Author Topic: What are you buying today?  (Read 1793682 times)

SafetyinNumbers

  • Hero Member
  • *****
  • Posts: 657
Re: What are you buying today?
« Reply #4440 on: December 20, 2019, 10:32:11 AM »
I added a touch more ATTO.

I think ATTO trades too low based on the fundamentals and it would trade much higher if not for its largest shareholder (Bain) selling a PIK note to fixed income investors including sovereign wealth funds. The note is due in May 2020 but we should find out shortly what comes out of negotiations between Bain and the note holders.


CorpRaider

  • Hero Member
  • *****
  • Posts: 2400
    • The Corpraider
Re: What are you buying today?
« Reply #4441 on: December 20, 2019, 11:52:06 AM »
Bought a few WFC $45 calls. Looking for a run into earnings.

Hopefully the new CEO wonít do write downs, like many new CEOs like to do.

Yeah, he seems likely to clear the deck and there is probably plenty to mention, but after considering it, trying to dance around that seems like being too cute to me.  I bought a little bit more today.  Got scared it was going to run away from me/FOMO. 

The god of skinny compounder-bro punks has like 40% of the portfolio that he runs without size constraints in WFC.

I've had some success with LEAPS + corporate transactions/special sits.  Not sure if I was lucky or good...was back when Black-Scholes was (I think) more taken as gospel. 
« Last Edit: December 20, 2019, 11:59:34 AM by CorpRaider »

SafetyinNumbers

  • Hero Member
  • *****
  • Posts: 657
Re: What are you buying today?
« Reply #4442 on: December 20, 2019, 12:43:51 PM »
I added a touch more ATTO.

I think ATTO trades too low based on the fundamentals and it would trade much higher if not for its largest shareholder (Bain) selling a PIK note to fixed income investors including sovereign wealth funds. The note is due in May 2020 but we should find out shortly what comes out of negotiations between Bain and the note holders.

Curious what your PT is on this.

I think it's more than a 100% upside and potentially a lot more if the new management team is successful in fixing margins.

The crazy upside number if they can fix the business and get some revenue growth over 5 years is much bigger.

Revenue is around US$1.7bn now and if they can get to US$2bn in 5 years with EBITDA margins of 15% (the goal for 2022 at the recent investor day last month), then EBITDA is around US$300m vs US$170m now.

Peers generally trade north of 8x EBITDA, so that leaves an EV of US$2.4bn.

The current DSO are at 90 days which is elevated for one off item in particular but management thinks they can get it to 45 days over time. Some peers are that low on DSO but even getting down to 70 days will free up over US$80m in cash. I can easily see with annual free cash flow plus improving working capital that debt will be closer to US$400m from ~US$565m now in 5 years. Also management is keen on buying back stock and there should be enough cash to do that too. If I model them buying 11.1m shares at $10 vs the current price of ~$3, there are 60m shares left outstanding. So an equity value of US$2bn and 60m shares outstanding is over a 10 bagger from here.

I usually don't throw numbers like that out there because it sounds ridiculous but that's why I think the risk/reward is good at these prices.

I think most investors are waiting for the resolution of the PIK and I think because of the upside that I'm sure Bain can see, they probably want to hold onto the equity. The big risk is that they turn over their shares to the bond holders who then proceed to sell into the market. I just can't see why Bain or the note holders would do that when they could run a strategic process and get a higher price or just wait to see how successful management is with the turnaround. That being said, I am constantly surprised by market participants.


Gregmal

  • Hero Member
  • *****
  • Posts: 3882
Re: What are you buying today?
« Reply #4443 on: December 20, 2019, 03:54:15 PM »
I would add this useless but fun supplementary note on the WFC trade, relating to a scenario mentioned in terms of theoreticals... something Ive done once or twice with similar situations... should the stock somehow blow up($45 as I mentioned is a very powerful support level) you can always run it back so to speak and then go short the long dated $55 puts as well. I like scenarios where worst case is you own a quality company. A lot of my MSG exposure over the years has been rolling very deep in the money calls and shorting deep in the money puts.

zurgenfeldt

  • Newbie
  • *
  • Posts: 11
Re: What are you buying today?
« Reply #4444 on: December 23, 2019, 07:21:57 AM »
bought into LUV. Currently a 10-cap.
----------------------------------------------------------------------------------------
goog | fb | aapl | v | ma | mco

Broeb22

  • Sr. Member
  • ****
  • Posts: 312
Re: What are you buying today?
« Reply #4445 on: December 23, 2019, 10:07:50 AM »
I added a touch more ATTO.

I think ATTO trades too low based on the fundamentals and it would trade much higher if not for its largest shareholder (Bain) selling a PIK note to fixed income investors including sovereign wealth funds. The note is due in May 2020 but we should find out shortly what comes out of negotiations between Bain and the note holders.

Curious what your PT is on this.

I think it's more than a 100% upside and potentially a lot more if the new management team is successful in fixing margins.

The crazy upside number if they can fix the business and get some revenue growth over 5 years is much bigger.

Revenue is around US$1.7bn now and if they can get to US$2bn in 5 years with EBITDA margins of 15% (the goal for 2022 at the recent investor day last month), then EBITDA is around US$300m vs US$170m now.

Peers generally trade north of 8x EBITDA, so that leaves an EV of US$2.4bn.

The current DSO are at 90 days which is elevated for one off item in particular but management thinks they can get it to 45 days over time. Some peers are that low on DSO but even getting down to 70 days will free up over US$80m in cash. I can easily see with annual free cash flow plus improving working capital that debt will be closer to US$400m from ~US$565m now in 5 years. Also management is keen on buying back stock and there should be enough cash to do that too. If I model them buying 11.1m shares at $10 vs the current price of ~$3, there are 60m shares left outstanding. So an equity value of US$2bn and 60m shares outstanding is over a 10 bagger from here.

I usually don't throw numbers like that out there because it sounds ridiculous but that's why I think the risk/reward is good at these prices.

I think most investors are waiting for the resolution of the PIK and I think because of the upside that I'm sure Bain can see, they probably want to hold onto the equity. The big risk is that they turn over their shares to the bond holders who then proceed to sell into the market. I just can't see why Bain or the note holders would do that when they could run a strategic process and get a higher price or just wait to see how successful management is with the turnaround. That being said, I am constantly surprised by market participants.

Is some maneuvering around in the capital structure really the big risk? What probability is a bankruptcy in the next few years? What effect would a large customer loss have? What kind of currency swing would cause real cash flow problems?

Joel Greenblatt always said he bet the most on positions where he felt he could not lose much even in a bad outcome. You might be more savvy with restructuring-type situations, but this is not very asymmetrical from what I see.

Castanza

  • Hero Member
  • *****
  • Posts: 1300
Re: What are you buying today?
« Reply #4446 on: December 23, 2019, 10:38:52 AM »
I added a touch more ATTO.

I think ATTO trades too low based on the fundamentals and it would trade much higher if not for its largest shareholder (Bain) selling a PIK note to fixed income investors including sovereign wealth funds. The note is due in May 2020 but we should find out shortly what comes out of negotiations between Bain and the note holders.

Curious what your PT is on this.


I think it's more than a 100% upside and potentially a lot more if the new management team is successful in fixing margins.

The crazy upside number if they can fix the business and get some revenue growth over 5 years is much bigger.

Revenue is around US$1.7bn now and if they can get to US$2bn in 5 years with EBITDA margins of 15% (the goal for 2022 at the recent investor day last month), then EBITDA is around US$300m vs US$170m now.

Peers generally trade north of 8x EBITDA, so that leaves an EV of US$2.4bn.

The current DSO are at 90 days which is elevated for one off item in particular but management thinks they can get it to 45 days over time. Some peers are that low on DSO but even getting down to 70 days will free up over US$80m in cash. I can easily see with annual free cash flow plus improving working capital that debt will be closer to US$400m from ~US$565m now in 5 years. Also management is keen on buying back stock and there should be enough cash to do that too. If I model them buying 11.1m shares at $10 vs the current price of ~$3, there are 60m shares left outstanding. So an equity value of US$2bn and 60m shares outstanding is over a 10 bagger from here.

I usually don't throw numbers like that out there because it sounds ridiculous but that's why I think the risk/reward is good at these prices.

I think most investors are waiting for the resolution of the PIK and I think because of the upside that I'm sure Bain can see, they probably want to hold onto the equity. The big risk is that they turn over their shares to the bond holders who then proceed to sell into the market. I just can't see why Bain or the note holders would do that when they could run a strategic process and get a higher price or just wait to see how successful management is with the turnaround. That being said, I am constantly surprised by market participants.

Thanks for sharing
Core: BRK | MSFT | GOOG | RTX | MSGS | TPL | WFC | USB | PNC | BAC | VZ | VNO | PCYO | PLNT | ESPO | HACK

SafetyinNumbers

  • Hero Member
  • *****
  • Posts: 657
Re: What are you buying today?
« Reply #4447 on: December 23, 2019, 12:13:55 PM »
I added a touch more ATTO.

I think ATTO trades too low based on the fundamentals and it would trade much higher if not for its largest shareholder (Bain) selling a PIK note to fixed income investors including sovereign wealth funds. The note is due in May 2020 but we should find out shortly what comes out of negotiations between Bain and the note holders.

Curious what your PT is on this.

I think it's more than a 100% upside and potentially a lot more if the new management team is successful in fixing margins.

The crazy upside number if they can fix the business and get some revenue growth over 5 years is much bigger.

Revenue is around US$1.7bn now and if they can get to US$2bn in 5 years with EBITDA margins of 15% (the goal for 2022 at the recent investor day last month), then EBITDA is around US$300m vs US$170m now.

Peers generally trade north of 8x EBITDA, so that leaves an EV of US$2.4bn.

The current DSO are at 90 days which is elevated for one off item in particular but management thinks they can get it to 45 days over time. Some peers are that low on DSO but even getting down to 70 days will free up over US$80m in cash. I can easily see with annual free cash flow plus improving working capital that debt will be closer to US$400m from ~US$565m now in 5 years. Also management is keen on buying back stock and there should be enough cash to do that too. If I model them buying 11.1m shares at $10 vs the current price of ~$3, there are 60m shares left outstanding. So an equity value of US$2bn and 60m shares outstanding is over a 10 bagger from here.

I usually don't throw numbers like that out there because it sounds ridiculous but that's why I think the risk/reward is good at these prices.

I think most investors are waiting for the resolution of the PIK and I think because of the upside that I'm sure Bain can see, they probably want to hold onto the equity. The big risk is that they turn over their shares to the bond holders who then proceed to sell into the market. I just can't see why Bain or the note holders would do that when they could run a strategic process and get a higher price or just wait to see how successful management is with the turnaround. That being said, I am constantly surprised by market participants.

Is some maneuvering around in the capital structure really the big risk? What probability is a bankruptcy in the next few years? What effect would a large customer loss have? What kind of currency swing would cause real cash flow problems?

Joel Greenblatt always said he bet the most on positions where he felt he could not lose much even in a bad outcome. You might be more savvy with restructuring-type situations, but this is not very asymmetrical from what I see.

Telefonica is the big customer and all though there is a revenue guarantee, ATTO has lots of individual contracts with region, business line etc... that they are dealing with. While it might continue to decline marginally over time, I expect the percentage will mostly get smaller because of growth outside of TF.

I think the probability of bankruptcy is pretty low. Itís pretty easy to see how accretive ATTO would be to almost any competitor so I think that would be the most likely scenario. The bonds arenít pointing to financial distress (trading above par) and there is almost no short position despite all of the obvious concerns.

Currency swings are a big issue over time given the debt is fixed in USD. They do hedge the debt when itís issued but that can only do so much. Iím bearish on the USD so I see it as another potential tailwind. From an operational perspective they are somewhat naturally hedged.

I could definitely be wrong and the PIK is not the dominant factor here. Iím definitely wrong more than I would like but itís the most logical thing I can think of. If the stock was at $6 today vs $3 ahead of this PIK announcement, my position would be a lot smaller. After the PIK, I might own more at $6 than I do today, all else being equal.

Gregmal

  • Hero Member
  • *****
  • Posts: 3882
Re: What are you buying today?
« Reply #4448 on: December 23, 2019, 02:04:16 PM »
Added a little CTO. Always amusing how the brainiacs at these "institutional" firms can be so stupid. Yea...great time to liquidate your funds position; 3 days before Xmas, during blackout... LOL dopes

Spekulatius

  • Hero Member
  • *****
  • Posts: 4976
Re: What are you buying today?
« Reply #4449 on: December 23, 2019, 02:20:08 PM »
Added a little CTO. Always amusing how the brainiacs at these "institutional" firms can be so stupid. Yea...great time to liquidate your funds position; 3 days before Xmas, during blackout... LOL dopes

I was looking at this stock for some year end dislocations, but there isn’t much volume. I don’t think their last acquisition indicates that management is selective about where to put their money either. Shopping malls in Jacksonville ?
http://ir.ctlc.com/file/Index?KeyFile=401493134
Life is too short for cheap beer and wine.