Author Topic: HEI.A - Heico  (Read 45598 times)

Jurgis

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Re: HEI.A - Heico
« Reply #10 on: February 25, 2015, 04:11:46 PM »
Yeah, we give a crap. I just haven't had time to look at it yet.  8)

Thanks for bumping it up periodically.

Actually, don't bump it up. I'd prefer cheaper shares.  :P
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Schwab711

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Re: HEI.A - Heico
« Reply #11 on: February 25, 2015, 06:08:16 PM »
I give a crap, but it seems rather expensive still.

Out of curiosity, what multiple of FCF would you consider paying for it?

The business earns about 13-15% return on capital.  So on paper that's how much book value (including dividends paid and share repurchases) would grow by over the long-term.  If I'm happy with 13-15% annualized returns over the long-term then I would pay around 15-17 times free cash flow.  It's trading for around 23 times I believe. 

What about you Liberty?

This quote is of particular interest to me (as you can tell by past comments) because I have been working on research for quite awhile that deals with long-run market returns and predictions of causes, price multiplies vs. ROIC (the goal is to get an idea of FV for quality companies), and a few other return-related problems. I'm not sure if you have a formula to get your 13%-15% => 15 - 17x FCF conversion but, the best I can tell so far, a price multiple paid only matters relative to what it will be at the time of your sale (for total returns realized; this is only for cases where your exit strategy is on equivalent or better exchange and your stake is trivial vs. avg volume). So 18x FCF is not necessary good or bad multiple, it's only good or bad relative to your xPM (price multiple) when sold (which is why people look at historical P/E multiples). A lot of people assume stocks will trend to 15x (again, best I can tell, most will not over any sufficient amount of time (sectors vary considerably); but the overall average will likely be around 15x in the long-run), but this mostly has to do with over-looked assumptions in research done by profs/academics who have found long-run returns to be 6%-7% over any sufficient time period [which conveniently => 14.3x - 16.7x market PM].

This is a really amazing industry that correlates very highly with airline miles flown for customers of those companies. Airline flights have decreased in real costs pretty consistently for decades (and seem poised to continue to do so) so airline miles flown have pretty consistently increased over time, seemingly independent of the health of the overall economy. This should drive revenue growth for sole-source parts (assuming those planes continue to be flown - not worth worrying about for TDG at least).

tl;dr:
18x FCF is really cheap imo if Heico has anything near TDG's sole-source revenue % (haven't research at all yet). TDG is fone of my favorite companies though, same tier as FICO, V/MA, MCO for me.
No more bumps from me :)

Liberty

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Re: HEI.A - Heico
« Reply #12 on: February 25, 2015, 06:29:30 PM »
Very good post, Schwab. The whole revenue-passenger-mile story + aftermarket + sole-source dynamic is incredible, in my opinion. Heico sadly doesn't have the amount of sole source that TDG does (I couldn't find the exact ratio, but they clearly don't focus on it as much, and their lower margins are probably a proxy for that), but it's still worth a look.

Heico is one of my second-tier ideas, but I wanted to share it anyway. I just thought it was too bad when tumbleweeds blew through this thread because I was curious to hear what others thought, and figured maybe they could make me see things that I had missed about the company.
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yadayada

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Re: HEI.A - Heico
« Reply #13 on: February 25, 2015, 07:25:29 PM »
isn't rolls royce much cheaper? Or why not buy both for that matter?

Liberty

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Re: HEI.A - Heico
« Reply #14 on: February 25, 2015, 07:33:12 PM »
isn't rolls royce much cheaper? Or why not buy both for that matter?

Does their FCF/share numbers over the past decade look good to you? These capex numbers are enough to scare me...
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berkshire101

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Re: HEI.A - Heico
« Reply #15 on: February 25, 2015, 07:41:15 PM »
I give a crap, but it seems rather expensive still.

Out of curiosity, what multiple of FCF would you consider paying for it?

The business earns about 13-15% return on capital.  So on paper that's how much book value (including dividends paid and share repurchases) would grow by over the long-term.  If I'm happy with 13-15% annualized returns over the long-term then I would pay around 15-17 times free cash flow.  It's trading for around 23 times I believe. 

What about you Liberty?

This quote is of particular interest to me (as you can tell by past comments) because I have been working on research for quite awhile that deals with long-run market returns and predictions of causes, price multiplies vs. ROIC (the goal is to get an idea of FV for quality companies), and a few other return-related problems. I'm not sure if you have a formula to get your 13%-15% => 15 - 17x FCF conversion but, the best I can tell so far, a price multiple paid only matters relative to what it will be at the time of your sale (for total returns realized; this is only for cases where your exit strategy is on equivalent or better exchange and your stake is trivial vs. avg volume). So 18x FCF is not necessary good or bad multiple, it's only good or bad relative to your xPM (price multiple) when sold (which is why people look at historical P/E multiples). A lot of people assume stocks will trend to 15x (again, best I can tell, most will not over any sufficient amount of time (sectors vary considerably); but the overall average will likely be around 15x in the long-run), but this mostly has to do with over-looked assumptions in research done by profs/academics who have found long-run returns to be 6%-7% over any sufficient time period [which conveniently => 14.3x - 16.7x market PM].

@Schwab: I've been working on some research myself relating to ROIC and future returns.  Maybe we can discuss a bit more?  If so, let me know and I'll send you a PM!  :)

Liberty

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Re: HEI.A - Heico
« Reply #16 on: February 25, 2015, 07:46:39 PM »
Berkshire101, have you read the book "Valuation" (5th ed.) published by McKinsey? I found really interesting things about how to think about ROIC and growth in there.
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berkshire101

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Re: HEI.A - Heico
« Reply #17 on: February 25, 2015, 07:54:06 PM »
Berkshire101, have you read the book "Valuation" (5th ed.) published by McKinsey? I found really interesting things about how to think about ROIC and growth in there.

No I haven't.  Thanks for pointing it out.  I'll take a look see.  By the way, what did you find interesting about ROIC and growth? 

Liberty

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Re: HEI.A - Heico
« Reply #18 on: February 25, 2015, 07:59:15 PM »
Berkshire101, have you read the book "Valuation" (5th ed.) published by McKinsey? I found really interesting things about how to think about ROIC and growth in there.

No I haven't.  Thanks for pointing it out.  I'll take a look see.  By the way, what did you find interesting about ROIC and growth?

Not easy to summarize right now, and I'd have to go over my notes to see what came from that book (because I've incorporated it into how I generally view things, but some things came from other places, and I have my own take on it). I just remember finding it really interesting and well explained (very systematic approach).

If the topic interests you, I think it's pretty safe that you should enjoy it, unless you are already so advanced and your study of ROIC is so esoteric that you'll find the book too basic... But that's for you to decide.
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Liberty

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Re: HEI.A - Heico
« Reply #19 on: May 27, 2015, 06:54:58 PM »
Looks like Arlington Value (Meecham) has opened a small position in Heico.
"Most haystacks don't even have a needle." |  I'm on Twitter  | This podcast episode is a must-listen