Author Topic: ATTO - Atento  (Read 15276 times)

Spekulatius

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Re: ATTO - Atento
« Reply #10 on: November 24, 2019, 12:33:50 PM »
FCF before interest is not going to get them very far with their debt load.. My rule to avoid stocks where managements uses moronic metrics seems to be vindicated when I look at ATTO.
Life is too short for cheap beer and wine.


SafetyinNumbers

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Re: ATTO - Atento
« Reply #11 on: November 24, 2019, 02:46:05 PM »
Yes, Atento is one of our fund's large positions. Wellington and other funds sold their positions and caused to collapse of the share price.  We talk with the new management and other large investors. Management understands that the company is trading at a significant discount (more than 100%). They will continue to return capital to shareholders, investing in growth and lowering leverage. They bought back ~3M shares in Q3, but we think it's the time for a large tender offer and we told that to the CEO. Based on our analysis of 13F database, we are very close to or at the point where there aren't big sellers. The company will continue to buy them out and to shrink the outstanding shares via a buyback or tender.

It's one of my biggest positions now too. I thought the investor day was very impressive.

We'll see how the Bain PIK bond works itself out but I think it's fascinating game theory.

SafetyinNumbers

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Re: ATTO - Atento
« Reply #12 on: November 24, 2019, 02:48:18 PM »
FCF before interest is not going to get them very far with their debt load.. My rule to avoid stocks where managements uses moronic metrics seems to be vindicated when I look at ATTO.

I don't think FCF before interest is a "moronic" metric. It just gives you an idea of what FCF yield on the EV is which some people find interesting for valuation.

Spekulatius

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Re: ATTO - Atento
« Reply #13 on: November 24, 2019, 03:46:46 PM »
FCF before interest is not going to get them very far with their debt load.. My rule to avoid stocks where managements uses moronic metrics seems to be vindicated when I look at ATTO.

I don't think FCF before interest is a "moronic" metric. It just gives you an idea of what FCF yield on the EV is which some people find interesting for valuation.

It is easy to make very wrong capital allocation decisions using this metric, like acquisitions that would be adding debt. I would hope that they don’t get paid using this metric.
Life is too short for cheap beer and wine.

Amitsham

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Re: ATTO - Atento
« Reply #14 on: November 24, 2019, 11:27:03 PM »
So, don't use this metric, value the company base on the levered FCF, at any case it is extremely undervalue.
The company is the largest CRM/BPO provider in Latin America and trading at above 50% discount to peers.
There is money on the table and someone will take it soon.


Amitsham

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Re: ATTO - Atento
« Reply #15 on: November 25, 2019, 08:19:38 AM »
"We apply a 2020E EV/EBITDA multiple of 6.0X, consistent with current valuation for Global CRM/BPO peers, yielding a theoretical M&A value of $7.0 per share" - Goldman Sachs, July 2019

SafetyinNumbers

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Re: ATTO - Atento
« Reply #16 on: November 25, 2019, 08:36:16 AM »
"We apply a 2020E EV/EBITDA multiple of 6.0X, consistent with current valuation for Global CRM/BPO peers, yielding a theoretical M&A value of $7.0 per share" - Goldman Sachs, July 2019

Who do they throw in their peer group?


Broeb22

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Re: ATTO - Atento
« Reply #17 on: November 26, 2019, 05:19:26 AM »
FCF before interest is not going to get them very far with their debt load.. My rule to avoid stocks where managements uses moronic metrics seems to be vindicated when I look at ATTO.

I don't think FCF before interest is a "moronic" metric. It just gives you an idea of what FCF yield on the EV is which some people find interesting for valuation.

It is easy to make very wrong capital allocation decisions using this metric, like acquisitions that would be adding debt. I would hope that they don’t get paid using this metric.

Isn't that true of probably any valuation metric? Is P/E ever misleading? Do firms with low multiples of owner earnings ever underinvest in equipment and new products and kill their golden goose? It happens.

I think what these folks are saying is qualitatively they like the company and they think it is cheap. It has a lot of debt, which makes it more like an option in my opinion, but attacking the use of EV/FCFF as a moronic metric even though its commonplace says more about the poster than the metric.


SafetyinNumbers

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Re: ATTO - Atento
« Reply #18 on: November 26, 2019, 05:48:52 AM »
FCF before interest is not going to get them very far with their debt load.. My rule to avoid stocks where managements uses moronic metrics seems to be vindicated when I look at ATTO.

I don't think FCF before interest is a "moronic" metric. It just gives you an idea of what FCF yield on the EV is which some people find interesting for valuation.

It is easy to make very wrong capital allocation decisions using this metric, like acquisitions that would be adding debt. I would hope that they don’t get paid using this metric.

Isn't that true of probably any valuation metric? Is P/E ever misleading? Do firms with low multiples of owner earnings ever underinvest in equipment and new products and kill their golden goose? It happens.

I think what these folks are saying is qualitatively they like the company and they think it is cheap. It has a lot of debt, which makes it more like an option in my opinion, but attacking the use of EV/FCFF as a moronic metric even though its commonplace says more about the poster than the metric.

The debt certainly looks worse post IFRS changes but it seems entirely manageable. At what point of leverage does the equity become an “option” in your view?

Spekulatius

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Re: ATTO - Atento
« Reply #19 on: November 26, 2019, 06:13:11 AM »
Moronic is probably too strong of a word , but Their FCF before interest is pretty misleading. It looks like after I retest, their FCF is close to zero.

They are in a crummy business ( call center etc) with a high debt loss operating in countries that are economically struggling with a high customer concentration. If their main customer ( Telefónica ) leaves, they are most likely toast.
Life is too short for cheap beer and wine.