
114
259
555
70%
7%
28%
28%
219%
468
-8%
-1%
51%
22%
RadioShack / RSH
10.24
-11
73
1,022
1,021
421%
10%
12%
13%
75%
123
2%
3%
43%
5%
11.08
-11
24
189
171
52%
12%
4%
5%
30%
300
17%
22%
67%
18%
2.53
-11
42
74
122
540%
14%
2%
8%
50%
254
-3%
-4%
31%
0%
Pinnacle Airlines / PNCL
0.84
-11
837
16
735
167%
neg.
neg.
10%
437%
188
31%
6%
20%
3%
Logitech / LOGI
8.05
-11
150
1,542
1,162
204%
4%
6%
8%
34%
216
8%
1%
33%
2%
39.88
-11
20
1,345
1,603
73%
5%
6%
6%
39%
178
5%
8%
28%
9%
8.09
-11
173
334
141
151%
11%
8%
9%
57%
204
-5%
3%
80%
28%
West Pharma / WST
TeleNav / TNAV
relevant websites)
LaCrosse / BOOT
Stock
Price
($)
12.99
Trading Data
% ∆ to
Market
52-Week
Value
($mn)
Low High
-11
46
85
Enter.
Value
($mn)
110
TTM
Rev./
EV
127%
EPS Yield
This Next
TTM
FY
FY
6%
6%
8%
Tang.
Book/
MV
63%
Rev./
Empl.
($000)
280
∆ Revenue
% TTM Revenue
Last
Gross
Adj.
TTM
Q
Profit
EBIT
-1%
-6%
40%
6%
4.78
-11
132
1,337
931
55%
8%
10%
9%
82%
742
37%
4%
57%
6%
UniSource Energy / UNS
37.08
-11
6
1,369
3,196
48%
8%
7%
7%
65%
765
-13%
3%
80%
19%
Supertex / SUPX
18.51
-11
36
223
97
75%
3%
2%
2%
83%
195
-12%
-24%
51%
13%
Nutraceutical Int’l / NUTR
12.00
-11
33
120
150
125%
13%
14%
15%
76%
259
4%
7%
51%
13%
Columbia Sportswear / COLM
8%
Hecla Mining / HL
46.35
-11
52
1,558
1,468
111%
6%
7%
7%
64%
448
17%
12%
43%
Symmetry Medical / SMA
7.79
-11
32
283
366
101%
4%
4%
8%
37%
132
9%
-8%
22%
6%
Advocat / AVCA
5.75
-11
32
34
57
545%
12%
12%
10%
69%
56
10%
10%
23%
3%
12%
7.14
-11
122
89
172
114%
8%
11%
20%
77%
116
30%
97%
27%
20.14
-12
83
1,626
2,437
134%
2%
7%
8%
41%
169
7%
14%
22%
3%
4.89
-12
202
1,057
2,766
78%
12%
9%
16%
185%
402
8%
5%
25%
10%
Pampa Energia / PAM
11.41
-12
68
736
1,506
99%
neg.
neg.
15%
88%
320
45%
44%
17%
4%
American Greetings / AM
14.20
-12
75
505
654
254%
14%
14%
15%
147%
224
4%
8%
56%
10%
Willdan Group / WLDN
3.99
-12
23
29
25
386%
10%
11%
12%
68%
251
34%
38%
41%
3%
Casual Male Retail / CMRG
3.40
-12
49
165
159
250%
9%
11%
11%
55%
255
1%
-1%
46%
4%
Tellabs / TLAB
4.19
-12
68
1,529
499
276%
neg.
neg.
0%
98%
404
-15%
-23%
38%
-6%
Motorcar Parts / MPAA
Harsco Corp. / HSC
Gafisa / GFA
8.44
-12
116
142
99
135%
3%
2%
5%
98%
122
-24%
-36%
72%
5%
Ecology Environment / EEI
16.23
-13
41
69
64
266%
9%
10%
11%
74%
149
15%
1%
42%
6%
Ceragon Networks / CRNT
8.30
-13
66
309
300
131%
neg.
0%
8%
38%
679
67%
86%
29%
-6%
Acme United / ACU
9.75
-13
16
31
42
167%
9%
10%
11%
80%
536
12%
18%
36%
6%
TeleTech / TTEC
16.19
-13
45
910
870
133%
7%
8%
9%
40%
29
6%
12%
28%
9%
Owens & Minor / OMI
29.71
-13
20
1,884
1,901
447%
6%
6%
7%
34%
1,771
-16%
5%
10%
2%
Emergent BioSolution / EBS
17.14
-13
54
616
541
50%
3%
3%
5%
53%
350
14%
-21%
83%
8%
3.35
-13
39
21
5
>999%
7%
6%
9%
103%
1,774
-9%
-23%
11%
4%
Chindex International / CHDX
KSW / KSW
2.32
-13
59
75
131
181%
5%
8%
12%
151%
219
0%
-9%
18%
4%
Patriot Transport / PATR
20.50
-13
59
190
237
51%
4%
4%
4%
86%
155
8%
12%
12%
12%
Shenandoah Tele / SHEN
10.52
-14
81
250
414
59%
5%
5%
7%
43%
412
37%
18%
59%
13%
Span-America / SPAN
15.04
-14
6
44
38
140%
9%
9%
10%
50%
206
1%
-1%
35%
10%
5.11
-14
66
1,420
1,305
73%
6%
5%
8%
37%
255
-38%
-15%
37%
10%
Portland General / POR
24.67
-14
6
1,859
3,477
51%
8%
8%
8%
89%
670
-1%
-5%
47%
17%
Fresh Del Monte / FDP
24.64
-14
16
1,423
1,510
240%
6%
9%
10%
91%
86
0%
0%
9%
4%
Jos. A. Bank Clothiers / JOSB
46.92
-14
22
1,306
1,066
89%
7%
8%
8%
41%
255
16%
21%
63%
16%
Kensey Nash Corp. / KNSY
21.14
-14
39
183
184
41%
0%
7%
9%
37%
243
-36%
18%
63%
26%
UFP Technologies / UFPT
14.74
-14
46
96
72
177%
10%
10%
11%
53%
209
8%
1%
29%
13%
7.31
-14
81
51
90
263%
neg.
9%
5%
150%
211
8%
21%
16%
-1%
Sterling Construct. / STRL
11.42
-14
49
186
129
408%
9%
6%
7%
72%
404
91%
n/a
12%
7%
Am. States Water / AWR
35.68
-14
2
669
1,009
42%
6%
6%
6%
60%
595
13%
8%
84%
22%
Shiloh Industries / SHLO
8.31
-14
65
139
165
313%
6%
7%
9%
77%
408
13%
13%
8%
3%
Perceptron / PRCP
4.98
-14
51
42
19
303%
2%
4%
6%
124%
252
7%
-12%
41%
2%
Learning Tree / LTRE
6.50
-15
63
88
45
298%
4%
4%
8%
43%
288
5%
1%
54%
4%
Landec Corp. / LNDC
5.69
-15
22
145
134
221%
3%
8%
10%
61%
1,163
18%
16%
16%
4%
Globe Specialty / GSM
14.39
-15
78
1,080
1,034
66%
6%
8%
9%
40%
560
35%
27%
27%
18%
City Telecom / CTEL
10.58
-15
51
400
348
62%
10%
11%
13%
58%
70
-40%
13%
87%
23%
Dover Downs Gaming / DDE
RF Micro Devices / RFMD
MFRI / MFRI
1.54
-15
41
57
52
929%
16%
neg.
6%
107%
1,168
1%
-12%
12%
0%
Allete / ALE
41.33
-15
3
1,521
2,249
41%
6%
6%
6%
69%
662
5%
1%
24%
15%
Jack In The Box / JACK
21.48
-15
14
946
1,352
162%
8%
6%
7%
30%
85
-5%
-10%
15%
7%
3.25
-15
54
42
117
231%
5%
2%
9%
154%
235
23%
23%
24%
2%
24.94
-15
6
1,452
2,664
58%
7%
7%
7%
78%
639
-2%
-6%
28%
15%
3.00
-15
126
41
49
161%
neg.
neg.
5%
50%
533
-3%
11%
46%
0%
29.18
-15
54
354
663
726%
12%
13%
12%
62%
1,077
-5%
-3%
8%
2%
Navarre / NAVR
Dixie Group / DXYN
Avista / AVA
Physicians Formula / FACE
Nash-Finch / NAFC
Small-Cap Equities (… and Gross Margin > 30%)
Trading Data
% ∆ to
Market
52-Week
Value
($mn)
Low High
0
122
182
Bill Barrett / BBG
28.57
-1
82
1,362
2,067
35%
5%
6%
4%
92%
2,599
4%
16%
81%
28%
12.41
-2
171
591
1,302
30%
neg.
neg.
2%
180%
3,091
7%
50%
80%
-5%
2.15
-3
47
35
8
510%
neg.
neg.
0%
95%
311
-1%
13%
59%
-7%
6.00
-3
40
49
24
262%
8%
11%
14%
88%
98
7%
11%
32%
8%
4.73
-4
116
135
79
116%
10%
4%
5%
97%
691
4%
-22%
45%
19%
4.39
-4
132
360
205
105%
1%
4%
7%
48%
496
22%
-1%
59%
3%
3.19
-4
64
136
144
567%
5%
5%
8%
186%
431
-18%
-1%
38%
2%
13.92
-5
52
362
221
333%
9%
3%
8%
108%
887
-2%
-5%
33%
7%
13.27
-5
30
333
203
110%
2%
3%
4%
62%
309
3%
9%
58%
8%
EZCORP / EZPW
26.69
-5
45
1,344
1,362
66%
10%
11%
13%
36%
161
17%
14%
62%
21%
11.18
-6
106
449
504
170%
neg.
4%
9%
39%
148
3%
7%
39%
4%
Skechers / SKX
12.10
-7
96
604
494
360%
neg.
neg.
4%
149%
706
-8%
-26%
39%
-2%
5.61
-8
41
89
50
99%
3%
4%
5%
46%
195
7%
6%
86%
7%
Amedisys / AMED
9.92
-8
292
292
416
363%
neg.
20%
10%
42%
n/m
-8%
-7%
48%
8%
14.73
-8
171
550
240
160%
3%
7%
8%
62%
300
4%
12%
83%
6%
DreamWorks / DWA
17.89
-9
72
1,495
1,345
57%
10%
6%
6%
87%
363
8%
-15%
32%
17%
4.17
-9
50
119
119
92%
4%
4%
5%
31%
297
3%
0%
47%
8%
RealD / RLD
8.63
-9
313
470
462
57%
3%
4%
4%
36%
2,314
22%
35%
43%
11%
18.33
-9
6
767
1,240
41%
5%
6%
6%
59%
442
9%
16%
61%
19%
4.99
-9
56
813
637
35%
3%
6%
11%
36%
2,223
30%
71%
56%
27%
11%
Aurizon Mines / AZK
TTM
Rev./
EV
93%
Tang.
Book/
MV
34%
Rev./
Empl.
($000)
373
∆ Revenue
% TTM Revenue
Last
Gross
Adj.
TTM
Q
Profit
EBIT
46%
65%
43%
5%
Marchex / MCHX
Enter.
Value
($mn)
147
EPS Yield
This Next
TTM
FY
FY
1%
6%
7%
Stock
Price
($)
4.89
relevant websites)
17.47
-9
29
263
218
80%
6%
5%
8%
57%
168
0%
-13%
37%
SeaChange / SEAC
6.95
-9
68
225
142
152%
5%
7%
9%
56%
180
-17%
9%
50%
5%
9.62
-10
47
716
555
89%
6%
6%
7%
44%
844
-19%
-1%
39%
13%
20.04
-10
16
841
1,533
38%
7%
7%
7%
77%
769
-14%
7%
61%
22%
SJW Corp. / SJW
23.30
-10
12
433
741
31%
5%
4%
5%
57%
606
7%
5%
89%
20%
4.41
-10
109
40
27
173%
15%
10%
12%
85%
383
23%
11%
60%
10%
5.62
-10
33
87
64
92%
4%
5%
5%
43%
230
6%
7%
70%
9%
STEC / STEC
9.30
-11
174
428
267
129%
9%
7%
1%
73%
425
18%
-16%
44%
14%
22%
Anaren / ANEN
3.02
-11
114
259
555
70%
7%
28%
28%
219%
468
-8%
-1%
51%
RadioShack / RSH
10.24
-11
73
1,022
1,021
421%
10%
12%
13%
75%
123
2%
3%
43%
5%
11.08
-11
24
189
171
52%
12%
4%
5%
30%
300
17%
22%
67%
18%
2.53
-11
42
74
122
540%
14%
2%
8%
50%
254
-3%
-4%
31%
0%
Logitech / LOGI
8.05
-11
150
1,542
1,162
204%
4%
6%
8%
34%
216
8%
1%
33%
2%
TeleNav / TNAV
8.09
-11
173
334
141
151%
11%
8%
9%
57%
204
-5%
3%
80%
28%
LaCrosse / BOOT
12.99
-11
46
85
110
127%
6%
6%
8%
63%
280
-1%
-6%
40%
6%
Hecla Mining / HL
4.78
-11
132
1,337
931
55%
8%
10%
9%
82%
742
37%
4%
57%
6%
UniSource Energy / UNS
37.08
-11
6
1,369
3,196
48%
8%
7%
7%
65%
765
-13%
3%
80%
19%
Supertex / SUPX
18.51
-11
36
223
97
75%
3%
2%
2%
83%
195
-12%
-24%
51%
13%
Nutraceutical Int’l / NUTR
12.00
-11
33
120
150
125%
13%
14%
15%
76%
259
4%
7%
51%
13%
Columbia Sportswear / COLM
46.35
-11
52
1,558
1,468
111%
6%
7%
7%
64%
448
17%
12%
43%
8%
American Greetings / AM
10%
14.20
-12
75
505
654
254%
14%
14%
15%
147%
224
4%
8%
56%
Willdan Group / WLDN
3.99
-12
23
29
25
386%
10%
11%
12%
68%
251
34%
38%
41%
3%
Casual Male Retail / CMRG
3.40
-12
49
165
159
250%
9%
11%
11%
55%
255
1%
-1%
46%
4%
Tellabs / TLAB
4.19
-12
68
1,529
499
276%
neg.
neg.
0%
98%
404
-15%
-23%
38%
-6%
Chindex International / CHDX
8.44
-12
116
142
99
135%
3%
2%
5%
98%
122
-24%
-36%
72%
5%
16.23
-13
41
69
64
266%
9%
10%
11%
74%
149
15%
1%
42%
6%
9.75
-13
16
31
42
167%
9%
10%
11%
80%
536
12%
18%
36%
6%
Emergent BioSolution / EBS
17.14
-13
54
616
541
50%
3%
3%
5%
53%
350
14%
-21%
83%
8%
Shenandoah Telecom / SHEN
10.52
-14
81
250
414
59%
5%
5%
7%
43%
412
37%
18%
59%
13%
Ecology Environment / EEI
Acme United / ACU
relevant websites)
Span-America / SPAN
Stock
Price
($)
15.04
Trading Data
% ∆ to
Market
52-Week
Value
($mn)
Low High
-14
6
44
Enter.
Value
($mn)
38
TTM
Rev./
EV
140%
EPS Yield
This Next
TTM
FY
FY
9%
9% 10%
Tang.
Book/
MV
50%
Rev./
Empl.
($000)
206
∆ Revenue
% TTM Revenue
Last
Gross
Adj.
TTM
Q
Profit
EBIT
1%
-1%
35%
10%
5.11
-14
66
1,420
1,305
73%
6%
5%
8%
37%
255
-38%
-15%
37%
10%
Portland General / POR
24.67
-14
6
1,859
3,477
51%
8%
8%
8%
89%
670
-1%
-5%
47%
17%
Jos. A. Bank Clothiers / JOSB
46.92
-14
22
1,306
1,066
89%
7%
8%
8%
41%
255
16%
21%
63%
16%
Kensey Nash Corp. / KNSY
21.14
-14
39
183
184
41%
0%
7%
9%
37%
243
-36%
18%
63%
26%
Am. States Water / AWR
22%
RF Micro Devices / RFMD
35.68
-14
2
669
1,009
42%
6%
6%
6%
60%
595
13%
8%
84%
Perceptron / PRCP
4.98
-14
51
42
19
303%
2%
4%
6%
124%
252
7%
-12%
41%
2%
Learning Tree / LTRE
6.50
-15
63
88
45
298%
4%
4%
8%
43%
288
5%
1%
54%
4%
City Telecom / CTEL
10.58
-15
51
400
348
62%
10%
11%
13%
58%
70
-40%
13%
87%
23%
Physicians Formula / FACE
3.00
-15
126
41
49
161%
neg.
neg.
5%
50%
533
-3%
11%
46%
0%
Wet Seal / WTSLA
3.58
-15
46
325
193
322%
6%
6%
7%
74%
304
10%
4%
32%
5%
DHT Maritime / DHT
0.78
-15
560
50
305
32%
neg.
15%
13%
405%
19,540
-15%
14%
67%
24%
Chesapeake Utilities / CPK
42.55
-15
5
407
558
77%
7%
6%
7%
49%
588
8%
5%
40%
12%
CH Energy Group / CHG
56.30
-16
6
838
1,324
75%
4%
5%
6%
53%
1,165
-21%
-1%
92%
9%
Northwest Natural Gas / NWN
47.06
-16
4
1,257
2,054
41%
5%
5%
6%
55%
1,393
-1%
-2%
43%
17%
Ambassadors Group / EPAX
4.61
-16
155
81
28
248%
6%
3%
2%
90%
327
-13%
-11%
89%
4%
34.04
-16
5
1,721
3,398
45%
5%
6%
6%
46%
839
76%
36%
88%
14%
2.51
-16
47
60
48
143%
6%
5%
7%
179%
79
-3%
13%
44%
3%
Arris Group / ARRS
11.43
-16
27
1,348
979
110%
4%
7%
8%
47%
553
-4%
0%
37%
7%
MGE Energy / MGEE
44.13
-16
8
1,020
1,339
41%
6%
6%
6%
54%
2,484
4%
4%
69%
20%
Conceptus / CPTS
11.55
-16
36
361
360
36%
22%
neg.
0%
32%
428
-8%
-2%
82%
5%
Merit Medical / MMSI
13.58
-16
47
569
569
61%
4%
6%
6%
41%
161
24%
24%
46%
10%
LookSmart / LOOK
1.40
-16
59
24
3
>999%
neg.
1%
5%
107%
621
-36%
-35%
44%
0%
Hackett Group / HCKT
3.77
-16
39
152
134
162%
10%
8%
10%
30%
229
16%
11%
33%
7%
Harry Winston / HWD
10.94
-16
67
929
1,190
59%
2%
4%
12%
71%
1,278
29%
-15%
34%
6%
Kenneth Cole / KCP
11.97
-16
17
217
178
263%
neg.
4%
6%
56%
669
5%
8%
39%
0%
Cato Corp. / CATO
25.88
-16
19
755
512
182%
8%
8%
9%
48%
97
-21%
-2%
38%
10%
Perry Ellis / PERY
14.64
-17
124
225
403
238%
14%
14%
16%
56%
399
23%
23%
34%
7%
Rocky Mountain / RMCF
8.56
-17
32
52
49
68%
7%
7%
9%
32%
129
8%
5%
42%
17%
Pericom Semi / PSEM
7.88
-17
39
192
117
136%
2%
1%
6%
108%
160
1%
-18%
34%
2%
Citi Trends / CTRN
9.45
-17
167
141
108
588%
3%
2%
5%
142%
276
2%
2%
37%
1%
Qualstar / QBAK
1.90
-17
12
23
10
170%
neg.
n/a
1%
125%
253
5%
-12%
36%
-6%
Universal Technical / UTI
14.19
-17
51
366
262
172%
8%
6%
6%
33%
200
4%
-7%
51%
10%
Rogers / ROG
38.80
-17
35
628
696
75%
7%
6%
6%
34%
270
18%
46%
33%
9%
Orbotech / ORBK
10.84
-17
42
384
199
282%
12%
13%
11%
108%
317
13%
-7%
41%
11%
SRS Labs / SRSL
6.60
-18
62
96
64
49%
neg.
2%
4%
54%
680
0%
-2%
98%
-1%
XO Group / XOXO
8.11
-18
50
232
148
81%
2%
2%
3%
48%
200
9%
14%
80%
8%
Northern Tech / NTIC
14.07
-18
48
62
60
34%
6%
8%
9%
55%
350
10%
17%
34%
-28%
Delta Natural Gas / DGAS
34.40
-18
1
117
177
48%
5%
6%
6%
53%
561
10%
29%
42%
17%
Marten Transport / MRTN
19.40
-18
20
427
406
143%
5%
5%
6%
73%
217
14%
21%
30%
7%
8.24
-18
64
86
219
236%
neg.
neg.
3%
153%
178
18%
10%
44%
-2%
18.36
-18
43
1,129
913
102%
4%
3%
5%
43%
120
4%
7%
37%
6%
2.75
-18
82
51
65
124%
8%
13%
13%
32%
6,215
157%
290%
56%
25%
Scholastic / SCHL
28.51
-18
12
885
986
197%
6%
7%
8%
51%
207
2%
3%
54%
8%
Wolverine / WWW
37.11
-18
17
1,792
1,754
79%
7%
7%
7%
30%
335
-5%
13%
40%
12%
Syneron Medical / ELOS
10.90
-18
37
379
228
97%
neg.
neg.
3%
50%
381
47%
28%
51%
-15%
GeoEye / GEOY
22.04
-18
103
489
781
44%
10%
9%
10%
83%
473
7%
-1%
66%
28%
Alliance Fiber Optic / AFOP
8.62
-18
128
77
40
109%
7%
7%
9%
81%
38
5%
-11%
33%
11%
Communications Sys. / JCS
15.34
-19
36
130
93
160%
9%
7%
9%
72%
324
28%
26%
41%
15%
4.52
-19
169
471
345
324%
23%
18%
14%
74%
322
14%
-22%
35%
23%
UIL Holdings / UIL
Century Casinos / CNTY
USA Truck / USAK
ICON / ICLR
Full House Resorts / FLL
Power-One / PWER
Profiling 20 Small-Cap Value Opportunities
ATP Oil & Gas (ATPG) – Aletheia, Seldin, Samlyn, D.E. Shaw
Energy: Oil & Gas Operations
Houston TX, 713-622-3311
Trading Data
www.atpog.com
Consensus EPS Estimates
Price: $7.44 (as of 1/20/12)
52-week range: $5.53–$21.40
Market value: $384 million
Enterprise value: $2.5 billion
Shares outstanding: 51.6 million
Ownership Data
Valuation
This quarter
Next quarter
FYE 12/31/11
Latest
-$0.36
-0.46
-5.27
Month
Ago
-$0.44
-0.41
-5.11
# of
Ests
4
2
3
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
n/m
n/m
n/m
3x
3.9x
FYE 12/30/12
-1.49
-1.44
5
EV/ LTM EBIT
160x
Insider ownership: 20%
FYE 12/30/13
2.46
2.46
2
P / tangible book
n/m
Insider buys (last six months): 10
LT growth
n/a
n/a
n/a
Insider sales (last six months): 0
Institutional ownership: 51%
EPS Surprise
11/8/11
Actual
-$0.11
Estimate
-$0.54
Greenblatt Criteria
LTM EBIT yield
LTM pre-tax ROC
1%
1%
Operating Performance and Financial Position
($ millions, except
per share data)
Revenue
Gross profit
Adjusted operating income
Adjusted pretax income
Adjusted net income
Adjusted diluted EPS
Shares out (avg)
Cash from operations
D&A
Capex
Free cash flow
Cash, investments
Receivables
Total current assets
PP&E, net
Tangible assets
Payables
Short-term debt
Long-term debt
Total liabilities
Preferred stock
Tangible equity
TBV / tangible assets
TBV per share
2004
116
96
28
5
5
0.18
25
41
56
88
-47
103
37
144
214
372
69
2
208
315
0
57
15%
2.29
2005
147
117
28
-3
-13
-0.46
29
44
64
421
-378
66
84
166
629
824
145
12
372
606
185
33
4%
1.12
Fiscal Years Ended December 31,
2006
2007
2008
420
608
618
345
503
527
134
215
343
81
101
334
18
102
284
0.60
3.30
8.02
30
31
35
259
329
547
170
247
246
577
850
918
-319
-520
-371
183
199
215
105
128
94
327
443
375
1,097
1,831
1,873
1,447
2,307
2,276
196
271
278
33
12
11
1,063
1,392
1,356
1,411
1,997
1,959
0
0
0
36
310
316
2%
13%
14%
1.21
10.06
8.92
2009
312
227
32
-9
-3
-0.07
42
160
153
635
-476
109
53
286
2,486
2,803
213
17
1,200
2,207
140
456
16%
10.89
2010
438
304
53
-191
-182
-3.58
51
-37
221
598
-635
155
93
314
2,905
3,290
231
22
1,858
3,038
140
112
3%
2.21
LTME
9/30/11
651
505
149
-141
-255
-5.02
51
89
293
412
-323
172
96
318
3,025
3,431
286
32
1,984
3,235
293
-97
-3%
-1.89
FQE
9/30/10
102
74
13
-68
-55
-1.09
51
20
63
121
-101
207
66
334
2,935
3,346
262
11
1,773
2,884
140
322
10%
6.33
FQE
9/30/11
170
142
48
58
-3
-0.06
51
86
78
143
-57
172
96
318
3,025
3,431
286
32
1,984
3,235
293
-97
-3%
-1.89
Ten-Year Stock Price Performance and Trading Volume Dynamics
$70
$60
$50
$40
$30
$20
$10
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
ATP Oil & Gas operates in the GOM and the North Sea.
INVESTMENT HIGHLIGHTS
• Spawned “hub” concept to improve economics of
offshore properties. ATP focuses on discovered but
undeveloped reserves, and operates projects in
development. ATP cites 98% success in converting
properties from undeveloped to producing. ATP is
fourth in deepwater GOM wellbores (18), behind
Shell (53), BP (40), and Anadarko (28).
• 2P reserves of 211 MMBoe (126 MMboe proved),
59% oil and 41% gas, with 65% in the deepwater
GOM and 31% in the North Sea. Using strip pricing
at November 30, PV-10 was $6.6 billion. Reserves
have grown quite strongly since the 2004 shift from
a shelf-focused to deepwater-focused firm.
• Infrastructure portfolio may be worth $1 billion,
as floating assets Innovator (51% owned, in service
since 2006), Titan (100%, 2009) and Octabouy
(100%, 2013-14) have lives of 20-50 years and can
be moved to develop new reserves in new locations.
• Founded by chairman and CEO Paul Bulmahn
(66) in 1991. Mr. Bulmahn, who owns 12% of the
company, assumed the CEO role in May 2008.
• Management puts enterprise value at $7.6 billion
based on value of 2P reserves using strip pricing
and infrastructure asset value of $1.0 billion. With
net debt and obligations of $2.4 billion, the equity
could be worth $5.2 billion or ~$100 per share.
INVESTMENT RISKS & CONCERNS
• Profitability sensitive to oil and gas prices. ATP
operates in the deepwater GOM and the North Sea
and has a correspondingly high cost structure. While
oil represented 69% of production in 3Q11, up from
58% in 3Q10, low natural gas prices hurt results.
• Significant balance sheet risk, as net debt has
increased and operating cash flow does not cover
capital expenditures. Equity dilution may be likely.
That said, no major debt maturities are imminent.
• Persistent GAAP losses. While GAAP has many
shortcomings when it comes to oil and gas firms,
net worth ultimately becomes impaired if ATP
cannot cover DD&A and interest expense.
MAJOR HOLDERS
CEO Bulmahn 12% | Other insiders 2% | Aletheia 9% |
Credit Suisse 3% | Samlyn 2% | D.E. Shaw 1%
SELECTED OPERATING DATA
FYE December 31
2006
2007
∆ proved reserves
21%
12%
∆ after-tax PV-10
-25% 122%
∆ production
155%
26%
∆ ASP incl. hedges
11%
15%
∆ revenue
186%
45%
∆ gross profit
195%
46%
∆ assets
76%
59%
∆ BV per share
8% 731%
Proved reserves (period end):
Natural gas (Bcf)
329
356
Oil, condensate (MBbls)
51
60
Proved reserves (Mboe)
106
119
PV-10, GOM ($mn)
845 2,026
PV-10, North Sea ($mn)
170
614
After-tax PV-10 ($mn)
544 1,209
Production:
Natural gas (Bcf)
31
37
Oil (MBbls)
3
4
Total production (Bcfe)
51
64
Average realized sales price (incl. hedges):
Natural gas ($ per Mcf)
8
8
Oil ($ per Bbl)
54
64
Average ($ per Mcfe)
8
9
Revenue ($mn)
420
608
Selected items as % of revenue:
Gross profit
82%
83%
Lease operating
-17%
-15%
Exploration
-1%
-2%
G&A
-8%
-5%
Impairments
-5%
-6%
Asset retirement
-2%
-2%
Operating income
18%
27%
Pretax income
6%
8%
Net income
-9%
8%
D&A
40%
41%
Capex
138% 140%
Tangible assets ($mn)
1,447 2,307
Selected items as % of tangible assets:
Cash, investments
13%
9%
Receivables
7%
6%
PP&E, net
76%
79%
ST debt
2%
1%
LT debt
73%
60%
Preferred stock
0%
0%
Tangible equity
2%
13%
Shares out (avg) (mn)
30
31
∆ shares out (avg)
2%
4%
2008
0%
-7%
-10%
4%
2%
5%
-1%
-11%
2009
14%
57%
-39%
-25%
-49%
-57%
23%
22%
YTD
2010 9/30/11
-6%
n/a
32%
n/a
30%
25%
24%
47%
40%
72%
34%
98%
17%
3%
-80% -130%
322
65
119
953
175
1,128
343
78
135
1,523
251
1,775
308
75
126
2,030
319
2,349
n/a
n/a
n/a
n/a
n/a
n/a
32
4
57
15
3
35
19
4
46
13
5
40
8
72
10
618
4
57
7
312
5
73
9
438
5
97
13
510
85%
-15%
0%
-7%
-20%
-3%
29%
28%
20%
40%
148%
2,276
73%
-27%
0%
-14%
-15%
-4%
-6%
-19%
-17%
49%
204%
2,803
69%
-30%
0%
-10%
-14%
-3%
-26%
-82%
-80%
50%
137%
3,290
80%
-20%
0%
-7%
-9%
-2%
12%
-22%
-36%
45%
61%
3,431
9%
4%
82%
0%
60%
0%
14%
35
15%
4%
2%
89%
1%
43%
5%
16%
42
18%
5%
3%
88%
1%
56%
4%
3%
51
21%
5%
3%
88%
1%
58%
9%
-3%
51
1%
RATINGS
VALUE Intrinsic value materially higher than market value?
DOWNSIDE PROTECTION Low risk of permanent loss?
MANAGEMENT Capable and properly incentivized?
FINANCIAL STRENGTH Solid balance sheet?
MOAT Able to sustain high returns on invested capital?
EARNINGS MOMENTUM Fundamentals improving?
MACRO Poised to benefit from economic and secular trends?







THE BOTTOM LINE
ATP has been an enticing organic growth “story” in deepwater oil and gas exploration, but regulatory fallout from the GOM
oil spill and low natural gas prices have contributed to disappointing results, heightening concerns about financial leverage.
Founder and CEO Bulmahn owns 12% and will undoubtedly explore all alternatives to preserving equity value. Nonetheless,
further dilution may be necessary, as the company’s after-interest cash flow does not cover planned capex. With recent
market value of equity a small percentage of quoted enterprise value, small changes in one’s assessment of fair enterprise
value have a disproportionate impact on equity value. Management optimistically puts value at ~$100 per share, setting up an
interesting risk-reward tradeoff. However, a lack of downside protection makes this a difficult investment proposition.
ATP OIL & GAS – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Valuation methodology:
Based on per-boe value assumptions for
proved and probable reserves; minus net
debt
▼
Proved reserves, net: 126 million boe
Probable reserves, net: 85 million boe
multiplied by, respectively
Assumed value of proved: $10 per boe
Assumed value of probable: $3 per boe
equals, respectively
Value of proved reserves: $1.3 billion
Value of probable reserves: $255 million
plus
Discount to management’s estimate of
the value of infrastructure assets:
40%
Resulting value: $600 million
plus
Cash: $172 million
minus
Total debt: $2.0 billion
equals
Estimated fair value of the common
equity of ATP Oil & Gas:
$275 million, or $5.30 per share
(based on 52 million shares out)
28% downside from the recent
stock price ($7.40 per share)
Base Case
proved and probable reserves; minus net
debt
▼
Probable reserves, net: 85 million boe
Assumed value of probable: $3 per boe
Value of proved reserves: $1.5 billion
Value of probable reserves: $255 million
plus
Discount to management’s estimate of
the value of infrastructure assets:
20%
Resulting value: $800 million
plus
Cash: $172 million
minus
equals
$730 million, or $14 per share
90% upside to the recent
Aggressive
Based on median consensus EPS
estimate for the fiscal year ending
December 30, 2013
▼
Consensus FY13 EPS estimate: $2.46
multiplied by
Corresponding industry P/E: 10.5x (*)
equals
Industry multiple-implied fair value:
$1.3 billion ($26 per share)
multiplied by
Assumed ATPG multiple as a
percentage of the industry multiple:
95%
(10.0x fair value P/E multiple)
equals
(*) Represents Oil & Gas Operations industry
median multiple.
Source: Company filings, The Manual of Ideas
analysis, assumptions and estimates.
ATP OIL & GAS – MANAGEMENT’S VIEW OF INTRINSIC VALUE ($ in billions)
Management’s sum-of-the-parts
valuation of proved reserves, probable
reserves, and infrastructure assets
exceeds recent enterprise value by a
wide margin, implying potential multibagger upside for the equity.
Source: Company presentation dated January 4, 2012.
ATP OIL & GAS – PRICE DECK USED IN ABOVE PV-10 CALCULATIONS
ATP OIL & GAS – RESERVES PER SHARE
At under $7 per ATPG share,
investors have an opportunity to
invest at less than 3x proved
reserves and less than 2x
proved and probable reserves.
Important caveat: The above
disregards ATP’s debt load so
should be used with care.
ATP OIL & GAS – NET DEBT CALCULATION, as of September 30, 2011 ($ in millions)
High yield bonds (April 2010)
• $1.5 billion aggregate principal amount
with an 11.875% interest rate and May
2015 maturity
First lien term loan (June 2010, March 2011)
• $210 million senior secured term loan
• March 2011 increased amount from $150
million to $210 million, decreased rate
from 11% to 9% and extended maturity
from October 2014 to January 2015
• Based on estimated SEC pricing at
12/31/11, first lien loan capacity expected
to expand in March 2012
General terms of both facilities
No financial maintenance covenants
Facilities can be expanded
INDUSTRY – DEEPWATER GULF OF MEXICO WELLBORES
Axcelis Technologies (ACLS) – Donald Smith, Sterling, DFA, Artis, Rima
Technology: Scientific & Technical Instruments
Beverly MA, 978-787-4000
Trading Data
www.axcelis.com
Price: $1.78 (as of 1/20/12)
52-week range: $1.00–$3.65
Enterprise value: $145 million
Ownership Data
This quarter
Next quarter
FYE 12/31/11
Latest
-$0.04
-0.04
0.05
Month
Ago
-$0.04
-0.04
0.05
Valuation
# of
Ests
2
1
3
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
n/m
36x
36x
7x
0.4x
FYE 12/30/12
0.05
0.05
3
EV/ LTM EBIT
12x
Insider ownership: <1%
FYE 12/30/13
0.25
0.25
1
P / tangible book
0.9x
LT growth
20.0%
EPS Surprise
10/25/11
20.0%
Actual
$0.01
Greenblatt Criteria
1
Estimate
$0.01
LTM EBIT yield
LTM pre-tax ROC
9%
8%
($ millions, except
per share data)
Revenue
Gross profit
R&D
Adjusted net income
Shares out (avg)
D&A
Capex
Free cash flow
… % of revenue:
Gross profit
R&D
Cash, investments
Inventory
LT investments
PP&E, net
Tangible assets
Debt
Total liabilities
Tangible equity
TBV per share
2004
508
212
63
52
75
0.76
100
72
2
6
66
2005
373
154
71
-9
3
0.03
100
-12
2
8
-20
41.7%
12.4%
10.3%
187
116
406
109
75
625
125
245
379
61%
3.81
41.4%
19.0%
-2.5%
165
110
395
109
71
599
125
235
363
61%
3.62
2006
2007
2008
462
405
250
192
153
63
72
72
63
24
-14
-91
42
-4
-101
0.41
-0.04
-0.98
101
102
103
19
-31
-49
3
3
3
7
10
3
12
-42
-52
41.5%
15.7%
5.3%
204
160
475
127
67
694
151
276
417
60%
4.13
37.8%
17.8%
-3.3%
84
169
379
133
68
617
80
184
433
70%
4.25
25.0%
25.3%
-36.4%
38
150
241
157
44
455
83
136
319
70%
3.11
2009
133
28
33
-64
-72
-0.70
104
-34
0
1
-34
2010
275
86
40
-13
-18
-0.17
105
-6
0
1
-7
LTME
9/30/11
352
124
46
13
12
0.11
105
-7
0
3
-9
FQE
9/30/10
75
22
10
-3
-6
-0.06
105
-1
0
0
-1
FQE
9/30/11
73
27
11
0
1
0.01
106
9
0
1
8
21.1%
24.6%
-48.1%
45
115
194
0
41
251
0
34
216
86%
2.09
31.2%
14.4%
-4.9%
46
110
229
0
39
281
0
75
206
73%
1.97
35.1%
13.1%
3.6%
44
122
216
0
38
273
0
57
216
79%
2.03
28.6%
13.2%
-4.5%
49
104
210
0
39
258
0
60
199
77%
1.90
37.1%
15.7%
-0.1%
44
122
216
0
38
273
0
57
216
79%
2.03
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Axcelis provides semiconductor capital equipment.
FYE December 31
2006 2007
∆ ion implantation sales
15% -11%
∆ revenue
24% -12%
∆ gross profit
24% -20%
∆ assets
14% -11%
∆ book value
12%
2%
∆ BV per share
11%
1%
Revenue ($mn)
462
405
…from aftermarket1
38%
42%
% of revenue by segment:
Ion implantation2
74%
75%
Other products3
26%
25%
% of revenue by type:
Product
86%
85%
Service
12%
14%
Royalties4
2%
1%
Gross margin by type:
Product
48%
42%
Service
15%
20%
% of revenue by geography:
U.S.
80%
78%
Europe
8%
9%
Asia Pacific
12%
13%
Gross profit
41%
38%
R&D
16%
18%
EBIT (adjusted)6
5%
-3%
Net income (adjusted)6
9%
-1%
D&A5
4%
5%
Capex
1%
3%
694
617
Cash, investments
29%
14%
Receivables
11%
12%
Inventory
23%
27%
LT investments
18%
22%
PP&E, net
10%
11%
ST debt
11%
0%
LT debt
11%
13%
Tangible equity
60%
70%
101
102
1%
1%
• A leader in high-energy ion implanters sold to
DRAM, Flash, foundry and logic chipmakers. An
implanter is a machine that costs $2-3 million and is
used by chipmakers to embed transistors into silicon
wafers. Axcelis has 1,000+ employees in 46 offices.
• 4,000+ Axcelis products are in use in 50 countries
worldwide. This installed base is a source of
aftermarket sales, which represented 45% of YTD
revenue. Axcelis owns ~500 patents worldwide.
• Revenue and gross margin have improved since
2009. The company turned profitable in 4Q10 and
has achieved net income of $7 million YTD 2011.
• Sale-leaseback of 417,000 sq. ft. headquarters in
Beverly, MA, would boost liquidity. The site,
which also houses manufacturing operations, is
carried at ~$35 million. Management believes it can
raise “at least $50 million” from a transaction,
which is expected to be completed in 1Q12.
• NOLs of $226 million expire from 2021-30. The
NOLs are not reflected on Axcelis’ balance sheet.
• $37-40 million of net cash, based on management’s
expectation for cash usage in 4Q11.
• Cyclical business, dependent on semi makers’
capacity investments, which exhibit large volatility
(particularly in the case of memory manufacturers).
• Poor capital allocation and competitive missteps
under CEO Mary Puma have led to a decline in
quote equity value of 80-90% over the past decade.
CEO Puma’s rhetoric focuses mostly on market and
product considerations rather than equity value. Her
actions have been consistent with the rhetoric, as
per-share book value and intrinsic value have fallen.
• 4Q11 cash usage and pending sale leaseback
reflect expectation of future cash burn? If the
company starts losing money again, value creation
would once again be replaced with slow destruction.
CATALYSTS
• Potential (and long overdue) firing of CEO Puma
would likely be a major positive for the company
• Potential activist shareholder involvement
MAJOR HOLDERS
CEO Puma 1% | Other insiders 3% | Donald Smith 10% |
Sterling 5% | DFA 4% | Artis 4% | Rima 2%
YTD
2010 9/30/11
109%
23%
107%
43%
206%
69%
12%
6%
-5%
9%
-6%
7%
275
259
52%
45%
2008
-33%
-38%
-59%
-32%
-34%
-35%
250
57%
2009
-46%
-47%
-55%
-45%
-32%
-33%
133
74%
82%
18%
83%
17%
84%
16%
73%
27%
78%
21%
2%
74%
25%
0%
88%
12%
0%
91%
9%
0%
16%
56%
13%
60%
32%
26%
46%
9%
70%
12%
18%
63%
17%
20%
69%
12%
18%
n/a
n/a
n/a
25%
25%
-36%
-40%
9%
1%
455
21%
25%
-48%
-54%
6%
0%
251
31%
14%
-5%
-6%
3%
1%
281
36%
14%
3%
3%
2%
1%
273
8%
6%
33%
34%
10%
18%
0%
70%
103
1%
18%
8%
46%
0%
16%
0%
0%
86%
104
1%
16%
21%
39%
0%
14%
0%
0%
73%
105
1%
16%
15%
45%
0%
14%
0%
0%
79%
106
2%
1
Aftermarket refers to sales of spare parts and product upgrades, combined
with the sale of maintenance labor and service contracts.
2
Includes high current, medium current and high energy implanters.
3
Includes dry strip equipment, curing, and thermal processing systems.
4
Majority of royalties was derived from the SEN joint venture, with Axcelis
selling its 50% stake to JV partner Sumitomo Heavy Industries in March 2009.
5
Includes amortization of intangible assets.
6
Adjusted for unusual items of -$0.7 million in 2006, -$7.2 million in 2007, -$96
million in 2008, and -$5.5 million in 2009.
RATINGS







THE BOTTOM LINE
Axcelis avoided bankruptcy in early 2009 as it was able to pay off maturing debt with proceeds from the sale of its 50% stake
in Japanese chip equipment producer SEN. Revenue has rebounded since then and operations have turned free cash flow
positive, but management has signaled a return to burning cash in 4Q11 and likely beyond. As a result, we do not view
Axcelis as a good long-term investment unless CEO Puma was fired. The equity retains take-out upside in the context of a
prior bid by Sumitomo Heavy Industries and Texas Pacific Group, which offered $6 per share in March 2008. As Axcelis has
strong products and a clean balance sheet, potential activist involvement to shake up management would be hugely positive.
AXCELIS TECHNOLOGIES – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
December 30, 2012
▼
minus
Assumed haircut to FY12 consensus
EPS estimate: 10% * $0.05
equals
Revised FY12 EPS estimate: $0.05
multiplied by
equals
$76 million ($0.72 per share)
multiplied by
Assumed ACLS multiple as a
75%
equals
equity of Axcelis Technologies:
Base Case
Aggressive
December 30, 2013
▼
multiplied by
equals
multiplied by
90%
equals
Based on tangible book value as of
September 30, 2011
▼
Book value: $216 million
minus
Intangibles: $0
equals
Tangible book value: $216 million
multiplied by
Industry price to book: 1.7x (*) (†)
equals
multiplied by
75%
(1.3x multiple of tangible book)
equals
(*)
Represents Scientific & Technical
Instruments industry median multiple.
(†)
In order to be conservative, we apply the
industry median multiple of book value to the
company’s tangible book value.
AXCELIS TECHNOLOGIES – ANALYSIS OF SELECTED COMPARABLE COMPANIES
(Click to visit
relevant websites)
Applied / AMAT
Lam / LRCX
Mattson / MTSN
Novellus / NVLS
Stock
Price
($)
12
42
2
47
Trading Data
∆ to Reach
7-Year
MV
($mn)
Low
High
-43%
84% 16,281
-65%
44%
5,049
-86% 531%
125
-78%
2%
3,114
EV
($mn)
11,985
3,744
89
2,757
Median
Axcelis / ACLS
2
-90%
433%
190
145
Tang.
Book/
MV
45%
43%
52%
27%
EPS Yield
TTM
FCF
This Next
Yield TTM
FY
FY
14% 12%
6%
9%
12% 11%
5%
9%
-18% neg. neg.
1%
11%
7%
7%
6%
LTM
Rev./
EV
88%
83%
208%
53%
Rev./
Empl.
($000)
809
841
487
539
∆ Rev.
% TTM Rev.
Last
Gross
Adj.
TTM
Q
Profit
EBIT
10% -24%
41%
23%
19% -16%
45%
22%
60%
13%
32% -10%
20% -16%
50%
23%
45%
14%
12%
6%
9%
88%
809
10%
-24%
41%
23%
114%
-5%
6%
3%
3%
243%
346
60%
-3%
35%
4%
Abbreviations: MV = market value | EV = enterprise value | TTM = trailing twelve months | FY = fiscal year | Empl. = employee | Rev. = revenue ∆
| = change
Explanations: ∆ revenue = year-over-year change | EPS yield for this and next FY is based on consensus EPS estimates | EBIT adjusted for certain unusual items
Source: Company and market data, The Manual of Ideas analysis.
AXCELIS TECHNOLOGIES – RECENT RESULTS AND TARGET FINANCIAL MODEL
*
Excluding restructuring charge in 2009.
Source: Company presentation dated October 2011.
AXCELIS TECHNOLOGIES – MANAGEMENT TARGETS GROSS MARGIN IN “LOW 40% RANGE”
AXCELIS TECHNOLOGIES – QUARTERLY REVENUE REFLECTS “MARKET SHARE GAINS AND MARKET CONDITIONS”
AXCELIS TECHNOLOGIES – PLANNED SALE/LEASEBACK OF KEY REAL ESTATE
Callaway Golf (ELY) – Perkins, DFA, Royce, Clearbridge, Franklin
Consumer Cyclical: Recreational Products, Member of S&P SmallCap 600
Trading Data
Carlsbad CA, 760-931-1771
www.callawaygolf.com
Price: $6.12 (as of 1/20/12)
52-week range: $4.70–$8.22
Ownership Data
This quarter
Next quarter
FYE 12/31/11
Latest
-$0.40
0.31
-0.62
Month
Ago
-$0.40
0.29
-0.59
Valuation
# of
Ests
7
6
7
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
n/m
n/m
32x
18x
0.4x
FYE 12/30/12
0.19
0.14
7
EV/ LTM EBIT
n/m
FYE 12/30/13
0.34
0.34
2
P / tangible book
0.9x
LT growth
Institutional ownership: n/a
5.0%
EPS Surprise
10/27/11
Greenblatt Criteria
11.5%
1
Actual
-$0.37
Estimate
-$0.24
LTM EBIT yield
LTM pre-tax ROC
-22%
-19%
($ millions, except
per share data)
Revenue
Gross profit
R&D
Adjusted net income
Dividend
Shares out (avg)
… % of revenue:
Gross profit
Cash, investments
Receivables
Inventory
PP&E, net
Tangible assets
Payables
Total current liabilities
Debt
Total liabilities
Tangible equity
TBV per share
EBIT/capital employed
2004
935
359
31
-25
-24
-10
-0.15
0.28
68
2005
998
414
27
17
15
13
0.19
0.28
69
38.4%
-2.6%
32
134
181
394
136
556
17
121
13
149
407
73%
6.01
-6%
41.5%
1.7%
50
100
242
439
128
589
102
140
0
169
421
71%
6.13
4%
2006
2007
2008
1,018
1,125
1,117
398
493
487
27
32
29
37
90
84
35
88
101
23
55
66
0.34
0.82
1.05
0.28
0.28
0.28
68
66
63
39.1%
3.6%
46
127
265
493
131
671
111
224
80
269
402
60%
5.93
9%
43.9%
8.0%
50
121
253
497
128
665
130
224
37
270
395
59%
5.95
22%
43.6%
7.5%
38
136
257
490
142
679
126
253
90
277
402
59%
6.37
21%
2009
951
344
32
-31
-30
-21
-0.33
0.10
63
2010
968
366
36
-19
-28
-22
-0.34
0.04
64
LTME
9/30/11
918
329
35
-66
-78
-148
-2.31
0.04
64
FQE
9/30/10
176
49
9
-38
-40
-21
-0.32
0.01
64
FQE
9/30/11
173
47
9
-44
-48
-65
-1.01
0.01
65
36.2%
-3.2%
78
160
219
513
143
702
32
152
0
169
533
76%
8.44
-7%
37.8%
-2.0%
55
155
269
545
130
723
43
175
0
192
531
73%
8.31
-6%
35.9%
-7.2%
64
153
204
454
120
612
106
148
0
192
421
69%
6.50
-19%
27.9%
-21.4%
111
155
230
559
133
737
129
166
0
184
554
75%
8.65
-32%
27.3%
-25.5%
64
153
204
454
120
612
106
148
0
192
421
69%
6.50
-41%
$25
$20
$15
$10
$5
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Callaway Golf makes golf clubs, balls and related accessories.
FYE December 31
2006
2007
∆ golf club sales
3%
13%
∆ golf ball sales
0%
-1%
∆ revenue
2%
10%
∆ gross profit
-4%
24%
∆ assets
11%
-1%
∆ BV per share
-2%
0%
Revenue ($mn)
1,018 1,125
% of revenue by major geography:
U.S.
56%
53%
Europe
16%
17%
Japan
10%
11%
Golf clubs2
79%
81%
Golf balls
21%
19%
Pre-tax income margin by segment:
Golf clubs2
13%
17%
Golf balls
-3%
0%
Corporate
-6%
-6%
Gross profit
39%
44%
R&D
3%
3%
EBIT (adjusted)1
4%
8%
2%
5%
D&A
3%
3%
Capex
3%
3%
671
665
Cash, investments
7%
8%
Receivables
19%
18%
Inventory
40%
38%
PP&E, net
20%
19%
Debt
12%
5%
Tangible equity
60%
59%
Diluted EPS (cont.) ($)
0.34
0.81
Dividends per share ($)
0.28
0.28
68
66
-1%
-2%
• Owned brands include Callaway, Odyssey, TopFlite, Ben Hogan, and uPro. According to the
company, “it is the leader, or one of the leaders, in
every golf club market in which it competes.”
• Rival Acushnet sold to PE firms for $1.2 billion
in May 2011, implying an EV-to-revenue of ~1.0x.
Acushnet, a former Fortune Brands subsidiary, has
historically been more profitable than Callaway and
likely has stronger brands (Titleist, FootJoy).
• Director Tony Thornley (64), an ex-Qualcomm
COO/CFO, became interim CEO last June, after
George Fellows resigned for “personal reasons.”
Thornley has impressed us with a blunt assessment
of Callaway’s challenges, but results will be more
important. Thornley projects profitability in 2012.
• Nearly half of production remains in the U.S.,
while non-U.S. revenue is ~50% and growing as a
share of total. Asian markets may be an opportunity.
• EV-to-revenue of less than 0.5x implies big
upside if margins can be improved. The ongoing
restructuring is estimated to yield $50 million of
gross savings. “Up to half” of the savings are to be
reinvested into marketing to reignite sales growth.
• Low risk of permanent loss due to 0.9x tangible
book quotation, net cash balance of $65 million.
Current assets comprise 75% of tangible assets.
• YTD sales declines and losses reflect “challenging
golf equipment market and the mistakes we have
made in executing a coordinated product and
marketing plan based on golf consumers’
preferences,” according to management.
• Does “go-it-alone” strategy make sense? Rivals
include much bigger businesses that are part of
sporting giants such as Nike and Adidas.
• Lost patent case to Acushnet in 2010. This could
make it harder to turn around the golf ball business.
• Dilution from $140 million of 7.5% convertible
preferred stock (convertible at $7.05 per share).
• Return to profitability in 2012
• Return to sales growth in golf equipment market
• Growth in emerging and other overseas markets
1
2
2008
-2%
5%
-1%
-1%
2%
7%
1,117
2009
-14%
-19%
-15%
-29%
2%
22%
951
YTD
2010 9/30/11
3%
-6%
-2%
-9%
2%
-6%
6%
-12%
1%
-16%
-3%
-22%
968
733
50%
17%
15%
50%
14%
17%
48%
13%
17%
49%
16%
15%
80%
20%
81%
19%
82%
18%
82%
18%
15%
3%
-4%
5%
-8%
-6%
6%
-1%
-8%
3%
-4%
-7%
44%
3%
8%
6%
3%
5%
679
36%
3%
-3%
-2%
4%
4%
702
38%
4%
-2%
-2%
4%
2%
723
37%
4%
-4%
-17%
4%
3%
612
6%
20%
38%
21%
13%
59%
1.04
0.28
63
-5%
11%
23%
31%
20%
0%
76%
-0.33
0.10
63
0%
8%
21%
37%
18%
0%
73%
-0.46
0.04
64
1%
10%
25%
33%
20%
0%
69%
-1.89
0.03
65
1%
Adjusted for unusual items of -$7.5 million in 2010, -$0.2 million YTD 9/30/11.
Accessories represented ~30% of segment revenue in 2010.
MAJOR HOLDERS*
Insiders 2% | Perkins 8% | DFA 6% | Royce 6% | Clearbridge
5% | Fisher 5% | Franklin 5% | Lee Munder 4%
*
Assumes outstanding preferred stock is not converted into common shares.
The company has 1.4 million shares of 7.5% Series B Cumulative Perpetual
Convertible Preferred Stock outstanding. The preferred stock is convertible
at any time into common stock at an initial conversion price of $7.05/share.
RATINGS







THE BOTTOM LINE
Callaway appears to have low risk of permanent loss due to a valuation of 0.9x tangible book and a strong balance sheet.
While the business has struggled since 2009 despite stabilization in the golf industry, Callaway’s brands likely have staying
power. If the current restructuring (to be executed by new CEO Thornley) proves successful, the upside could be significant
as EV-to-revenue is less than 0.5x. Despite the seemingly asymmetric risk-reward, however, a key risk is that operating
losses and restructuring charges weaken the balance sheet, while the turnaround eventually fails. Instead of the “go-it-alone”
strategy (which requires expensive marketing to succeed against the likes of Nike), we would prefer Callaway puts itself up for
sale. Fila Korea bought competitor Acushnet for 1.0x revenue in 2011, a large premium to Callaway’s recent market quotation.
CALLAWAY GOLF – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
Aggressive
Based on average diluted EPS from
continuing operations for the past seven
fiscal years
December 30, 2013
September 30, 2011
▼
▼
▼
average of
FY04 continuing ops EPS: -$0.15
multiplied by
minus
FY05 continuing ops EPS: $0.19
Intangibles: $153 million
equals
equals
multiplied by
Assumed ELY multiple as a
equals
equals
Average seven-year EPS: $0.21
100%
minus
multiplied by
Assumed adjustment to average
seven-year EPS: 10% * $0.21
equals
Assumed ELY multiple as a
multiplied by
equals
equity of Callaway Golf:
Revised “normalized” EPS: $0.23
multiplied by
equals
Assumed fair value P/E: 15x
equals
120%
Basing an equity valuation of Callaway Golf
on near-term EPS estimates may not account
appropriately for the company’s likely
normalized earning power.
(*) Represents Recreational Products industry median multiple.
(†) In order to be conservative, we apply the industry median multiple of book value to the company’s tangible book value.
Source: Company filings, The Manual of Ideas analysis, assumptions and estimates.
CALLAWAY GOLF – PRO FORMA INCOME STATEMENT, 2009–2010
Source: Company presentation dated May 2011.
CALLAWAY GOLF – PRO FORMA INCOME STATEMENT, 1Q11 vs. 1Q10
CALLAWAY GOLF – IMPACT OF JAPAN EARTHQUAKE/TSUNAMI
CALLAWAY GOLF – WILL GROWTH RESUME POST-RECESSION?
Capital Southwest (CSWC) – Bares, Centaur, DFA, First Manhattan, Third Avenue
Financial: Misc. Financial Services
Dallas TX, 972-233-8242
Trading Data
capitalsouthwest.com
Price: $87.20 (as of 1/20/12)
52-week range: $70.07–$101.67
Enterprise value: n/m
This quarter
Next quarter
FYE 7/3/06
Ownership Data
Valuation
Latest
n/a
n/a
n/a
Month
Ago
n/a
n/a
n/a
# of
Ests
n/a
n/a
n/a
P/E FYE 7/3/05
P/E FYE 7/3/06
P/E FYE 7/3/07
P/E FYE 7/2/08
EV/ LTM revenue
6x
n/a
n/a
n/a
n/m
FYE 7/3/07
n/a
n/a
n/a
EV/ LTM EBIT
n/m
FYE 7/2/08
n/a
n/a
n/a
P / tangible book
0.7x
LT growth
n/a
EPS Surprise
n/a
n/a
Actual
n/a
Greenblatt Criteria
n/a
Estimate
n/a
LTM EBIT yield
LTM pre-tax ROC
n/m
n/m
($ millions, except
per share data)
Revenue
Adjusted net income
Dividend
Shares out (avg)
Cash, investments
Receivables
Inventory
LT investments
PP&E, net
Intangible assets
Total assets
Tangible assets
Payables
Short-term debt
Long-term debt
Total liabilities
Preferred stock
Common equity
Tangible equity
TBV per share
2005
5
3
20
20
5.21
0.60
4
5
0
0
0
422
0
0
434
434
0
13
0
0
132
0
303
303
70%
78.43
2006
5
2
142
142
36.84
0.60
4
12
0
0
0
550
0
0
569
569
0
8
0
0
11
0
558
558
98%
144.55
Fiscal Years Ended March 31,
2007
2008
2009
7
7
14
4
4
10
167
-139
-133
167
-139
-138
42.90
-35.73
-36.98
0.60
0.60
1.10
4
4
4
39
31
15
0
0
1
0
0
0
0
0
0
681
548
397
0
0
0
0
0
0
730
587
418
730
587
418
0
0
0
0
0
0
0
0
0
0
0
0
4
3
2
0
0
0
726
584
415
726
584
415
99%
99%
99%
186.74
150.08
111.00
2010
6
2
75
74
19.65
0.80
4
4
2
0
0
478
0
0
491
491
0
0
0
0
4
0
487
487
99%
130.13
2011
8
2
78
54
14.32
0.80
4
46
1
0
0
489
0
0
543
543
0
0
0
0
4
0
539
539
99%
143.92
LTME
9/30/11
6
0
8
-17
-4.45
0.40
4
53
1
0
0
444
0
0
506
506
0
0
0
0
4
0
502
502
99%
133.76
FQE
9/30/10
1
0
24
24
6.42
0.40
4
77
1
0
0
439
0
0
524
524
0
0
0
0
4
0
520
520
99%
139.00
FQE
9/30/11
1
0
-26
-26
-6.85
0.00
4
53
1
0
0
444
0
0
506
506
0
0
0
0
4
0
502
502
99%
133.76
$200
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Capital Southwest is a business development company.
PORTFOLIO SNAPSHOT
Company
Rectorseal
Encore Wire (WIRE)
Alamo Group (ALG)
Whitmore Manufacturing
Media Recovery
Texas Capital Bancshares (TCBI)
Heelys (HLYS)
Hologic (HOLX)
Other Investments
Total investments
Cash
Other net assets
Total net assets
Shares out at 9/30/11 (millions)
Estimated NAV/Share 2
Market or Fair Value
($ in millions) 1
141.3
95.5
63.9
59.6
16.4
15.9
14.9
11.9
65.8
485.2
53.3
4.9
543.4
3.76
144.74
Value as
% of Total
26%
18%
12%
11%
3%
3%
3%
2%
12%
89%
10%
1%
100%
1
As of 9/30/11 (private companies) and 1/10/12 (public companies). WIRE,
ALG, HLYS stock is restricted and management imposes a valuation discount.
• Shares trade at ~40% discount to updated NAV,
based on 9/30/2011 book values for private
investments (~58% of total value of investments)
and 1/10/2012 prices for public companies (~42%).
• Typically acquires equity positions of significant
influence or control and provides managerial
assistance to companies. Closed-end structure
facilitates goal of providing “patient capital”.
• Current market capitalization may be justified
based on largest four investments and cash alone.
RectorSeal, Whitmore, Encore Wire, and Alamo are
long established industrial companies. With a
combined value of $360 million and cost basis of
$9.6 million based on early stage investments made
decades ago, these businesses illustrate Capital
Southwest’s successful long term strategy.
• Typical early stage investment size is $5-10
million. Majority stakes in Balco, Cintara Clean
Technologies, Extreme International, and Media
Recovery along with several minority and “seed”
investments provide opportunity for future upside.
• Tax-efficient portfolio, as it experiences little
turnover. Average holding period is ~20 years. The
company also qualifies for conduit tax treatment as
a regulated investment company, eliminating double
taxation penalty associated with most corporations.
1
FYE March 31
2007 2008 2009 2010 2011
NAV/share, as reported
187
150
111
130
144
NAV/share, as adjusted 1
155
126
95
110
123
Assets ($mn)
730
587
418
491
543
Selected balance sheet items as % of total assets:
Cash and equivalents
5%
5%
4%
1%
8%
Investments
93%
93%
95%
97%
90%
Otherassets
1%
1%
1%
2%
2%
Liabilities
1%
1%
1%
1%
1%
Shareholders’ equity
99%
99%
99%
99%
99%
Investments ($mn)
681
548
397
478
489
% of investments at market/fair value by investee company ownership:
>25% owned
77%
75%
72%
69%
63%
5-25% owned
11%
10%
17%
15%
17%
<5% owned
11%
15%
11%
16%
20%
Opex/avg net assets
0.3% 0.5% 0.8% 0.9% 1.1%
Δ shares outstanding
1%
0%
-4%
0%
0%
11%
88%
2%
1%
99%
444
66%
18%
17%
0.9%
0%
Since 2007, Capital Southwest has reported NAV without adjustment for
deferred income taxes on unrealized gains. We adjust NAV by deducting 20%
of unrealized gains to estimate potential net tax liability owed by shareholders.
Company typically retains capital gains as “deemed distribution” and pays 35%
tax which becomes a tax credit for investors which exceeds actual tax owed.
• Difficult to appraise portfolio from ground up, as
little information is available on the company’s
private investments. However, the sale of cemetery
operator Lifemark in 2010 at close to book value
inspires some confidence in valuation approach.
• Illiquid investment portfolio due to majority of
assets in private companies.
• Current leadership may not fully claim
successful long-term track record, which was
built by former chairman Bill Thomas over four
decades. However, Gary Martin (64) has been CEO
since 2007 and associated with Capital Southwest
since 1972, including as a director since 1988 while
he was CEO of Whitmore Manufacturing.
• Long term-oriented to a fault. The company has
appeared slothful at times, failing to sell out of
investments that became dramatically overvalued.
For example, Heelys (HLYS) performed well in
2007 as momentum investors put a high multiple on
faddish earnings. Capital Southwest failed to sell,
only to see Heely’s decline from $40 to under $2.
MAJOR HOLDERS
CEO Martin 3%* | W. Thomas III 7% | Other Insiders 5% |
Zuckerman 6% | Dimensional 5% | First Manhattan 4%
RATINGS
*
We thank Ravi Nagarajan for his analysis of Capital Southwest.
Excluding shares controlled on behalf of Capital Southwest’s ESOP trust.
1H12
134
116
506







THE BOTTOM LINE
Capital Southwest shares have typically traded at a 15-35% discount to net asset value over the past decade despite a positive
track record. The current ~40% discount to recent NAV appears too steep in light of the value provided by the top four
investments in long-established industrial companies and the company’s $53 million cash balance. The market appears to be
assigning little or no value to the company’s portfolio of early stage investments, some of which are likely to bear fruit in the
coming years. Even using valuations more conservative than management’s, we find the shares significantly undervalued.
Click for in-depth data and analysis.
CAPITAL SOUTHWEST – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
(in dollars)
Conservative
Valuation Methodology
Base Case
Aggressive
Sum-of-the-Parts
(A) The RectorSeal Corporation
Average net income for 2007-11 (including 20% of Whitmore)
Price/Earnings ratio
Valuation of The RectorSeal Corporation
10,250,000
9x
92,250,000
10,250,000
10x
102,500,000
10,250,000
11x
112,750,000
(B) The Whitmore Manufacturing Company
Average net income 2007-11 (not including 20% of RectorSeal)
Price/Earnings ratio
Valuation of The Whitmore Manufacturing Company
2,800,000
12x
33,600,000
2,800,000
13x
36,400,000
2,800,000
14x
39,200,000
(C) Encore Wire (Nasdaq: WIRE)
Restricted shares owned at 9/30/2011
Price per share on 1/10/2012
Market valuation as of 1/10/2012
Restricted share discount (%) implied by mgmt’s 9/30 valuation
Valuation as of 1/10/2012 based on management’s discount
Additional valuation discount
Estimated market value of Encore Wire investment
4,086,750
26.00
106,255,500
10.1%
95,516,363
10.0%
85,964,727
4,086,750
26.00
106,255,500
10.1%
95,516,363
5.0%
90,740,545
4,086,750
26.00
106,255,500
10.1%
95,516,363
0.0%
95,516,363
(D) Alamo Group (NYSE: ALG)
Restricted shares owned at 9/30/2011
Price per share on 1/10/2012
Market valuation as of 1/10/2012
Restricted share discount (%) implied by mgmt’s 9/30 valuation
Valuation as of 1/10/2012 based on management’s discount
Estimated market value of Alamo Group investment
2,832,300
27.99
79,276,077
19.4%
63,870,817
10.0%
57,483,735
2,832,300
27.99
79,276,077
19.4%
63,870,817
5.0%
60,677,276
2,832,300
27.99
79,276,077
19.4%
63,870,817
0.0%
63,870,817
(E) Other Quoted Securities:
Market value of other quoted securities (HLYS, HOLX, TCBI)
Estimated market value of other quoted securities
42,661,457
10%
38,395,311
42,661,457
5%
40,528,384
42,661,457
0%
42,661,457
(F) Other Privately Held Investments:
Stated valuation of other private investments as of 9/30/2011
Estimated value of other privately held investments
82,228,920
15%
69,894,582
82,228,920
10%
74,006,028
82,228,920
5%
78,117,474
(G) Other Net Assets at 9/30/2011:
Cash
Other assets
Liabilities
Total other net assets at 9/30/2011
53,323,000
8,999,000
(4,075,000)
58,247,000
53,323,000
8,999,000
(4,075,000)
58,247,000
53,323,000
8,999,000
(4,075,000)
58,247,000
(H) Estimated deferred tax adjustment for unrealized gains
Estimated current value of investments (A+B+C+D+E+F)
Less cost basis of all investments at 9/30/2011
Estimated capital gains
Assumed tax rate
Estimated deferred tax adjustment for unrealized gains
377,588,355
(101,643,379)
275,944,976
20%
(55,188,995)
404,852,233
(101,643,379)
303,208,854
20%
(60,641,771)
432,116,111
(101,643,379)
330,472,732
20%
(66,094,546)
Estimated Net Assets of CSWC (A+B+C+D+E+F+G+H)
Shares outstanding as of 9/30/2011
Intrinsic value of Capital Southwest per share
380,646,360
3,754,538
101.38
402,457,462
3,754,538
107.19
424,268,565
3,754,538
113.00
Source: Company filings, Ravi Nagarajan analysis, assumptions and estimates, The Manual of Ideas.
The combined per-CSWC-share value of RectorSeal , Whitmore, Encore Wire, Alamo, Cash and other
assets is $78 which approximates 90% of the current market value of Capital Southwest common stock.
Therefore, the other components of Capital Southwest - other quoted securities and privately held
“venture” investments - are effectively being acquired at minimal cost.
RectorSeal was valued by management at $141.3
million at 9/30/11. We use estimates based on five
year average net income and P/E ratios more
conservative than what management appears to
use. We include pro-rata earnings of Whitmore
based on RectorSeal’s 20% ownership of Whitmore.
Whitmore Manufacturing was valued by mgmt at
$59.6 million at 9/30/11. We use estimates based on
five year avg net income and P/E ratios more
conservative than what management. We subtract
the 20% of Whitmore’s earnings attributed to and
included in RectorSeal’s valuation.
Encore Wire (Nasdaq: WIRE). We take the number
of shares owned as of 9/30/2011 and then arrive at a
market value as if the shares were unrestricted. We
then deduct the marketability discount implied by
management’s valuation of Encore Wire as of
9/30/2011. We then impose and additional “haircut”
to the valuation that varies for the conservative,
base, and aggressive cases. The alternative
valuation approach would involve a bottom-up
analysis of Encore Wire itself.
Alamo Group (NYSE: ALG). We take the number of
shares owned as of 9/30/2011 and then arrive at a
market value as if the shares were unrestricted. We
then deduct the marketability discount implied by
management’s valuation of Alamo Group as of
9/30/2011. We then impose and additional “haircut”
to the valuation that varies for the conservative,
base, and aggressive cases. The alternative
valuation approach would involve a bottom-up
analysis of Alamo Group itself.
Other Quoted Securities includes Heely’s, Hologic,
and Texas Capital Bancshares. Heely’s shares are
restricted while Hologic and Texas Capital
Bancshares are not. For Heely’s, market value line
includes a 10% discount that management imposed
on the market value of Heely’s stock at 9/30/2011.
The market value line for Hologic and TCBI are as
quoted. We then deduct an additional valuation
discount for each valuation scenario.
Other Privately Held Investments include all
investment holdings other than those valued
separately in items A-E. We take a simple approach
of taking the sum of the stated value of these
investments at 9/30/2011 and imposing an additional
valuation allowance for each scenario.
Other Net Assets include cash, other assets and
other liabilities as of 9/30/2011.
Adjustment for deferred taxes on unrealized
capital gains: Starting in FY 2007, Capital
Southwest no longer accounted for deferred income
taxes on unrealized capital gains. See “Investment
Summary” spreadsheet for background. We account
for deferred taxes by assuming Capital Southwest
will continue practice of “deemed distributions”
whereby it realizes gains and pays taxes at 35%
which can be taken as a tax credit by shareholders
who will effectively pay their own capital gains tax on
the deemed distribution. Assume 20% for Federal
and state cap. gains tax.
Estimated Net Asset Value. Note that even the
“aggressive” estimate is substantially below Capital
Southwest’s reported net asset value of $133.75 as
of 9/30/11 because that NAV doesn’t account for
deferred taxes and we are more conservative on
valuation than management. Despite this additional
conservatism, the conservative scenario puts NAV at
around $100, substantially above the recent share
price and well below management’s reported NAV
even when adjusted for deferred tax liability.
CAPITAL SOUTHWEST – INVESTMENTS
The following table lists Capital Southwest’s investments as stated in the 10-Q as of September 30, 2011 and attempts to predict the recent valuation of the
portfolio based on updated prices for marketable securities. In the case of publicly traded securities, the company has both restricted and unrestricted shares.
In the case of restricted shares, management imposed a marketability valuation discount as of 9/30/2011 which we have inferred by comparing the stated
valuation as of 9/30/2011 against the market value of unrestricted shares as of 9/30/2011. We then mark these positions to market by applying the current
share price but we continue to impose the same discount percentage that management imposed as of 9/30/2011. For non-traded securities, we carry forward
management’s 9/30/2011 valuation. The intent is to arrive at an estimate for an updated Net Asset Value, using management’s assumptions as of 9/30/2011
for non traded securities and marking to market the traded securities while retaining the marketability discount percentage applied by management.
Investment Summary
Equity
Own.
Cost Basis
9/30/11
Stated
Valuation
9/30/11
Shares
Owned
9/30/11
Quoted
Price
9/30/11
Implied
Restricted
Discount
Market
Price
1/10/2012
Est.
Valuation
1/10/2012
Percent
of
Total
Portfolio
22.0%
2,190,937
47,441,025
2,832,300
20.79
19.4%
27.99
63,870,817
13%
16.9%
5,800,000
75,604,875
4,086,750
20.58
10.1%
26.00
95,516,363
20%
31.1%
102,490
16,938,870
9,317,300
2.02
10.0%
1.78
14,926,331
3%
8,093,427
139,984,770
174,313,511
36%
< 1%
220,000
9,625,192
632,820
15.21
n/a
18.75
11,865,375
2%
1.3%
3,550,006
11,188,640
489,656
22.85
n/a
32.41
15,869,751
3%
3,770,006
20,813,832
27,735,126
6%
11,863,433
160,798,602
202,048,637
42%
Publicly traded securities:
Restricted securities:
Alamo Group (NYSE: ALG)
Encore Wire Corporation (NASDAQ:
WIRE)
Heely’s Inc (NASDAQ: HLYS)
Total restricted securities
Unrestricted securities:
Hologic, Inc. (NASDAQ: HOLX)
Texas Capital Bancshares
(NASDAQ: TCBI)
Total unrestricted securities
Total publicly traded securities
Majority owned investments:
Balco
90.9%
624,920
4,400,000
4,400,000
1%
Cinatra Clean Technologies, Inc.
73.4%
13,182,892
10,589,189
10,589,189
2%
Extreme International
53.6%
3,325,875
10,748,000
10,748,000
2%
Media Recovery
97.9%
5,415,000
16,400,000
16,400,000
3%
The RectorSeal Corporation
100.0%
52,600
141,300,000
141,300,000
29%
Whitmore Manufacturing
80.0%
1,600,000
59,600,000
59,600,000
12%
24,201,287
243,037,189
243,037,189
50%
1,835,000
0%
363,328
0%
5,078,479
1%
Total majority owned investments
Minority owned investments:
No adjustment is assumed for majority and minority
owned investments that are not publicly traded between
the reporting date of September 30, 2011 and the current
date. Values may have changed but there is no reliable
way to make an estimate.
Atlantic Capital Bancshares
1.9%
3,000,000
1,835,000
Boxx Technologies
14.9%
1,500,000
363,328
iMemories Inc.
29.7%
5,078,479
5,078,479
Instawares
4.4%
5,000,000
5,000,000
5,000,000
1%
KBI Biopharma
17.1%
5,000,000
1,600,000
1,600,000
0%
Palletone, Inc.
8.4%
1,748,896
2,000,002
2,000,002
0%
TCI Holdings
n/a
-
826,115
826,115
0%
Trax Holdings
29.6%
7,650,000
8,450,000
8,450,000
2%
Palm Harbor Homes, Inc
30.4%
10,931,955
2
2
0%
VIA Holdings
3.2%
4,926,290
2
2
0%
Wellogix Inc.
19.2%
5,000,000
2
2
0%
Miscellaneous *
15,743,039
14,938,801
14,938,801
3%
Total minority owned investments
65,578,659
40,091,731
40,091,731
8%
TOTAL: ALL INVESTMENTS
101,643,379
443,927,522
485,177,557
100%
* Very limited transparency makes it difficult to analyze the “miscellaneous” category of investments. They appear to be early stage investments in “seed” funds
and other early stage opportunities. What may come out of these ventures? It is impossible to know but at the current price of Capital Southwest stock, we are not
“paying” for any of this.
Career Education (CECO) – AQR, Blum, Independent Franchise, Kornitzer
Services: Schools, Member of S&P SmallCap 600
Hoffman Estates IL, 847-781-3600
Trading Data
www.careered.com
Price: $10.45 (as of 1/20/12)
52-week range: $6.22–$27.60
Ownership Data
This quarter
Next quarter
FYE 12/31/11
Latest
$0.26
0.32
2.19
Month
Ago
$0.26
0.32
2.19
Valuation
# of
Ests
13
10
8
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
FYE 12/30/12
0.94
0.94
14
EV/ LTM EBIT
FYE 12/30/13
0.87
0.87
7
P / tangible book
LT growth
-8.5%
-8.5%
EPS Surprise
11/1/11
Actual
$0.26
5x
5x
11x
12x
0.2x
1x
1.7x
Greenblatt Criteria
4
Estimate
$0.34
LTM EBIT yield
LTM pre-tax ROC
67%
>100%
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Shares out (avg)
D&A
Capex
Free cash flow
… % of revenue:
Gross profit
D&A
Capex
Cash, investments
PP&E, net
Total assets
Tangible assets
Debt
Tangible equity
TBV per share
2004
1,729
1,171
292
296
180
1.77
102
376
58
143
233
2005
1,855
1,311
381
396
248
2.45
101
409
68
126
283
67.8%
16.9%
3.3%
8.3%
350
351
1,387
902
321
24
500
55%
4.92
>100%
70.7%
20.6%
3.7%
6.8%
401
349
1,495
1,027
327
17
568
55%
5.62
>100%
2006
2007
2008
1,766
1,652
1,651
1,223
1,077
1,054
257
150
122
278
173
141
185
120
101
1.93
1.28
1.12
96
94
90
210
222
187
73
73
71
70
58
54
141
165
133
69.3%
14.5%
4.1%
3.9%
448
352
1,420
1,036
312
15
599
58%
6.22
74%
65.2%
9.1%
4.4%
3.5%
389
336
1,378
954
376
14
462
48%
4.94
68%
63.8%
7.4%
4.3%
3.3%
494
303
1,418
1,002
352
2
532
53%
5.92
85%
2009
1,834
1,228
232
233
152
1.77
86
288
65
100
188
2010
2,124
1,485
318
319
238
2.98
80
272
71
144
128
LTME
9/30/11
2,015
1,364
307
310
230
2.94
78
264
83
130
134
FQE
9/30/10
524
366
40
41
28
0.36
79
170
18
52
119
FQE
9/30/11
431
276
16
16
11
0.15
74
95
22
32
63
67.0%
12.6%
3.6%
5.5%
485
304
1,564
1,006
442
3
364
36%
4.24
>100%
69.9%
15.0%
3.4%
6.8%
449
367
1,561
1,061
464
2
434
41%
5.43
>100%
67.7%
15.2%
4.1%
6.4%
449
361
1,532
1,042
414
1
457
44%
6.21
>100%
69.8%
7.6%
3.4%
9.8%
443
336
1,573
1,007
477
2
355
35%
4.50
>100%
63.9%
3.7%
5.2%
7.4%
449
361
1,532
1,042
414
1
457
44%
6.21
68%
$80
$70
$60
$50
$40
$30
$20
$10
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Career Education operates through six segments:
Colorado Technical University (23% of TTM revenue):
includes CTU schools (business, IT, health, protective
services); 5 campuses; 80%+ online.
Health Education (22%): includes Sanford-Brown schools;
39 campuses; <1% online.
American InterContinental University (19%): includes AIU
schools (business, IT, education, protective services); 5
campuses; 80%+ online.
Culinary Arts (17%): includes Le Cordon Bleu schools; 18
campuses; <5% online.
Art & Design (11% of revenue): includes IADT, Harrington,
Collins and Brooks schools; 14 campuses; ~20% online.
International (8% of revenue): includes schools in France,
Italy, U.K. and Monaco; 13 campuses.
• Diversified education provider, with ~104,000
students enrolled as of 9/30/11, of whom: ~40% are
30+ years old; ~60% are in Associate/Certificate and
~40% in BA/higher programs; 8% are enrolled in
non-U.S. schools. Both online and campus presence.
• Recent valuation may overestimate regulatory
challenges. The strong balance sheet, FCF generation
and efforts to address U.S. regulatory shortcomings
may help to preserve and grow equity value.
• $25 million of trailing EBIT from international
schools alone may justify total recent EV. Jan-Sep
‘11 new student starts at international operations are
up 19% y-y. Int’l students totaled 8,400 as of 9/30/11,
up 15% y-y. TTM Int’l EBIT is up ~30% since ‘09.
• Net cash represents ~60% of recent market value.
The company had $449 million of cash and no debt
at 9/30/11, including $61 million of restricted cash.
• Increased buyback plan by $100 million in
November ‘11. The company bought back 6.2 million
shares for $137 million ($22/share) in Jan-Sep 2011.
• Improper placement determination practices
confirmed at Health schools, with shortcomings
also cited within Art & Design. While the segments
account for ~35% of TTM revenue and ~20% of EBIT,
a review is pending related to other U.S. segments.
• Government investigations, including New York
AG’s subpoena related to compliance with state
consumer protection, securities, and other laws.
• New student starts declined 22% y-y in 3Q11,
due to new regulatory impacts and a weak economy.
SELECTED OPERATING DATA1
1
2009
20%
11%
99%
1.8
2010
11%
16%
39%2
2.1
YTD
9/30/11
-12%
-7%
-20%
1.5
20%
22%
13%
20%
18%
7%
22%
21%
12%
21%
18%
6%
22%
20%
12%
22%
17%
7%
5%
-2%
18%
-2%
7%
87.7
22%
22%
10%
12%
4%
16%
-2%
12%
105.3
29%
27%
12%
12%
1%2
16%
-2%
15%2
116.8
26%
23%
12%
3%
12%
12%
-1%
14%
104.4
6%
11%
5%
3%
-4%
8%
16%
4%
4%
-4%
8%
13%
3%
6%
-7%
10%
14%
4%
5%
-7%
FYE December 31
∆ enrollment (end)
∆ revenue
∆ EBIT
Revenue ($bn)
Colorado Technical
American InterContinental
Art and design
Health education
Culinary arts
International
EBIT margin by segment:
Colorado Technical
American InterContinental
Art and design
Health education
Culinary arts
International
Corporate
EBIT margin
Enrollment (end; ‘000s)
Net income
Net cash from operations
D&A
Capex
2008
-10%
0%
-21%
1.7
Based on continuing operations.
2
•
•
5%
19%
20%
7%
14%
Excl. ~$70 million of impairments in 2010.
Title IV represents ~82% of FY10 cash revenue
at U.S. schools.* Title IV of the Higher Education
Act of 1965 covers the administration of federal aid
to students. Title IV reliance heightens regulatory risk.
Recent management turnover, including CEO
McCullough (52), who resigned in October 2011.
CATALYSTS
• Conclusion of placement review, NYAG inquiry
• New CEO (to replace acting CEO & chairman Lesnik)
• Potential stabilization in new student starts
• Additional share buybacks (6.2 million in 1Q-3Q11)
MAJOR HOLDERS
Insiders 3% | Blum 21% | Independent Franchise Partners 8%
RATINGS
*







Calculation is based on the 90/10 Rule, excluding temporary relief benefits.
THE BOTTOM LINE
As with most Title IV-dependent U.S. education providers, the key risk lies with the regulator. In the case of Career Education,
this risk is heightened due to recently confirmed improper placement determination practices at certain schools. However, with
the share price down by nearly 50% since October 2011, the market may be overestimating regulatory challenges and ignoring
the strong balance sheet (with ~60% of market value in net cash), continued FCF generation, and a growing and profitable nonU.S. business. The latter alone may justify the recent total EV of ~$350 million (versus $2+ billion as recently as in mid-2010).
CAREER EDUCATION – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
Aggressive
December 30, 2012
Based on free cash flow for the twelve
months ended September 30, 2011
Based on revenue for the twelve months
ended September 30, 2011 and average
EBIT margin for past seven fiscal years
▼
▼
▼
Operating cash flow: $264 million
TTM net sales: $2.0 billion
minus
minus
multiplied by
Capex: $130 million
Average 7-year EBIT margin: 13.7%
equals
equals
equals
Free cash flow: $134 million
Estimated EBIT: $276 million
divided by
multiplied by
Assumed fair value multiple of EBIT:
5x
multiplied by
Industry median FCF yield: 8.5% (*)
equals
equals
Industry FCF yield-implied fair value:
multiplied by
Assumed CECO multiple as a
equals
multiplied by
Estimated fair enterprise value of
Career Education: $1.4 billion
Assumed required FCF yield as a
percentage of the industry FCF yield:
Cash, ST investments: $450 million
plus
125%
plus
90%
(10.6% required FCF yield)
equals
Long-term investments at fair value
discount of 25%: $7.9 million
equals
equity of Career Education:
Total debt: $1.2 million
minus
$1.3 billion, or $17 per share
equals
$940 million ($12 per share)
stock price ($10 per share)
(*) Represents Schools industry median multiple.
CAREER EDUCATION – ANALYSIS OF SELECTED COMPARABLE COMPANIES
Trading Data
Stock
Price
($)
Low
Apollo Group / APOL
55
Capella / CPLA
41
(Click to visit
relevant websites)
Corinthian / COCO
∆ to Reach
7-Year
Tang.
Book/
EPS Yield
MV
TTM
FCF
Yield
TTM
This
FY
Next
FY
LTM
Rev./
EV
∆ Rev.
% TTM Rev.
Rev./
Empl.
($000)
TTM
Last
Q
Gross
Profit
Adj.
EBIT
High
MV
($mn)
EV
($mn)
-39%
65%
6,902
5,815
15%
10%
7%
6%
7%
79%
83
-8%
-11%
61%
23%
-44%
138%
596
458
25%
11%
9%
9%
8%
95%
146
7%
-3%
61%
21%
3
-57%
657%
244
414
77%
-10%
neg.
8%
11%
430%
160
-5%
-17%
39%
4%
DeVry / DV
41
-62%
84%
2,725
2,400
18%
9%
11%
9%
10%
91%
212
9%
0%
57%
21%
Education Mgmt / EDMC
26
-70%
17%
3,261
4,271
n/m
8%
6%
5%
5%
68%
200
-9%
2%
48%
17%
ITT Educational / ESI
66
-37%
103%
1,756
1,586
7%
26%
17%
16%
12%
97%
245
-1%
-10%
64%
35%
113
-38%
133%
1,353
1,401
Strayer / STRA
Median
Career Edu. / CECO
10
-40%
308%
793
345
3%
8%
8%
8%
6%
46%
307
5%
-8%
57%
30%
15%
9%
8%
8%
8%
91%
200
-1%
-8%
57%
21%
58%
17%
20%
21%
9%
584%
232
-4%
-18%
68%
15%
Abbreviations: MV = market value | EV = enterprise value | TTM = trailing twelve months | FY = fiscal year | Empl. = employee | Rev. = revenue ∆
| = change
CAREER EDUCATION – NON-GAAP EBIT AND EPS, 2008–2010 1 ($ in millions, except per share amounts; shares in thousands)
1
2
We present non-GAAP financial measures as defined by management.
Earnings per share based on continuing operations.
4Q10 includes a $67.8 million pretax trade name impairment within Culinary Arts. The $2.5 million asset impairment in 2009 resulted from the carrying value
exceeding the fair value for one owned facility. In 2008, the company recorded $6.8 million in asset impairment charges related to the reduction in asset carrying
value for a leased facility within Culinary Arts and the write off of a trade name within Health Education.
4
A $40.8 million charge was recorded in 2010 and $6.3 million, net in 2008 related to the settlements of legal matters within Culinary Arts and Health Education.
5
The 2009 performance-based comp related to plan outperformance by segment was: Corporate: $11.3 million, Health Education: $4.3 million, Culinary Arts: $2.1
million, Colorado Technical University: $1.9 million, American Intercontinental University: $1.8 million, and Art & Design: $1.7 million.
6
A $12.0 million payment) was received in the fourth quarter 2009 related to the termination of certain insurance policies.
7
Gain from Termination of Affiliate Relationship is recorded within other income on the consolidated statement of operations.
Source: Company presentation dated May 10, 2011.
3
CAREER EDUCATION – DIVERSIFIED PORTFOLIO: UNIVERSITY
CAREER EDUCATION – DIVERSIFIED PORTFOLIO: CAREER-FOCUSED
CAREER EDUCATION – ALLOCATION OF FREE CASH FLOW
Citi Trends (CTRN) – Franklin, MFS, Morgan Stanley, Rutabaga, Southpoint
Services: Retail (Apparel)
Savannah GA, 912-236-1561
Trading Data
www.cititrends.com
Price: $9.45 (as of 1/20/12)
52-week range: $7.87–$25.20
Ownership Data
This quarter
Next quarter
FYE 1/31/12
Latest
$0.35
0.74
0.18
Month
Ago
$0.35
0.74
0.18
Valuation
# of
Ests
8
3
3
FYE 1/30/13
0.49
0.49
8
FYE 1/30/14
n/a
n/a
n/a
LT growth
10.7%
EPS Surprise
11/22/11
12.3%
Actual
-$0.38
P/E FYE 1/31/11
P/E FYE 1/31/12
P/E FYE 1/30/13
P/E FYE 1/30/14
EV/ LTM revenue
EV/ LTM EBIT
21x
P / tangible book
0.7x
Greenblatt Criteria
3
Estimate
-$0.37
7x
53x
19x
n/a
0.2x
LTM EBIT yield
LTM pre-tax ROC
5%
4%
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Shares out (avg)
D&A
Capex
Free cash flow
… % of revenue:
Gross profit
D&A
Capex
Cash, investments
Inventory
PP&E, net
Tangible assets
Debt
Total liabilities
Tangible equity
TBV per share
2005
203
76
13
7
0.78
9
13
0
9
4
2006
290
111
21
14
1.22
12
28
6
12
16
37.4%
6.1%
0.0%
4.2%
12
36
18
69
37
7
47
22
32%
2.41
60%
38.2%
7.3%
2.1%
4.0%
64
54
23
146
60
1
64
82
56%
7.01
96%
Fiscal Years Ended January 29,
2007
2008
2009
382
438
488
146
159
186
30
19
23
21
14
17
1.58
1.01
1.22
14
14
14
19
17
41
8
13
16
16
30
24
3
-14
17
38.3%
7.9%
2.2%
4.1%
74
73
35
191
66
5
74
117
61%
8.61
82%
36.3%
4.3%
2.9%
6.9%
62
82
52
209
64
3
72
137
65%
9.80
28%
38.2%
4.7%
3.3%
5.0%
34
86
59
239
74
1
83
157
65%
11.10
28%
2010
552
213
29
20
1.36
14
41
18
22
19
2011
623
239
31
21
1.44
15
24
21
41
-17
LTME
10/29/11
635
234
8
7
0.48
15
26
24
46
-20
FQE
10/30/10
140
52
-1
0
-0.01
15
-3
5
11
-13
FQE
10/29/11
143
48
-11
-6
-0.42
15
-6
7
11
-17
38.6%
5.3%
3.3%
4.0%
96
101
64
279
89
0
99
180
65%
12.52
33%
38.4%
5.0%
3.3%
6.6%
70
121
85
305
92
0
102
203
67%
14.02
28%
36.8%
1.2%
3.8%
7.2%
33
127
95
307
93
0
106
201
66%
13.77
4%
36.9%
-0.5%
3.6%
7.6%
74
115
77
292
87
0
97
195
67%
13.39
-3%
33.7%
-7.9%
4.5%
7.4%
33
127
95
307
93
0
106
201
66%
13.77
-27%
$70
$60
$50
$40
$30
$20
$10
$0
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Citi Trends is a U.S. retailer of urban fashion apparel. The
company’s predecessor was founded in 1946 and grew into a
chain of family apparel stores operating in the Southeast. In
1999, the company, then consisting of 85 stores, was bought
by PE firm Hampshire Equity Partners. After growing from
85 to 212 stores, Citi Trends completed an IPO in May 2005.
FYE January 29
2007 2008
∆ stores (end)
18%
15%
∆ comparable store sales
8%
1%
∆ revenue
32%
15%
∆ gross profit
32%
9%
∆ assets
30%
9%
∆ book value
41%
17%
∆ BV per share
22%
14%
New stores opened
42
42
Stores closed
0
0
Stores in existence (end)
277
319
Selling sq. ft. (end) (mn)
2.6
3.2
Avg sales per store ($mn)
1.5
1.5
Revenue ($mn)
382
438
% of sales by merchandise:
Women’s
36%
35%
Children’s
26%
27%
Men’s
22%
22%
Accessories
14%
14%
Home décor
2%
2%
Gross profit
38%
36%
EBIT (adjusted)1
8%
4%
6%
3%
D&A
2%
3%
Capex
4%
7%
Industry gross margin3
38%
38%
Industry EBIT margin3
7%
4%
191
209
Cash, investments
39%
30%
Receivables
0%
0%
Inventory
38%
39%
LT investments
0%
0%
PP&E, net
18%
25%
Payables
25%
21%
ST debt
1%
1%
LT debt
2%
1%
Tangible equity
61%
65%
Return on equity (ROE)
21%
11%
ROE – industry median3
18%
10%
Trailing P/E (end)
10x
15x
Forward P/E (end)
15x
12x
1.51
1.00
BV per share (end) ($)
9
10
Share price (end) ($)
15
15
13.6
14.0
15%
3%
• Value-priced retailer of urban fashion apparel
and accessories for the family. Citi Trends offers
apparel from recognized brands as well as private
label apparel, accessories, and home décor. The
merchandise appeals mostly to African-Americans
(70% of shoppers). It is priced at discounts to
department and specialty stores’ regular prices of up
to 60%. Stores average 10,600 square feet of selling
space and are in shopping centers convenient to
low- to moderate-income customers. In 2010, Citi
Trends opened 60 new stores and closed two stores.
It operated 507 stores nationwide as of October 29.
• Off-price apparel is $17+ billion market; urban
apparel is $10 billion market (with some overlap
between the two). African-Americans are a growing
demographic with $1+ trillion of income. They
spend 3.9% of income on apparel vs. 3.0% average.
• Solid store economics (browse forward two pages)
• Continuing to open stores despite negative SSS.
While comparable store sales fell 9% YTD 2011,
the company opened 25 net stores in 3Q11. It is not
clear that opening new stores amid SSS declines is
the best use of capital. With shares at 0.7x tangible
book, repurchasing stock may be a better option.
• Accessories account for 17% of sales, suggesting
that the company may have few new-product levers
to pull to boost comparable store sales. (Adding
accessories is usually an easy way to increase SSS,
but Citi Trends may have exhausted this option.)
• Expansion beyond Southeast may fail. Citi Trends
has expanded to California, the Midwest and select
Northeastern states in the last seven years, but it’s
unclear whether the expansion will succeed.
POTENTIAL CATALYSTS
• Stabilization and renewed growth in SSS
• Operating margin expansion beyond 5%
MAJOR HOLDERS
CEO <1% | Other insiders 2% | MFS 14% | FMR 12% |
Invesco 10% | MS 8% | Southpoint 6% | Rutabaga 4%
1
2
3
2009
12%
0%
12%
17%
15%
15%
13%
39
1
357
3.7
1.4
488
2010
13%
1%
13%
14%
16%
15%
13%
49
3
403
4.2
1.5
552
2011
14%
-2%
13%
12%
9%
13%
12%
60
2
461
4.9
1.4
623
YTD
10/29/11
11%
-9%
3%
-3%
5%
3%
3%
50
4
507
n/a1
n/a
463
35%
29%
22%
12%
2%
34%
29%
21%
14%
2%
33%
28%
20%
17%
2%
n/a
n/a
n/a
n/a
n/a
38%
5%
4%
3%
5%
37%
4%
239
39%
5%
4%
3%
4%
38%
4%
279
38%
5%
3%
3%
7%
38%
5%
305
36%
-1%
-1%
4%
7%
38%
3%
307
14%
0%
36%
18%
25%
22%
1%
0%
65%
12%
10%
23x
20x
1.20
11
28
14.1
1%
34%
0%
36%
0%
23%
23%
0%
0%
65%
11%
11%
18x
17x
1.36
13
25
14.4
2%
23%
0%
40%
3%
28%
22%
0%
0%
67%
11%
14%
6x
49x
1.44
14
9
14.5
1%
11%
3%
41%
6%
31%
21%
0%
0%
66%
-1%
15%
n/m
30x
-0.32
14
12
14.6
1%
Store selling square footage increased 11.8% year-over-year as of FQ3-end.
Adjusted for unusual items of -$2.3 million YTD 10/29/11.
Retail (Apparel) industry median.
RATINGS







THE BOTTOM LINE
Urban apparel retailer Citi Trends has experienced impressive growth over the past decade, growing sales from $98 million
in FY01 to $623 million in FY10, recording double-digit annual SSS growth in the first half of the decade. SSS have
stagnated since then and are down 9% YTD 2011, but management has continued growing the store footprint beyond the
company’s traditional base in the Southeastern U.S. Citi Trends seems to have attractive store economics, and the shares are
cheap at 0.7x tangible book value and 0.2x EV to sales. With $33 million of cash and no debt, Citi Trends deserves a look.
CITI TRENDS – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
Aggressive
January 28, 2013
ended October 29, 2011 and average
fiscal years
▼
▼
▼
TTM net sales: $630 million
average of
minus
multiplied by
equals
equals
multiplied by
multiplied by
5x
equals
equals
equals
Citi Trends: $185 million
multiplied by
plus
Assumed CTRN multiple as a
plus
equals
80%
equals
minus
equity of Citi Trends:
Total debt: $0
equals
equals
minus
multiplied by
(*) Represents Retail (Apparel) industry
median multiple.
CITI TRENDS – ANALYSIS OF SELECTED COMPARABLE COMPANIES
(Click to visit
relevant websites)
Price
($)
Trading Data
% ∆ to
7-Year
MV
Low High ($mn)
-83
0 2,716
EV
($mn)
Tang.
Book/
MV
EPS Yield
TTM
FCF
This Next
Yield TTM
FY
FY
LTM
Rev./
EV
Rev./
Empl.
($000)
∆ Rev.
% TTM Rev.
Last Gross
Adj.
TTM
Q
Profit EBIT
Tang.
Equity/
Tang.
Assets
Ascena / ASNA
35
2,426
28%
6%
6%
7%
8%
122%
330
11%
8%
42%
10%
53%
Cato / CATO
26
-56
19
755
512
48%
7%
8%
8%
9%
182%
97
-21%
-2%
38%
10%
67%
5
-91
218
571
556
38%
9%
neg.
1%
4%
361%
335
-1%
-7%
50%
1%
25%
Kohl’s / KSS
47
-49
68
12K
15K
54%
10%
9%
9%
10%
122%
649
4%
4%
38%
12%
44%
Macy’s / M
35
-86
32
15K
21K
10%
7%
8%
8%
9%
125%
156
6%
4%
40%
9%
8%
Ross / ROST
52
-79
1
12K
12K
12%
3%
5%
6%
6%
73%
597
9%
9%
27%
12%
45%
Target / TGT
50
-50
41
34K
52K
45%
3%
9%
8%
9%
134%
195
3%
5%
31%
8%
32%
TJX / TJX
67
-73
1
25K
25K
12%
4%
5%
6%
7%
92%
137
6%
5%
27%
10%
36%
Wal-Mart / WMT
61
-31
5
209K
261K
22%
5%
7%
7%
8%
169%
210
5%
8%
25%
6%
27%
28%
6%
7%
7%
8%
125%
210
5%
5%
38%
10%
36%
142%
-14%
3%
2%
5%
588%
276
2%
2%
37%
1%
66%
Charming / CHRS
Median
Citi / CTRN
9
-26
512
141
108
Abbreviations: MV = market value | EV = enterprise value | TTM = trailing twelve months | FY = fiscal year | Empl. = employee | Rev. = revenue | ∆ = change
CITI TRENDS – MANAGEMENT’S COMPETITIVE MATRIX
CITI TRENDS – STORE-LEVEL ECONOMICS
1
Source: Company presentation, accessed online on January 15, 2012.
Total store investment does not reflect the benefit of landlord reimbursements
for tenant improvements.
First 12 months results for the 249 new stores opened in FY 2005-2010 that
have now been open at least 12 months.
3
Total store investment reflects the benefit of landlord reimbursements for
tenant improvements.
2
CITI TRENDS – CHANGE IN COMPARABLE STORE SALES
CITI TRENDS – ROOM FOR GROWTH?
Cray (CRAY) – CI Global, DFA, Paradigm, Royce, Wells Fargo
Technology: Computer Hardware
Seattle WA, 206-701-2000
Trading Data
www.cray.com
Price: $7.11 (as of 1/20/12)
52-week range: $4.96–$8.38
Ownership Data
This quarter
Next quarter
FYE 12/31/11
Latest
$0.42
-0.09
-0.24
Month
Ago
$0.70
-0.09
0.32
Valuation
# of
Ests
2
1
1
FYE 12/30/12
0.44
0.24
2
FYE 12/30/13
n/a
n/a
n/a
LT growth
n/a
EPS Surprise
11/1/11
n/a
Actual
-$0.35
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
EV/ LTM EBIT
4x
P / tangible book
2.0x
Greenblatt Criteria
n/a
Estimate
-$0.48
17x
n/m
16x
n/a
0.5x
LTM EBIT yield
LTM pre-tax ROC
22%
>100%
($ millions, except
per share data)
Revenue
Gross profit
R&D
Adjusted net income
Shares out (avg)
… % of revenue:
Gross profit
R&D
Cash, investments
Receivables
Inventory
PP&E, net
Intangible assets
Total assets
Tangible assets
Payables
Debt
Total liabilities
Tangible equity
TBV per share
2004
146
11
53
-96
-156
-7.47
21
2005
201
33
42
-51
-55
-2.46
22
7.8%
36.6%
-66.1%
76
33
72
198
37
67
311
244
24
104
80
189
56
23%
2.66
16.2%
20.7%
-25.4%
46
55
68
172
31
61
273
212
15
120
80
207
5
2%
0.21
2006
2007
2008
221
186
283
64
66
111
29
38
52
-6
-10
18
-15
-11
14
-0.66
-0.33
0.42
23
32
33
28.9%
13.1%
-2.7%
115
45
59
246
22
63
338
275
23
110
80
196
79
29%
3.44
35.2%
20.4%
-5.1%
169
24
56
263
17
70
356
286
14
112
80
208
79
27%
2.47
39.3%
18.3%
6.3%
78
96
80
287
18
2
314
312
17
172
26
194
118
38%
3.63
2009
284
106
63
0
-1
-0.02
34
2010
319
110
44
18
15
0.44
34
LTME
9/30/11
364
141
53
40
37
1.08
35
FQE
9/30/10
43
11
19
-19
-19
-0.55
34
FQE
9/30/11
37
16
18
-12
-12
-0.33
35
37.3%
22.1%
-0.1%
108
38
29
186
20
2
224
222
19
87
0
100
123
55%
3.65
34.4%
13.7%
5.5%
57
106
49
223
18
2
261
259
20
97
0
115
144
56%
4.19
38.6%
14.6%
10.9%
88
26
95
221
17
2
256
254
51
110
0
122
132
52%
3.74
25.0%
43.5%
-43.2%
68
31
149
266
19
2
302
301
42
196
0
209
92
30%
2.66
44.4%
48.8%
-31.6%
88
26
95
221
17
2
256
254
51
110
0
122
132
52%
3.74
$60
$50
$40
$30
$20
$10
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Cray provides high-performance computing (HPC) systems.
FYE December 31
2006 2007
∆ revenue – product
7% -18%
∆ revenue – service
19%
-9%
∆ revenue
10% -16%
∆ gross profit
96%
3%
∆ assets
24%
5%
∆ book value
115%
5%
∆ BV per share
108% -25%
Revenue ($mn)
221
186
U.S. gov’t % of revenue
48%
60%
Product
74%
72%
Service
26%
28%
Products
n/a
n/a
Custom engineering
n/a
n/a
Maintenance, support
n/a
n/a
Gross margin by segment:
Products
n/a
n/a
Custom engineering
n/a
n/a
Maintenance, support
n/a
n/a
% of product revenue by geography:
U.S.
47%
63%
Other countries
53%
37%
% of service revenue by geography:
U.S.
65%
60%
Other countries
35%
40%
Gross profit
29%
35%
R&D
13%
20%
EBIT (adjusted)1
-3%
-5%
-7%
-6%
D&A
7%
7%
Capex
1%
2%
275
286
Cash, investments
42%
59%
Receivables
16%
8%
Inventory
21%
19%
PP&E, net
8%
6%
Payables
8%
5%
Debt
29%
28%
Tangible equity
29%
27%
6
5
6
2
Volume (mn shares)
92
53
23
32
3%
40%
• Cray supercomputers perform “far beyond”
typical server-based systems and address tough
scientific, engineering and national security
problems. Purpose-built for supercomputers, Cray
high-end systems balance capable processors, dense
design, scalable system software and high-speed
interconnect and communications capabilities.
• HPC technical server market size growing from
$8.6 billion in 2009 to $10.5 billion in 2012, with
the supercomputer segment growing from $3.4
billion to $3.9 billion during the same time period,
according to IDC. The supercomputer segment is
expected to have a CAGR of 6.5% from 2009-’14.
• Management’s strategy is to gain share in the
high-end supercomputer market, grow its custom
engineering business, and sell Cray XE6m systems.
Cray sells to government agencies, academic
institutions and commercial entities that need highend computing. The U.S. government accounted for
81%, 72% and 62% of revenue in 2008, 2009 and
2010, respectively. Cray employs a direct salesforce
and has systems installed at 100+ sites worldwide.
• Guiding for “solidly profitable” 2012, with
expected revenue of $400-$420 million, 25% of
which should be recognized in Q1 and much of the
remainder in Q4. Managements expects gross
margin of ~35% and opex of $120 million in 2012.
• Are supercomputers going away over time?
While computing requirements are increasing
steadily due to an explosion of digital data, most
entities might save money by using many off-theshelf systems, powered by software, to do the job of
a few supercomputers. Google’s search engine is
highly data-intensive, yet Google uses cheap
components instead of expensive high-end systems.
• Budget cuts would negatively affect Cray, as the
U.S. government accounts for two-thirds or more of
revenue. DoD budget cuts, in particular, are a risk.
• Failed to complete acceptance process on Cray
XK6 upgrade at Oak Ridge National Laboratory
in Q4, forcing management to lower guidance. The
completion of system acceptances was impacted by
“further supply issues related to a key component.”
Cray does expect acceptance at Oak Ridge in Q1.
POTENTIAL CATALYSTS
• Near-doubling of revenue in 2012
• Return to “solid” profitability in 2012
1
2008
64%
21%
52%
70%
-12%
-19%
-21%
283
81%
2009
-9%
33%
0%
-5%
-29%
3%
0%
284
72%
YTD
2010 9/30/11
20%
92%
-5%
10%
12%
45%
4% 107%
16%
-16%
17%
43%
15%
40%
319
145
62%
70%
77%
23%
70%
30%
75%
25%
56%
44%
77%
3%
20%
69%
11%
20%
63%
19%
18%
52%
15%
33%
39%
47%
39%
34%
42%
45%
36%
23%
42%
33%
49%
50%
89%
11%
76%
24%
64%
36%
77%
23%
64%
36%
76%
24%
73%
27%
70%
30%
39%
18%
6%
5%
4%
2%
312
37%
22%
0%
0%
3%
3%
222
34%
14%
5%
5%
3%
1%
259
41%
30%
-10%
-10%
4%
3%
254
25%
31%
26%
6%
5%
8%
38%
4
6
64
33
2%
49%
17%
13%
9%
8%
0%
55%
4
7
76
34
3%
22%
41%
19%
7%
8%
0%
56%
4
7
48
34
2%
35%
10%
37%
7%
20%
0%
52%
4
5
34
35
2%
Adjusted for items of -$1.3 million in ‘06, -$55 million in ‘08, -$1.9 million YTD.
MAJOR HOLDERS
CEO Ungaro 1% | Other insiders 4% | Wells Fargo 16% |
Paradigm 6% | Royce 4% | DFA 2% | CI Global 2%
RATINGS







THE BOTTOM LINE
Cray is a leading systems provider in the supercomputer niche, which caters to entities with high computing performance
requirements. While it’s impossible to predict how the supercomputer market may evolve over time, Cray’s revenue should
grow strongly in 2012. A strong balance sheet and profitable operations in 2012 make Cray interesting, if not compelling.
CRAY – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
Aggressive
December 30, 2012
September 30, 2011
▼
▼
▼
minus
minus
minus
Capex: $4.8 million
Intangibles: $1.6 million
equals
equals
equals
divided by
multiplied by
multiplied by
equals
equals
equals
multiplied by
multiplied by
Assumed CRAY multiple as a
multiplied by
Assumed CRAY multiple as a
100%
120%
100%
equals
equals
equals
equity of Cray:
equity of Cray:
equity of Cray:
(*) Represents Computer Hardware industry median multiple.
Crimson Exploration (CXPO) – America Capital Energy, DFA, Oaktree
Energy: Oil & Gas Operations
Houston TX, 713-236-7400
Trading Data
www.crimsonexploration.com
Price: $2.67 (as of 1/20/12)
52-week range: $2.00–$4.45
Ownership Data
Valuation
This quarter
Next quarter
FYE 12/31/11
Latest
-$0.05
-0.04
-0.10
Month
Ago
-$0.05
-0.05
-0.10
# of
Ests
7
6
4
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
n/m
n/m
n/m
17x
2.7x
FYE 12/30/12
-0.02
-0.02
8
EV/ LTM EBIT
n/m
FYE 12/30/13
0.16
0.25
4
P / tangible book
0.7x
LT growth
n/a
EPS Surprise
11/9/11
n/a
Actual
$0.02
Greenblatt Criteria
n/a
Estimate
-$0.06
LTM EBIT yield
LTM pre-tax ROC
-5%
-4%
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Shares out (avg)
D&A
Capex
Free cash flow
… % of revenue:
Gross profit
D&A
Capex
Cash, investments
PP&E, net
Tangible assets
Payables
Short-term debt
Long-term debt
Tangible equity
TBV per share
2004
11
6
2
-7
-4
-2.38
2
1
2
6
-6
2005
18
8
1
-4
-7
-2.47
3
4
3
11
-7
56.3%
17.9%
19.6%
54.5%
0
4
50
58
5
30
1
19
32%
10.09
30%
46.3%
6.8%
17.5%
61.0%
1
6
54
63
4
0
1
53
84%
19.75
1%
2006
2007
2008
22
110
187
14
83
147
1
38
89
7
4
116
2
-1
85
0.46
-0.12
15.88
3
4
5
14
70
144
4
31
51
22
313
200
-8
-243
-57
62.2%
3.7%
18.4%
100.5%
0
4
77
85
10
0
8
61
72%
18.97
-4%
75.4%
34.7%
28.1%
285.4%
5
37
357
399
41
0
260
70
17%
16.10
16%
78.7%
47.9%
27.0%
107.2%
0
46
449
512
48
0
277
122
24%
22.64
12%
2009
112
85
6
-44
-32
-4.06
8
10
53
21
-12
2010
97
75
8
-25
-9
-0.22
39
48
45
55
-7
LTME
9/30/11
115
95
21
-12
5
0.12
41
62
53
76
-14
FQE
9/30/10
25
18
2
-6
-4
-0.10
39
14
12
17
-3
FQE
9/30/11
29
26
8
6
5
0.12
45
20
13
18
2
75.8%
5.6%
47.4%
19.0%
0
25
393
425
20
0
193
183
43%
23.24
0%
77.2%
8.2%
46.6%
56.7%
0
28
380
413
31
0
172
184
44%
4.66
-4%
82.5%
18.2%
46.5%
66.7%
0
24
386
422
42
0
184
174
41%
3.86
-4%
74.3%
6.9%
49.0%
69.8%
0
27
398
430
33
0
196
174
40%
4.48
2%
89.3%
27.1%
46.0%
60.5%
0
24
386
422
42
0
184
174
41%
3.86
4%
$25
$20
$15
$10
$5
$0
Dec 02
Dec 03
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Crimson is a natural gas and oil exploration and production
company, with properties located primarily in Texas.
• Attractive U.S. assets, with 167 Bcfe of proved
reserves (81% natural gas) and another 880 Bcfe of
unproved reserve potential. Daily production is ~45
mmcfe, with 80% of operated by the company.
Crimson expects proved reserves to grow from 167
Bcfe at yearend 2010 to 184 Bcfe at yearend 2011.
• Production mix to be 50/50 crude oil/natural gas
by mid-2012, compared to 1Q11 production mix of
30% oil and NGLs. Production rose 23% in 3Q11.
Crimson expects flat overall production in 2012.
• $85 million and $74 million capex budget for
2011 and 2012, focused on South, Southeast and
East Texas (10 net wells each year). The goal is to
preserve majority-controlled East Texas acreage.
• Strong hedge position on 2011-12 production.
Crimson has sufficient liquidity for strategic plan,
including $85 million availability on revolver. The
company has no near-term debt maturities.
• Large, long-term shareholder in Oaktree (34%).
In addition, Crimson raised $30 million at $5 per
share from Chinese investor ACEC in late 2010.
• Natural gas weighting hurts near-term results,
but could drive upside if demand for natural gas
increases materially due to the low cost versus oil.
• East Texas lease expirations may be motivating
Crimson to drill in order to keep leases despite the
risk of low returns on capital in the near term.
Drilling in the emerging East and South Texas plays
carries greater risk than drilling in established plays.
• Half of proved reserves are undeveloped. Large
capex will be required to developed those reserves.
• $180 million net debt vs. $60mn YTD EBITDAX
SE Texas
S. Texas
E. Texas
CO, other
Total
%
Nat.
Gas
28,262
71,024
59,336
7,876
166,498
57%
77%
100%
72%
81%
%
Proved
Developed
86%
58%
16%
64%
48%
Production,
2010
(Mcfe/d)
18,560
12,880
2,677
1,295
35,412
Net
Acres
14,600
51,300
12,800
12,400
91,100
FYE December 31
2006
Revenue ($mn)
22
Natural gas
49%
Crude oil
51%
Natural gas liquids
0%
Lease operating expenses
35
G&A
40
EBIT
(11)
Net income
(8)
DD&A
18
Capex
101
Property acquisitions
0
Proved reserves (end):
Natural gas (Bcf)
31
Crude oil (MMBbl)
3
Natural gas liquids (MMBbl)
0
Total developed (Bcfe)
41
Total undeveloped (Bcfe)
6
Developed as % of proved
88%
PV-10 ($mn)
102
Est. reserve life (years)
17
Selected costs per Mcfe ($):
Lease operating expenses
2.12
Production, ad valor. taxes
0.71
Exploration expenses
0.25
General and administrative
3.29
Opex (cash)
6.37
DD&A
1.51
Stock comp
1.44
Selected costs
9.32
Average sales prices (before hedging):
Natural gas ($/Mcf)
6.76
Crude oil ($/Bbl)
63
Natural gas liquids ($/Bbl)
n/m
Average sales prices (after hedging):
Natural gas ($/Mcf)
6.85
Crude oil ($/Bbl)
59
Natural gas liquids ($/Bbl)
n/m
Wells drilled and completed, net:
Development
3.5
Exploratory
0.0
Dry
0.0
Employees (end)
33
21%
∆ shares out
2007
110
2008
187
2009
112
2010
97
62%
25%
13%
63%
23%
15%
64%
24%
12%
62%
23%
15%
11
13
31
(4)
28
54
231
11
12
25
22
27
76
31
15
17
(0)
(34)
47
19
(0)
16
21
(15)
(32)
47
57
0
91
3
4
98
33
75%
531
10
96
3
3
91
41
69%
291
7
70
2
3
69
29
70%
176
7
136
2
3
80
86
48%
240
13
0.91
0.88
0.24
1.10
3.13
2.33
0.36
5.81
1.08
0.85
0.52
0.88
3.33
2.63
0.28
6.24
1.16
0.48
0.18
1.10
2.92
3.57
0.16
6.65
1.16
0.47
0.07
1.45
3.15
3.48
0.14
6.77
6.78
74
50
8.92
101
53
3.97
57
31
4.35
79
41
7.48
66
50
8.86
84
53
6.86
84
31
6.45
85
41
1.1
1.7
0.7
67
34%
10.4
1.0
0.2
81
24%
2.0
0.5
0.4
74
46%
3.9
0.0
0.6
63
401%
MAJOR HOLDERS
CEO 2% | Other insiders 2% | Oaktree 34% | ACEC 13%
SELECTED RESOURCE INFORMATION (as of December 31, 2010)
Proved
Reserves
(MMcfe)
Identified
Gross
Drilling
Locations
65
359
245
191
860
RATINGS







THE BOTTOM LINE
Crimson Exploration is a natural gas and oil E&P company with properties located primarily in Texas. Low natural gas prices
have made Crimson a neglected equity, despite strong institutional support (Howard Marks’ Oaktree owns 34%). Proved
reserves (81% natural gas) were 167 Bcfe at yearend 2010, valued at $359 million based on PV-10 using strip pricing, with
another 880 Bcfe of unproved reserve potential. Under assumptions shown on the following page, management recently
estimated equity fair value at nearly $16 per share. While uncertainty exists with regard to future drilling success and cash
flow, we view Crimson as an investment in which future value creation is almost certain to accrue to the shareholders.
CRIMSON EXPLORATION – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
September 30, 2011
proved and potential reserves; minus net
debt
December 30, 2013
▼
multiplied by
equals
multiplied by
Assumed CXPO multiple as a
95%
equals
equity of Crimson Exploration:
▼
minus
Intangibles: $0
equals
multiplied by
equals
Aggressive
▼
Potential reserves, net: 147 million boe
Assumed value of potential: $2 per boe
Value of proved reserves: $139 million
Value of potential reserves: $293 million
multiplied by
minus
Net debt: $184 million
equals
Assumed CXPO multiple as a
75%
equals
(*) Represents Oil & Gas Operations industry
median multiple.
(†) In order to be conservative, we apply the
CRIMSON EXPLORATION – MANAGEMENT ESTIMATE OF NET ASSET VALUE
1
Per SEC filings. 2 Includes 20 Bcfe of net unproved reserve potential in Niobrara. Does not include recent acreage acquisition in Madison County, TX.
CRIMSON EXPLORATION – RESERVE SUMMARY
1
Based on 12/31/2010 SEC pricing. PV-10 value includes hedging effects.
Reflects mostly oil potential with the conversion of barrels on a 6:1 basis.
2
CRIMSON EXPLORATION – CAPITAL EXPENDITURE BUDGET
CRIMSON EXPLORATION – TRANSITIONING TO A BALANCED OIL/GAS PROFILE
Daily Journal (DJCO) – Guerin Family, Charlie Munger, Roseman Wagner
Services: Printing & Publishing
Los Angeles CA, 213-229-5300
Trading Data
www.dailyjournal.com
Price: $69.00 (as of 1/19/12)
52-week range: $62.54–$79.95
This quarter
Next quarter
FYE 7/3/06
Ownership Data
Valuation
Latest
n/a
n/a
n/a
Month
Ago
n/a
n/a
n/a
# of
Ests
n/a
n/a
n/a
P/E FYE 7/3/05
P/E FYE 7/3/06
P/E FYE 7/3/07
P/E FYE 7/2/08
EV/ LTM revenue
FYE 7/3/07
n/a
n/a
n/a
EV/ LTM EBIT
FYE 7/2/08
n/a
n/a
n/a
P / tangible book
LT growth
n/a
n/a
EPS Surprise
n/a
Actual
n/a
2x
1.5x
Greenblatt Criteria
n/a
Estimate
n/a
12x
n/a
n/a
n/a
0.7x
LTM EBIT yield
LTM pre-tax ROC
47%
n/m
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Shares out (avg)
D&A
Capex
Free cash flow
… % of revenue:
Gross profit
D&A
Capex
Cash, investments
Receivables
PP&E, net
Tangible assets
Debt
Total liabilities
Tangible equity
TBV per share
2005
33
31
5
5
4
2.97
1
4
1
1
4
2006
32
30
4
4
2
1.66
1
3
1
1
2
93.1%
13.5%
2.4%
1.8%
12
4
18
12
34
14
4
19
15
43%
9.98
92.9%
12.3%
2.8%
2.8%
10
5
16
12
36
14
4
19
17
48%
11.70
Fiscal Years Ended September 30,
2007
2008
2009
35
41
40
33
39
39
6
11
12
7
12
13
2
7
8
1.59
4.90
5.67
1
1
1
5
7
8
1
1
1
0
0
0
5
6
8
94.0%
17.1%
2.8%
1.1%
17
6
23
11
40
12
4
18
22
56%
15.35
94.8%
26.8%
2.5%
1.0%
22
9
32
11
46
13
0
17
30
64%
20.30
95.5%
30.2%
2.0%
0.5%
62
10
73
10
85
25
0
29
55
65%
39.26
2010
38
36
12
12
8
5.58
1
9
1
0
9
2011
35
33
11
12
8
5.65
1
10
1
0
10
LTME
9/30/11
35
33
11
12
8
5.65
1
10
0
0
10
FQE
9/30/10
9
9
3
3
2
1.45
1
2
0
0
2
FQE
9/30/11
8
8
2
3
2
1.38
1
3
0
0
3
96.0%
30.6%
1.6%
0.5%
67
9
77
10
89
23
0
28
61
68%
43.96
95.9%
31.3%
1.4%
0.3%
72
7
79
9
91
21
0
26
65
71%
47.01
95.9%
31.3%
1.2%
0.3%
72
7
79
9
91
21
0
26
65
71%
47.01
96.7%
31.9%
2.2%
2.2%
67
9
77
10
89
23
0
28
61
68%
43.96
96.3%
29.6%
1.2%
1.2%
72
7
79
9
91
21
0
26
65
71%
47.01
$90
$80
$70
$60
$50
$40
$30
$20
$10
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Daily Journal publishes newspapers in California and
Arizona with a focus on the legal profession. The company
also supplies case management software through Sustain.
FYE September 30
2006
Revenue ($mn)
32.4
Change (y-y)
-3%
Advertising
53%
Circulation
28%
Info. systems & services
10%
Adv. service fees & other
9%
Revenue growth by type:
Advertising
4%
Circulation
-5%
Info. systems & services
-26%
Adv. service fees & other
1%
Salaries
51%
Newsprint and printing
7%
Outside services
11%
Postage & delivery
5%
General & administrative
11%
D&A
3%
Capex
3%
Operating income
12%
Net income
8%
Free cash flow 1
6%
Traditional segment 2:
Revenues ($mn)
29.2
Net income ($mn)
3.4
Capex ($mn)
0.9
Total assets ($mn) 3
33.3
Sustain segment:
Revenues ($mn)
3.1
Net income ($mn)
-1.0
Capex ($mn)
0.0
Total assets ($mn)
2.5
Selected items as % of total assets:
Cash and equivalents
2%
Treasury notes and bills
25%
Marketable securities
0%
Accounts receivable
13%
Property, plant, equipment
33%
Selected paid circulation statistics:
LA Daily Journal (copies)
8700
SF Daily Journal (copies)
4100
Annual subscription ($)
653
11.31
Tangible book value/share
0%
∆ shares outstanding
• Rising levels of foreclosures in Arizona and
California boosted public notice advertising
revenue in recent years. Such advertising is
required by law in many jurisdictions and accounted
for 58% of total fiscal 2011 revenue.
• Despite lack of revenue growth and declining
circulation, Daily Journal generated free cash
flow of $50.2 million over the past ten years.
Pricing power partially mitigated steep declines in
circulation. Public notice ads and improved margins
boosted net income and FCF in recent years.
• Increase in book value driven by investments
over the past three years. Chairman Munger* has
deployed $31.6 million since early 2009 resulting in
unrealized gains of $24.5 million as of 9/30/2011.
• Efficient management and compensation system.
CEO Salzman (72) also serves as President, CFO,
Treasurer, and Assistant Secretary. ** Chairman
Munger (88) is responsible for investments in
consultation with Vice Chairman Guerin (82). ***
• Core publishing business is in long-term secular
decline. While pricing power driven by niche
market dynamics has mitigated revenue declines,
downward trend appears inexorable and irreversible.
• Securities portfolio is not transparent and
heavily concentrated. Consisting of stock of “two
Fortune 200 companies and bonds of a third”
purchased in Feb. 2009 and “shares of common
stock in two foreign manufacturing companies”
purchased in 2011, disclosure is very limited.
2007
35.1
8%
2008
40.6
16%
2009
40.4
0%
2010
37.6
-7%
2011
34.5
-8%
54%
25%
11%
9%
59%
21%
12%
9%
58%
19%
12%
10%
62%
19%
9%
11%
62%
20%
9%
10%
11%
-3%
25%
9%
25%
-4%
22%
7%
-1%
-8%
3%
15%
-2%
-10%
-32%
-2%
-8%
-4%
-11%
-14%
50%
6%
10%
5%
10%
3%
1%
26%
15%
13%
44%
5%
9%
4%
9%
2%
1%
27%
18%
15%
42%
5%
9%
4%
8%
2%
1%
30%
20%
20%
43%
4%
8%
4%
9%
2%
1%
30%
20%
24%
39%
4%
9%
4%
11%
2%
0%
31%
23%
30%
31.2
3.7
0.3
38.6
35.8
7.1
0.3
44.6
35.5
8.0
0.2
83.0
34.2
8.3
0.2
88.1
31.5
8.9
0.1
89.8
3.9
1.6 4
0.1
1.3
4.8
0.0
0.0
1.5
4.9
0.0
0.0
1.8
3.3
-0.6
0.0
0.8
3.0
-1.0
0.0
1.0
3%
39%
0%
14%
28%
2%
45%
0%
20%
23%
2%
8%
64%
12%
12%
4%
15%
56%
10%
11%
3%
14%
62%
7%
10%
8300
3900
667
7800
3700
680
6950
3200
693
6500
3100
707
6200
3000
721
0%
0%
-4%
-5%
0%
14.85
19.66
38.23
43.94
46.99
1
CATALYSTS
• Cash or securities could be distributed without
adversely impacting the operating business.
MAJOR HOLDERS
Guerin 18% | Munger 9% | RWWM 11% | CEO Salzman 2%
*
Mr. Munger also serves as Vice Chairman of Berkshire. DJCO is not
affiliated with Berkshire. For background on Mr. Munger’s involvement
with Daily Journal, see Janet Lowe’s Damn Right!: http://amzn.to/zdTFfV
**
Salzman holds “certificates” entitling him to 8.2% of income before taxes
and certain other items. His base salary has been $250K since 1992.
***
J.P. Guerin is one of the “Superinvestors” described in Warren Buffett’s
famous 1984 article: http://www.tilsonfunds.com/superinvestors.html
We thank Ravi Nagarajan for his analysis of Daily Journal.
FCF = Net cash provided by operating activities – capex.
2
Traditional segment includes newspaper publishing & investment operations.
3
Assets used for investment purposes are included in the “traditional” segment.
4
Sustain’s 2007 reported net income included reversal of a $3m contingent
liability established in 2001 related to possible action by outside contractor that
never materialized.
RATINGS







THE BOTTOM LINE
Despite recent tailwinds driven by high levels of foreclosure activity, Daily Journal’s core publishing business appears to be
in a long term secular decline. However, due to profitable investments made by Charlie Munger near the bear market bottom
in early 2009, the majority of Daily Journal’s intrinsic value is now attributable to its marketable securities portfolio. On a
sum-of-the-parts basis, Daily Journal is intriguing if future declines in publishing are gradual. However, the potential for a
steeper decline in publishing and Mr. Munger’s advanced age temper our enthusiasm for the stock at the current valuation.
DAILY JOURNAL – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Valuation Methodology
Base
Aggressive
Sum-of-the-parts analysis: Traditional publishing,
Sustain, and the investment portfolio are evaluated
separately and combined to arrive at intrinsic value.
Traditional publishing business:
Average revenues: 1999 to 2011 thirteen years)
Less estimated decline to “normalized” revenue level
32,400,000
20%
32,400,000
15%
32,400,000
10%
“Normalized” Revenues
Estimated normalized net margin
25,920,000
10%
27,540,000
13%
29,160,000
16%
“Normalized” Net income
Estimated P/E multiple
2,592,000
8.0
3,580,200
10.0
4,665,600
12.0
Valuation of traditional publishing business
20,736,000
35,802,000
55,987,200
Sustain business:
Average revenues: 1999 to 2011 (thirteen years)
Less estimated decline to “normalized” revenue level
3,400,000
50%
3,400,000
25%
3,400,000
0%
“Normalized” Revenues
Estimated P/S multiple
1,700,000
-
2,550,000
0.50
3,400,000
1.00
-
1,275,000
3,400,000
56,116,000
13,100,000
3,058,000
56,116,000
13,100,000
3,058,000
56,116,000
13,100,000
3,058,000
Valuation of Sustain business
Marketable securities not used in operating business:
Marketable securities held as of 9/30/2011
Treasury securities held as of 9/30/2011
Cash held as of 9/30/2011
Total cash and marketable securities as of 9/30/2011
Less:
Liquidity required to operate Publishing and Sustain
Deferred income taxes related to unrealized gains
72,274,000
72,274,000
72,274,000
(15,000,000)
(9,772,000)
(10,000,000)
(9,772,000)
(5,000,000)
(9,772,000)
Marketable securities available to shareholders, net
47,502,000
52,502,000
57,502,000
Daily Journal equity valuation
Shares outstanding at 9/30/2011
68,238,000
1,380,746
49.42
89,579,000
1,380,746
116,889,200
1,380,746
64.88
84.66
2.6
4.4
6.9
Value per share
P/E of publishing based on FY 11 adjusted net
The valuation model is intended to separate
Daily Journal into three distinct “sources of
value”: (1) Traditional publishing; (2) Sustain;
and (3) Cash and marketable securities in
excess of the amount of liquidity required to
conservatively run the operating businesses.
Publishing has been in constant decline over
the past decade (see circulation data sheet) but
recent results have been good primarily due to
advertising revenue driven by public notice ads
in California’s distressed real estate economy.
Foreclosure notices are required by law in
many jurisdictions. Daily Journal’s revenues are
very likely to decline in a more “normal”
environment. Therefore, a decline estimate is
baked into all three scenarios relative to the
twelve year average revenue level which
approximates 2011 FY revenue. The
normalized net margin is also lower than recent
years to account for lower high-margin ad
revenues when the real estate market
normalizes. As a result, normalized net income
is substantially lower in all three scenarios vs.
recent segment net income. Assuming that
recent segment net income approximates
“normalized” conditions would produce a much
higher segment valuation for publishing but
seems imprudent in light of the secular
deterioration in the underlying business.
Whether Sustain has any value at all is
debatable. The conservative scenario assigns
no value, the base assigns 50% of revenue and
the aggressive assigns 100% of revenue with
the idea that a “strategic” buyer may emerge.
Sustain may actually have negative value if it is
allowed to continue consuming resources.
Marketable securities and cash is adjusted for a
level intended to result in a current ratio of
approximately 2.0, 1.5, and 1.0 for the
conservative, base, and aggressive scenarios
respectively. Since the company had current
ratios under 1.0 for several years prior to
building up excess capital, this seems
reasonable.
Note that under all scenarios the implied valuation
of the publishing business alone is extremely low
based on fiscal 2011 adjusted net income. This is
because the base revenue and margin assumptions
all assume a sharp reversal from recent strong
results which have been driven primarily by unusual
non-recurring factors associated with a very high
rate of foreclosures resulting in public notice
advertising revenue that is likely to fall precipitously
with a return to normal real estate markets in
California. Combined with a steady decline in
circulation revenue, it seems only prudent to not
assume continuation of recent results even in the
“aggressive” case. An alternative view could
assume continued recent results (or a less extreme
reversion to “normal”) which would result in much
higher valuation estimates.
Investment risks. Daily Journal is best viewed as a declining operating business with a
“hedge fund” attached to it run by Charlie Munger. Based on recent operating results
driven by advertising spending related to the distressed California real estate market,
Daily Journal may appear to be very cheap when stripped of the excess capital on the
balance sheet. However, this would fail to recognize the risk of continued decline in
circulation which will obviously also impact advertising revenue as the audience declines.
All three scenarios account for this by assuming substantially lower “normalized” revenue
and margins than we have seen over the past three years. However, even worse results
are certainly possible.
On the “hedge fund” side of the business, we face the risk of Munger no longer being able
to manage the portfolio. Munger will be 88 years old on 1/1/2012 and there is no one else
at Daily Journal (except perhaps Guerin) who would step in to manage the portfolio.
Would the portfolio be distributed to shareholders or liquidated if Munger was no longer
able to manage it? This is not clear from the 10-K. In addition, we obviously have
investment risk. The portfolio is invested in five securities including two “foreign
manufacturing firms”, one of which is almost certain to be BYD. The value of the
marketable securities portfolio could decline eroding shareholder value.
DAILY JOURNAL – CIRCULATION DATA
Subscription Rates ($ per year)
Figures at Fiscal Year-End of September 30
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
721
721
264
298
150
145
188
94
66
56
707
707
264
discont.
298
150
135
188
94
66
55
693
693
264
124
298
150
125
197
91
66
55
680
680
264
116
289
150
125
197
91
66
55
667
667
264
116
284
150
125
197
91
66
55
653
653
256
113
278
150
125
197
91
66
55
165
165
165
95
95
95
165
discont.
95
165
152
95
165
152
86
640
640
244
108
278
150
122
197
87
63
54
discont.
165
152
84
628
628
237
105
273
150
122
197
87
63
54
30
165
152
79
610
610
230
105
265
144
122
197
87
63
54
30
165
152
79
595
595
219
100
255
137
116
188
83
60
55
25
165
152
75
575
575
209
94
246
137
116
188
83
59
51
20
109
152
75
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
6,200
3,000
6,500
3,100
200
discont.
450
90
75
80
200
280
280
6,950
3,200
250
800
500
100
100
100
200
300
300
7,800
3,700
400
1,100
650
130
130
110
260
60
50
8,300
3,900
660
1,300
700
230
180
140
280
70
80
8,700
4,100
700
1,400
800
250
200
150
300
125
70
50
100
230
300
70
discont.
325
90
40
340
150
50
375
9,200
4,200
900
2,400
850
400
250
200
300
150
100
discont.
200
50
400
9,800
4,400
1,200
1,700
1,100
500
300
200
400
200
100
100
200
100
500
10,600
4,800
1,400
2,500
1,100
500
300
200
400
200
100
100
200
100
500
11,200
5,200
1,200
8,600
1,100
500
200
200
400
250
100
100
200
100
600
11,400
5,500
1,100
3,200
1,100
400
200
200
400
300
100
100
300
100
600
2011
2010
2009
2008
2007
2006
2005
2004
2003
2002
2001
Los Angeles Daily Journal
San Francisco Daily Journal
Daily Commerce
California Real Estate Journal
The Daily Recorder
The Inter-City Express
San Jose Post-Record
Sonoma County Herald-Recorder
Orange County Reporter
San Diego Commerce
Business Journal
Antelope Valley Journal
The Record Reporter
Nevada Journal
California Lawyer Magazine
4,470,200
2,163,000
4,595,500
2,191,700
52,800
discont.
134,100
13,500
10,125
15,040
18,800
18,480
15,400
4,816,350
2,217,600
66,000
99,200
149,000
15,000
12,500
19,700
18,200
19,800
16,500
5,304,000
2,516,000
105,600
127,600
187,850
19,500
16,250
21,670
23,660
3,960
2,750
5,536,100
2,601,300
174,240
150,800
198,800
34,500
22,500
27,580
25,480
4,620
4,400
5,681,100
2,677,300
179,200
158,200
222,400
37,500
25,000
29,550
27,300
8,250
3,850
8,250
16,500
11,550
Discontinued
28,500
30,875
14,850
6,080
32,300
24,750
7,600
32,250
5,888,000
2,688,000
219,600
259,200
236,300
60,000
30,500
39,400
26,100
9,450
5,400
discont.
33,000
7,600
33,600
6,154,400
2,763,200
284,400
178,500
300,300
75,000
36,600
39,400
34,800
12,600
5,400
3,000
33,000
15,200
39,500
6,466,000
2,928,000
322,000
262,500
291,500
72,000
36,600
39,400
34,800
12,600
5,400
3,000
33,000
15,200
39,500
6,664,000
3,094,000
262,800
860,000
280,500
68,500
23,200
37,600
33,200
15,000
5,500
2,500
33,000
15,200
45,000
6,555,000
3,162,500
229,900
300,800
270,600
54,800
23,200
37,600
33,200
17,700
5,100
2,000
32,700
15,200
45,000
Total circulation run-rate
6,633,200
7,095,545
7,494,850
8,371,265
8,833,550
9,114,250
9,536,150
9,975,300
10,561,500
11,440,000
10,785,300
98%
96%
90%
92%
91%
91%
89%
88%
91%
88%
86%
6,767,000
7,071,000
7,831,000
8,538,000
8,910,000
9,142,000
9,588,000
10,149,000
10,375,000
11,044,000
11,346,000
Daily Commerce
The Daily Recorder
San Diego Commerce
Business Journal
The Record Reporter
Nevada Journal
Paid Circulation (copies)
Daily Commerce
The Daily Recorder
San Diego Commerce
Business Journal
The Record Reporter
Nevada Journal
Estimated Revenue Run Rate
Daily Journals (SF & LA) as
% reported circulat. revenue
Cross-check: Reported
circulation revenue
Circulation
data not
in 10-K
Circulation
Data not
in 10-K
21,850
Not much commentary is required to go along with these results. Circulation has plummeted across the board which has only been partly mitigated by price
increases. The SF and LA Daily Journals comprise the lion’s share of circulation revenues and we can see that circulation nearly halved over the decade with
revenues down by one-third. This trend appears to be continuing over time. With the Daily Journals accounting for 96% of circulation revenue, the remaining
papers are not relevant for purposes of analysis of future trends, but the overall exhibit here is illustrative of the extreme difficulty facing newspaper publishers
even in niche markets that presumably would have more of a “moat” than general interest publications.
Korn/Ferry (KFY) – Barrow Hanley, Lord Abbett, Kornitzer, Royce, T Rowe
Services: Business Services, Member of S&P MidCap 400
Los Angeles CA, 310-552-1834
Trading Data
Price: $18.28 (as of 1/20/12)
52-week range: $11.25–$24.77
This quarter
Next quarter
FYE 4/30/12
Latest
$0.30
0.32
1.26
Month
Ago
$0.30
0.33
1.27
Ownership Data
www.kornferry.com
Valuation
# of
Ests
7
7
7
P/E FYE 5/1/11
P/E FYE 4/30/12
P/E FYE 4/30/13
P/E FYE 4/30/14
EV/ LTM revenue
FYE 4/30/13
1.38
1.39
7
EV/ LTM EBIT
FYE 4/30/14
1.56
1.56
2
P / tangible book
LT growth
15.0%
EPS Surprise
12/8/11
15.0%
Actual
$0.32
14x
15x
13x
12x
0.8x
7x
2.1x
Greenblatt Criteria
1
Estimate
$0.34
LTM EBIT yield
LTM pre-tax ROC
15%
>100%
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Shares out (avg)
D&A
Capex
Free cash flow
… % of revenue:
Gross profit
D&A
Capex
Cash, investments
LT investments
Total assets
Tangible assets
Payables
Debt
Total liabilities
Tangible equity
TBV per share
2005
476
158
66
39
1.00
39
88
8
8
80
2006
552
179
76
59
1.49
40
75
9
11
63
33.1%
13.8%
1.8%
1.6%
207
305
9
534
427
7
158
56
281
146
34%
3.79
32.4%
13.8%
1.6%
2.0%
278
395
8
636
526
10
176
56
312
214
41%
5.37
Fiscal Years Ended April 30,
2007
2008
2009
689
836
676
197
237
184
82
92
46
56
66
48
1.40
1.50
1.10
40
44
44
102
110
3
9
10
12
14
17
12
88
93
-9
28.6%
11.9%
1.3%
2.0%
324
465
10
762
619
10
230
0
329
291
47%
7.31
28.3%
11.0%
1.2%
2.0%
311
469
92
880
722
15
273
0
384
338
47%
7.68
27.2%
6.7%
1.7%
1.8%
259
372
83
741
591
10
173
0
282
309
52%
7.10
2010
600
145
18
26
0.59
44
-31
12
11
-42
2011
776
217
88
61
1.35
45
96
13
28
68
LTME
10/31/11
825
241
98
65
1.43
46
68
13
19
49
FQE
10/31/10
193
52
22
16
0.35
45
33
3
6
28
FQE
10/31/11
210
63
25
15
0.33
47
48
4
4
44
24.1%
3.0%
1.9%
1.8%
223
381
95
827
629
11
198
0
336
294
47%
6.61
28.0%
11.3%
1.6%
3.6%
268
442
135
972
766
13
234
0
393
372
49%
8.23
29.2%
11.9%
1.6%
2.4%
218
411
144
937
736
12
172
0
328
408
55%
8.78
27.1%
11.3%
1.6%
2.9%
167
370
129
864
662
11
193
0
345
317
48%
7.03
30.0%
12.1%
1.7%
1.7%
218
411
144
937
736
12
172
0
328
408
55%
8.78
$30
$25
$20
$15
$10
$5
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Korn/Ferry is a global executive search firm.
• Korn/Ferry leads the search industry and focuses
on positions with annual comp of $150K+. Strong
reputation allows it to operate as a retained rather
than contingency firm. Retained firms typically earn
a one-time fee of one-third of annual cash comp
without regard to whether a position has been filled.
• Futurestep’s focus on mid-level recruitment adds
a scalable, tech-driven model to Korn/Ferry. Related
fees grew 31% in FY11 and 39% in 1H12. Segment
operating margin has ample room for improvement.
• Building “talent management solutions” firm.
While search fees still dominate, Korn/Ferry also
helps clients “develop, retain and reward their
talent,” thereby providing value beyond recruitment.
• Experienced management. CEO Gary Burnison
(50) held high-level positions at Guidance, Jefferies,
and KPMG Peat Marwick prior to joining the
company in 2002 as CFO. He became CEO in 2007.
• Beneficiary of globalization. Korn/Ferry generates
an increasing portion of business internationally,
with fees outside of North America amounting to
51% of total executive recruitment fees in 1H12.
The company is not a newcomer to global markets,
having established offices in Europe, Asia and Latin
America in 1972, 1973 and 1974, respectively.
• Guiding for FQ3 (January) EPS of $0.25-0.33
(vs. $0.30 a year earlier) on fee revenue of $183203 million (down 2% to up 9% from a year ago).
• Strong balance sheet, with $192 million of cash,
$126 million of marketable securities, and no debt.
• Sensitive to employment trends. Revenue and
profits fell sharply in FY09 and FY10. Continuing
economic uncertainty has made it “particularly
challenging to accurately forecast” results.
• Modest barriers to entry. While Korn/Ferry’s
reputation gives it an edge, executive recruitment at
the highest levels is as much a relationship-driven
business as it is a brand-driven business. Korn/Ferry
is trying to elevate the importance of the brand by
developing process-driven solutions for “talent
management,” i.e., by going beyond pure recruiting.
• “People business,” i.e., limited scalability. While
the Futurestep segment is scalable, Korn/Ferry still
largely depends on “production” by consultants.
Qualified people are not easy to hire and retain, and
they demand an higher share of profit in good times.
FYE April 30
2007 2008
∆ revenue – recruitment
25%
19%
∆ revenue – Futurestep
23%
35%
∆ revenue
25%
21%
∆ gross profit
10%
20%
∆ assets
20%
16%
∆ book value
34%
15%
∆ BV per share
34%
3%
Offices (end)
82
89
Consultants (end)
601
684
New engagements (‘000)
10.4
11.1
Revenue ($mn)
689
836
Executive recruitment
86%
85%
Futurestep
14%
15%
North America1
51%
47%
EMEA1
22%
23%
Asia Pacific1
11%
12%
South America1
3%
3%
Futurestep
14%
15%
Operating margin by segment:
North America1
20%
18%
EMEA1
16%
16%
Asia Pacific1
21%
20%
South America1
11%
9%
Futurestep
8%
7%
Corporate
-5%
-5%
Gross profit
29%
28%
EBIT (adjusted)2
12%
11%
8%
8%
D&A
1%
1%
Capex
2%
2%
619
722
Cash, investments
52%
43%
Receivables
18%
18%
LT investments
2%
13%
PP&E, net
4%
5%
Payables
2%
2%
Debt
0%
0%
Tangible equity
47%
47%
Return on tang. equity
22%
21%
15%
14%
40
44
0%
11%
2009
-19%
-18%
-19%
-22%
-16%
-7%
-6%
78
615
9.6
676
2010
-8%
-30%
-11%
-21%
12%
7%
5%
76
627
9.8
600
2011
29%
31%
29%
50%
17%
18%
16%
76
633
11.9
776
1H12
9%
39%
13%
23%
8%
17%
14%
76
n/a
n/a
425
85%
15%
88%
12%
88%
12%
85%
15%
49%
22%
10%
4%
15%
49%
24%
11%
4%
12%
51%
21%
12%
4%
12%
49%
20%
12%
4%
15%
11%
1%
8%
10%
-12%
-5%
14%
-11%
12%
13%
2%
-7%
20%
7%
13%
23%
5%
-4%
24%
13%
15%
24%
7%
-6%
27%
7%
7%
2%
2%
591
24%
3%
4%
2%
2%
629
28%
11%
8%
2%
4%
766
30%
12%
7%
2%
2%
736
44%
13%
14%
5%
2%
0%
52%
15%
10%
44
-1%
35%
18%
15%
4%
2%
0%
47%
9%
5%
44
2%
35%
18%
18%
6%
2%
0%
49%
18%
11%
45
2%
30%
20%
20%
6%
2%
0%
55%
8%
5%
46
3%
1 Includes executive recruitment only, i.e., excluding Futurestep.
2
Excludes items of -$58 million in ‘09, -$21 million in ‘10, -$2.1 million in ‘11.
MAJOR HOLDERS
CEO Burnison <1% | Other insiders 1% | T Rowe 11% |
Royce 8% | Barrow 5% | Lord Abbett 5% | Oppenheimer 4%
RATINGS







THE BOTTOM LINE
Korn/Ferry operates a non capital-intensive business and enjoys strong reputation that should allow it to win high-margin
search assignments from desirable clients for a long time to come. The company also has a long runway of international
growth. We find the valuation interesting but wish management would put more emphasis on maximizing shareholder value
rather than reinvesting in the business as the default option. Nonetheless, Korn/Ferry deserves closer consideration.
KORN/FERRY – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
Aggressive
ended October 31, 2011 and average
estimate for the fiscal year ending April
29, 2013
estimate for the fiscal year ending April
29, 2014
▼
▼
▼
multiplied by
minus
multiplied by
equals
multiplied by
5x
multiplied by
multiplied by
equals
equals
Assumed KFY multiple as a
Korn/Ferry: $420 million
plus
multiplied by
equals
Assumed KFY multiple as a
equity of Korn/Ferry:
equals
plus
equals
125%
discount of 25%: $108 million
110%
minus
equals
Total debt: $0
equals
Heidrick & Struggles is cheaper on a
revenue basis but has generated
lower EBIT margins than Korn/Ferry.
(*) Represents Business Services industry
median multiple.
KORN/FERRY – ANALYSIS OF SELECTED COMPARABLE COMPANIES
(Click to visit
relevant websites)
Stock
Price
($)
Trading Data
% ∆ to
7-Year
MV
Low High ($mn)
EV
($mn)
Tang.
Book/
MV
EPS Yield
TTM
FCF
This Next
Yield TTM
FY
FY
LTM
Rev./
EV
Rev./
Empl.
($000)
∆ Rev.
% TTM Rev.
Last Gross
Adj.
TTM
Q
Profit EBIT
Barrett Business / BBSI
19
-58
54
186
118
30%
19%
9%
5%
6%
258%
n/m
16%
16%
16%
3%
Heidrick & Struggles / HSII
22
-40
146
400
267
41%
8%
neg.
4%
6%
207%
363
12%
14%
29%
5%
Hudson Highland / HHGP
5
-87
440
172
156
59%
-4%
5%
7%
9%
595%
423
23%
22%
38%
2%
Kelly Services / KELYA
17
-64
98
634
639
93%
5%
9%
9%
10%
858%
685
14%
10%
16%
1%
Manpower / MAN
42
-46
134
3,386
3,526
35%
3%
neg.
8%
8%
616%
724
20%
16%
17%
2%
On Assignment / ASGN
11
-89
22
417
492
n/m
3%
1%
5%
6%
113%
496
34%
40%
34%
7%
Robert Half / RHI
30
-53
46
4,300
4,059
14%
4%
3%
4%
5%
90%
351
-4%
20%
39%
6%
Thomson / TMS
10
-37
44
405
740
n/m
-7%
neg.
7%
9%
341%
721
130%
13%
8%
3%
32%
4%
2%
6%
7%
299%
459
18%
16%
23%
3%
47%
6%
8%
7%
8%
126%
335
17%
9%
29%
12%
Median
Korn/Ferry / KFY
18
-59
48
873
655
Office Depot (ODP) – AllianceBernstein, Chou, Ivory, JP Morgan, Thornburg
Services: Retail (Specialty Non-Apparel), Member of S&P MidCap 400
Trading Data
Boca Raton FL, 561-438-4800
www.officedepot.com
Price: $2.60 (as of 1/20/12)
52-week range: $1.75–$6.18
Ownership Data
Valuation
This quarter
Next quarter
FYE 12/31/11
Latest
$0.00
0.03
-0.06
Month
Ago
$0.00
0.04
-0.06
# of
Ests
17
12
17
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
n/m
n/m
37x
11x
0.1x
FYE 12/30/12
0.07
0.07
19
EV/ LTM EBIT
n/m
FYE 12/30/13
0.24
0.24
11
P / tangible book
1.1x
LT growth
20.6%
EPS Surprise
10/25/11
20.6%
Actual
$0.00
Greenblatt Criteria
2
Estimate
$0.01
LTM EBIT yield
LTM pre-tax ROC
-4%
-4%
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Dividend
Shares out (avg)
… % of revenue:
Gross profit
Cash, investments
Receivables
Inventory
LT investments
PP&E, net
Total assets
Tangible assets
Payables
Short-term debt
Long-term debt
Preferred stock
Tangible equity
TBV per share
2004
13,565
4,256
542
392
1.26
0.00
312
2005
14,279
4,392
482
407
1.31
0.00
310
31.4%
4.0%
955
1,304
1,409
3,943
0
1,463
6,794
5,745
1,570
16
2,619
584
0
2,173
38%
6.97
26%
30.8%
3.4%
703
1,232
1,360
3,530
0
1,312
6,099
5,193
1,324
47
2,469
569
0
1,834
35%
5.92
20%
2006
2007
2008
15,011
15,528
14,496
4,647
4,503
4,006
699
476
9
495
388
75
1.76
1.42
0.28
0.00
0.00
0.00
282
273
273
31.0%
4.7%
174
1,480
1,540
3,443
0
1,425
6,557
5,244
1,562
48
2,970
571
0
1,284
24%
4.56
41%
29.0%
3.1%
223
1,512
1,718
3,716
0
1,589
7,257
5,866
1,591
208
2,973
608
0
1,693
29%
6.21
24%
27.6%
0.1%
156
1,256
1,332
3,122
147
1,557
5,268
5,221
1,252
192
2,626
689
0
1,315
25%
4.83
-70%
2009
12,145
3,392
-25
-387
-1.42
0.00
273
2010
11,633
3,357
14
-30
-0.11
0.00
276
LTME
9/24/11
11,482
3,375
16
-5
-0.02
0.00
276
FQE
9/25/10
2,900
829
8
32
0.12
0.00
276
FQE
9/24/11
2,837
855
24
85
0.30
0.00
279
27.9%
-0.2%
660
1,121
1,253
3,206
169
1,278
4,890
4,846
1,081
60
2,428
663
355
742
15%
2.72
-15%
28.9%
0.1%
628
964
1,234
3,028
206
1,157
4,569
4,528
1,080
72
2,343
660
356
654
14%
2.37
-3%
29.4%
0.1%
453
919
1,124
2,661
206
1,082
4,171
4,072
877
35
1,956
648
356
647
16%
2.33
-4%
28.6%
0.3%
679
987
1,184
3,013
206
1,219
4,669
4,627
1,045
74
2,296
657
356
738
16%
2.68
3%
30.1%
0.8%
453
919
1,124
2,661
206
1,082
4,171
4,072
877
35
1,956
648
356
647
16%
2.33
6%
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Office Depot retails office supplies (65% of 2010 revenue),
IT equipment (23%), and furniture/other products (12%).
Nearly all 1,264 stores (~90% in North America) are leased.
• #2 U.S. office supplies retailer behind Staples
(SPLS), which has more than twice Office Depot’s
revenue. OfficeMax (OMX), which has only two
thirds’ of Depot’s revenue, is another direct rival.
• Valuation appears low if EBITDA margin can be
improved to half of Staples’ level of ~8% in 2010.
Office Depot averaged an adjusted EBITDA margin
of 3% in 2006-10 (TTM: 1.8%), on $13.8 billion of
average revenue (TTM: $11.5 billion). EV-to-TTM
adj. EBITDA is ~6.5x (~3x based on 2006-10 avg).
• Potential M&A target for rivals seeking to increase
scale. Office Depot trades at 0.4x TTM gross profit
versus SPLS at 1.8x and OMX at 1.0x. BC Partners’
three Board seats and ownership of preferred stock
(convertible at $5/share) may catalyze a sale.
• Guiding for $180-190 million of annual cost saves
by 2013 (1.5% of 2010 revenue), relative to 2010.
Even if some savings do not fall to the bottom line,
profitability may improve without a big sales uplift.
• Significant operating leverage to a recovery in
sales, which remain ~25% below 2007 level,
despite a similar store count relative to 2006/07.
• Unconsolidated Mexico JV may be worth $300+
million. Average 2006-10 JV earnings: $32 million.
• ~35% of revenue from e-commerce, which lowers
capital intensity and improves return on capital.
• Execution risk. The cost savings plan may not
result in sustained margin improvement. This would
make higher margins dependent on a recovery in
revenue (partly outside management control).
• Leveraged balance sheet due to ~$2.4 billion of
future operating lease liabilities and $230 million of
net debt. A $1.0 billion credit facility is available
through 2016 ($750+ million available at 9/30/11).
• Negative trailing FCF of $137 million, stated after
cash interest paid on the preferred stock.
• Margin pressure due to competition and high
buyer price awareness. Competitors include not
only direct rivals Staples and OfficeMax, but also
the likes of Wal-Mart, Amazon.com, and BestBuy.
• U.S. Dept. of Justice investigation into pricing
practices related to office supplies purchases from
Office Depot by state, local and non-profit agencies.
FYE December 31
2006
∆ stores
15%
5%
∆ revenue
11%
∆ employees
Revenue ($bn)
15.0
North American retail
45%
North American business
30%
International
24%
Revenue growth by segment:
4%
6%
International
5%
7%
8%
International
7%
Corporate
-2%
EBIT margin
5%
Gross profit
31%
EBIT – adjusted2
5%
Net income
3%
D&A
2%
Capex
2%
Stores–North America
1,158
Stores–International3
125
Tangible equity/assets
30%
-9%
2007
7%
3%
-6%
15.5
2008
4%
-7%
-12%
14.5
2009
-10%
-16%
-5%
12.1
2010
-3%1
-4%
-2%
11.6
YTD
9/24/11
-2%
-2%
-2%
8.5
44%
29%
27%
42%
29%
29%
42%
29%
29%
43%
28%
29%
43%
29%
29%
0%
-1%
15%
-10%
-8%
1%
-16%
-16%
-16%
-3%
-6%
-5%
-3%
-2%
0%
5%
5%
6%
-2%
3%
0%
3%
4%
-12%
-11%
2%
3%
3%
-5%
-2%
3%
3%
3%
-3%
0%
3%
4%
2%
-3%
0%
29%
3%
3%
2%
3%
1,222
148
27%
-3%
28%
0%
-10%
2%
2%
1,267
162
27%
0%
28%
-2%
-5%
2%
1%
1,152
137
20%
0%
29%
0%
0%
2%
1%
1,147
971
16%
1%
30%
0%
1%
2%
1%
1,132
132
16%
1%
1
Excluding a deconsolidation of the Israel business, y-y change is roughly flat.
Excludes asset impairments and amortization of deferred gains on sale of
buildings. Also excludes net earnings from equity method investments.
3
Includes only wholly-owned and majority-owned entities.
2
CATALYSTS
• Margin improvement due to cost saves and potential
top-line recovery (if U.S. economy improves)
• Potential buyout due to favorable valuation metrics
relative to Staples and OfficeMax
• Potential sale of Mexico JV (may be worth ~50% of
recent Office Depot market value)
MAJOR HOLDERS*
Insiders 4% | Thornburg 9% | Vanguard 5% | JPM 4% | State
Street 4% | BlackRock 3% | AllianceBernstein 3% | Ivory 3%
*
Ownership figures exclude ~70 million of potential shares due to BC Partners
from its holding of convertible preferred stock (convertible at ~$5 per share).
RATINGS







THE BOTTOM LINE
Office Depot has large margin expansion potential relative to average historic margins, as well as compared to competitor
Staples. While cost cutting has helped, meaningful profit improvement likely depends on a recovery in revenue (largely outside
management control). Given negative FCF and a leveraged balance sheet, mainly due to leased stores, a margin of safety is
lacking. However, for investors focused on risk-reward rather than strictly on downside protection, the equity may be worth a
closer look. The market could be ignoring a valuable Mexico JV and Office Depot’s potential synergies to a trade buyer.
OFFICE DEPOT – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
Aggressive
December 24, 2013
Based on average adjusted EBIT for the
past seven fiscal years
▼
TTM net sales: $11 billion
multiplied by
equals
multiplied by
▼
multiplied by
equals
5x
equals
Office Depot: $1.2 billion
plus
plus
minus
equals
equity of Office Depot:
multiplied by
Assumed ODP multiple as a
125%
equals
▼
average of
FY10 adjusted EBIT: $14 million
FY09 adjusted EBIT: -$24.8 million
FY08 adjusted EBIT: $8.9 million
equals
Average adjusted EBIT: $310 million
minus
seven-year EPS: -10% * $310 million
equals
Revised “normalized” EBIT: $282 million
multiplied by
Assumed fair value EBIT multiple: 6x
equals
Office Depot: $1.7 billion
Looking ahead to 2013 is rather
speculative, but we note that the
consensus EPS estimate for 2013
may be materially below Office
Depot’s “normalized” per-share
earning power.
(*) Represents Retail (Specialty Non-Apparel)
industry median multiple.
plus
Net cash, investments: $450 million
minus
Total debt: $680 million
equals
$1.5 billion ($5.20 per share)
OFFICE DEPOT – MANAGEMENT’S 2011 FINANCIAL EXPECTATIONS
1
Q3 2011 results included $6 million of charges and a benefit of $99 million from the reversal of combined tax and interest accruals.
2
Non-GAAP number.
OFFICE DEPOT – ANALYSIS OF SELECTED COMPARABLE COMPANIES
(Click to visit
relevant websites)
OfficeMax / OMX
Staples / SPLS
Wal-Mart / WMT
Trading Data
∆ to Reach
7-Year
MV
($mn)
Low High
-68
854
500
-25
75
11,191
-31
5 208,941
EV
($mn)
1,784
12,118
261,114
Median
Office Depot / ODP
-77
1689
729
1,316
Tang.
Book/
MV
109%
23%
22%
EPS Yield
TTM
FCF
This Next
Yield TTM
FY
FY
-15%
8% 10% 10%
10%
9%
9%
9%
5%
7%
7%
8%
LTM
Rev./
EV
395%
206%
169%
Rev./
Empl.
($000)
353
472
210
∆ Rev.
% TTM Rev.
Last Gross
Adj.
TTM
Q
Profit EBIT
-2% -2%
26%
2%
2%
0%
27%
6%
5%
8%
25%
6%
Tang.
Equity/
Tang.
Assets
14%
28%
27%
23%
5%
8%
9%
9%
206%
353
2%
0%
26%
6%
27%
89%
-13%
-10%
neg.
3%
873%
287
-2%
-2%
29%
0%
16%
OFFICE DEPOT – SALES, 1986-2010
Office Depot has grown organically and through almost 30 acquisitions, mergers, joint ventures, licensing and franchise agreements.
Source: Company presentation dated March 2011.
OFFICE DEPOT – ADJUSTED EBIT – getting from YTD 2010 to YTD 2011 (through September 30) (in millions)
PetMed Express (PETS) – Artisan, Brown, DFA, FMR, RenTech, Royce, Wellington
Services: Retail (Drugs), Member of S&P SmallCap 600
Pompano Beach FL, 954-979-5995
Trading Data
www.1800petmeds.com
Price: $11.27 (as of 1/20/12)
52-week range: $8.51–$16.16
Ownership Data
This quarter
Next quarter
FYE 3/31/12
Latest
$0.16
0.17
0.75
Month
Ago
$0.16
0.17
0.75
Valuation
# of
Ests
7
7
7
FYE 3/31/13
0.68
0.68
7
FYE 3/31/14
n/a
n/a
n/a
LT growth
9.5%
9.5%
EPS Surprise
10/24/11
Actual
$0.19
P/E FYE 4/1/11
P/E FYE 3/31/12
P/E FYE 3/31/13
P/E FYE 3/31/14
EV/ LTM revenue
12x
15x
17x
n/a
0.8x
EV/ LTM EBIT
6x
P / tangible book
2.9x
Greenblatt Criteria
3
Estimate
$0.15
LTM EBIT yield
LTM pre-tax ROC
16%
>100%
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Dividend
Shares out (avg)
… % of revenue:
Gross profit
D&A
Capex
Cash, investments
Receivables
Inventory
LT investments
PP&E, net
Total assets
Tangible assets
Payables
Debt
Tangible equity
TBV per share
2005
108
44
13
8
0.35
0.00
23
2006
138
54
18
12
0.51
0.00
24
40.3%
11.5%
0.6%
0.2%
13
2
11
26
0
1
28
28
3
4
0
24
86%
1.04
>100%
39.5%
13.2%
0.4%
0.6%
23
1
15
40
0
2
43
42
3
5
0
37
88%
1.57
>100%
Fiscal Years Ended March 31,
2007
2008
2009
162
188
219
65
74
85
22
28
34
14
20
23
0.60
0.83
0.99
0.00
0.00
0.00
24
24
23
39.8%
13.3%
0.3%
0.6%
39
1
16
58
0
2
61
61
6
7
0
54
88%
2.22
>100%
39.4%
14.9%
0.3%
0.3%
25
2
18
45
25
2
74
73
4
6
0
67
91%
2.76
>100%
38.9%
15.6%
0.4%
1.7%
30
3
27
62
14
5
82
81
5
7
0
74
91%
3.18
>100%
2010
238
92
41
26
1.15
0.30
23
2011
232
84
33
21
0.93
0.48
23
LTME
9/30/11
228
78
27
17
0.78
0.50
22
FQE
9/30/10
61
22
8
5
0.22
0.13
23
FQE
9/30/11
58
20
6
4
0.19
0.13
21
38.6%
17.0%
0.5%
0.4%
53
2
29
87
12
4
104
103
5
7
0
96
93%
4.24
>100%
36.2%
14.2%
0.6%
0.3%
60
2
25
90
12
3
106
105
7
9
0
96
91%
4.27
>100%
34.4%
11.9%
0.6%
0.3%
57
1
19
82
3
3
88
87
6
9
0
78
90%
3.78
>100%
36.4%
12.6%
0.5%
0.3%
71
2
15
91
12
4
109
108
4
7
0
100
93%
4.43
>100%
34.2%
10.5%
0.5%
0.3%
57
1
19
82
3
3
88
87
6
9
0
78
90%
3.78
>100%
$30
$25
$20
$15
$10
$5
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
PetMed Express is a mostly Internet-based pet pharmacy.
• Leading nationwide pet pharmacy, selling
prescription and non-prescription pet medications,
and other health products for dogs and cats, directly
to consumers. The company offers an attractive
alternative for obtaining pet medications in terms of
convenience, price, and speed of delivery. It has a
broad selection of products for dogs and cats, with a
complete product line consisting of 1,200 SKUs.
• Focused on branding 1-800-PetMeds and driving
sales over the phone and at 1800petmeds.com. The
company uses TV, online, and direct mail/print
advertising to acquire customers and maximize
repeat purchases. In Q3 FY12, PetMed acquired
150,000 new customers at an average cost of $36,
vs. 111,000 new customers at $40 each in Q3 FY11.
• Started offering additional pet supplies online in
early 2010, with supplies such beds, crates, stairs,
and strollers drop-shipped to customers by third
parties. PetMed prices are competitive with those
charged by veterinarians and retailers. The company
sells mostly to consumers ($79 avg. purchase size).
• U.S. pet spending increased 6% to $48 billion in
2010. Pet supplies and medications represented $11
billion, or 23% of total spending. The medication
market in which PetMed participates is $3.8 billion
in size, with veterinarians still holding most of the
market share. The U.S. dog and cat population is
165 million, with 62% of households owning a pet.
• Bought back $24 million of stock YTD FY12 and
$12 million in FY11, reflecting management’s
interest in returning value to shareholders.
• Limited market opportunity. While PetMed still
accounts for less than 10% of U.S. pet medications,
at some point the company will find it hard to keep
growing without expanding the addressable market.
• Sales fluctuate due to seasonality of heartworm,
and flea and tick medications. For the quarters
ending June, September, December, and March,
sales are split roughly 32%, 26%, 20%, and 22%.
POTENTIAL CATALYSTS
• Continued strong growth in new customers
• Continued decrease in per-customer acquisition cost
• Share repurchases at prices below intrinsic value
FYE March 31
2007 2008
∆ new customers
9%
4%
∆ revenue
18%
16%
∆ gross profit
19%
15%
∆ assets
44%
20%
∆ book value
43%
24%
∆ BV per share
41%
24%
New customers (‘000)
681
710
Revenue ($mn)
162
188
% of revenue by order type:
Reorder sales
68%
71%
New order sales
31%
29%
% of revenue by sales channel:
Internet sales
62%
65%
Contact center sales
38%
35%
Non-prescription meds
70%
69%
Prescription meds
29%
30%
Shipping and handling
1%
1%
Gross profit
40%
39%
EBIT
13%
15%
Net income
9%
11%
D&A
0%
0%
Capex
1%
0%
61
73
Cash, investments
65%
34%
Receivables
2%
2%
Inventory
26%
24%
LT investments
0%
34%
PP&E, net
3%
3%
Payables
10%
6%
Debt
0%
0%
Tangible equity
88%
91%
32%
33%
Trailing P/E (end)
20x
22x
Forward P/E (end)
15x
18x
0.60
0.82
–
–
2
3
12
18
Volume (mn shares)
73
96
24
24
2%
0%
2009
13%
17%
15%
12%
12%
16%
802
219
2010
2%
9%
8%
27%
29%
33%
815
238
2011
-21%
-3%
-9%
2%
0%
1%
645
232
1H12
1%
-3%
-11%
-19%
-22%
-15%
410
132
72%
28%
75%
25%
80%
20%
77%
23%
65%
35%
68%
32%
71%
29%
74%
26%
68%
31%
1%
64%
35%
1%
61%
38%
1%
n/a
n/a
n/a
39%
16%
10%
0%
2%
81
39%
17%
11%
1%
0%
103
36%
14%
9%
1%
0%
105
33%
10%
7%
0%
0%
87
37%
4%
33%
18%
6%
6%
0%
91%
33%
18x
15x
0.98
–
3
18
108
23
-3%
51%
2%
28%
12%
4%
5%
0%
93%
31%
16x
19x
1.14
0.30
4
18
68
23
-3%
57%
2%
24%
12%
3%
6%
0%
91%
22%
11x
14x
0.92
0.48
4
10
70
23
0%
66%
2%
22%
3%
3%
7%
0%
90%
10%
22x
13x
0.41
0.26
4
9
36
21
-7%
MAJOR HOLDERS
CEO 2% | Other insiders 1% | FMR 15% | Brown 9% |
Wellington 8% | Artisan 6% | Royce 6% | RenTech 3%
RATINGS







THE BOTTOM LINE
PetMed has created a high-return, defensible business in the niche for pet medications and related products in the U.S. The
company operates as a pharmacy licensed to do business in all 50 U.S. states. While most pet medications are still sold by
veterinarians, PetMed offers a convenient direct alternative to consumers with pets (62% of U.S. households). Management
has executed quite well, maintaining solid profitability through the downturn and using excess cash to buy back stock.
Unfortunately, just as this issue of MOI went to print, PetMed reported a strong quarter, sending the shares materially higher
and making them somewhat less compelling from a valuation perspective. Despite a rather limited long-term market size,
PetMed is a business we will keep watching because it has many of the characteristics of good businesses.
PETMED EXPRESS – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
fiscal years
estimate for the fiscal year ending March
30, 2013
Aggressive
▼
▼
▼
average of
minus
minus
Capex: $0.7 million
equals
equals
divided by
multiplied by
equals
equals
equals
multiplied by
minus
90%
equals
80%
equals
multiplied by
equals
equity of PetMed Express:
multiplied by
Assumed PETS multiple as a
equals
(*) Represents Retail (Drugs) industry median multiple.
PETMED EXPRESS – OPERATING CASH FLOW (in millions)
PETMED EXPRESS – NET INCOME (in millions)
Source: Company presentation dated September 2011.
PETMED EXPRESS – U.S. PET MARKET: $48 billion (+6% in 2010)
PETMED EXPRESS – U.S. PET MEDICATIONS: $4 billion
PETMED EXPRESS – PER-CUSTOMER ACQUISITION COST
PETMED EXPRESS – AVERAGE ORDER SIZE
PETMED EXPRESS – SALES SEASONALITY, BY QUARTER
PETMED EXPRESS – CUSTOMER SERVICE MEASUREMENTS
1
2
3
NPS Benchmark Charts, February 2011, www.netpromoter.com
Average for online shopping.
Opinionlab trend data, June 2011, www.opinionlab.com
RadioShack (RSH) – Brandywine, Chou, Global Thematic, LSV, Perkins
Services: Retail (Technology), Member of S&P MidCap 400
Fort Worth TX, 817-415-3011
Trading Data
Price: $10.24 (as of 1/20/12)
52-week range: $9.15–$17.71
Market value: $1.0 billion
This quarter
Next quarter
FYE 12/31/11
Latest
$0.37
0.28
1.18
Month
Ago
$0.38
0.28
1.18
Ownership Data
www.radioshackcorporation.com
Valuation
# of
Ests
19
15
9
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
FYE 12/30/12
1.35
1.37
22
EV/ LTM EBIT
FYE 12/30/13
1.50
1.54
11
P / tangible book
LT growth
2.7%
2.7%
EPS Surprise
10/25/11
Actual
$0.15
5x
1.3x
Greenblatt Criteria
1
Estimate
$0.36
6x
9x
8x
7x
0.2x
LTM EBIT yield
LTM pre-tax ROC
22%
28%
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Dividend
Shares out (avg)
D&A
Capex
Free cash flow
… % of revenue:
Gross profit
D&A
Capex
Cash, investments
Receivables
Inventory
PP&E, net
Tangible assets
Short-term debt
Long-term debt
Tangible equity
TBV per share
2004
4,841
2,435
558
335
2.08
0.25
161
353
101
229
123
2005
5,082
2,267
350
270
1.82
0.25
148
363
114
171
192
50.3%
11.5%
2.1%
4.7%
438
241
1,004
652
2,470
56
507
875
35%
5.44
52%
44.6%
6.9%
2.2%
3.4%
224
309
965
476
2,165
41
495
549
25%
3.71
35%
2006
2007
2008
4,778
4,252
4,225
2,129
2,026
1,923
201
385
325
118
240
192
0.86
1.78
1.49
0.25
0.25
0.25
136
135
129
315
379
275
118
103
88
91
45
86
224
334
189
44.6%
4.2%
2.5%
1.9%
472
248
752
386
2,063
195
346
646
31%
4.74
19%
47.6%
9.0%
2.4%
1.1%
510
256
705
317
1,985
61
348
765
39%
5.68
54%
45.5%
7.7%
2.1%
2.0%
815
242
636
306
2,217
39
660
824
37%
6.39
47%
2009
4,276
1,963
371
207
1.65
0.25
125
246
84
81
165
2010
4,473
2,011
379
210
1.74
0.25
121
155
77
80
75
LTME
9/30/11
4,301
1,865
224
111
0.96
0.25
115
261
74
96
165
FQE
9/30/10
1,002
453
82
45
0.37
0.00
121
115
18
21
94
FQE
9/30/11
1,032
442
11
1
0.01
0.00
100
162
19
21
140
45.9%
8.7%
2.0%
1.9%
908
323
671
282
2,390
42
628
1,009
42%
8.05
51%
45.0%
8.5%
1.7%
1.8%
569
378
724
274
2,134
357
332
801
38%
6.65
44%
43.4%
5.2%
1.7%
2.2%
668
250
791
273
2,171
0
666
762
35%
7.61
28%
45.2%
8.2%
1.8%
2.1%
720
258
759
264
2,202
309
328
869
39%
7.18
47%
42.8%
1.1%
1.9%
2.1%
668
250
791
273
2,171
0
666
762
35%
7.61
6%
$40
$35
$30
$25
$20
$15
$10
$5
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
RadioShack, founded in 1967, retails consumer electronics in
North America. The company employs 33,000 people.
Stores are in malls, strip centers, and individual storefronts.
Each store sells third-party and private-label products, such as
mobile devices/plans (~50% of revenue), accessories (~20%).
• Niche consumer electronics retailer in the U.S.
While RadioShack lacks the scale of a Walmart,
Amazon, and even Best Buy, it differentiates itself
via a focus on mobile device/contract sales, highly
trained salespeople, and an easy-to-shop store format.
• Aims to revitalize consumer interest through recent
Verizon deal and store rebrand to “The Shack”.
Mobiles running on Verizon Wireless, the #1 carrier
in the U.S., became available in the company’s
4,400+ U.S. stores since mid-September 2011.
• Recent valuation (1.3x tangible book, 10%+
TTM earnings yield) appears attractive due to:
1) net debt-free balance sheet; 2) likely EPS growth
due to buybacks and margin expansion potential (TTM
adj. EBITDA margin is 7% versus a 2006-10 average);
of 10%; and 3) shareholder-friendly CEO Jim Gooch
(43), who joined from Kmart as CFO in ‘06 and
replaced retail veteran and ex-CEO Julian Day in ‘11.
• Doubled the dividend to $0.50/share (5% yield)
and announced a new $200 million buyback in
October 2011. The “new capital strategy reflects our
desire to return excess cash more consistently.”
• Strong track record of FCF generation. Free cash
flow averaged ~$200 million in 2006-10 and was
$165 million for the year to Sept. 2011 (16% yield).
• Same-store sales declined 4% y-y in Jan-Sep
2011, including a decline of 4% in Jul-Sep, as Q3
“continued to be a transition period for RadioShack
[Verizon Wireless launch and T-Mobile phaseout], and
due to “pervasive challenges in the retail economy.”
• Competition from other electronics retailers and
discounters, including Walmart and Best Buy. It
also competes against stores of its carrier customers,
including Verizon Wireless, AT&T and Sprint.
• Commoditization due to Internet price discovery.
While some consumers value RadioShack’s service,
many turn to the Internet to save money. Some may
visit a store to get educated but ultimately buy online.
• Dilution from stock options and $375 million of
convertible debt. However, most of the dilutive
securities are significantly “out-of-the-money.”
FYE December 31
2006
2007
2008
-6%
-8%
-1%
∆ same-store sales
-6%
-11%
-1%
∆ revenue
Revenue ($bn)
4.8
4.3
4.2
Company stores
85%
86%
85%
Kiosks/other
15%
14%
15%
Company stores
-9% -11%
-1%
Kiosks/other
16% -12%
0%
Company stores
17%
21%
20%
Kiosks/other
-4%
11%
9%
Unallocated
-11% -10% -11%
EBIT margin
3%
9%
8%
Gross profit
45%
48%
46%
Adjusted EBITDA
6%
12%
10%
Net income
2%
6%
4%
D&A
3%
3%
2%
Capex
2%
1%
2%
% of revenue by major product category:
Wireless
35%
33%
33%
Accessories
23%
24%
27%
Electronics
16%
15%
13%
Number of locations (period end):
Company stores4
4,467 4,447 4,653
Kiosks5
772
739
688
Dealer & other
1,596 1,484 1,411
Total locations
6,835 6,670 6,752
Change (y-y)
-8%
-2%
1%
-8%
0%
-5%
2009
1%
1%
4.3
2010
4%
5%
4.5
YTD1
9/30/11
-4%
1%
3.0
85%
15%
85%
15%
85%
15%
1%
2%
4%
6%
-5%2
57%3
19%
9%
-9%
9%
18%
9%
-8%
8%
15%
-1%
-9%
4%
46%
11%
5%
2%
2%
45%
10%
5%
2%
2%
44%
6%
2%
2%
2%
38%
24%
11%
48%
19%
9%
n/a
n/a
n/a
4,680
562
1,321
6,563
-3%
-2%
4,697
1,267
1,219
7,183
9%
-3%
4,672
1,490
1,123
7,285
6%
-17%
1
Seasonality is strongest during the Q4 holiday season.
Includes only U.S. stores in both periods (2006-10 figures also include
Mexican stores). YTD revenue was up 2% y-y in mobility products/services, down
6% in accessories and down 18% in consumer electronics.
3
Driven mainly by an additional 962 kiosks at Target and by increased sales
from Mexican company-operated stores (included in both YTD periods).
4
9/30/11 figure includes 4,461 U.S. and 211 Mexican stores. Average store
size: ~2,480 sq. ft. for U.S. stores and ~1,290 sq. ft. for Mexican stores.
5
9/30/11 figure includes only kiosks at Target stores. Avg kiosk size: ~50 sq. ft.
2
CATALYSTS
• Q4 results incl. holiday sales (expected in February)
• Execution of new $200 million share buyback
MAJOR HOLDERS
Insiders 1% | Perkins 10% | LSV 5% | Vanguard 5% | Global
Thematic Partners 4% | State Street 3% | Brandywine 2%
RATINGS







THE BOTTOM LINE
RadioShack’s share price is down by nearly 50% over the last year. While same-store sales declines are a concern, the
company remains cash-generative, has a net debt-free balance sheet, and will repurchase $200 million of shares by the end of
2012 (~20% of outstanding shares at recent prices). Even if net income does not improve from the trailing figure of ~$115
million, this would imply an attractive forward P/E of 7x. Based on the potential for higher sales due to the recently signed
deal with Verizon Wireless, as well as margin improvement prospects, investors may be paying 5x earnings or less.
RADIOSHACK – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
December 30, 2012
▼
minus
equals
multiplied by
equals
multiplied by
Assumed RSH multiple as a
125%
equals
equity of RadioShack:
▼
minus
Capex: $96 million
equals
divided by
equals
multiplied by
90%
equals
(*) Represents Retail (Technology) industry median multiple.
Aggressive
▼
multiplied by
equals
multiplied by
5x
equals
RadioShack: $1.7 billion
plus
minus
equals
RADIOSHACK – ANALYSIS OF SELECTED COMPARABLE COMPANIES
(Click to visit
relevant websites)
Best Buy / BBY
Target / TGT
CONN’S / CONN
GameStop / GME
hhgregg / HGG
RadioShack / RSH
Trading Data
% ∆ to
7-Year
MV
($mn)
Low High
-34
138
8,758
-50
41 33,694
-75
243
371
-62
160
3,349
-68
177
416
-37
242
1,022
EV
($mn)
8,643
51,842
675
3,031
448
Tang.
Book/
MV
34%
45%
93%
19%
70%
1,021
75%
EPS Yield
TTM
FCF
This Next
Yield TTM
FY
FY
28% 11% 14% 15%
3%
9%
8%
9%
25% neg.
5%
9%
21% 11% 12% 13%
2% 10% 10% 11%
LTM
Rev./
EV
586%
134%
113%
319%
493%
Rev./
Empl.
($000)
281
195
294
569
454
16%
421%
123
10%
12%
13%
∆ Rev.
% TTM Rev.
Last Gross
Adj.
TTM
Q
Profit EBIT
0%
2%
25%
4%
3%
5%
31%
8%
-22%
5%
38%
3%
4%
3%
27%
7%
21% 29%
30%
4%
2%
3%
43%
5%
Tang.
Equity/
Tang.
Assets
15%
32%
44%
20%
44%
35%
RADIOSHACK – REVENUE AND ADJUSTED EBITDA MARGIN
1
For calculation of adjusted EBITDA, see http://bit.ly/x0ON3P.
RADIOSHACK – STORE BASE
RADIOSHACK – MANAGEMENT’S KEY OPERATING INITIATIVES
Rosetta Stone (RST) – Allianz, Artisan, Courage, MFC Global, Tamro
Technology: Software & Programming
Arlington VA, 800-788-0822
Trading Data
www.rosettastone.com
Price: $7.52 (as of 1/20/12)
52-week range: $6.55–$21.00
Ownership Data
Valuation
This quarter
Next quarter
FYE 12/31/11
Latest
-$0.28
-0.23
-1.03
Month
Ago
-$0.27
-0.23
-1.03
# of
Ests
5
3
4
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
12x
n/m
n/m
21x
0.2x
FYE 12/30/12
-0.58
-0.58
5
EV/ LTM EBIT
n/m
FYE 12/30/13
0.35
0.35
2
P / tangible book
1.3x
LT growth
15.0%
EPS Surprise
11/3/11
15.0%
Actual
-$0.06
Greenblatt Criteria
3
Estimate
-$0.13
LTM EBIT yield
LTM pre-tax ROC
-46%
-231%
($ millions, except
per share data)
Revenue
Gross profit
R&D
Adjusted net income
Dividend
Shares out (avg)
… % of revenue:
Gross profit
R&D
Cash, investments
Receivables
Inventory
PP&E, net
Total assets
Tangible assets
Payables
Debt
Total liabilities
Common equity
Tangible equity
TBV per share
2004
25
21
2
2
2
1.19
0.00
2
2005
48
40
3
7
7
4.25
0.00
2
84.3%
7.1%
7.1%
83.1%
5.8%
13.8%
2006
2007
2008
92
137
209
80
117
181
8
13
18
-3
9
29
-3
3
16
-1.75
1.47
8.22
0.00
0.00
0.00
2
2
2
87.4%
9.0%
-3.2%
17
9
1
31
7
97
44
2
24
16
38
3
-50
-114%
-31.32
84.9%
9.4%
6.2%
22
12
4
43
13
110
63
5
36
13
47
7
-41
-65%
-23.96
86.3%
8.8%
14.0%
31
27
5
71
16
139
94
3
52
10
60
23
-22
-23%
-11.39
2009
252
219
26
21
13
0.89
0.00
15
2010
259
220
23
12
13
0.62
0.00
20
LTME
9/30/11
262
216
24
-23
-10
-0.49
0.00
21
FQE
9/30/10
61
51
6
-2
-1
-0.04
0.00
20
FQE
9/30/11
64
53
5
-6
-1
-0.06
0.00
21
86.8%
10.4%
8.2%
95
37
9
155
18
225
180
2
66
0
69
156
111
62%
7.40
84.9%
9.0%
4.8%
122
50
10
201
21
277
231
8
93
0
98
178
133
57%
6.48
82.2%
9.0%
-8.6%
111
50
9
186
22
263
217
8
90
0
94
169
124
57%
5.94
82.9%
9.9%
-3.6%
110
51
12
186
21
259
213
1
83
0
87
172
126
59%
6.15
82.4%
7.8%
-9.3%
111
50
9
186
22
263
217
8
90
0
94
169
124
57%
5.94
$35
$30
$25
$20
$15
$10
$5
$0
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Rosetta Stone offers language-learning products and services.
FYE December 31
∆ consumer units sold
∆ avg price/consumer unit sold
∆ revenue
∆ deferred revenue
∆ EBITDA (“operating”)1
∆ EBITDA (GAAP)
Revenue ($mn)
Product
Subscription and service
Revenue growth by type:
Product
Subscription and service
U.S.
International
Revenue growth by geography:
U.S.
International
% of revenue by sales channel:
Consumer2
Institutional3
Gross profit
Marketing
G&A
R&D
EBIT
Net income
Net cash from ops
D&A
Capex
Deferred revenue, period-end ($mn)
“Operating” EBITDA ($mn)
GAAP EBITDA ($mn)
Consumer units sold (‘000s)
Average price per consumer unit ($)
• One of the most recognized language learning
brands in the U.S. Rosetta Stone has built a wide
following in the ~$4.0 billion U.S. consumer
language learning market, of which ~$2.2 billion is
self-study, Rosetta’s business focus.*
• Recent valuation ignores brand strength, fortress
balance sheet, and subscription/services growth,
especially in non-U.S. and institutional markets. While
FCF is negative $12 million in Jan-Sep of ‘11, Rosetta
generated $67 million of FCF in 2008-10 (1.4x EV).
• Scalable technology and proprietary content can
be deployed across many languages (30+ offered).
Rosetta created “many” of the 25,000+ images and
“all of the” 400,000+ recorded sound files itself.
• Net cash represents ~70% of recent market value.
Rosetta had $103 million of cash, $8 million of
short-term investments, and no debt as of 9/30/11.
• Subscription/service revenue grew 75% y-y to
$53 million (28% of revenue**) in Jan-Sep of ‘11.
It derives mainly from institutional customers (24%
of YTD revenue, up from 16% in 2008), as well as
from sales of Version 4 TOTALe to consumers.
• Non-U.S. revenue grew 40% y-y to $42 million
(22% of revenue) in Jan-Sep of ‘11. Per Nielsen,
90%+ of the $83 billion spent on consumer language
learning in 2007 was spent outside of the U.S.
• Transition from CD-based desktop software
model to digital services carries execution risks.
Rosetta’s legacy model of selling packaged CDROMs ($300+ per unit) to consumers is under threat
from low-priced or free online-based offerings.
Rosetta’s own online strategy and focus on nonU.S./institutional markets is yet to deliver cash flow.
• High marketing needs due to strong competition,
including location-based instruction (e.g. classrooms,
Berlitz) and online/offline self-study rivals (e.g.
Living Language, Pimsleur, LiveMocha, Busuu).
Rosetta may be better of pursuing a license model.
• Searching for a new CEO since mid-October
2011 to replace long-time CEO Tom Adams (38),
who is aiming to become non-executive chairman.
CATALYSTS
• Announcement of new CEO (due anytime)
• Potential return to profitability (uncertain)
• Potential for share buybacks (uncertain)
1
2
3
2008
21%
29%
52%
22%
119%
112%
209
2009
3%
16%
20%
66%
50%
-25%
252
2010
-7%
12%
3%
81%
-24%
-25%
259
YTD
9/30/11
5%
-10%
2%
20%
-142%
-224%
188
88%
12%
87%
13%
83%
17%
72%
28%
54%
45%
19%
34%
-1%
28%
-13%
75%
95%
5%
92%
8%
82%
18%
78%
22%
52%
52%
17%
93%
-9%
131%
-6%
40%
84%
16%
83%
17%
79%
21%
76%
24%
86%
45%
19%
9%
13%
7%
9%
3%
3%
16
39
35
580
302
87%
46%
23%
10%
8%
5%
16%
2%
3%
26
59
26
597
350
85%
51%
21%
9%
5%
5%
12%
3%
3%
47
45
20
554
392
82%
63%
23%
9%
-13%
-8%
-2%
3%
4%
48
-13
-19
400
355
Includes deferred revenue changes; excludes stock-based compensation.
Includes: direct-to-consumer (50% of YTD revenue), retail (14%), kiosk (12%).
Includes educational institutions, government agencies and corporations.
MAJOR HOLDERS
CEO Adams 5% | Other insiders1 2% | ABS 25% | Norwest
16% | Artisan 8% | Allianz Global 6% | Tamro 3% | MFC 2%
1
Excludes directors affiliated with ABS Capital and Norwest Equity.
RATINGS







*
Based on consumer spending in 2010 (per company estimates). U.S.
consumers represented 54% of YTD total bookings (down from 62% in ‘10).
The remaining 72% of revenue derives mainly from CD-ROM sales.
**
THE BOTTOM LINE
Rosetta Stone’s transition from a largely offline customer acquisition model to an online subscription/services model has led
to losses, management turnover, and a steep decline in the share price. However, the market appears to be ignoring Rosetta’s
strong brand, growing non-U.S. markets, and fortress balance sheet (net cash represents ~70% of market value). While high
marketing costs are a concern, they have added to brand recognition. The latter enables the pursuit of a licensing model, which
alone could support the recent enterprise value of ~$50 million. The latter is too low relative to inherent earning power.
ROSETTA STONE – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
Aggressive
September 30, 2011
ended September 30, 2011, and
assumed normalized EBIT margin
▼
▼
▼
TTM net revenue: $262 million
minus
multiplied by
multiplied by
Assumed operating margin: 10.0%
equals
equals
equals
Est. operating income: $26 million
multiplied by
multiplied by
multiplied by
5.0x
Assumed fair value multiple:
6.0x
equals
equals
equals
multiplied by
Rosetta Stone: $95 million
Rosetta Stone: $157 million
Assumed RST multiple as a
plus
plus
50%
minus
minus
Total debt: $0
Total debt: $0
equals
equals
equals
equity of Rosetta Stone:
(*) Represents Software & Programming industry median multiple.
ROSETTA STONE – MANAGEMENT’S Q4 2011 FINANCIAL EXPECTATIONS
1
“Sales bookings” are defined as executed sales contracts received by company that are recorded immediately either as revenue or as deferred revenue.
“Operating EBITDA” equals GAAP net income or loss plus interest expense, income tax expense, depreciation, amortization, stock-based compensation
expenses and change in deferred revenue.
3
“Free cash flow” is defined as cash provided by operations less cash used for purchases of property and equipment
2
Source: Company presentation dated November 2011.
ROSETTA STONE – QUARTERLY BUSINESS METRICS (in thousands)
Source: Company 3Q11 supplemental financial information.
Skechers (SKX) – Artisan, Cadian, DFA, Lane Five, Pzena, Weitz, Wellington
Consumer Cyclical: Footwear, Member of S&P SmallCap 600
Manhattan Beach CA, 310-318-3100
Trading Data
www.skechers.com
Price: $12.10 (as of 1/20/12)
52-week range: $11.21–$23.66
Ownership Data
This quarter
Next quarter
FYE 12/31/11
Latest
-$0.23
0.19
-0.45
Month
Ago
-$0.17
0.28
-0.39
Valuation
# of
Ests
5
4
5
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
4x
n/m
26x
19x
0.3x
FYE 12/30/12
0.46
0.74
5
EV/ LTM EBIT
n/m
FYE 12/30/13
0.65
1.13
2
P / tangible book
0.7x
LT growth
n/a
n/a
EPS Surprise
10/26/11
Actual
$0.17
Greenblatt Criteria
n/a
Estimate
$0.01
LTM EBIT yield
LTM pre-tax ROC
-6%
-4%
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Shares out (avg)
… % of revenue:
Gross profit
Cash, investments
Receivables
Inventory
PP&E, net
Total assets
Tangible assets
Payables
Short-term debt
Long-term debt
Total liabilities
Common equity
Tangible equity
TBV per share
2004
920
371
52
44
29
0.74
39
2005
1,007
421
75
70
42
1.06
40
40.3%
5.6%
138
123
150
425
83
519
517
94
3
111
113
224
295
293
57%
7.59
20%
41.8%
7.5%
197
142
136
492
73
582
581
108
1
131
107
238
344
343
59%
8.63
30%
2006
2007
2008
1,205
1,394
1,441
523
600
596
113
113
58
112
118
61
70
75
56
1.71
1.66
1.21
41
45
46
43.4%
9.3%
221
186
201
632
88
737
737
161
1
181
107
288
449
449
61%
10.92
41%
43.0%
8.1%
304
178
204
709
98
828
828
165
0
185
17
201
627
627
76%
13.85
35%
41.4%
4.0%
115
183
261
602
158
876
871
165
1
188
16
208
669
663
76%
14.41
15%
2009
1,436
621
74
73
57
1.23
46
2010
2,007
912
198
198
137
2.89
47
LTME
9/30/11
1,777
695
-30
-35
-7
-0.14
48
FQE
9/30/10
555
253
56
53
36
0.76
48
FQE
9/30/11
412
175
2
2
8
0.17
48
43.2%
5.2%
296
232
224
789
172
996
987
196
3
231
16
250
746
737
75%
15.91
16%
45.4%
9.9%
234
276
399
973
294
1,305
1,297
247
30
307
52
397
908
901
69%
18.99
33%
39.1%
-1.7%
248
252
238
828
382
1,248
1,242
146
59
226
79
343
905
899
72%
18.55
-4%
45.5%
10.0%
249
291
327
922
269
1,230
1,223
232
18
272
16
323
908
900
74%
18.92
36%
42.5%
0.6%
248
252
238
828
382
1,248
1,242
146
59
226
79
343
905
899
72%
18.55
1%
$50
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Skechers provides lifestyle and athletic footwear.
• Globally recognized footwear brand. Since the
introduction of the first line — Skechers USA Sport
Utility Footwear — in 1992, the Skechers brand has
gained popularity globally, especially with teenagers.
• Share price decline due to the boom and bust of
toning footwear Shape-ups presents an opportunity
to buy Skechers near liquidation value. After
contributing to record revenue in 2010, lower
demand for Shape-ups has resulted in excess
inventory and negative operating leverage in 2011.
• Recent valuation of 0.7x tangible book, and 5x
average 2006-10 EBIT, appears too low, given
Skechers proven staying power over a couple of
decades, as well as the strong balance sheet.
• $110 million of net cash as of September 30, 2011.
“Net-net” current assets of $485 million (current
assets less total liabilities) are ~80% of market value.
• Growing business outside of North America
represents 30% of TTM revenue. Skechers is
growing through JVs in Asia, subsidiaries in Brazil
and Chile, and distributors in India and Mexico.
• 3Q11 gross margin returned to 43%, reflecting
“reduced inventory levels and more in-line product
levels, as well as a normalized flow of our product.”
• Lack of FCF and return of capital despite
revenue nearly doubling from 2006 to 2010.
Cumulative FCF was negative $80 million in 200610. FCF is negative $46 million in Jan-Sep of 2011.
High working capital requirements are a challenge.
• Poor governance. Skechers has a dual-class share
structure and staggered board. Four of the top five
executives receive a base salary of $1 million.
While the controlling Greenberg family, led by
founder, chairman and CEO Robert Greenberg (71),
has built a substantial business, governance is a worry.
• Low barriers to entry and changing consumer
trends make sustainable profitability a challenge.
This is best exemplified by the recent boom and
bust reflecting the change in fortunes tied to the
company’s toning footwear Shape-ups.
• Potential liabilities related to Shape-ups litigation
and regulatory inquiries. Skechers faces requests
for information regarding claims and advertising
from regulatory agencies in the U.S. and other
countries. It also faces consumer complaints and
allegations of injury tied to its Shape-ups line.
1
FYE December 31
2006
20%
∆ revenue
48%
∆ EBIT
Revenue ($bn)
1.2
Wholesale–domestic
64%
Wholesale–international
15%
Retail1
20%
E-commerce
1%
Revenue growth by major segment:
22%
12%
Retail
18%
Gross margin by major segment:
39%
35%
Retail
64%
Gross margin
43%
North America
85%
Rest of world
15%
Revenue growth by geography:
North America
22%
Rest of world
10%
EBIT
9%
Net income
6%
Net cash from ops
2%
D&A
1%
Capex
2%
18%
Tangible equity / assets
60%
4%
2007
16%
0%
1.4
2008
3%
-49%
1.4
2009
0%
25%
1.4
2010
40%
171%
2.0
YTD
9/30/11
-15%
-116%
1.3
60%
19%
20%
1%
56%
23%
20%
1%
53%
23%
22%
2%
56%
22%
2%
1%
45%
31%
23%
1%
8%
46%
18%
-3%
24%
1%
-5%
-1%
14%
48%
33%
28%
-35%
25%
2%
39%
37%
61%
43%
34%
41%
61%
41%
38%
36%
62%
43%
41%
42%
62%
45%
27%
41%
57%
39%
82%
18%
78%
22%
78%
22%
79%
21%
69%
31%
11%
42%
-1%
24%
-1%
1%
41%
35%
-26%
31%
8%
5%
7%
1%
2%
14%
69%
10%
4%
4%
-2%
1%
5%
9%
76%
2%
5%
4%
8%
1%
3%
8%
75%
1%
10%
7%
-2%
1%
4%
17%
72%
2%
-2%
-1%
5%
2%
9%
-1%
73%
2%
Includes U.S. and international retail sales. As of September 30, 2011,
Skechers had 272 U.S. retail stores and 47 international retail stores.
CATALYSTS
• Potential return to sales growth and/or profitability
on the back of core and new product lines
• Resolution of litigation and regulatory inquiries related
to the company’s toning footwear Shape-ups
MAJOR HOLDERS
Shares out: 39 million class A (SKX; one vote/share) and 11
million class B shares (not listed; ten votes). Chairman and
CEO Greenberg and family have voting control (~35%).
Economic stake: CEO Greenberg 14% | Other insiders 6%
FMR 9% | Artisan 7% | Pzena 4% | Cadian 4% | Lane Five <1%
RATINGS







THE BOTTOM LINE
Despite the recent boom and bust of its Shape-ups line of toning footwear, Skechers has proven over two decades that it has
staying power in a competitive and fickle industry. At a recent valuation of 0.7x tangible book and 5x average 2006-10 EBIT,
the market may be ignoring Skechers’ long-term earning power and strong balance sheet. While the stock is cheap, we are
less enthusiastic about the lack of historic FCF generation as well as poor governance under the controlling Greenberg family.
SKECHERS – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
September 30, 2011
Based on average adjusted EBIT for the
past seven fiscal years
▼
minus
equals
multiplied by
Industry price to book: .7x (*) (†)
equals
▼
average of
equals
Average adjusted EBIT: $98 million
minus
multiplied by
Assumed SKX multiple as a
90%
Aggressive
▼
multiplied by
equals
multiplied by
6x
equals
Skechers: $760 million
plus
minus
equals
seven-year EPS: -5% * $98 million
equals
Revised “normalized” EBIT: $93 million
multiplied by
Assumed fair value EBIT multiple: 6x
equals
equals
equity of Skechers:
equity of Skechers:
Skechers: $560 million
plus
Net cash, investments: $248 million
minus
equals
(*) Represents Footwear industry median
multiple.
Skechers average profitability over the
past seven years may not accurately
reflect the company’s normalized earning
power. If the company’s can generate a
reasonable return on equity in the future,
the shares could be worth considerably
more than is implied by recent results
(book value discount could narrow).
equity of Skechers:
(†) In order to be conservative, we apply the
SKECHERS – ANALYSIS OF SELECTED COMPARABLE COMPANIES
(Click to visit
relevant websites)
Crocs / CROX
Deckers / DECK
Kenneth Cole / KCP
K-Swiss / KSWS
LaCrosse / BOOT
Madden / SHOO
Nike / NKE
R.G. Barry / DFZ
Rocky / RCKY
Trading Data
% ∆ to
7-Year
MV
($mn)
Low High
-96
312
1,648
-93
42
3,238
-59
195
217
-21 1104
112
-46
77
85
-88
6
1,672
-63
0 46,699
-75
6
139
-79
239
81
EV
($mn)
1,429
3,193
178
84
110
1,633
43,805
168
137
Median
Skechers / SKX
-57
271
604
494
Tang.
Book/
MV
27%
16%
56%
159%
63%
17%
20%
21%
103%
EPS Yield
TTM
FCF
This Next
Yield TTM
FY
FY
4%
7%
7%
8%
-2%
5%
6%
7%
-13% neg.
4%
6%
-75% neg. neg. neg.
-31%
6%
6%
8%
2%
5%
6%
7%
3%
5%
5%
6%
0%
7%
5%
7%
-9% 14% 14% 16%
LTM
Rev./
EV
68%
38%
263%
312%
127%
52%
52%
86%
176%
Rev./
Empl.
($000)
244
802
669
433
280
1,089
596
1,047
106
∆ Rev.
% TTM Rev.
Last
Gross
Adj.
TTM
Q
Profit
EBIT
7%
28%
54%
13%
31%
49%
50%
21%
5%
8%
39%
0%
21%
31%
36% -24%
-1%
-6%
40%
6%
38%
71%
39%
17%
14%
18%
44%
13%
10%
38%
39%
12%
-2%
-5%
37%
7%
Tang.
Equity/
Tang.
Assets
67%
60%
49%
73%
52%
58%
66%
33%
48%
27%
-2%
5%
6%
7%
86%
596
10%
28%
39%
12%
58%
149%
-18%
-1%
neg.
4%
360%
706
-8%
-26%
39%
-2%
72%
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Telular (WRLS) – Centaur, DFA, North Star, RenTech, T2 Partners
Technology: Communications Equipment
Chicago IL, 312-379-8397
Trading Data
www.telular.com
Price: $7.96 (as of 1/20/12)
52-week range: $5.40–$8.90
Ownership Data
This quarter
Next quarter
FYE 9/30/12
Latest
n/a
n/a
0.40
Month
Ago
n/a
n/a
0.40
Valuation
# of
Ests
n/a
n/a
1
FYE 9/30/13
0.48
0.48
1
FYE 9/30/14
n/a
n/a
n/a
LT growth
n/a
EPS Surprise
11/10/11
n/a
Actual
n/a
P/E FYE 10/1/11
P/E FYE 9/30/12
P/E FYE 9/30/13
P/E FYE 9/30/14
EV/ LTM revenue
EV/ LTM EBIT
17x
P / tangible book
2.4x
Greenblatt Criteria
n/a
Estimate
n/a
31x
20x
17x
n/a
2.1x
LTM EBIT yield
LTM pre-tax ROC
6%
92%
($ millions, except
per share data)
Revenue
Gross profit
R&D
Adjusted net income
Dividend
Shares out (avg)
… % of revenue:
Gross profit
R&D
Cash, investments
Receivables
Inventory
PP&E, net
Total assets
Tangible assets
Payables
Debt
Total liabilities
Tangible equity
TBV per share
2005
34
9
3
-5
-5
-0.33
0.00
14
2006
46
14
4
-1
-1
-0.04
0.00
17
27.2%
9.6%
-14.3%
22
12
8
46
3
54
49
7
10
0
10
40
80%
2.93
-28%
29.8%
8.5%
-2.2%
7
11
3
54
1
58
56
7
19
3
19
37
66%
2.18
-4%
Fiscal Years Ended September 30,
2007
2008
2009
75
66
47
25
25
19
7
5
5
5
6
2
6
6
2
0.31
0.32
0.13
0.00
0.00
0.00
18
19
17
33.3%
9.3%
7.2%
10
20
4
52
1
56
54
10
17
0
17
36
68%
2.00
18%
37.2%
7.9%
8.6%
21
7
10
44
2
48
46
3
8
0
8
38
83%
2.00
27%
40.3%
10.2%
4.2%
18
8
8
34
2
40
36
2
5
0
5
31
86%
1.81
13%
2010
47
20
5
3
38
2.55
0.00
15
2011
51
25
5
6
4
0.28
0.40
15
LTME
9/30/11
51
25
5
6
4
0.27
0.40
15
FQE
9/30/10
12
5
1
1
36
2.41
0.00
15
FQE
9/30/11
13
7
1
2
2
0.11
0.10
15
42.2%
9.7%
7.2%
28
7
5
40
2
82
77
3
6
0
7
70
91%
4.72
31%
49.9%
9.1%
12.5%
13
6
3
23
2
68
57
3
7
0
8
49
86%
3.29
92%
49.9%
9.1%
12.5%
13
6
3
23
2
68
57
3
7
0
8
49
86%
3.27
92%
43.3%
8.3%
10.8%
28
7
5
40
2
82
77
3
6
0
7
70
91%
4.73
76%
50.4%
9.2%
16.0%
13
6
3
23
2
68
57
3
7
0
8
49
86%
3.27
>100%
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Telular develops products that utilize wireless networks to
provide data connectivity among people and machines.
FYE September 30
2007
2008
∆ revenue – products
65%
-20%
∆ revenue – services
56%
16%
∆ revenue
63%
-11%
∆ gross profit
82%
-1%
∆ assets
-4%
-14%
∆ book value
-1%
5%
∆ BV per share
-8%
0%
Revenue ($mn)
75
66
…from U.S.
86%
86%
…from one customer
43% ~35%
Monitoring equipment
55%
43%
Terminal
22%
27%
Services
23%
31%
Gross margin by type:
Products
29%
31%
Services
47%
51%
Gross profit
33%
37%
R&D
9%
8%
EBIT
7%
9%
Net income
-3%
-2%
D&A
1%
1%
Capex
1%
2%
54
46
Cash, investments
19%
46%
Receivables
37%
15%
Inventory
7%
22%
PP&E, net
3%
4%
Payables
18%
6%
Debt
0%
0%
Tangible equity
68%
83%
15%
16%
Trailing P/E (end)
22x
4x
Forward P/E (end)
21x
10x
0.31
0.32
–
–
2
2
7
1
Volume (mn shares)
24
23
18.2
19.2
8%
5%
• Targets machine-to-machine (M2M) software
markets with services that earn recurring revenue
as opposed to one-time product sales (more than
50% of revenue is recurring). M2M applications
involve outfitting equipment with sensors to
facilitate supply chain management, security
monitoring, and vehicle tracking. Telular’s
software-as-a-service offerings are built on the
company’s expertise in complex software systems
and cellular electronics. As part of its offerings,
Telular resells commercial wireless services.
• Grew revenue profitably in 2011, with a positive
outlook for continued growth. The company is
adding new M2M revenue streams, as evidenced by
contributions from TankLink service revenue.
• Large, accretive acquisition of SkyBiz announced
in December. Telular is paying $35 million in cash
and $7 million in stock. The use of low-cost (<4%)
debt makes this an accretive deal. Explains investor
Aaron Edelheit, “[Telular] is only issuing one
million new shares to get $4 million of additional
cash earnings. I now expect $15 to $16 million in
cash earnings, up from $9.6 million in fiscal 2011.
The stock now has nearly a 6% dividend, and
should see earnings growth of 50-60% in this fiscal
year. And it trades at around 8 times to earnings.”
• Guiding for net income before non-cash items of
$11-12.0 million in FY12, with quarterly Telguard
unit sales expected to rise to 20,000-30,000. This
guidance should be revised upward due to SkyBiz.
Telular paid its first dividend in FY11 ($0.40 for the
year), and recently increased it to $0.11 per quarter.
• 37% of revenue from ADT, a major U.S. securities
systems provider. The supply agreement places no
minimum purchase commitments upon ADT and
has a 12-month term that auto-renews unless
canceled. ADT’s large contribution to Telular’s
financial results gives it negotiating leverage.
• M2M wireless software markets are competitive
and difficult to predict, making it all but impossible
to look beyond this year when forecasting results.
POTENTIAL CATALYSTS
• Upward revision in guidance, or future results
beating current profit guidance of $11-12 million
2009
-46%
11%
-29%
-23%
-16%
-12%
-1%
47
98%
~35%
2010
-20%
22%
0%
5%
102%
112%
143%
47
99%
38%
2011
-3%
13%
7%
26%
-16%
-19%
-20%
51
98%
37%
38%
14%
48%
34%
8%
58%
32%
6%
62%
26%
56%
18%
60%
25%
65%
40%
10%
4%
4%
2%
2%
36
42%
10%
7%
80%
2%
2%
77
50%
9%
12%
8%
4%
2%
57
50%
21%
22%
6%
6%
0%
86%
7%
29x
2x
0.13
–
2
4
10
17.1
-11%
36%
9%
6%
3%
4%
0%
91%
75%
3x
26x
2.49
–
5
7
14
14.9
-13%
22%
10%
5%
4%
5%
0%
86%
7%
29x
19x
0.26
0.40
4
8
15
15.0
1%
MAJOR HOLDERS
CEO 4%* | Other insiders 11% | DFA 7% | RenTech 5% | T2
2% | Robeco 2% | Centaur 2% | North Star 1%
*
Consists primarily of stock options.
RATINGS







THE BOTTOM LINE
Telular provides specialized software and services used in a range of industrial and commercial applications, with a majority
of revenue considered recurring (software-as-a-service). The company appears fairly valued based on existing guidance of
$11-12 million in cash earnings in FY12, but it is likely undervalued considering accretion from the $42 million accretive
deal to buy SkyBiz, announced in December. SkyBiz fits well within Telular’s machine-to-machine solutions portfolio.
According to Aaron Edelheit, cheap deal financing could help bring cash earnings to $15-16 million in FY12.
TELULAR – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
Aggressive
September 29, 2013
▼
minus
Assumed boost to FY12 consensus
EPS estimate: -25% * $0.48
equals
multiplied by
equals
multiplied by
Assumed WRLS multiple as a
110%
equals
equity of Telular:
September 30, 2011
▼
minus
equals
multiplied by
equals
multiplied by
Assumed WRLS multiple as a
90%
equals
equity of Telular:
▼
minus
Capex: $1.1 million
equals
divided by
equals
multiplied by
120%
equals
equity of Telular:
(*) Represents Communications Equipment industry median multiple.
TELULAR – ANALYSIS OF SELECTED COMPARABLE COMPANIES
(Click to visit
relevant websites)
General Electric / GE
Honeywell / HON
Numerex / NMRX
Tyco / TYC
United Tech / UTX
Telular / WRLS
Trading Data
% ∆ to
7-Year
MV
($mn)
Low High
-70
120 202,173
-60
10
44,383
-80
43
131
-70
13
23,001
-51
20
69,488
-86
12
EV
($mn)
523,673
48,046
128
25,759
74,886
Tang.
Book/
MV
16%
n/m
9%
2%
1%
108
41%
121
EPS Yield
TTM
FCF
This Next
Yield TTM
FY
FY
0%
6%
7%
8%
4%
6%
7%
8%
-2% neg.
2%
4%
4%
7%
7%
8%
8%
7%
7%
7%
LTM
Rev./
EV
28%
75%
46%
67%
78%
Rev./
Empl.
($000)
491
278
465
170
279
11%
47%
549
3%
5%
6%
∆ Rev.
% TTM Rev.
Last Gross
Adj.
TTM
Q
Profit EBIT
-34%
-8%
36%
14%
14% 14%
24%
10%
-17%
-2%
44%
4%
2%
4%
38%
11%
9%
9%
27%
14%
7%
9%
50%
12%
Tang.
Equity/
Tang.
Assets
5%
-9%
43%
4%
2%
86%
TELULAR – BUSINESS MODEL SNAPSHOT
Source: Company presentation dated January 2012.
TELULAR – TELGUARD OVERVIEW
TELULAR – RECENT ACQUISITION: SKYBITZ
TELULAR – SKYBITZ ADRESSABLE MARKET
Unisys (UIS) – Clearbridge, FMR, Optimum, Putnam, Steel Partners
Technology: Computer Services
Blue Bell PA, 215-986-4011
Trading Data
www.unisys.com
Price: $20.13 (as of 1/20/12)
52-week range: $13.77–$41.32
Ownership Data
This quarter
Next quarter
FYE 12/31/11
Latest
$1.50
0.41
2.29
Month
Ago
$1.58
0.41
2.36
Valuation
# of
Ests
2
1
2
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
5x
9x
6x
7x
0.2x
FYE 12/30/12
3.24
3.25
2
EV/ LTM EBIT
2x
FYE 12/30/13
3.02
3.05
1
P / tangible book
n/m
LT growth
10.0%
EPS Surprise
10/24/11
10.0%
Actual
$1.63
Greenblatt Criteria
1
Estimate
$0.70
LTM EBIT yield
LTM pre-tax ROC
52%
>100%
($ millions, except
per share data)
Revenue
Gross profit
R&D
Adjusted net income
Shares out (avg)
… % of revenue:
Gross profit
R&D
Cash, investments
Receivables
Inventory
PP&E, net
Total assets
Tangible assets
Payables
Short-term debt
Long-term debt
Total liabilities
Tangible equity
TBV per share
2004
5,821
1,362
294
-35
-76
39
1.15
33
2005
5,759
1,161
264
-162
-171
-1,732
-50.91
34
23.4%
5.1%
-0.6%
661
1,137
216
2,418
424
5,621
5,094
487
153
2,023
898
4,114
980
19%
29.25
20.2%
4.6%
-2.8%
643
1,112
194
2,153
386
4,029
3,509
445
77
1,815
1,049
4,062
-552
-16%
-16.26
2006
2007
2008
5,757
5,653
4,955
1,010
1,287
1,086
232
179
129
-327
86
2
-251
29
-98
-279
-79
-151
-8.11
-2.26
-4.19
34
35
36
17.5%
4.0%
-5.7%
719
1,165
176
2,239
341
4,038
3,540
461
2
1,932
1,049
4,102
-562
-16%
-16.38
22.8%
3.2%
1.5%
830
1,059
171
2,212
332
4,137
3,668
420
204
1,896
1,058
3,771
-103
-3%
-2.94
21.9%
2.6%
0.0%
544
819
135
1,638
277
2,824
2,433
379
2
1,426
1,059
4,267
-1,834
-75%
-50.97
2009
4,386
1,113
102
330
218
172
4.39
39
2010
4,020
1,072
79
376
223
159
3.73
43
LTME
9/30/11
3,913
1,018
75
338
198
121
2.84
43
FQE
9/30/10
961
237
19
76
51
22
0.51
43
FQE
9/30/11
1,020
285
19
113
117
79
1.82
43
25.4%
2.3%
7.5%
648
767
101
1,773
226
2,957
2,607
292
66
1,450
846
4,225
-1,618
-62%
-41.24
26.7%
2.0%
9.3%
828
790
89
1,875
220
3,021
2,679
261
1
1,337
823
3,958
-1,279
-48%
-30.05
26.0%
1.9%
8.6%
667
696
67
1,563
200
2,567
2,243
236
1
1,098
444
3,172
-929
-41%
-21.48
24.7%
2.0%
7.9%
689
782
103
1,729
224
2,840
2,497
270
1
1,257
837
3,875
-1,378
-55%
-32.33
27.9%
1.8%
11.1%
667
696
67
1,563
200
2,567
2,243
236
1
1,098
444
3,172
-929
-41%
-21.48
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Unisys provides IT solutions to corporates and governments.
SELECTED OPERATING DATA1
FYE December 31
2006 2007 2008
0%
-2%
-7%
∆ revenue
-13%
-5%
-3%
∆ employees (end)
Revenue ($bn)
5.8
5.7
5.2
Services
85%
86%
88%
Technology
15%
14%
12%
Services
3%
-1%
-5%
Technology
-13%
-4% -22%
Gross margin by segment:
Services
12%
18%
18%
Technology
49%
53%
46%
Gross margin
18%
23%
22%
Services
0%
2%
3%
Technology
2%
10%
5%
Corporate
-6%
-2%
-3%
EBIT margin
-6%
2%
1%
% of Services segment revenue by category:
Outsourcing
39%
42%
44%
Systems int./consulting
32%
31%
32%
Infrastructure services
19%
18%
16%
Core maintenance
9%
9%
8%
Services segment revenue growth by major category:
Outsourcing
10%
6%
-2%
Systems int./consulting
-4%
-6%
-1%
% of Technology segment revenue by category:
Enterprise-class servers
80%
80%
82%
Other
20%
20%
18%
U.S.
44%
43%
43%
U.K.
15%
16%
14%
Other
41%
41%
43%
U.S. revenue growth
-4%
-4%
-8%
R&D
4%
3%
2%
Net income
-5%
-1%
-2%
Net cash from ops
0%
3%
5%
D&A
7%
7%
8%
Capex
4%
5%
6%
1%
2%
3%
• Major IT services and technology provider with
23,000 global employees. In a fragmented industry,
Unisys has the scale to compete against most rivals.
• Enterprise value (including GAAP pension deficit)
to “normalized” EBIT may be only ~5x, if
management can execute on its goal to “consistently
deliver” an 8-10% services operating margin (TTM
services segment margin: 7%). TTM company
revenue remains ~20% below the 2006-10 average.
• Chairman and CEO Ed Coleman (60) is leading
a turnaround since joining Unisys in 2008.
Coleman is divesting non-core businesses, reducing
cost by use of low-cost labor (at ~30% of all labor),
and lowering debt (debt reductions in 2011 are to cut
annual interest cost by $58 million going forward).
• Revenue grew 6% y-y in 3Q11 (up “slightly” in
constant currency), on strong ClearPath server sales,
growth in non-U.S. federal IT outsourcing business
and higher sales within system integration.
• $5.3 billion of services backlog at 9/30/11 (1.6x TTM
services revenue). 3Q11 service orders grew “midsingle digits” sequentially, but declined “low doubledigit” y-y, on lower outsourcing/U.S. Federal orders.
• $223 million of net cash as of September 30, 2011.
• Outsized pension-related liabilities increase
balance sheet risk. At yearend 2010, Unisys had
benefit obligations of $4.9 billion in the U.S. ($963
million underfunded) and $2.5 billion in non-U.S.
plans ($385 million underfunded). Contribution
requirements may be up to $140 million in 2012.
• Further margin improvement likely depends on
revenue growth after years of cost-cutting. While
revenue growth in Q3 is encouraging, y-y declines
in orders reflect ongoing weak demand.
• Dependence on government sector (40%+ of
revenue incl. ~20% from U.S. federal government).
Government budget pressures may lead to contract
cancellations, delays and/or price reductions.
• Competition from IBM, H-P and Accenture,
which have larger scale and better global recognition.
• Dilution from mandatory convertible preferred stock.
CATALYSTS
• Potential de-risking of pension liabilities
• Continuation of 3Q11 revenue growth
2009
-12%
-12%
4.6
2010
-13%
-11%
4.0
YTD
9/30/11
-4%
0%
2.9
88%
12%
86%
14%
88%
12%
-12%
-11%
-14%
0%
-3%
-7%
20%
56%
25%
21%
62%
27%
20%
57%
25%
6%
16%
0%
8%
7%
26%
0%
9%
7%
17%
-1%
7%
45%
34%
14%
8%
44%
35%
14%
7%
44%
35%
14%
7%
-10%
-9%
-15%
-10%
-3%
-5%
83%
17%
82%
18%
87%
13%
46%
12%
42%
-6%
43%
11%
46%
-18%
41%
10%
49%
-11%
2%
4%
9%
8%
4%
9%
2%
4%
6%
6%
5%
8%
2%
1%
5%
5%
4%
1%
1
YTD and 2010 figures are for continuing operations. Prior figures include
discontinued HIM/other businesses (~$210 million of revenue in 2009).
MAJOR HOLDERS
Insiders 1% | Putnam 18% | FMR 14% | Vanguard 5%
RATINGS
1

1

1



Reflects the risk from outsized pension liabilities.
THE BOTTOM LINE
Unisys continues to benefit from the leadership of CEO Ed Coleman, who has re-focused the business, improved margins and
reduced debt since joining in 2008. While the shares look cheap even after adjusting for the outsized pension liability, the
latter represents a big unknown for equity holders. Unless this risk can be reduced by offloading the liability at close to the
GAAP deficit, Unisys will continue to resemble more of a pension-related bet than an investment into an IT service provider.
UNISYS – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
▼
multiplied by
equals
multiplied by
5x
equals
Unisys: $261 million
plus
minus
equals
equity of Unisys:
Base Case
December 30, 2012
▼
minus
equals
multiplied by
equals
multiplied by
Assumed UIS multiple as a
75%
equals
equity of Unisys:
Aggressive
▼
minus
Capex: $142 million
equals
divided by
equals
multiplied by
150%
equals
equity of Unisys:
(*) Represents Computer Services industry median multiple.
UNISYS – ANALYSIS OF SELECTED COMPARABLE COMPANIES
Trading Data
% ∆ to
7-Year
MV
($mn)
Low High
-68
14
39,445
-84
176
258
-53
154
29,948
-33
95
55,811
-63
3 222,193
-86
409
872
(Click to visit
relevant websites)
Accenture / ACN
Cray / CRAY
Dell / DELL
HP / HPQ
IBM / IBM
Unisys / UIS
EV
($mn)
34,355
170
24,371
78,402
241,591
650
Tang.
Book/
MV
6%
51%
3%
n/m
n/m
n/m
EPS Yield
TTM
FCF
This Next
Yield TTM
FY
FY
9%
6%
7%
8%
7% 14% neg.
6%
15% 12% 13% 12%
15% 12% 15% 16%
7%
7%
8%
9%
23% 13% 11% 16%
LTM
Rev./
EV
83%
215%
253%
162%
44%
602%
Rev./
Empl.
($000)
117
411
615
364
251
171
∆ Rev.
% TTM Rev.
Last
Gross
Adj.
TTM
Q
Profit EBIT
19%
17%
31%
13%
93% -14%
39%
11%
2%
0%
22%
8%
1%
-3%
23%
9%
7%
2%
47%
19%
-5%
6%
26%
9%
Tang.
Equity/
Tang.
Assets
18%
52%
2%
-23%
-11%
-41%
UNISYS – CALCULATION OF FREE CASH FLOW
*
September 30.
**
Free Cash Flow = Cash Flow from operations less capital expenditures.
UNISYS – EVOLUTION OF PRODUCT AND SERVICES PORTFOLIO, 2008-2011
UNISYS – TRAILING TWELVE MONTHS’ OPERATING PROFIT AND MARGIN ($ in millions)
UNISYS – MANAGEMENT’S THREE-YEAR FINANCIAL GOALS
Veeco Instruments (VECO) – Eagle Asset, JP Morgan, Kleinheinz, Paulson, Royce
Technology: Semiconductors, Member of S&P SmallCap 600
New York NY, 516-677-0200
Trading Data
www.veeco.com
Price: $26.35 (as of 1/20/12)
52-week range: $20.35–$57.67
Market value: $1.0 billion
Ownership Data
This quarter
Next quarter
FYE 12/31/11
Latest
$0.68
0.41
4.64
Month
Ago
$0.69
0.41
4.66
Valuation
# of
Ests
22
23
22
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
FYE 12/30/12
1.82
1.85
24
EV/ LTM EBIT
FYE 12/30/13
2.45
2.56
12
P / tangible book
LT growth
Institutional ownership: n/a
13.3%
EPS Surprise
10/24/11
13.3%
Actual
$1.33
4x
6x
14x
11x
0.5x
2x
1.6x
Greenblatt Criteria
3
Estimate
$1.13
LTM EBIT yield
LTM pre-tax ROC
57%
>100%
($ millions, except
per share data)
Revenue
Gross profit
R&D
Adjusted net income
Shares out (avg)
D&A
Capex
Free cash flow
… % of revenue:
Gross profit
R&D
D&A
Capex
Cash, investments
Total assets
Tangible assets
Debt
Tangible equity
TBV per share
2004
390
152
58
-7
-58
-1.94
30
1
19
16
-15
2005
410
174
60
12
0
0.01
30
45
17
12
33
38.9%
14.9%
-1.7%
4.7%
4.0%
100
309
577
389
92
230
64
17%
2.16
-6%
42.4%
14.7%
3.0%
4.0%
2.9%
125
315
568
390
86
230
71
18%
2.37
6%
2006
2007
2008
441
403
315
194
158
123
62
61
40
24
-4
15
16
-12
7
0.52
-0.39
0.21
30
31
31
46
39
43
16
10
9
17
9
11
29
30
32
44.0%
14.0%
5.4%
3.6%
3.9%
147
346
590
420
98
209
112
27%
3.67
13%
39.1%
15.2%
-1.1%
2.6%
2.3%
117
302
529
369
128
147
113
31%
3.65
-8%
39.1%
12.6%
4.7%
2.8%
3.5%
104
267
430
332
99
99
127
38%
4.05
-30%
2009
282
111
44
0
-9
-0.28
33
59
5
8
52
2010
933
444
71
277
260
6.59
40
194
5
11
184
LTME
9/30/11
1,087
544
94
345
320
8.12
39
66
6
50
16
FQE
9/30/10
277
137
15
98
94
2.35
40
79
1
2
77
FQE
9/30/11
268
125
26
74
53
1.34
39
-15
1
16
-31
39.4%
15.4%
0.1%
1.8%
2.7%
284
456
605
532
139
101
285
54%
8.75
-5%
47.6%
7.7%
29.7%
0.5%
1.1%
639
1,023
1,148
1,079
382
104
694
64%
17.56
>100%
50.0%
8.6%
31.7%
0.5%
4.6%
426
761
934
851
196
3
652
77%
16.57
>100%
49.6%
5.5%
35.4%
0.3%
0.8%
435
827
944
874
299
103
468
54%
11.72
>100%
46.6%
9.9%
27.6%
0.5%
6.0%
426
761
934
851
196
3
652
77%
16.57
>100%
$70
$60
$50
$40
$30
$20
$10
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Veeco Instruments provides equipment to make light
emitting diodes (LEDs), solar panels, and hard-disk drives.
FYE December 31
2006 2007
∆ revenue
8%
-9%
∆ gross profit
11% -19%
∆ assets
4% -10%
∆ book value
13%
-3%
∆ BV per share
11%
-5%
Revenue ($mn)
441
403
U.S.
34%
32%
EMEA
29%
33%
Asia Pacific
37%
34%
LED and solar
35%
46%
Data storage
65%
54%
Operating margin by segment ($mn):
LED and solar
2%
28%
Data storage
15%
0%
Corporate
-4%
-4%
Gross profit
44%
39%
R&D
14%
15%
EBIT (adjusted)1
5%
-1%
Net income (adjusted)1,2
4%
-3%
D&A
7%
6%
Capex
4%
2%
420
369
Cash, investments
35%
32%
Receivables
21%
20%
Inventory
24%
27%
PP&E, net
18%
18%
Payables
10%
10%
ST debt
1%
7%
LT debt
48%
33%
Tangible equity
27%
31%
17% -11%
9
9
17
6
Volume (mn shares)
115
103
30
31
2%
2%
• Leader in equipment for making LEDs, solar
panels and data storage. Veeco produces metal
organic chemical vapor deposition (MOCVD) and
other systems for makers of high brightness LEDs
and solar panels. In storage, the company makes ion
beam etch and other systems used to create thin film
magnetic heads that read and write on HDDs.
• Wide-spread adoption of LED lighting, led by the
commercial, municipal and industrial sectors, is a
long-term driver of demand growth for Veeco.
• Gained significant share of MOCVD market,
capturing 71% of the market in 3Q11, up from 34%
in 3Q09. MOCVD technologies are used to grow
compound semiconductor materials at the atomic
scale, a high-value process. Competitors Aixtron,
Nippon Sanso have lost share in recent years.
• New MaxBright MOCVD system has been wellreceived and contributed nearly half of Veeco’s
MOCVD revenue in 3Q11, including broad-scale
customer acceptance at tier one LED manufacturers.
• Repurchased $154 million of stock at average
price of $39 per share in 3Q11, completing a $200
million buyback plan initiated in August 2010.
• Headwinds include “weak near-term LED industry
demand, low MOCVD equipment utilization rates
in Asia, and decreased business activity in China.”
CEO Peeler also points out that customers have
slowed or cut their capacity expansion plans. In
LEDs, weak backlighting demand is causing low
factory utilization rates. In storage, negative factors
include industry consolidation, weak PC demand.
• Q3 bookings were $133 million, down 57%
sequentially, with book-to-bill of only 0.5 to 1. The
quarter-end backlog was $389 million, down from
$555 million at yearend 2010. Despite the weak
bookings, Veeco expects revenue to reach $1 billion
in 2011 (high end of guidance). Management
expects orders to “remain depressed for a few
quarters.” The company still expects to be profitable
and deliver double-digit EBITA margin in 2012.
POTENTIAL CATALYSTS
• Continued share gains in products targeting LEDs
• Potential new stock repurchase program
YTD
2010 9/30/11
230%
36%
299%
48%
90%
-1%
112%
37%
75%
39%
933
787
2008
-22%
-22%
-19%
-18%
-19%
315
2009
-10%
-10%
41%
60%
53%
282
41%
18%
40%
22%
18%
61%
10%
10%
80%
11%
5%
84%
53%
47%
73%
27%
85%
15%
85%
15%
14%
11%
-3%
14%
-3%
-4%
35%
26%
-2%
35%
28%
-1%
39%
13%
5%
2%
6%
4%
332
39%
15%
0%
-3%
5%
3%
532
48%
8%
30%
28%
1%
1%
1,079
50%
9%
31%
21%
1%
5%
851
31%
18%
29%
19%
9%
0%
30%
38%
5%
7
33
139
31
1%
53%
13%
10%
8%
5%
0%
19%
54%
-4%
11
43
546
33
4%
59%
14%
10%
4%
3%
9%
0%
64%
53%
19
21
395
40
21%
50%
14%
15%
9%
5%
0%
0%
77%
33%
19
24
294
40
2%
1
Adjusted for unusual items of -$0.8 million in 2006, -$8.5 million in 2007, -$57
million in 2008, -$5.1 million in 2009, $0.2 million in 2010, -$3.6 million YTD.
Adjusted for nonrecurring items of -$25 million in 2008, -$1.4 million in 2009,
$101 million in 2010, and -$60 million YTD 9/30/11.
2
MAJOR HOLDERS
CEO <1% | Other insiders 1% | Royce 13% | Paulson 8% |
JPM 6% | Westwood 5% | Kleinheinz 5% | Eagle Asset 3%
RATINGS







THE BOTTOM LINE
Veeco is a well-established niche player in the semiconductor equipment industry, serving makers of LEDs, solar panels, and
data storage devices. The company’s end markets are in a slump at this time, creating an attractive market quotation. Veeco
has executed quite well in recent years, gaining market share and increasing revenue to nearly $1 billion in 2011. While we
find it difficult to anticipate who the company’s end markets and technology competition will evolve over time, we see quite
a bit of value in Veeco shares. If management launches a new buyback program, we would be highly tempted to invest.
VEECO INSTRUMENTS – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
Aggressive
December 30, 2012
▼
minus
equals
multiplied by
equals
multiplied by
Assumed VECO multiple as a
110%
equals
equity of Veeco Instruments:
▼
TTM net revenue: $1.1 billion
multiplied by
equals
multiplied by
6.0x
equals
Veeco Instruments: $1.3 billion
plus
minus
Total debt: $2.7 million
equals
September 30, 2011
▼
minus
equals
multiplied by
equals
multiplied by
Assumed VECO multiple as a
75%
equals
(*) Represents Semiconductors industry median multiple.
VEECO INSTRUMENTS – ANALYSIS OF SELECTED COMPARABLE COMPANIES
Trading Data
(Click to visit
relevant websites)
∆ to Reach
7-Year
High
35
9
110
19
29
MV
($mn)
Agilent / A
Danaher / DHR
SPX Corp. / SPW
Teradyne / TER
Thermo Fisher / TMO
Low
-71
-54
-62
-83
-53
-88
119
Veeco / VECO
EPS Yield
EV
($mn)
Tang.
Book/
MV
TTM
FCF
Yield
Next
FY
LTM
Rev./
EV
Rev./
Empl.
($000)
TTM
This
FY
14,273
35,237
3,417
2,971
19,345
12,931
40,648
4,223
1,938
25,581
16%
n/m
n/m
43%
n/m
8%
6%
6%
10%
6%
7%
5%
5%
7%
5%
8%
5%
7%
8%
8%
8%
6%
8%
8%
9%
51%
37%
125%
74%
44%
1,020
597
64%
2%
24%
18%
7%
182%
∆ Rev.
% TTM Rev.
Tang.
Equity/
TTM
Last
Q
Gross
Profit
Adj.
EBIT
Tang.
Assets
354
315
342
497
307
22%
22%
8%
-5%
6%
10%
46%
8%
-30%
13%
53%
51%
29%
51%
41%
16%
16%
7%
21%
12%
33%
-39%
-3%
68%
-70%
1,208
23%
-3%
50%
32%
77%
VEECO INSTRUMENTS – MANAGEMENT’S FINANCIAL EXPECTATIONS FOR 2011
Source: Company presentation dated December 2011.
VEECO INSTRUMENTS – MANAGEMENT’S DETAILED FINANCIAL EXPECTATIONS FOR 2011 (in thousands)
1
By the end of 2010, the company had fully utilized all prior NOL and tax credit carryforwards. As a result, beginning in 2011, the company utilized the with and
without method, at a 30.76% effective rate forecasted for the full year, to determine the income tax effect of non-GAAP adjustments.
VEECO INSTRUMENTS – MOCVD* MARKET LEADERSHIP
*
MCVD = metal organic chemical vapor deposition.
Vonage (VG) – AIG, Brookside, Manatuck, NEA, RenTech, TCS, Wellington
Services: Communications Services
Holmdel NJ, 732-528-2600
Trading Data
www.vonage.com
Price: $2.34 (as of 1/20/12)
52-week range: $2.04–$5.39
Ownership Data
This quarter
Next quarter
FYE 12/31/11
Latest
$0.11
0.11
0.39
Month
Ago
$0.11
0.11
0.39
Valuation
# of
Ests
3
2
4
P/E FYE 12/31/10
P/E FYE 12/31/11
P/E FYE 12/30/12
P/E FYE 12/30/13
EV/ LTM revenue
n/m
6x
5x
5x
0.7x
FYE 12/30/12
0.47
0.47
4
EV/ LTM EBIT
8x
FYE 12/30/13
0.52
0.52
3
P / tangible book
n/m
LT growth
5.0%
EPS Surprise
11/2/11
5.0%
Actual
$0.10
Greenblatt Criteria
1
Estimate
$0.11
LTM EBIT yield
LTM pre-tax ROC
13%
n/m
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Shares out (avg)
D&A
Capex
Free cash flow
… % of revenue:
Gross profit
D&A
Capex
Cash, investments
Receivables
PP&E, net
Total assets
Tangible assets
Payables
Short-term debt
Long-term debt
Tangible equity
TBV per share
2004
80
38
-72
-70
-0.45
156
-39
4
11
-50
2005
269
145
-265
-262
-1.68
156
-190
11
76
-266
47.2%
-89.8%
4.9%
13.7%
106
3
116
16
137
137
11
0
0
-107
-78%
-0.69
53.8%
-98.3%
4.1%
28.3%
266
7
304
104
447
447
17
1
270
-369
-83%
-2.37
2006
2007
2008
607
828
900
321
520
595
-341
-260
-5
-339
-266
-32
-3.59
-1.71
-0.21
94
156
156
-189
-271
4
24
34
47
55
47
39
-244
-318
-35
52.9%
-56.1%
3.9%
9.0%
500
17
570
128
758
753
59
1
277
179
24%
1.89
62.7%
-31.4%
4.1%
5.7%
151
20
232
119
462
433
56
254
22
-104
-24%
-0.67
66.0%
-0.5%
5.2%
4.3%
46
18
117
98
337
297
34
3
214
-131
-44%
-0.83
2009
889
604
59
-45
-0.26
170
38
52
47
-8
2010
885
585
96
-52
-0.25
210
194
53
40
154
LTME
9/30/11
872
593
115
56
0.26
214
127
41
41
86
FQE
9/30/10
214
141
20
-54
-0.25
212
31
13
9
22
FQE
9/30/11
217
147
28
24
0.11
225
46
9
12
34
67.9%
6.6%
5.8%
5.2%
32
15
112
91
313
273
12
3
220
-133
-49%
-0.78
66.1%
10.8%
5.9%
4.6%
79
15
124
79
260
221
37
22
191
-169
-77%
-0.81
68.0%
13.1%
4.7%
4.7%
56
18
104
70
233
187
48
45
66
-101
-54%
-0.44
65.7%
9.3%
5.9%
4.0%
136
19
189
79
362
326
36
3
195
-148
-45%
-0.70
67.7%
12.7%
4.0%
5.5%
56
18
104
70
233
187
48
45
66
-101
-54%
-0.44
$20
$18
$16
$14
$12
$10
$8
$6
$4
$2
$0
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Vonage low-cost voice services through broadband devices.
FYE December 31
2006
2007
∆ employees
32%
-14%
∆ gross sub additions
34%
-22%
∆ subscriber lines (end)
75%
16%
∆ ARPU
7%
-1%
∆ revenue
126%
36%
∆ gross profit
122%
62%
∆ cost to acquire
12%
-1%
∆ assets
70%
-39%
∆ book value
-150% -141%
∆ BV per share
-182% -125%
Revenue ($mn)
607
828
Revenue by type ($mn):
Telephony services
96%
97%
Equipment and shipping
4%
3%
U.S.
96%
95%
Canada
4%
4%
U.K.
1%
1%
Selected operating data:
Gross adds (‘000)
1,470
1,153
∆ net subs (‘000)
955
356
Subs (end) (‘000)
2,224
2,580
Monthly churn
2.5%
2.8%
ARPU
$29
$29
Cost to acquire (gross)
$249
$246
Employees (end)
1,790
1,543
Gross profit
53%
63%
EBIT (adjusted)1
-56%
-31%
-56%
-32%
D&A
4%
4%
Capex
9%
6%
753
433
Cash, investments
66%
35%
Receivables
2%
5%
Inventory
3%
5%
PP&E, net
17%
27%
Payables
8%
13%
ST debt
0%
59%
LT debt
37%
5%
Tangible equity
24%
-24%
94
156
-40%
65%
• Pure-play communications provider utilizing a
Voice over Internet Protocol (VoIP) network.
Vonage has 2.4 million subscriber lines, mostly in
the U.S. The company’s network enables a user via
a single “identity” (a number or user name) to use
services over 3G, 4G, Cable, or DSL networks. This
technology enables Vonage to offer attractively
priced services that provide customers with access
to voice, messaging, and features, regardless of
location, device, or their form of Internet access.
• Primary product is Vonage World, a residential
plan with unlimited calling within the U.S. and to
60+ countries, including India, Mexico, and China,
for a flat monthly rate. Vonage World comprises
one-half of lines in service. Vonage began offering
an end-to-end Spanish language experience in 2010
and has added call centers in Costa Rica and Chile.
• Continues to innovate with new features and
mobile apps. Vonage introduced its mobile offering
in late 2009 and Vonage Mobile for Facebook in
August 2010. The latter enables inbound and
outbound calling to a user’s Facebook friends. The
company has high operating leverage, making
profits sensitive to subscriber growth and ARPU.
• Major financial turnaround, with positive GAAP
income and significant FCF generation. Vonage has
stabilized monthly churn below 3% by improving
operations and customer mix. Management has
guided for adjusted EBITDA of “at least $165
million” and FCF of $105 million in 2011.
• Founder and chairman Jeffrey Citron (40) owns
25% of the equity, aligning him with shareholders.
• Net line additions are expected to be “slightly
negative” in 2011, reflecting significant challenges
in re-growing the business in the face of stiff
competition from Skype and other VoIP players. If
Vonage cannot start growing net subscribers again,
shareholder value creation will likely be capped.
• Revenue from growth initiatives ramping “more
slowly than originally anticipated.” Management
expects international long distance, mobile, and
international expansion to contribute more in 2012.
POTENTIAL CATALYSTS
• Potential re-growth in net subscriber lines
• Potential for stock buyback and dividends
2008
-3%
-17%
1%
1%
9%
14%
8%
-27%
21%
21%
900
2009
-18%
-21%
-7%
2%
-1%
2%
14%
-7%
1%
-7%
889
YTD
2010 9/30/11
-7%
-10%
-14%
7%
-1%
0%
3%
-1%
0%
-2%
-3%
2%
2%
-3%
-17%
-36%
41%
-51%
15%
-55%
885
655
96%
4%
97%
3%
99%
1%
99%
1%
95%
4%
1%
95%
4%
1%
95%
3%
1%
95%
4%
1%
952
27
2,607
3.1%
$29
$266
1,491
749
-155
2,435
3.1%
$29
$305
1,225
640
-30
2,405
2.4%
$30
$310
1,140
504
-16
2,389
2.6%
$30
$303
1,035
66%
-1%
-4%
5%
4%
297
68%
7%
-5%
6%
5%
273
66%
11%
-6%
6%
5%
221
68%
14%
11%
4%
4%
187
16%
6%
4%
33%
11%
1%
72%
-44%
156
0%
12%
6%
3%
33%
4%
1%
81%
-49%
170
9%
36%
7%
3%
36%
17%
10%
86%
-77%
210
23%
30%
9%
4%
37%
26%
24%
35%
-54%
224
8%
1
Adjusted for unusual items of -$1.4 million in 2007, -$32 million in 2008, $2.2
million in 2009, -$32 million in 2010, and -$12 million YTD 9/30/11.
MAJOR HOLDERS
Founder Citron 25% | CEO Lefar 2% | Other insiders 14% |
Wellington 9% | NEA 5% | AIG 5% | Brookside 3%
RATINGS







THE BOTTOM LINE
Vonage was one of the VoIP calling services leader in the pre-Skype era. However, once the company’s growth profile
changed, it found itself with a bloated cost structure and was left for dead by many investors. Led by highly incentivized
founder Jeffrey Citron as chairman, the company has accomplished an impressive financial turnaround, achieving GAAP
profitability and getting on track to generate $105 million of FCF in 2011. The company has shifted its emphasis to
international long distance markets and has launched innovative mobile applications. We find the valuation highly attractive.
VONAGE – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
Aggressive
December 30, 2012
▼
multiplied by
equals
multiplied by
▼
minus
equals
equals
multiplied by
equals
Vonage: $390 million
plus
minus
equals
multiplied by
6.0x
equity of Vonage:
Assumed VG multiple as a
90%
equals
equity of Vonage:
▼
minus
Capex: $41 million
equals
divided by
equals
$1.4 billion ($6.10 per share)
multiplied by
125%
equals
equity of Vonage:
$1.1 billion, or $4.90 per share
(*) Represents Communications Services industry median multiple.
VONAGE – QUARTERLY NET INCOME TREND
Tripled net income, ex-adjustments,
from year ago quarter in Q3
Year-over-year gains were driven
primarily by 38% increase in income
from operations and 75% reduction
in interest expense
Vonage has reported ten
consecutive quarters of positive
net income, excluding adjustments
1
Non-GAAP measure.
VONAGE – CALCULATION OF ADJUSTED EBITDA and PRE-MARKETING OPERATING INCOME ($ in thousands)
VONAGE – CALCULATION OF ADJUSTED NET INCOME ($ in thousands)
VONAGE – CALCULATION OF FREE CASH FLOW ($ in thousands)
Winnebago (WGO) – FMR, Franklin, Killen, Maverick, Royce, Tamro, T Rowe
Capital Goods: Mobile Homes & RVs, Member of S&P SmallCap 600
Trading Data
Forest City IA, 641-585-3535
www.winnebagoind.com
Price: $8.77 (as of 1/20/12)
52-week range: $6.02–$16.60
Ownership Data
This quarter
Next quarter
FYE 8/31/12
Latest
$0.02
0.15
0.36
Month
Ago
$0.02
0.15
0.36
Valuation
# of
Ests
5
5
6
P/E FYE 9/1/11
P/E FYE 8/31/12
P/E FYE 8/31/13
P/E FYE 8/31/14
EV/ LTM revenue
21x
24x
17x
17x
0.4x
FYE 8/31/13
0.51
0.51
6
EV/ LTM EBIT
26x
FYE 8/31/14
0.52
0.52
1
P / tangible book
2.4x
LT growth
24.8%
EPS Surprise
12/15/11
24.8%
1
Actual
$0.04
Estimate
$0.06
Greenblatt Criteria
LTM EBIT yield
LTM pre-tax ROC
4%
13%
($ millions, except
per share data)
Revenue
Gross profit
Adjusted net income
Dividend
Shares out (avg)
… % of revenue:
Gross profit
Cash, investments
Receivables
Inventory
LT investments
PP&E, net
Total assets
Tangible assets
Payables
Debt
Total liabilities
Tangible equity
TBV per share
2005
992
137
98
101
65
1.95
0.30
33
2006
864
105
63
68
45
1.39
0.36
32
13.8%
9.9%
113
41
121
288
22
64
413
413
35
91
0
177
236
57%
7.07
66%
12.1%
7.3%
155
21
77
267
21
57
385
385
28
80
0
166
218
57%
6.77
53%
Fiscal Years Ended August 27,
2007
2008
2009
870
604
212
99
35
-31
55
-5
-59
61
-1
-57
42
8
-78
1.34
0.26
-2.68
0.40
0.48
0.12
31
29
29
11.4%
6.3%
110
30
101
258
20
51
367
367
35
89
0
158
208
57%
6.69
55%
5.8%
-0.8%
21
16
111
163
60
40
306
306
16
54
0
132
174
57%
5.98
-8%
-14.6%
-27.7%
50
29
47
129
42
28
221
221
10
50
9
128
92
42%
3.18
-61%
2010
450
26
1
1
10
0.35
0.00
29
2011
496
40
11
12
12
0.41
0.00
29
LTME
11/26/11
505
37
8
8
10
0.33
0.00
29
FQE
11/27/10
124
11
4
5
3
0.11
0.00
29
FQE
11/26/11
132
9
1
1
1
0.03
0.00
29
5.9%
0.1%
75
19
44
142
41
26
227
227
20
50
0
130
98
43%
3.35
1%
8.0%
2.3%
69
22
69
165
34
23
240
238
22
51
0
131
107
45%
3.66
21%
7.3%
1.5%
72
16
65
159
33
22
232
230
16
43
0
122
108
47%
3.68
13%
9.1%
3.5%
87
17
45
153
35
25
230
228
17
48
0
129
99
43%
3.38
54%
6.4%
0.5%
72
16
65
159
33
22
232
230
16
43
0
122
108
47%
3.68
4%
$45
$40
$35
$30
$25
$20
$15
$10
$5
$0
Jan 03
Jan 04
Jan 05
Jan 06
Jan 07
Jan 08
Jan 09
Jan 10
Jan 11
Jan 11
BUSINESS OVERVIEW
Winnebago headquartered in Forest City, Iowa, is a leading
United States manufacturer of recreation vehicles (RV) used
primarily in leisure travel and outdoor recreation activities.
FYE August 27
2007
2008
∆ unit sales
-4% -32%
∆ ASP
5%
1%
∆ revenue
1% -31%
∆ gross profit
-5% -65%
∆ assets
-5% -17%
∆ book value
-5% -17%
∆ BV per share
-1% -11%
Motor home ASP ($’000)
88
88
Revenue ($mn)
870
604
% of revenue by product class:
Motor homes
94%
92%
Towables
0%
0%
Motor home parts
2%
3%
Other products
4%
5%
U.S.
95%
93%
International
5%
7%
Unit sales by class of motor home:
Class A
5,031 3,029
Class B
0
140
Class C
4,438 3,238
Backlog (end):
Motor home units
1,875
596
Revenue value ($mn)
180
51
U.S. retail unit market share:
Class A gas
22%
23%
Class A diesel
9%
8%
Class C
24%
23%
Class B
0%
4%
Gross profit
11%
6%
EBIT (adjusted)1
6%
-1%
5%
1%
D&A
1%
2%
Capex
1%
1%
Industry gross margin3
14%
13%
Industry EBIT margin3
6%
5%
367
306
Cash, investments
30%
7%
Receivables
8%
5%
Inventory
28%
36%
LT investments
5%
20%
PP&E, net
14%
13%
Debt
0%
0%
Tangible equity
57%
57%
19%
4%
ROE – industry median3
13%
10%
31
29
-3%
-7%
• #2 U.S. manufacturer of RVs, with 19% Class A
and C retail market share in the U.S., compared to
21% for Thor Industries (THO). Winnebago sells
motor homes through independent dealers under the
Winnebago, Itasca and Era brand names. Unit sales
have ranged from 4,100-4,500 in the past three
years, down 50+% from 2007. Low recent dealer
inventories leave room for upside. Founded in 1958
and public since 1966, Winnebago has significant
product expertise and embedded intellectual capital.
• Demographic trends still favor long-term growth
in the U.S. RV market, as retirees are the primary
target audience for RV makers. However, consumer
debt and high gas prices are offsetting factors.
• Entered towable trailer market at yearend 2010
via $5 million purchase of the assets of SunnyBrook
RV, a maker of travel trailers and fifth-wheel RVs.
The company has started selling travel trailers under
the Winnebago brand in addition to SunnyBrook.
• Long-tenured management. No C-level executive
or corporate VP has been with Winnebago for less
than a decade. CEO and chairman Randy Potts (52)
has been with the company for 28 years.
• Flat recent wholesale shipments in RV industry
suggest that sustained market recovery is still not
materializing. Partly offsetting this have been slight
market share gains by Winnebago, with the firm’s
combined share of U.S. Class A and C motor homes
at 18.8% calendar YTD vs. 18.4% a year ago.
• Owning an RV is a luxury. Consumers may
consider alternatives to buying RVs for $108,000
(Winnebago’s ASP in 1Q12). Consumers may use
towable trailers, rent RVs, or find other options.
• Low-margin business. True product differentiation
is difficult to achieve in the RV industry, making
price an important purchase consideration. This has
resulted in low to mid single digit, or lower,
operating margins for most RV manufacturers.
POTENTIAL CATALYSTS
• Sustained rebound in RV industry volumes
MAJOR HOLDERS
CEO <1% | Other insiders 2% | FMR 14% | Royce 11% |
T.Rowe 10% | Maverick 6% | Tamro 4% | Killen 4%
1
2
2009
-66%
-1%
-65%
-189%
-28%
-47%
-47%
87
212
2010
102%
10%
113%
-185%
3%
6%
5%
96
450
2011
-1%
6%
10%
51%
5%
11%
11%
102
496
1Q12
-7%
4%
7%
-24%
1%
9%
9%
108
132
84%
0%
6%
10%
92%
0%
3%
5%
89%
3%
3%
5%
85%
8%
3%
5%
94%
6%
92%
8%
90%
10%
n/a
n/a
822
149
1,225
2,452
236
1,745
2,436
103
1,856
613
79
348
940
87
818
83
681
75
618
71
23%
11%
23%
18%
23%
14%
17%
18%
22%
17%
17%
5%
22%
17%
17%
6%
-15%
-28%
-37%
4%
2%
10%
0%
221
6%
0%
2%
1%
0%
10%
-4%
227
8%
2%
2%
1%
0%
13%
1%
238
6%
0%
1%
1%
0%
10%
-1%
230
23%
13%
21%
19%
13%
4%
42%
-59%
1%
29
0%
33%
8%
19%
18%
11%
0%
43%
11%
-3%
29
0%
29%
9%
29%
14%
9%
0%
45%
11%
0%
29
0%
31%
7%
28%
14%
10%
0%
47%
1%
4%
29
0%
Adjusted for unusual items of -$4.7 million in 2008 and -$0.9 million in 2009.
Mobile Homes & RVs industry median.
RATINGS







THE BOTTOM LINE
Winnebago is well-known in the U.S. recreational vehicle industry, with products in most segments of the market. The firm
has staying power due to its top two market share ranking, established brands and distribution, and a balance sheet with $72
million of cash and no debt (the company does have $74 million in pension liabilities). While we don’t see a compelling
near-term catalyst for the shares, patient investors should be rewarded once industry volumes embark on a sustained rebound.
WINNEBAGO – EQUITY FAIR VALUE UNDER SELECTED VALUATION SCENARIOS
Conservative
Base Case
August 26, 2013
▼
minus
equals
multiplied by
equals
multiplied by
Assumed WGO multiple as a
100%
equals
equity of Winnebago:
November 26, 2011
▼
minus
equals
multiplied by
equals
multiplied by
Assumed WGO multiple as a
75%
equals
Aggressive
ended November 26, 2011, and
▼
multiplied by
equals
multiplied by
6.0x
equals
Winnebago: $300 million
plus
plus
discount of 20%: $27 million
equals
(*) Represents Mobile Homes & RVs industry median multiple.
WINNEBAGO – ANALYSIS OF SELECTED COMPARABLE COMPANIES
(Click to visit
relevant websites)
Arctic Cat / ACAT
Drew Industries / DW
Polaris Industries / PII
Thor Industries / THO
Winnebago / WGO
Trading Data
∆ to Reach
7-Year
MV
Low High ($mn)
-90
26
424
-78
79
545
-88
8 4,216
-68
102 1,626
-64
353
256
EV
($mn)
327
552
3,980
1,419
184
Tang.
Book/
MV
48%
32%
10%
28%
42%
EPS Yield
TTM
FCF
This Next
Yield TTM
FY
FY
-1%
4%
5%
8%
3%
5%
6%
7%
6%
5%
5%
6%
7%
6%
7%
8%
-5%
4%
4%
6%
LTM
Rev./
EV
154%
114%
63%
199%
274%
Rev./
Empl.
($000)
382
208
831
342
237
∆ Rev.
% TTM Rev.
Last Gross
Adj.
TTM
Q
Profit EBIT
11% 16%
22%
5%
10% 14%
22%
8%
35% 26%
28%
13%
19% 11%
12%
5%
3%
7%
7%
2%
Tang.
Equity/
Tang.
Assets
57%
64%
38%
57%
47%
WINNEBAGO – EBITDA and FREE CASH FLOW, FY2001–FY2011 (in millions)
Thor Industries is the only direct comparable to
Winnebago on the list. Other public competitors have
either gone private or bankrupt in recent years.
Winnebago is experiencing the most severe downturn
in its history. If the company can return to historical
performance without equity dilution in the interim,
shareholders would stand to benefit handsomely.
WINNEBAGO – REVENUE and GROSS MARGIN, FY2001–FY2011 (in millions)
RECREATIONAL VEHICLE INDUSTRY – SHIPMENT HISTORY, FY2001–FY2011 (in thousands)
RECREATIONAL VEHICLE INDUSTRY – CLASS A & C U.S. RETAIL MARKET SHARE (in thousands)
The Manual of Ideas on Boyd Gaming (BYD)
Access the following slides and watch the associated video presentation in The Manual of Ideas Members Area at
Ryan Morris on First Marblehead (FMD)
We are pleased to present the following guest feature on one of Ryan Morris’s
best ideas, First Marblehead. Ryan is the Managing Partner and founded Meson
Capital Partners, LP in February 2009. Meson focuses on deep value, activist
investments. From June 2011, Ryan has been a member of the equity committee
for HearUSA, which was responsible for selling the company assets and tripling
the value to equity holders. Prior to founding Meson, Ryan was co-founder and
CEO of VideoNote, a small and profitable educational software company with
customers including Cornell University and The World Bank. Ryan has a
Bachelors and Master’s degree in Operations Research and Information
Engineering from Cornell University and has completed the CFA Program.
Overview
First Marblehead (FMD) is a very misunderstood company that recently traded
at $1.25 per share compared to about $2 per share cash liquidation value. This
liquidation value is obscured by a large false liability due to GAAP accounting
requirements to consolidate securitization residuals. They sold these in
November 2011, so the next 10-Q should be a catalyst and show a clean balance
sheet. There is a large embedded call option as the returning founder Dan
Meyers rebuilds the business. I call it a smoldering cash pile with an unknown
quantity of (free!) dynamite underneath. The upside is imprecise at this point but
the structural elements to have a profitable business are all in place.
Background
“This liquidation value is
obscured by a large false
liability due to GAAP
accounting requirements to
consolidate securitization
residuals. They sold these in
November 2011, so the next
10-Q should be a catalyst
and show a clean balance
sheet.”
First Marblehead was founded by Dan Meyers and has been a facilitator of
private student loans for over twenty years. As college tuition grew faster than
federal loan caps and inflation, a double-digit growth market for private student
loans to fill the gap emerged, peaking at about $20 billion in 2007. FMD
securitized about 20% of these loans at the peak in 2007, only keeping a small
residual piece of the trust. Their business model was to help underwrite, package
and sell the loans and take gain-on-sale revenue, which was roughly 50% cash
now and 50% residuals that would pay out towards the back end of the loan. The
securitized loans were guaranteed by non-profit TERI (think PMI mortgage
insurance but for private student loans) so they could sell the subordinated
pieces of the waterfall.
The world and the securitization market changed after 2007, driving their stock
down from $55 to $1 per share. It hasn’t been the same since, so they needed to
change their business model to adapt. While the securitization market has
returned for most conventional loans, private student loans are pretty niche and
have come back more slowly. SLM did nearly $2 billion in securitizations of
private student loans in 2011, which was the first movement since 2007. Sallie
Mae has a good primer on the private student loan market on their website.
Current Balance Sheet and Downside Protection
It’s one thing to find a cheap option in the market; it’s rare to find a marriage
between a net-net and a cheap option. Most net-nets are just liquidations where
the upside is very limited. The downside protection for FMD comes from two
points (note there are 100 million shares, so the math is easy):
As of the last 10-Q, they had $245 million of cash. Subtract from this $66
million of deposits at the bank and $67 million of other liabilities and the ultraconservative liquidation value is $112 million. In the other liabilities they have a
$40 million tax dispute that looks like it should go in their favor considering all
the losses over the last four years. Also, they bought TMS for $50 million only a
year ago and it has been doing well, so call that worth another $40 million. This
gets to about a $200 million liquidation value for the company, or $2 per share.
They are burning $10 million per quarter while they rebuild the business and
expect that to be fairly stable as revenues increase, so at the current price you are
basically buying the business with a two-year runway for free. So will this new
business be successful?
Rebuilding The Business: Throwing New Ideas Against a Sticky Wall
The short version of the story is that they are changing their business model
because the environment has changed. They need to throw things against the
wall and see what sticks. Now the two big factors here are: Who is doing the
“throwing” and how sticky is the wall? If this were a regular, competitive
market and the people coming up with ideas consisted of a committee, then I’d
argue that’s a perfect model for failure. A committee will be unfocused and the
focused competitors in an established market would tear those ideas to shreds.
In this case, you have a founder who has built a billion-dollar business before in
a changing environment who has his ego (as well as his compensation) tied to
the success of the business. If he felt the world was so different and there was no
place for an independent company, he could sell the company or just liquidate it
and take his roughly $20 million pro forma cash and do something else.
“It’s one thing to find a
cheap option in the market;
it’s rare to find a marriage
between a net-net and a
cheap option. Most net-nets
are just liquidations where
the upside is very limited.”
I also argue that the metaphorical “wall” is sticky here because student loan
lending is one of the only supply-constrained lending markets in the U.S. right
now. Have you noticed how low the interest rates are for car loans or
mortgages? It’s because overall there are plenty of people who would love to
lend money but not that many who want to borrow. I’d highly recommend
Richard Koo’s The Holy Grail of Macroeconomics to understand this
phenomenon better. Student loans don’t have this characteristic. There is plenty
of demand for student loans as the recession drives people back to school to
learn new skills. However, the problem is with the supply. Student loans are a
very unusual type of a loan – there is no secure collateral like a car loan, and
there is no income to borrow against like a credit card.
In general, banks just don’t make those loans because they don’t fit their models
of risk. That’s where First Marblehead comes in – they have been doing this for
over twenty years and have far more underwriting data and analytics than most
banks. They can help banks underwrite student loans into this market – which is
currently lending at 8% to 760 FICO score borrowers! Banks would love to lend
at 8%, or even 4% to credit-worthy people rather than getting 0.25% at the Fed.
Estimating The Value of The New business
Rebuilding the Business: Monogram
FMD has spent the last two years retooling their business model to work in the
absence of securitization markets. Their new product, Monogram, is designed as
a partner-lending “cradle-to-grave” model where they act as specialized
designers, underwriters, and portfolio managers of student loans on behalf of
partner banks. The loans would then be held on the bank’s balance sheet and
FMD would earn a significant portion of the spread. In exchange, they also have
to put up a first-loss piece for the banks, which they earn back over time. They
also have a small S&L and will originate their own loans off its balance sheet.
Partner Lending Unit Economics: Very “Back of the Envelope”
While the details of the numbers haven’t been fully disclosed yet, my rough
guess of the numbers would be something like this:
For $100 million of loans, FMD puts up $10 million in first-loss capital. The
loans are made at 8% interest, split 5% to the bank, 3% to FMD, and have an
average term of 15 years. They also get a fee up front, say 2% of principal.
Revenue is $2 million up front and ~$25 million in interest over the 15-year life
of the loan (using straight line amortization), call that $14 million at an NPV-10,
so $16 million total revenue per $100 million loans. This is a rough estimate and
assumes minimal defaults but gives an idea of how they make money.
They had 20% of the private market in 2007. If they could achieve 15% of the
current $9 billion market, that would be $1.3 billion per year of loans facilitated
times $16 million NPV revenue per $100 million loans facilitated equals ~$200
million in revenue. At 30% net margin that works out to $60 million or $0.60
per share of net income. This doesn’t include the $135 million they would have
to put up as the first-loss piece depending on the 10% assumption.
Note: The net margins seem high for a financial company, but that is because
their revenue is basically the net interest margin. Look at banks and see what
their net margins look like if you treat net interest margin as revenue — it’s
high. FMD had 41% net margins in 2005-2007.
First Marblehead’s Comeback Season
“You have a founder who has
built a billion-dollar business
before in a changing
environment who has his ego
(as well as his compensation)
tied to the success of the
business.”
The company had its first executed agreements this past summer lending season
and has begun to rebuild things. They went into the season having $250 million
of loan capacity over two years from SunTrust and Kinecta, their initial partners.
They got about $500 million of loan requests, approved $125 million and had
$45 million taken by the customers. The actual loan volume was a bit lower than
I expected – I thought they would use close to the full capacity of $125 million –
but I can appreciate that they wanted to be conservative their first season back in
four years. In November they announced they significantly increased their
capacity with SunTrust and extended it for three more years. If I am correct
about this thesis, then I would expect to see more capacity increases and new
lending partner banks announced before this summer. I would not expect a
securitization deal for at least another year however.
Summary
First Marblehead is an unusual financial services company that should be in a
good structural position given the supply-constrained nature of its market. It
trades below net cash liquidation value but doesn’t appear to do so until the next
10-Q because of weird recent GAAP consolidation rules. Unlike most net-nets,
FMD also has large upside if it can rebuild the business. The perfect CEO —
who has done this before — has the reigns and incentives to do so.
Favorite Screens for Value Investors
“Magic Formula,” Based on Trailing Operating Income
Companies with high returns on capital employed, trading at high trailing EBIT-to-enterprise value yield
Move To
52-Week
▼
▼
EBIT/
Capital
Employed
Tax
Rate
Price/
Tangible
Book
%
Own.
Buys/
Sells
High
MV
($mn)
EV
($mn)
EV/
Sales
Trailing
EBIT/
EV
Insiders
Company
Ticker
Price
($)
1
2
3
4
5
Unisys
ITT Educational
PDL BioPharma
Bridgepoint Edu.
Career Education
UIS
ESI
PDLI
BPI
CECO
20.13
65.85
6.33
24.59
10.45
-32%
-24%
-26%
-36%
-40%
105%
45%
6%
25%
164%
872
1,756
885
1,269
793
650
1,586
1,146
1,020
345
.2x
1.0x
3.1x
1.1x
.2x
52%
34%
30%
28%
89%
11069%
infinite
infinite
infinite
493%
30%
39%
35%
38%
34%
n/m
>9.9x
n/m
4.0x
1.7x
<1%
<1%
<1%
<1%
<1%
5/1
5/3
-/6/6
-/5
6
7
8
9
10
* Columbia Labs
* Expedia
Vonage
Dell
DepoMed
CBRX
EXPE
VG
DELL
DEPO
1.58
31.04
2.34
16.67
6.16
-36%
-41%
-13%
-22%
-32%
173%
1%
130%
6%
69%
138
4,144
528
29,948
341
112
3,784
583
24,371
232
2.2x
1.0x
.7x
.4x
1.6x
24%
21%
20%
19%
19%
infinite
infinite
infinite
infinite
infinite
n/m
28%
9%
18%
n/m
6.4x
n/m
n/m
>9.9x
2.9x
<1%
<1%
14%
<1%
<1%
-/3/3
10 / 3
4/6
4/-
11
12
13
14
15
Global Sources
Veeco Instruments
Tessera Technologies
ePlus
USA Mobility
GSOL
VECO
TSRA
PLUS
USMO
5.95
26.35
18.65
30.43
14.29
-19%
-23%
-40%
-27%
-14%
115%
119%
17%
1%
25%
201
1,020
961
245
316
112
597
426
223
304
.5x
.5x
1.5x
.2x
1.3x
27%
58%
23%
18%
20%
271%
195%
322%
infinite
381%
5%
22%
>99%
42%
n/m
2.0x
1.6x
1.6x
1.3x
4.7x
<1%
<1%
<1%
12%
1%
-/4/5
3/2
6/7
7/-
16
17
18
19
20
Apollo Group
Exelis
Nova Measuring
General Motors
Forest Labs
APOL
XLS
NVMI
GM
FRX
54.61
9.93
8.53
25.00
32.17
-32%
-17%
-40%
-24%
-12%
7%
36%
38%
56%
26%
6,902
1,833
224
39,114
8,594
5,815
2,418
141
29,193
6,390
1.3x
.4x
1.3x
.2x
1.4x
18%
26%
21%
20%
22%
1214%
194%
304%
324%
229%
45%
35%
n/m
0%
23%
6.9x
n/m
2.4x
n/m
3.1x
3%
<1%
<1%
<1%
1%
9 / 13
20 / 1
-/18 / 17
18 / 11
21
22
23
24
25
Spirit Airlines
C&J Energy
Power-One
Capella Education
CTC Media
SAVE
CJES
PWER
CPLA
CTCM
15.54
17.52
4.52
41.23
9.70
-34%
-28%
-19%
-37%
-17%
12%
88%
169%
56%
154%
1,127
909
471
596
1,526
776
859
345
458
1,394
.8x
1.4x
.3x
1.1x
1.9x
17%
25%
74%
20%
19%
infinite
175%
134%
250%
289%
35%
37%
36%
37%
33%
2.5x
3.7x
1.4x
3.9x
7.3x
1%
4%
3%
<1%
<1%
2/8
3/1
3/6
5/2/1
26
27
28
29
30
* InfoSpace
United Online
DeVry
Amerigroup
* Argan
INSP
UNTD
DV
AGP
AGX
12.04
5.62
40.50
69.59
15.02
-35%
-15%
-19%
-46%
-45%
3%
33%
65%
9%
17%
475
501
2,725
3,329
205
195
650
2,400
2,766
67
.9x
.7x
1.1x
.4x
.6x
16%
16%
19%
15%
15%
infinite
infinite
227%
infinite
infinite
41%
32%
32%
37%
43%
1.7x
n/m
5.6x
3.4x
2.7x
<1%
3%
2%
2%
<1%
4/6
-/5
19 / 11
10 / 13
-/-
31
32
33
34
35
Cray
Almost Family
Vista Gold Corp.
Nevsun Resources
* Star Gas Partners
CRAY
AFAM
VGZ
NSU
SGU
7.11
18.00
3.44
6.10
4.59
-30%
-31%
-30%
-29%
-3%
18%
119%
33%
20%
31%
258
169
246
1,222
299
170
141
218
995
337
.5x
.4x
n/m
2.7x
.2x
23%
27%
26%
27%
19%
133%
118%
113%
110%
147%
5%
40%
39%
38%
48%
2.0x
3.4x
1.7x
2.7x
>9.9x
4%
<1%
2%
<1%
<1%
7/-/7/6
-/-/1
36
37
38
39
40
Kulicke and Soffa
Metropolitan Health
InterMune
GameStop
* AmSurg
KLIC
MDF
ITMN
GME
AMSG
11.15
8.40
14.36
24.55
25.40
-40%
-55%
-26%
-25%
-25%
14%
1%
260%
17%
10%
821
368
941
3,349
796
542
305
713
3,031
1,187
.7x
.8x
2.7x
.3x
1.6x
32%
15%
14%
21%
20%
100%
405%
infinite
120%
121%
21%
39%
0%
35%
16%
2.1x
4.4x
4.3x
5.3x
n/m
2%
3%
<1%
<1%
1%
12 / 7
6/5
3/9
3/3
2/4
41
42
43
44
45
Dolby Laboratories
Rimage
STR Holdings
* Deluxe
Applied Materials
DLB
RIMG
STRI
DLX
AMAT
34.92
13.18
10.06
23.41
12.47
-26%
-22%
-29%
-25%
-22%
79%
25%
100%
25%
36%
3,796
136
419
1,190
16,281
2,854
21
289
1,942
11,985
3.0x
.2x
1.0x
1.4x
1.1x
15%
49%
24%
14%
20%
276%
89%
97%
440%
107%
30%
37%
30%
31%
19%
2.8x
1.1x
4.0x
n/m
2.2x
<1%
2%
1%
<1%
<1%
5/6
6/7/6/3
14 / 14

Company website
SEC
Y!
Proxy
Y!
* New additions are highlighted.
Low
Price Charts
Screening criteria: ► Market value > $100 million ► ADRs and banks excluded ► China RTOs excluded
“Magic Formula,” Based on This Year’s EPS Estimates
Companies with high returns on capital employed, trading at high earnings yields (based on this FY EPS estimates)
Move To
52-Week
▼
▼
EBIT/
Capital
Employed
Tax
Rate
Price to
Tangible
Book
%
Own.
Buys/
Sells
High
MV
($mn)
EV
($mn)
EV/
Sales
This FY
EPS
Yield
Insiders
Company
Ticker
Price
($)
1
2
3
4
5
DepoMed
GT Solar
Career Education
ITT Educational
Dell
DEPO
GTAT
CECO
ESI
DELL
6.16
8.56
10.45
65.85
16.67
-32%
-25%
-40%
-24%
-22%
69%
104%
164%
45%
6%
341
1,089
793
1,756
29,948
232
696
345
1,586
24,371
1.6x
.7x
.2x
1.0x
.4x
20%
18%
21%
16%
13%
infinite
infinite
493%
infinite
infinite
n/m
33%
34%
39%
18%
2.9x
>9.9x
1.7x
>9.9x
>9.9x
<1%
<1%
<1%
<1%
<1%
4/12 / 7
-/5
5/3
4/6
6
7
8
9
10
Global Sources
Bridgepoint Edu.
Veeco Instruments
C&J Energy
Medley Capital
GSOL
BPI
VECO
CJES
MCC
5.95
24.59
26.35
17.52
11.13
-19%
-36%
-23%
-28%
-22%
115%
25%
119%
88%
12%
201
1,269
1,020
909
193
112
1,020
597
859
176
.5x
1.1x
.5x
1.4x
12.0x
14%
12%
18%
18%
11%
271%
infinite
195%
175%
infinite
5%
38%
22%
37%
n/m
2.0x
4.0x
1.6x
3.7x
.9x
<1%
<1%
<1%
4%
<1%
-/6/6
4/5
3/1
4/-
11
12
13
14
15
Power-One
Medicines
Forest Labs
CTC Media
Almost Family
PWER
MDCO
FRX
CTCM
AFAM
4.52
19.09
32.17
9.70
18.00
-19%
-35%
-12%
-17%
-31%
169%
5%
26%
154%
119%
471
1,035
8,594
1,526
169
345
727
6,390
1,394
141
.3x
1.5x
1.4x
1.9x
.4x
18%
11%
12%
11%
13%
134%
544%
229%
289%
118%
36%
n/m
23%
33%
40%
1.4x
2.7x
3.1x
7.3x
3.4x
3%
<1%
1%
<1%
<1%
3/6
2/4
18 / 11
2/1
-/-
16
17
18
19
20
GameStop
H&R Block
Microsoft
PMC-Sierra
j2 Global Comms
GME
HRB
MSFT
PMCS
JCOM
24.55
16.49
29.71
6.45
27.74
-25%
-25%
-20%
-24%
-9%
17%
9%
0%
41%
18%
3,349
4,830
249,290
1,485
1,316
3,031
5,362
203,814
1,309
1,153
.3x
1.6x
2.8x
2.0x
3.6x
12%
9%
9%
9%
9%
120%
infinite
infinite
828%
infinite
35%
37%
16%
30%
13%
5.3x
>9.9x
5.4x
3.9x
8.6x
<1%
<1%
6%
<1%
6%
3/3
11 / 5
15 / 12
3/1
5/8
21
22
23
24
25
Cisco Systems
* Delphi Automotive
TRW Automotive
DeVry
ePlus
CSCO
DLPH
TRW
DV
PLUS
19.92
25.10
38.24
40.50
30.43
-33%
-23%
-25%
-19%
-27%
12%
1%
65%
65%
1%
107,087
8,239
4,732
2,725
245
79,552
9,026
5,374
2,400
223
1.8x
.6x
.3x
1.1x
.2x
9%
11%
18%
9%
9%
10099%
109%
68%
227%
infinite
17%
25%
14%
32%
42%
3.8x
8.1x
8.5x
5.6x
1.3x
<1%
<1%
<1%
2%
12%
20 / 12
-/3/2
19 / 11
6/7
26
27
28
29
30
Kulicke and Soffa
Entropic Comms
CF Industries
Darling
USANA Health
KLIC
ENTR
CF
DAR
USNA
11.15
5.59
175.49
14.10
33.59
-40%
-40%
-34%
-20%
-31%
14%
133%
10%
39%
24%
821
485
11,475
1,651
503
542
355
11,667
1,932
466
.7x
1.4x
2.1x
1.2x
.8x
11%
11%
13%
11%
10%
100%
94%
72%
93%
135%
21%
n/m
36%
37%
34%
2.1x
1.7x
5.4x
>9.9x
5.1x
2%
<1%
<1%
<1%
54%
12 / 7
4/1
10 / 10
1/5
4/5
31
32
33
34
35
Portfolio Recovery
* Spirit Airlines
SanDisk
Apple
Datalink Corp.
PRAA
SAVE
SNDK
AAPL
DTLK
67.78
15.54
52.49
420.30
8.75
-16%
-34%
-39%
-26%
-36%
34%
12%
2%
3%
31%
1,160
1,127
12,613
391,781
155
1,392
776
11,643
365,829
120
3.2x
.8x
2.2x
3.4x
.3x
9%
8%
9%
8%
9%
infinite
infinite
311%
infinite
151%
40%
35%
15%
24%
41%
2.4x
2.5x
2.0x
5.4x
3.3x
2%
1%
<1%
<1%
3%
6/6
2/8
9/9
7/8
3/4
36
37
38
39
40
LHC Group
* Neurocrine Bio
Capella Education
* Oracle
Lear
LHCG
NBIX
CPLA
ORCL
LEA
14.20
8.14
41.23
28.71
43.41
-13%
-33%
-37%
-14%
-18%
116%
10%
56%
27%
31%
267
527
596
144,292
4,442
310
417
458
128,058
3,461
.5x
5.2x
1.1x
3.5x
.3x
12%
8%
9%
8%
12%
72%
infinite
250%
infinite
66%
34%
n/m
37%
25%
13%
8.7x
9.1x
3.9x
>9.9x
2.2x
<1%
<1%
<1%
22%
<1%
1/3
1/5/6/4
9/9
41
42
43
44
45
KBR
* Amdocs
HollyFrontier
* Lexmark
* Lincoln Educational
KBR
DOX
HFC
LXK
LINC
32.07
29.40
28.17
35.49
8.16
-35%
-14%
-26%
-27%
-20%
23%
9%
38%
14%
144%
4,774
5,136
5,894
2,669
185
4,183
4,212
5,403
2,097
195
.4x
1.3x
.4x
.5x
.3x
10%
9%
23%
13%
13%
91%
146%
55%
60%
60%
9%
12%
36%
20%
43%
3.3x
4.7x
2.3x
2.2x
1.3x
<1%
<1%
1%
1%
4%
8/2
-/20 / 9
19 / 6
2/6

Company website
SEC
Y!
Proxy
Y!
Low
Price Charts
Criteria: ► MV > $100 million ► ADRs, banks excluded ► EV to MV < 1.5 ► China RTOs excluded
“Magic Formula,” Based on Next Year’s EPS Estimates
Companies with high returns on capital employed, trading at high earnings yields (based on next FY EPS estimates)
Move To
52-Week
▼
▼
EBIT/
Capital
Employed
Tax
Rate
Price to
Tangible
Book
%
Own.
Buys/
Sells
High
MV
($mn)
EV
($mn)
EV/
Sales
Next FY
EPS
Yield
Insiders
Company
Ticker
Price
($)
1
2
3
4
5
GT Solar
Global Sources
C&J Energy
Spirit Airlines
Medley Capital
GTAT
GSOL
CJES
SAVE
MCC
8.56
5.95
17.52
15.54
11.13
-25%
-19%
-28%
-34%
-22%
104%
115%
88%
12%
12%
1,089
201
909
1,127
193
696
112
859
776
176
.7x
.5x
1.4x
.8x
12.0x
19%
15%
24%
13%
12%
infinite
271%
175%
infinite
infinite
33%
5%
37%
35%
n/m
>9.9x
2.0x
3.7x
2.5x
.9x
<1%
<1%
4%
1%
<1%
12 / 7
-/3/1
2/8
4/-
6
7
8
9
10
Dell
ITT Educational
Bridgepoint Edu.
Power-One
* Delphi Automotive
DELL
ESI
BPI
PWER
DLPH
16.67
65.85
24.59
4.52
25.10
-22%
-24%
-36%
-19%
-23%
6%
45%
25%
169%
1%
29,948
1,756
1,269
471
8,239
24,371
1,586
1,020
345
9,026
.4x
1.0x
1.1x
.3x
.6x
12%
12%
12%
14%
14%
infinite
infinite
infinite
134%
109%
18%
39%
38%
36%
25%
>9.9x
>9.9x
4.0x
1.4x
8.1x
<1%
<1%
<1%
3%
<1%
4/6
5/3
6/6
3/6
-/-
11
12
13
14
15
Kulicke and Soffa
GameStop
CTC Media
Portfolio Recovery
H&R Block
KLIC
GME
CTCM
PRAA
HRB
11.15
24.55
9.70
67.78
16.49
-40%
-25%
-17%
-16%
-25%
14%
17%
154%
34%
9%
821
3,349
1,526
1,160
4,830
542
3,031
1,394
1,392
5,362
.7x
.3x
1.9x
3.2x
1.6x
14%
13%
11%
10%
10%
100%
120%
289%
infinite
infinite
21%
35%
33%
40%
37%
2.1x
5.3x
7.3x
2.4x
>9.9x
2%
<1%
<1%
2%
<1%
12 / 7
3/3
2/1
6/6
11 / 5
16
17
18
19
20
Microsoft
Metropolitan Health
TRW Automotive
Datalink Corp.
Cisco Systems
MSFT
MDF
TRW
DTLK
CSCO
29.71
8.40
38.24
8.75
19.92
-20%
-55%
-25%
-36%
-33%
0%
1%
65%
31%
12%
249,290
368
4,732
155
107,087
203,814
305
5,374
120
79,552
2.8x
.8x
.3x
.3x
1.8x
10%
10%
16%
10%
10%
infinite
405%
68%
151%
10099%
16%
39%
14%
41%
17%
5.4x
4.4x
8.5x
3.3x
3.8x
6%
3%
<1%
3%
<1%
15 / 12
6/5
3/2
3/4
20 / 12
21
22
23
24
25
CF Industries
USANA Health
ePlus
SanDisk
j2 Global Comms
CF
USNA
PLUS
SNDK
JCOM
175.49
33.59
30.43
52.49
27.74
-34%
-31%
-27%
-39%
-9%
10%
24%
1%
2%
18%
11,475
503
245
12,613
1,316
11,667
466
223
11,643
1,153
2.1x
.8x
.2x
2.2x
3.6x
13%
10%
10%
10%
9%
72%
135%
infinite
311%
infinite
36%
34%
42%
15%
13%
5.4x
5.1x
1.3x
2.0x
8.6x
<1%
54%
12%
<1%
6%
10 / 10
4/5
6/7
9/9
5/8
26
27
28
29
30
DeVry
Apple
TransGlobe Energy
Lear
Amdocs
DV
AAPL
TGA
LEA
DOX
40.50
420.30
9.35
43.41
29.40
-19%
-26%
-28%
-18%
-14%
65%
3%
70%
31%
9%
2,725
391,781
684
4,442
5,136
2,400
365,829
637
3,461
4,212
1.1x
3.4x
2.8x
.3x
1.3x
10%
9%
17%
12%
10%
227%
infinite
58%
66%
146%
32%
24%
52%
13%
12%
5.6x
5.4x
2.4x
2.2x
4.7x
2%
<1%
<1%
<1%
<1%
19 / 11
7/8
-/9/9
-/-
31
32
33
34
35
* China Cord Blood
Almost Family
Darling
Kronos Worldwide
RPC
CO
AFAM
DAR
KRO
RES
2.28
18.00
14.10
22.04
17.89
-19%
-31%
-20%
-36%
-21%
80%
119%
39%
57%
62%
168
169
1,651
2,555
2,653
74
141
1,932
2,801
2,787
1.3x
.4x
1.2x
1.5x
1.7x
13%
10%
10%
14%
15%
61%
118%
93%
56%
55%
18%
40%
37%
37%
38%
1.1x
3.4x
>9.9x
2.9x
3.8x
<1%
<1%
<1%
<1%
2%
-/-/1/5
4/-/-
36
37
38
39
40
HollyFrontier
Lexmark
* Jazz Pharma
* Oracle
* LHC Group
HFC
LXK
JAZZ
ORCL
LHCG
28.17
35.49
45.98
28.71
14.20
-26%
-27%
-55%
-14%
-13%
38%
14%
7%
27%
116%
5,894
2,669
2,584
144,292
267
5,403
2,097
2,471
128,058
310
.4x
.5x
10.2x
3.5x
.5x
15%
12%
9%
9%
11%
55%
60%
infinite
infinite
72%
36%
20%
n/m
25%
34%
2.3x
2.2x
>9.9x
>9.9x
8.7x
1%
1%
3%
22%
<1%
20 / 9
19 / 6
18 / 16
6/4
1/3
41
42
43
44
45
PMC-Sierra
Career Education
* Quest Software
* SAIC
* McKesson
PMCS
CECO
QSFT
SAI
MCK
6.45
10.45
19.08
13.00
76.51
-24%
-40%
-23%
-15%
-13%
41%
164%
45%
36%
14%
1,485
793
1,585
4,436
18,788
1,309
345
1,387
4,825
18,837
2.0x
.2x
1.7x
.4x
.2x
9%
9%
9%
11%
9%
828%
493%
infinite
70%
171%
30%
34%
6%
48%
30%
3.9x
1.7x
>9.9x
>9.9x
>9.9x
<1%
<1%
<1%
<1%
<1%
3/1
-/5
-/2
5/1
3/2

Company website
SEC
Y!
Proxy
Y!
Low
Price Charts
Criteria: ► MV > $100 million ► ADRs, banks excluded ► EV to MV < 1.5 ► China RTOs excluded
Contrarian: Biggest YTD Losers (deleveraged & profitable)
Non-financial companies with no net debt, positive analyst estimates for next year’s EPS, and large YTD price drop
▼
MV
($mn)
EV
($mn)
Price Change Since
December 31,
2005
2010
2011
Insiders
EV /
TTM
Revenue
Price to
Tangible
Book
Next
FY
P/E
%
Own.
Buys/
Sells
Company
Ticker
Price
($)
1
2
3
4
5
* Columbia Labs
* IPC The Hospitalist
* WebMD Health
* Marchex
* Solta Medical
CBRX
IPCM
WBMD
MCHX
SLTM
1.58
32.72
27.15
4.89
2.52
138
538
1,547
182
153
112
506
1,246
147
129
-66%
n/m
-7%
-78%
n/m
-30%
-16%
-47%
-49%
-17%
-37%
-28%
-28%
-22%
-20%
2.2x
1.2x
2.2x
1.1x
1.1x
6.4x
14.9x
3.5x
3.0x
3.8x
12x
16x
59x
14x
50x
<1%
2%
3%
9%
<1%
-/8/4
16 / 4
4/6
2/1
6
7
8
9
10
* WPX Energy
* C&J Energy
* Konami
* China Cord Blood
* Thoratec
WPX
CJES
KNM
CO
THOR
14.75
17.52
25.55
2.28
29.14
2,898
909
3,653
168
1,746
2,848
859
3,480
74
1,530
n/m
n/m
16%
n/m
41%
n/m
n/m
20%
-43%
3%
-19%
-16%
-15%
-14%
-13%
.7x
1.4x
1.0x
1.3x
3.7x
.4x
3.7x
2.0x
1.1x
5.5x
42x
4x
12x
8x
18x
<1%
4%
<1%
<1%
<1%
-/3/1
-/-/2/3
11
12
13
14
15
* Electronic Arts
* Questcor Pharma
* Synergetics USA
* Kenexa
* JDA Software
EA
QCOR
SURG
KNXA
JDAS
17.93
36.60
6.50
23.59
28.91
5,943
2,296
162
638
1,230
4,973
2,130
150
589
1,214
-66%
3419%
73%
12%
70%
9%
148%
38%
8%
3%
-13%
-12%
-12%
-12%
-11%
1.3x
12.4x
2.6x
2.2x
1.8x
14.0x
13.5x
5.8x
5.2x
3.8x
15x
19x
16x
22x
13x
<1%
<1%
4%
4%
4%
7/6
5/7
7/2
2/2
1/9
16
17
18
19
20
* AngioDynamics
* Harvest Natural
* Vocus
* American Eagle
* Google
ANGO
HNR
VOCS
AEO
GOOG
13.27
6.62
19.85
13.81
585.99
333
227
397
2,676
189,795
203
161
292
2,194
149,373
-48%
-25%
91%
-10%
41%
-14%
-46%
-28%
-6%
-1%
-10%
-10%
-10%
-10%
-9%
.9x
59.7x
2.6x
.7x
3.9x
1.6x
.6x
5.5x
2.0x
3.9x
27x
5x
22x
13x
11x
<1%
<1%
3%
<1%
<1%
8/3
-/1/3
6/1
10 / 9
21
22
23
24
25
* CoStar Group
* Williams-Sonoma
* Abercrombie & Fitch
* Conceptus
* Hecla Mining
CSGP
WSM
ANF
CPTS
HL
60.60
34.97
44.51
11.55
4.78
1,535
3,597
3,826
361
1,337
981
3,225
3,364
360
931
40%
-19%
-32%
-8%
18%
5%
-2%
-23%
-16%
-58%
-9%
-9%
-9%
-9%
-9%
4.0x
.9x
.8x
2.8x
1.8x
2.8x
2.9x
2.0x
3.2x
1.2x
55x
14x
11x
578x
11x
4%
<1%
1%
<1%
<1%
8/2
5/3
2/3
1/2/1
26
27
28
29
30
* Taleo
* Hill-Rom Holdings
* LoopNet
N.A. Palladium
* PDF Solutions
TLEO
HRC
LOOP
PAL
PDFS
35.43
30.86
16.77
2.34
6.40
1,470
1,910
565
381
181
1,359
1,836
498
346
137
167%
16%
n/m
-72%
-61%
28%
-22%
51%
-66%
33%
-8%
-8%
-8%
-8%
-8%
4.7x
1.2x
5.9x
2.1x
2.1x
22.7x
3.6x
7.2x
1.2x
3.4x
31x
12x
52x
33x
9x
2%
<1%
5%
<1%
6%
14 / 6
7/3
8/9
-/2/3
31
32
33
34
35
* Boston Beer
* Urban Outfitters
* CareFusion
* Peet’s Coffee & Tea
* Bristol Myers Squibb
SAM
URBN
CFN
PEET
BMY
99.97
25.40
23.51
58.06
32.65
1,273
3,663
5,281
751
55,327
1,225
3,533
5,094
739
52,753
300%
0%
n/m
91%
42%
5%
-29%
-9%
39%
23%
-8%
-8%
-7%
-7%
-7%
2.5x
1.5x
1.4x
2.0x
2.5x
7.5x
3.5x
4.6x
4.6x
7.1x
24x
16x
12x
33x
16x
4%
<1%
<1%
1%
<1%
8/7
1/1
15 / 7
7/9
4/4
36
37
38
39
40
* NIC
* Pegasystems
* CEVA
* Build-A-Bear
* ADA-ES
EGOV
PEGA
CEVA
BBW
ADES
12.36
27.32
28.13
7.87
21.09
793
1,030
662
138
204
726
931
525
113
202
101%
274%
349%
-73%
16%
27%
-25%
37%
3%
89%
-7%
-7%
-7%
-7%
-7%
4.1x
2.4x
9.2x
.3x
5.4x
10.8x
8.6x
4.2x
1.3x
n/m
30x
28x
27x
22x
20x
2%
1%
<1%
5%
5%
2/6
6/6
5/5
8/2
8/2
41
42
43
44
45
* Silicon Image
* Blue Nile
* Luminex
* Higher One
* Children’s Place
SIMG
NILE
LMNX
ONE
PLCE
4.39
38.20
19.84
17.28
49.80
360
518
836
976
1,239
205
478
743
925
1,086
-52%
-5%
71%
n/m
1%
-40%
-33%
9%
-15%
0%
-7%
-7%
-7%
-6%
-6%
1.0x
1.4x
4.2x
5.3x
.6x
2.1x
21.3x
4.7x
12.2x
2.0x
14x
35x
37x
18x
14x
<1%
2%
2%
6%
1%
6/3
8/3
3/3
3/6
7/8

Company website
SEC
Y!
Proxy
Y!
Stock Price Charts
Criteria: ► Positive net cash ► Positive next FY EPS ► MV > $100 million ► China RTOs excluded
Value with Catalyst: Cheap Repurchasers of Stock
Companies that may be creating value by reducing their shares outstanding at relatively cheap prices
▼
MV
($mn)
EV
($mn)
Q-Q
Change
in Shares
Insiders
EV /
TTM
Revenue
Next
FY
P/E
Price to
Tangible
Book
Net Cash
as % of
MV
%
Own.
Buys/
Sells
Company
Ticker
Price
($)
1
2
3
4
5
Ameristar Casinos
Skullcandy
Comtech Telecomm.
Neutral Tandem
Ingersoll-Rand
ASCA
SKUL
CMTL
TNDM
IR
19.78
12.58
30.48
11.96
34.01
646
343
620
376
10,617
2,491
342
346
292
12,854
-12.5%
-8.8%
-8.6%
-7.5%
-7.4%
2.1x
1.6x
.6x
1.1x
.9x
9x
11x
23x
12x
11x
n/m
5.3x
1.7x
2.2x
n/m
-286%
0%
44%
22%
-21%
2%
5%
2%
5%
<1%
9/4
8/8
10 / 5
8/5
-/-
6
7
8
9
10
Bank of East Asia
Gap
China Cord Blood
Xyratex
Oritani Financial
BKEAY
GPS
CO
XRTX
ORIT
3.99
18.63
2.28
16.00
12.74
8,294
9,097
168
453
595
n/m
9,338
74
321
n/m
-7.4%
-7.2%
-6.7%
-6.6%
-6.3%
n/m
.6x
1.3x
.2x
n/m
15x
11x
8x
9x
18x
1.5x
3.6x
1.1x
1.3x
1.1x
n/m
-3%
56%
29%
n/m
<1%
2%
<1%
<1%
6%
-/7/5
-/-/10 / 2
11
12
13
14
15
Banco Argentaria
Northwest Bancorp
FXCM
Fox Chase Bancorp
hhgregg
BBVA
NWBI
FXCM
FXCB
HGG
8.83
12.74
10.13
12.81
11.24
42,976
1,242
156
175
416
n/m
n/m
n/m
n/m
448
-5.9%
-5.2%
-4.3%
-4.2%
-4.2%
n/m
n/m
n/m
n/m
.2x
9x
18x
11x
32x
9x
1.2x
1.3x
4.9x
.9x
1.4x
n/m
n/m
n/m
n/m
-8%
<1%
<1%
<1%
3%
10%
-/8/7
6/14 / 2
6/5
16
17
18
19
20
KBW
Oplink Comms
HCC Insurance
NTT
* A. Schulman
KBW
OPLK
HCC
NTT
SHLM
17.61
18.03
28.42
24.82
23.49
582
345
3,027
65,551
691
n/m
172
n/m
104,618
787
-4.1%
-4.0%
-4.0%
-4.0%
-4.0%
n/m
.9x
n/m
.8x
.4x
18x
18x
10x
6x
9x
1.5x
1.3x
1.3x
.9x
2.0x
n/m
50%
n/m
-60%
-14%
<1%
3%
<1%
<1%
2%
-/9/5
5/-/20 / 7
21
22
23
24
25
Domtar
Veeco Instruments
Fred’s
Chico’s FAS
Navigators Group
UFS
VECO
FRED
CHS
NAVG
87.51
26.35
14.76
11.82
48.90
3,708
1,020
547
1,982
699
4,106
597
534
1,742
n/m
-3.9%
-3.9%
-3.9%
-3.8%
-3.7%
.7x
.5x
.3x
.8x
n/m
11x
14x
15x
12x
18x
1.4x
1.6x
1.4x
3.1x
.9x
-11%
41%
2%
12%
n/m
<1%
<1%
6%
<1%
<1%
2/1
4/5
3/2
6/6
1/1
26
27
28
29
30
* Ingram Micro
RadioShack
Devon Energy
Best Buy
* People’s United
IM
RSH
DVN
BBY
PBCT
19.29
10.24
63.29
25.00
12.90
2,959
1,022
25,563
8,758
4,652
2,396
1,021
27,971
8,643
n/m
-3.5%
-3.4%
-3.3%
-3.3%
-3.2%
.1x
.2x
2.5x
.2x
n/m
10x
8x
9x
7x
13x
.9x
1.3x
1.7x
2.9x
1.5x
19%
0%
-9%
1%
n/m
<1%
<1%
<1%
<1%
<1%
11 / 6
2/1
3/9
10 / 2
4 / 11
31
32
33
34
35
CF Industries
* American Greetings
ConocoPhillips
Synaptics
OmniAmerican Bancorp
CF
AM
COP
SYNA
OABC
175.49
14.20
71.20
32.74
16.29
11,475
505
94,535
1,054
184
11,667
654
111,659
815
n/m
-3.1%
-3.0%
-3.0%
-2.8%
-2.8%
2.1x
.4x
.5x
1.4x
n/m
8x
7x
9x
12x
43x
5.4x
.7x
1.5x
3.3x
.9x
-2%
-30%
-18%
23%
n/m
<1%
<1%
<1%
<1%
<1%
10 / 10
-/3/3
11 / 4
3/1
36
37
38
39
40
Amdocs
* Northrop Grumman
* SAIC
* Hyatt Hotels
* Johnson Outdoors
DOX
NOC
SAI
H
JOUT
29.40
61.39
13.00
40.35
18.43
5,136
16,040
4,436
6,664
180
4,212
17,069
4,825
6,693
151
-2.8%
-2.7%
-2.7%
-2.6%
-2.6%
1.3x
.8x
.4x
1.8x
.4x
10x
9x
9x
45x
-
4.7x
n/m
14.2x
1.5x
1.3x
18%
-6%
-9%
0%
16%
<1%
<1%
<1%
<1%
4%
-/15 / 3
5/1
10 / 4
3/2
41
42
43
44
45
* Benchmark Electron.
* Principal Financial
* Culp
* Steelcase
* Assurant
BHE
PFG
CFI
SCS
AIZ
17.01
27.07
8.70
8.48
39.35
983
8,261
111
1,074
3,625
740
n/m
96
1,200
n/m
-2.6%
-2.5%
-2.5%
-2.4%
-2.4%
.3x
n/m
.4x
.4x
n/m
17x
9x
8x
10x
7x
.9x
1.0x
1.5x
2.2x
.9x
25%
n/m
14%
-12%
n/m
1%
<1%
3%
<1%
1%
1/1
20 / 3
3/9/1
7 / 10

Company website
SEC
Y!
Proxy
Y!
Criteria: ► MV < 2 * BV ► Next FY P/E < 12 ► Debt/equity < 0.4 ► MV > $100mn ► Q-Q ∆ shares < 0
Profitable Dividend Payors with Decent Balance Sheets
Dividend-paying companies with no net debt and EPS estimates in excess of 75% of the indicated annual dividend
Move To
52-Week
▼
Dividend Yield
Est. P/E
Insiders
High
MV
($mn)
EV
($mn)
Last 12
Months
Annual
Indicated
This
FY
Next
FY
Price to
Tangible
Book
%
Own.
Buys/
Sells
Company
Ticker
Price
($)
1
2
3
4
5
Invesco Mortgage
BBVA Banco Frances
* Am. Capital Mortgage
Cypress Sharpridge
Crexus Investment
IVR
BFR
MTGE
CYS
CXS
15.01
6.45
18.89
13.50
10.97
-16%
-27%
-20%
-22%
-27%
60%
90%
6%
2%
23%
1,732
1,243
189
1,117
841
1,675
n/m
128
1,110
n/m
25%
16%
1%
18%
9%
23%
17%
17%
15%
13%
4x
7x
17x
8x
8x
5x
5x
6x
7x
9x
.9x
1.6x
.9x
1.0x
.9x
<1%
<1%
22%
<1%
<1%
8/-/8/6/2
8/-
6
7
8
9
10
PennyMac Mortgage
Banco Santander
BGC Partners
IDT Corp.
Societe Generale
PMT
STD
BGCP
IDT
SCGLY
17.68
7.75
6.39
9.70
5.50
-20%
-13%
-15%
-10%
-32%
9%
64%
58%
76%
159%
493
68,282
826
221
21,133
n/m
n/m
n/m
122
n/m
10%
4%
10%
12%
8%
11%
11%
11%
9%
9%
8x
8x
8x
65x
6x
7x
7x
8x
12x
7x
.9x
1.8x
2.8x
4.2x
.3x
<1%
<1%
<1%
11%
<1%
2/1
-/6/3
5/5
-/-
11
12
13
14
15
CTC Media
* Medley Capital
NGP Capital
* Diana Containerships
THL Credit
CTCM
MCC
NGPC
DCIX
TCRD
9.70
11.13
8.10
7.03
13.19
-17%
-22%
-29%
-35%
-21%
154%
12%
25%
92%
13%
1,526
193
175
162
267
1,394
n/m
n/m
114
n/m
9%
3%
9%
3%
8%
9%
9%
9%
9%
8%
10x
9x
11x
23x
13x
9x
8x
12x
9x
10x
7.3x
.9x
.9x
.8x
1.0x
<1%
<1%
<1%
<1%
<1%
2/1
4/2/-/7/-
16
17
18
19
20
Ellington Financial
Banco Macro
Mesabi Trust
Telecom Argentina
Westpac Banking
EFC
BMA
MSB
TEO
WBK
19.16
26.33
33.47
21.58
109.00
-18%
-31%
-44%
-22%
-18%
31%
90%
26%
25%
27%
315
1,626
439
2,216
65,767
309
n/m
n/m
1,748
n/m
13%
7%
7%
5%
8%
8%
8%
8%
7%
7%
16x
6x
12x
7x
11x
6x
6x
12x
6x
10x
.8x
3.4x
>9.9x
1.5x
2.1x
<1%
<1%
<1%
<1%
<1%
4/1
-/-/-/-/-
21
22
23
24
25
Solar Senior
City Telecom
Nat’l Australia Bank
Banco Argentaria
Sun Life Financial
SUNS
CTEL
NABZY
BBVA
SLF
16.40
10.58
25.19
8.83
20.41
-18%
-15%
-21%
-20%
-15%
21%
51%
20%
47%
70%
156
400
55,663
42,976
11,934
120
348
n/m
n/m
n/m
2%
7%
7%
5%
7%
7%
7%
7%
7%
7%
27x
9x
10x
9x
>99x
11x
8x
10x
9x
8x
.9x
1.7x
1.6x
1.2x
1.3x
1%
<1%
<1%
<1%
<1%
2/-/-/-/-/-
26
27
28
29
30
Intersections
Australia and NZ
AXA
First Financial Banc
Chunghwa Telecom
INTX
ANZBY
AXAHY
FFBC
CHT
11.76
21.99
15.57
17.93
31.70
-25%
-20%
-31%
-28%
-9%
96%
22%
49%
2%
18%
203
58,278
36,427
1,045
24,806
197
n/m
n/m
n/m
23,130
6%
7%
6%
3%
6%
7%
7%
6%
6%
6%
12x
10x
5x
16x
16x
13x
10x
7x
15x
17x
4.0x
1.9x
1.2x
1.6x
2.1x
44%
<1%
<1%
<1%
<1%
10 / 10
-/-/13 / 5
-/-
31
32
33
34
35
AstraZeneca
Credit Suisse
Telular
STMicroelectronics
Mercury General
AZN
CS
WRLS
STM
MCY
47.39
26.04
7.96
7.30
44.68
-14%
-19%
-32%
-27%
-24%
11%
83%
12%
85%
5%
60,544
31,295
121
6,599
2,450
59,209
n/m
108
5,780
n/m
5%
5%
5%
4%
5%
6%
6%
6%
5%
5%
7x
10x
20x
15x
16x
8x
8x
17x
23x
16x
>9.9x
1.2x
2.4x
1.1x
1.4x
<1%
<1%
2%
<1%
<1%
-/-/5/6
-/1/3
36
37
38
39
40
Aixtron AG
* Artio Global Invest.
Santander Brasil
United Overseas Bank
Univest Corp. of PA
AIXG
ART
BSBR
UOVEY
UVSP
15.52
4.53
9.32
26.95
15.49
-28%
-8%
-28%
-17%
-22%
190%
281%
36%
29%
18%
1,587
268
34,968
21,225
259
1,176
n/m
n/m
n/m
n/m
5%
5%
14%
3%
5%
5%
5%
5%
5%
5%
10x
4x
11x
12x
13x
18x
8x
9x
13x
12x
2.2x
1.7x
1.4x
1.5x
1.2x
<1%
5%
<1%
<1%
1%
-/6/2
-/-/7/1
41
42
43
44
45
Rimage
DDi Corp.
NutriSystem
* World Wrestling Ent.
Reed Elsevier
RIMG
DDIC
NTRI
WWE
ENL
13.18
9.49
14.00
9.62
23.87
-22%
-30%
-25%
-10%
-12%
25%
26%
62%
47%
17%
136
193
393
716
18,646
21
175
351
555
18,643
2%
4%
5%
7%
4%
5%
5%
5%
5%
5%
23x
10x
30x
17x
11x
25x
9x
14x
13x
11x
1.1x
2.0x
5.0x
2.3x
>9.9x
2%
<1%
3%
2%
<1%
6/4/4
-/2
7 / 12
-/-

Company website
SEC
Y!
Proxy
Y!
Low
Price Charts
Criteria: ► Positive net cash ► Positive EPS for this/next FY ► MV > $100 million ► China RTOs excl.
Deep Value: Lots of Revenue, Low Enterprise Value
Companies that trade at low multiples of net revenue
▼
Move To
52-Week
Est. P/E
Insiders
High
MV
($mn)
EV
($mn)
EV/
Sales
This
FY
Next
FY
Annual
Dividend
Yield
Price to
Tangible
Book
%
Own.
Buys/
Sells
Company
Ticker
Price
($)
1
2
3
4
5
* Winn-Dixie Stores
Tech Data
Ingram Micro
World Fuel Services
Office Depot
WINN
TECD
IM
INT
ODP
9.46
52.33
19.29
44.17
2.60
-46%
-27%
-20%
-33%
-33%
7%
4%
12%
3%
138%
532
2,160
2,959
3,142
729
424
1,733
2,396
3,283
1,316
.06x
.07x
.07x
.11x
.11x
n/m
11x
12x
16x
n/m
n/m
9x
10x
15x
37x
.3%
-
.8x
1.1x
.9x
3.8x
1.1x
2%
<1%
<1%
<1%
<1%
20 / 14
2/6
11 / 6
4/7
3/1
6
7
8
9
10
* Kelly Services
AmerisourceBergen
Tesoro
Systemax
Celestica
KELYA
ABC
TSO
SYX
CLS
17.20
40.09
24.18
17.30
8.28
-37%
-14%
-28%
-37%
-18%
34%
8%
22%
3%
51%
634
10,357
3,371
630
1,638
639
9,896
3,840
512
1,052
.12x
.12x
.14x
.14x
.14x
11x
14x
5x
12x
-
10x
13x
6x
10x
-
1.2%
1.3%
-
1.1x
>9.9x
.9x
1.6x
1.2x
2%
<1%
<1%
2%
<1%
-/8
5/2
3/1
3/1
-/-
11
12
13
14
15
Cardinal Health
Delek US Holdings
SYNNEX
Sony
Valero Energy
CAH
DK
SNX
SNE
VLO
42.64
12.91
35.90
17.85
23.51
-12%
-42%
-37%
-9%
-30%
10%
36%
2%
107%
32%
14,732
749
1,319
17,810
13,159
15,250
954
1,618
13,999
17,978
.15x
.15x
.16x
.16x
.16x
13x
4x
8x
n/m
6x
12x
7x
8x
30x
7x
2.0%
1.2%
1.8%
2.6%
>9.9x
1.3x
1.4x
.9x
.8x
<1%
2%
30%
<1%
<1%
19 / 9
6/2
7/8
-/7/7
16
17
18
19
20
McKesson
Manpower
Insight Enterprises
Unisys
Barnes & Noble
MCK
MAN
NSIT
UIS
BKS
76.51
41.50
18.49
20.13
12.03
-13%
-23%
-30%
-32%
-30%
14%
68%
6%
105%
75%
18,788
3,386
811
872
724
18,837
3,526
870
650
1,167
.16x
.16x
.17x
.17x
.17x
12x
13x
10x
9x
n/m
11x
12x
9x
6x
n/m
1.0%
1.9%
-
>9.9x
2.9x
1.7x
n/m
n/m
<1%
<1%
<1%
<1%
1%
3/2
11 / 3
2/8
5/1
8 / 10
21
22
23
24
25
Best Buy
Career Education
Marathon Petroleum
Flextronics
General Motors
BBY
CECO
MPC
FLEX
GM
25.00
10.45
37.17
6.72
25.00
-13%
-40%
-29%
-25%
-24%
43%
164%
28%
26%
56%
8,758
793
13,252
4,793
39,114
8,643
345
13,594
5,446
29,193
.17x
.17x
.18x
.18x
.20x
7x
5x
5x
8x
6x
7x
11x
7x
6x
7x
2.6%
2.7%
-
2.9x
1.7x
1.4x
2.4x
n/m
<1%
<1%
<1%
<1%
<1%
10 / 2
-/5
21 / 2
-/18 / 17
26
27
28
29
30
Brightpoint
ITT Corp.
Sears Holdings
Supervalu
* Alon USA Energy
CELL
ITT
SHLD
SVU
ALJ
11.99
21.67
49.00
6.88
9.83
-39%
-39%
-41%
-9%
-46%
10%
3%
92%
71%
58%
818
2,010
5,237
1,460
551
963
2,497
9,165
7,863
1,469
.20x
.21x
.21x
.22x
.22x
11x
14x
n/m
6x
8x
10x
12x
n/m
6x
9x
1.7%
5.1%
1.6%
8.7x
n/m
1.7x
n/m
2.1x
<1%
<1%
26%
<1%
2%
2/2
22 / 3
7/4
12 / 1/-
31
32
33
34
35
Owens & Minor
Sanmina-SCI
Bunge
NACCO Industries
Avnet
OMI
SANM
BG
NC
AVT
29.71
10.91
58.61
94.95
33.93
-13%
-45%
-8%
-40%
-30%
20%
59%
30%
40%
12%
1,884
885
8,530
646
5,034
1,901
1,487
12,737
765
6,319
.22x
.23x
.23x
.24x
.24x
16x
8x
10x
7x
9x
14x
6x
9x
7x
8x
2.7%
1.7%
2.2%
-
3.0x
1.1x
.9x
1.3x
1.8x
1%
<1%
<1%
1%
<1%
3/5
-/3
-/9/3
15 / 12
36
37
38
39
40
RadioShack
Kroger
Western Refining
* Arkansas Best
Lear
RSH
KR
WNR
ABFS
LEA
10.24
23.91
16.00
21.99
43.41
-11%
-12%
-37%
-35%
-18%
73%
8%
36%
25%
31%
1,022
13,743
1,453
559
4,442
1,021
21,217
2,113
473
3,461
.24x
.24x
.24x
.25x
.25x
9x
12x
5x
52x
8x
8x
11x
6x
16x
8x
4.9%
1.9%
1.0%
.5%
1.2%
1.3x
3.6x
1.8x
1.1x
2.2x
<1%
<1%
29%
<1%
<1%
2/1
5 / 10
-/4
3/1
9/9
41
42
43
44
45
Insperity
* OfficeMax
China Yuchai
* Andersons
Nokia
NSP
OMX
CYD
ANDE
NOK
27.49
5.81
16.09
42.99
5.61
-28%
-33%
-22%
-30%
-20%
18%
209%
108%
19%
109%
710
500
600
795
21,100
484
1,784
623
1,143
14,105
.25x
.25x
.25x
.26x
.26x
22x
10x
9x
15x
17x
10x
9x
17x
2.2%
3.1%
1.4%
10.2%
3.4x
.9x
.8x
1.5x
3.1x
2%
1%
<1%
4%
<1%
4/5
10 / 7
-/11 / 7
-/-

Company website
SEC
Y!
Proxy
Y!
Low
Price Charts
Criteria: ► EV to TTM revenue < 0.5x ► MV < revenue ► MV > $500 million ► China RTOs excluded
Deep Value: Neglected Gross Profiteers
Companies that trade at low multiples of gross profit
Move To
52-Week
▼
Enterprise Value /
Insiders
EBIT
Next
FY
Price/
Tang.
Book
%
Own.
Buys/
Sells
Ticker
1
2
3
4
5
* Imation
Stewart Information
Winn-Dixie Stores
Career Education
RealNetworks
IMN
STC
WINN
CECO
RNWK
6.14
12.92
9.46
10.45
7.41
-12%
-37%
-46%
-40%
-8%
101%
2%
7%
164%
122%
234
249
532
793
254
1
204
424
345
82
.0x
.1x
.1x
.2x
.2x
.0x
.1x
.2x
.3x
.4x
n/m
.2x
n/m
1.5x
n/m
n/m
59x
n/m
5x
n/m
n/m
15x
n/m
11x
n/m
.6x
1.1x
.8x
1.7x
1.0x
1%
<1%
2%
<1%
<1%
4/-/20 / 14
-/5
11 / 4
6
7
8
9
10
Office Depot
Kindred Healthcare
IDT Corp.
First American
Telecom Argentina
ODP
KND
IDT
FAF
TEO
2.60
10.94
9.70
14.00
21.58
-33%
-30%
-10%
-25%
-22%
138%
165%
76%
24%
25%
729
570
221
1,476
2,216
1,316
1,971
122
1,124
1,748
.1x
.4x
.1x
.3x
.4x
.4x
.4x
.4x
.5x
.5x
n/m
17.0x
18.8x
1.1x
2.0x
n/m
6x
65x
19x
7x
37x
6x
12x
13x
6x
1.1x
n/m
4.2x
1.3x
1.5x
<1%
<1%
11%
<1%
<1%
3/1
2/2
5/5
3/2
-/-
11
12
13
14
15
RadioShack
Charming Shoppes
Amedisys
* Corinthian Colleges
Investment Tech
RSH
CHRS
AMED
COCO
ITG
10.24
4.90
9.92
2.87
11.28
-11%
-53%
-8%
-57%
-21%
73%
5%
292%
113%
76%
1,022
571
292
244
451
1,021
556
416
414
293
.2x
.3x
.3x
.2x
.5x
.5x
.5x
.6x
.6x
.6x
4.6x
n/m
n/m
n/m
n/m
9x
70x
5x
13x
15x
8x
22x
10x
9x
12x
1.3x
2.6x
2.4x
1.3x
1.5x
<1%
<1%
2%
<1%
2%
2/1
-/5/2
9/7
9/5
16
17
18
19
20
Gleacher & Co.
E.W. Scripps
Barnes & Noble
Unisys
Nature’s Sunshine
GLCH
SSP
BKS
UIS
NATR
1.60
8.29
12.03
20.13
15.51
-38%
-23%
-30%
-32%
-50%
54%
23%
75%
105%
36%
204
454
724
872
241
159
306
1,167
650
193
.6x
.4x
.2x
.2x
.5x
.6x
.6x
.6x
.6x
.7x
n/m
n/m
n/m
1.9x
13.7x
18x
n/m
n/m
9x
12x
6x
14x
n/m
6x
11x
.9x
.9x
n/m
n/m
3.0x
<1%
<1%
1%
<1%
<1%
-/2/5
8 / 10
5/1
3/1
21
22
23
24
25
American Equity
ArcelorMittal
Haverty Furniture
Stein Mart
Humana
AEL
MT
HVT
SMRT
HUM
11.16
21.08
12.24
6.89
92.15
-28%
-30%
-23%
-18%
-38%
25%
83%
12%
59%
5%
665
32,873
269
300
15,067
702
57,760
211
204
5,143
.6x
.6x
.3x
.2x
.1x
.7x
.7x
.7x
.7x
.7x
.6x
11.0x
81.1x
5.2x
2.3x
5x
10x
>99x
14x
11x
6x
9x
35x
11x
12x
.5x
.7x
1.1x
1.2x
3.1x
3%
<1%
<1%
3%
<1%
3/2
-/1/4
10 / 1
6/6
26
27
28
29
30
US Airways
* hhgregg
Best Buy
Sony
American Greetings
LCC
HGG
BBY
SNE
AM
6.37
11.24
25.00
17.85
14.20
-38%
-21%
-13%
-9%
-12%
77%
71%
43%
107%
75%
1,033
416
8,758
17,810
505
3,461
448
8,643
13,999
654
.3x
.2x
.2x
.2x
.4x
.7x
.7x
.7x
.7x
.7x
8.2x
5.6x
4.9x
11.9x
4.1x
11x
10x
7x
n/m
7x
4x
9x
7x
30x
7x
n/m
1.4x
2.9x
.9x
.7x
<1%
10%
<1%
<1%
<1%
-/6/5
10 / 2
-/-/-
31
32
33
34
35
Skechers
Kelly Services
* Sierra Wireless
Alcatel-Lucent
ITT Corp.
SKX
KELYA
SWIR
ALU
ITT
12.10
17.20
7.21
2.00
21.67
-7%
-37%
-17%
-31%
-39%
96%
34%
115%
232%
3%
604
634
225
4,643
2,010
494
639
125
5,598
2,497
.3x
.1x
.2x
.3x
.2x
.7x
.7x
.7x
.7x
.7x
n/m
10.3x
n/m
13.2x
2.6x
n/m
11x
6x
14x
26x
10x
6x
12x
.7x
1.1x
1.6x
n/m
n/m
2%
2%
<1%
<1%
<1%
1/7
-/8
-/-/22 / 3
36
37
38
39
40
* Intersections
Vanguard Health
Coca-Cola FEMSA
Digital River
* Destination Maternity
INTX
VHS
KOF
DRIV
DEST
11.76
11.46
95.32
14.73
15.66
-25%
-25%
-25%
-8%
-22%
96%
62%
8%
171%
61%
203
881
2,583
550
208
197
3,072
2,855
240
224
.5x
.6x
.3x
.6x
.4x
.7x
.7x
.8x
.8x
.8x
5.8x
19.8x
2.3x
10.7x
5.9x
12x
14x
22x
14x
11x
13x
11x
19x
12x
9x
4.0x
n/m
.5x
1.6x
2.3x
44%
10%
<1%
<1%
<1%
10 / 10
22 / 1
-/2/3/-
41
42
43
44
45
Celadon Group
Brown Shoe
* Sears Holdings
Cbeyond
* Sun Healthcare
CGI
BWS
SHLD
CBEY
SUNH
13.50
9.13
49.00
8.84
4.19
-39%
-36%
-41%
-35%
-51%
24%
73%
92%
77%
258%
304
383
5,237
268
536
311
762
9,165
260
595
.6x
.3x
.2x
.5x
.3x
.8x
.8x
.8x
.8x
.8x
12.8x
15.7x
n/m
n/m
n/m
16x
12x
n/m
n/m
5x
13x
8x
n/m
>99x
10x
1.9x
1.4x
1.7x
2.0x
3.5x
8%
1%
26%
1%
3%
9/3
2/3
7/4
5/1
13 / 1

Company website
SEC
Y!
Proxy
Y!
High
EV
($mn)
Est. P/E
Company
Low
MV
($mn)
This
FY
Price
($)
Price Charts
Sales
Gross
Profit
Criteria: ► EV < TTM gross profit ► MV < 2x gross profit ► MV > $200 million ► China RTOs excluded
Activist Targets: Potential Sales, Liquidations or Recaps
Companies that may unlock value through a corporate event
▼
Move To
52-Week
High
MV
($mn)
EV
($mn)
Price to
Tangible
Book
Insiders
Net Cash
(% of MV)
NCAV
(% of MV)
EV/
Sales
Next
FY
P/E
%
Own.
Buys/
Sells
Company
Ticker
Price
($)
1
2
3
4
5
Exceed Company
* Opnext
* K-Swiss
Imation
FormFactor
EDS
OPXT
KSWS
IMN
FORM
4.15
1.18
3.14
6.14
5.43
-32%
-34%
-21%
-12%
-14%
105%
277%
315%
101%
103%
106
107
112
234
274
(43)
63
84
1
(42)
.4x
.5x
.6x
.6x
.7x
140%
41%
25%
100%
115%
231%
146%
133%
133%
121%
n/m
.2x
.3x
.0x
n/m
n/m
n/m
n/m
n/m
<1%
<1%
<1%
1%
<1%
-/1/4/2
4/3/4
6
7
8
9
10
Crexus Investment
PennyMac Mortgage
Maxygen
Aviat Networks
NeoPhotonics
CXS
PMT
MAXY
AVNW
NPTN
10.97
17.68
5.49
2.16
5.48
-27%
-20%
-30%
-25%
-34%
23%
9%
13%
201%
282%
841
493
154
132
136
(80)
(383)
(9)
59
47
.9x
.9x
.9x
.8x
.7x
110%
178%
106%
55%
66%
109%
108%
106%
106%
105%
n/m
n/m
n/m
.1x
.2x
9x
7x
9x
n/m
<1%
<1%
<1%
2%
<1%
8/2/1
-/8/5
5/-
11
12
13
14
15
Pacific Biosciences
Endocyte
MedCath
Orbotech
Kimball
PACB
ECYT
MDTH
ORBK
KBALB
3.55
3.48
7.18
10.84
5.97
-37%
-13%
-7%
-17%
-23%
375%
325%
108%
42%
32%
195
124
146
384
164
4
(2)
39
199
129
.9x
1.0x
.5x
.9x
.4x
98%
102%
73%
48%
21%
99%
98%
97%
96%
95%
.2x
n/m
.1x
.4x
.1x
n/m
n/m
9x
-
<1%
3%
2%
<1%
2%
2/9/- / 12
-/6/-
16
17
18
19
20
Ingram Micro
Sprott Physical Gold
Richardson Electron.
* Parlux Fragrances
Benchmark Electron.
IM
PHYS
RELL
PARL
BHE
19.29
14.70
12.11
5.35
17.01
-20%
-22%
-5%
-58%
-29%
12%
15%
27%
23%
19%
2,959
2,147
205
111
983
2,396
148
44
99
740
.9x
1.1x
1.0x
1.1x
.9x
19%
93%
79%
11%
25%
93%
93%
92%
85%
84%
.1x
.4x
.3x
.8x
.3x
10x
26x
17x
<1%
<1%
<1%
<1%
1%
11 / 6
-/2/1
1/1/1
21
22
23
24
25
JAKKS Pacific
Axcelis Technologies
Rimage
Skechers
Westell Technologies
JAKK
ACLS
RIMG
SKX
WSTL
13.92
1.78
13.18
12.10
2.44
-5%
-44%
-22%
-7%
-20%
52%
105%
25%
96%
61%
362
190
136
604
167
221
145
21
494
59
.9x
.9x
1.1x
.7x
1.0x
39%
23%
85%
18%
65%
84%
84%
83%
80%
77%
.3x
.4x
.2x
.3x
.4x
13x
36x
25x
26x
35x
2%
<1%
2%
2%
2%
7/2
-/2
6/1/7
1/1
26
27
28
29
30
Hurco
QLT
Tech Data
Tellabs
* Hardinge
HURC
QLTI
TECD
TLAB
HDNG
21.51
6.81
52.33
4.19
9.93
-19%
-21%
-27%
-12%
-30%
63%
30%
4%
68%
41%
139
334
2,160
1,529
116
95
130
1,733
499
111
1.1x
1.0x
1.1x
1.0x
.8x
32%
61%
20%
67%
4%
75%
75%
74%
73%
73%
.5x
3.2x
.1x
.4x
.3x
16x
9x
>99x
10x
2%
<1%
<1%
<1%
2%
7/3/2/6
-/3
6/-
31
32
33
34
35
Sycamore Networks
* Cutera
West Marine
Enstar Group
Movado
SCMR
CUTR
WMAR
ESGR
MOV
19.37
8.52
12.00
97.65
18.76
-19%
-21%
-42%
-18%
-42%
32%
17%
12%
17%
8%
557
119
274
1,412
467
154
30
230
(2,535)
329
1.2x
1.3x
1.0x
1.3x
1.2x
72%
75%
16%
280%
30%
73%
73%
72%
72%
70%
2.9x
.5x
.4x
n/m
.7x
n/m
n/m
13x
8x
-
6%
<1%
<1%
<1%
<1%
1/1/1
3/2
1/1
5/5
36
37
38
39
40
DragonWave
Keegan Resources
ModusLink
* Exar
Callaway Golf
DRWI
KGN
MLNK
EXAR
ELY
3.59
3.93
5.65
6.65
6.12
-25%
-13%
-42%
-19%
-23%
144%
146%
27%
7%
34%
128
298
248
298
397
68
85
136
96
333
1.3x
1.4x
1.1x
1.3x
.9x
47%
72%
45%
68%
16%
70%
68%
68%
67%
66%
1.3x
n/m
.2x
.7x
.4x
n/m
32x
32x
<1%
<1%
2%
<1%
<1%
-/-/9/5
5/2
7/8
41
42
43
44
45
* Supertex
Oplink Comms
EXFO Electro-Optical
* Insmed
* Xyratex
SUPX
OPLK
EXFO
INSM
XRTX
18.51
18.03
6.51
5.01
16.00
-11%
-26%
-19%
-47%
-53%
36%
64%
103%
169%
1%
223
345
187
124
453
97
172
121
41
321
1.2x
1.3x
.9x
1.5x
1.3x
56%
50%
36%
67%
29%
66%
65%
65%
65%
65%
1.3x
.9x
.4x
9.6x
.2x
46x
18x
n/m
9x
9%
3%
<1%
<1%
<1%
8/6
9/5
-/-/-/-

Company website
SEC
Y!
Proxy
Y!
Low
Price Charts
Criteria: ► TBV > 50% of MV ► ST assets - liabilities > 50% of MV ► MV > $100mn ► China RTOs excl.
This Month’s Top 10 Web Links
A Selection of Our Favorite Internet Resources

David Einhorn

Tom Gayner

Ed Hyman & Bob Doll

GMO

Mohnish Pabrai

Van Hoisington
Q4 Review and Outlook
http://bit.ly/zelBqs

Whitney Tilson
T2 Partners Q4 Conference Call
http://bit.ly/y3K0ou

SIA Funds
Long Term Investment Fund Newsletter
http://scr.bi/xoHkji

Jack Dorsey
Twitter Founder on Curiosity and Inspiration
http://bit.ly/gkJRnU

John Burns
Presentation on U.S. Housing Market
Q4 2011 Letter
http://bit.ly/zrmmJV
GuruFocus Interview
http://bit.ly/yKbW0k
WealthTrack Interview
http://bit.ly/yHd5Uh
Analysis of European Banks
http://bit.ly/uEasPt
TIME on The Dakshana Foundation
 Donate to Dakshana at www.dakshana.org
(courtesy of Whitney Tilson)
http://ti.me/xSEd36
http://bit.ly/xy1BIX
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