Author Topic: ATTO - Atento  (Read 15277 times)

Amitsham

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Re: ATTO - Atento
« Reply #20 on: November 26, 2019, 06:47:10 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?

I don't know. Mybe SYKE, TTEC, SRT, TELEPERFORMANCE, CNDT


Amitsham

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Re: ATTO - Atento
« Reply #21 on: November 26, 2019, 07:00:54 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.

I agree that in 2019 we will see ~$0 of FCF.
I think they can generate ~$40M of FCF in 2020 (after interest). The Market Cap is ~$205M
For me, it looks undervalue and they have a plan to return capital to shareholders.
The debt was effected from IFRS16


cameronfen

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Re: ATTO - Atento
« Reply #22 on: November 26, 2019, 01:19:26 PM »
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.

I agree that in 2019 we will see ~$0 of FCF.
I think they can generate ~$40M of FCF in 2020 (after interest). The Market Cap is ~$205M
For me, it looks undervalue and they have a plan to return capital to shareholders.
The debt was effected from IFRS16

I looked at this company and reached the same conclusion as Spek.  Bad business too much debt.  Why will FCF improve significantly next year?  I didn’t research than in depth before moving on. 

SafetyinNumbers

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Re: ATTO - Atento
« Reply #23 on: November 26, 2019, 02:16:30 PM »
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.

I agree that in 2019 we will see ~$0 of FCF.
I think they can generate ~$40M of FCF in 2020 (after interest). The Market Cap is ~$205M
For me, it looks undervalue and they have a plan to return capital to shareholders.
The debt was effected from IFRS16

I looked at this company and reached the same conclusion as Spek.  Bad business too much debt.  Why will FCF improve significantly next year?  I didn’t research than in depth before moving on.

I think so. New management came in earlier in the year and made a bunch of investments which hurt FCF this year but should reverse next year and help margins. Also, they have made improvements to accelerate deployments and reduce DSOs which should reduce working capital requirements. Both of these things should help FCF.


Broeb22

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Re: ATTO - Atento
« Reply #24 on: November 26, 2019, 02:42:24 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.

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?

I guess I would say when the outcome becomes binary, like an option. Heads you win a ton, tails you lose everything.

Qualitatively I agree that the customer concentration in Telefonica makes this option like already, except in that respect it’s more like selling puts you kind of grind along never earning great returns until one day it’s worth zero. Not saying that’s what happens here...

I’m not saying positions like this don’t have a place in somebody’s portfolio, but I wouldn’t want to put a lot of my money in this.

Here are the areas where this sits on a knife’s edge:
Substantial USD debt with foreign cash flows
Substantial debt relative to cash flow...10 years worth of cash flow in debt is a lot of time to get back to a decent balance sheet whether it’s 3 or 5 or whatever many years of cash flow
Customer concentration
Business that is or easily could be disintermediated by technology

In the end it’s somewhat qualitative on what makes something option like.


Spekulatius

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Re: ATTO - Atento
« Reply #25 on: November 26, 2019, 03:25:54 PM »
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.

I agree that in 2019 we will see ~$0 of FCF.
I think they can generate ~$40M of FCF in 2020 (after interest). The Market Cap is ~$205M
For me, it looks undervalue and they have a plan to return capital to shareholders.
The debt was effected from IFRS16

I think sometimes in this cases, it helps to step back and look at the thesis a bit. If the thesis is that this is a 20% FCF next year, my immediate inclination would be too look at other stocks that have a similar FCF yield and we now they compare.

I actually did so a while ago and came up with 3 high FCF yield stocks back then - CX (cement), MPC (refinery, midstream) and BRY (packaging). I guess you could add ATTO tot his mix.

Then I ranked the 3 companies , based on my confidence that they would make their numbers and  my  perception of risk.

My ranking was BRY> MPC> CX. I admit it is entirely subjective of course, but I decided to buy BRY.

If I would add ATTO to this mix, it would probably dead last. Again, this is my subjective rating and to be fair, ATTO projected FCF yield is higher than BRY (~15%). I also want to point out they I did this a couple of month ago, when all these were priced lower.

Anyways , it may not worth going into details, but I think it is worthwhile  to look at other stocks that may sort of fit under the same thesis or umbrella so it speak. I always try to make a comparison of any investment and play out why I should buy X and not Y and Z. Often when I do that, I end up buying  Y or Z.
Life is too short for cheap beer and wine.

SafetyinNumbers

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Re: ATTO - Atento
« Reply #26 on: November 29, 2019, 08:26:23 AM »
I'm much more bullish on the company's prospects but I don't think we'll have a remotely clear picture of what the market thinks it's worth until the Bain PIK note negotiation is over.


SafetyinNumbers

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Re: ATTO - Atento
« Reply #27 on: December 05, 2019, 06:04:17 AM »
This acquisition by TELUS sparked my interest as I think it illustrates the divide between public and private market valuations at this time.

https://www.globenewswire.com/news-release/2019/12/04/1956543/0/en/TELUS-Corporation-announces-agreement-to-acquire-Competence-Call-Center-through-TELUS-International.html

TELUS International seems to compete in the high end of what ATTO does and probably doesn’t have a low margin legacy contract like ATTO has with Telefonica.

By my math TELUS paid about 13x EV/EBITDA and the pro forma business has margins of ~22% which are about double ATTO. If ATTO management is successful in getting EBITDA margins to 15% by 2022 and have revenues stabilized at say 1.6bn, what multiple would the private market be willing to pay for that?


Homestead31

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Re: ATTO - Atento
« Reply #28 on: December 09, 2019, 10:45:01 AM »
This has not been a good pick but has started to show some signs of life lately.

I theorized about a potential dividend earlier in the year but instead a new CEO came in and shelved the dividend and buyback until he assessed the situation. In August, they decided to renew the buyback which is over 30% of the float (higher when they announced it). This seems to have recently started to impact the stock although we won’t know how active they have been until November. I believe they have bought at least 2m shares back.

I recently learned that Bain (the controlling shareholder) issued some PIK Notes that are due in 2020 that use the ATTO shares as collateral. This might be incentivize to sell their shares but selling the whole company would get a bigger premium.

Can you share any documentation you have seen around those Bain PIK notes?  i have been looking on sec.gov for the source docs that describe the arrangement, but haven't been able to find?

thanks

SafetyinNumbers

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Re: ATTO - Atento
« Reply #29 on: December 09, 2019, 12:23:51 PM »
This has not been a good pick but has started to show some signs of life lately.

I theorized about a potential dividend earlier in the year but instead a new CEO came in and shelved the dividend and buyback until he assessed the situation. In August, they decided to renew the buyback which is over 30% of the float (higher when they announced it). This seems to have recently started to impact the stock although we won’t know how active they have been until November. I believe they have bought at least 2m shares back.

I recently learned that Bain (the controlling shareholder) issued some PIK Notes that are due in 2020 that use the ATTO shares as collateral. This might be incentivize to sell their shares but selling the whole company would get a bigger premium.

Can you share any documentation you have seen around those Bain PIK notes?  i have been looking on sec.gov for the source docs that describe the arrangement, but haven't been able to find?

thanks

I haven't been able to find much but I included some references I found below. My understanding is that all of the proceeds from the IPO for shares sold by Bain and from the secondary sold by Bain were used to reduce the loan outstanding. I have been told the PIK rate is 13% but I haven't been able to corroborate that. My math suggests, Bain starts to participate in returns once the share price is over $8-8.50.

Details from page 163 of the final prospectus filed on 10/3/2014
PIK Notes due 2020

"On May 30, 2014, PikCo, our parent company, issued €137.5 million and $191.5 million aggregate principal amount of PIK Notes pursuant to an indenture, dated May 30, 2014, among PikCo, as issuer, Topco, the direct holding company of PikCo, as security provider, Citibank, N.A., London Branch, as trustee, security agent and paying agent, and Citigroup Global Markets Deutschland AG, as registrar, governing the Senior PIK Toggle Notes. The PIK Notes are senior secured obligations of PikCo and are not guaranteed by any party.

The PIK Notes will mature on May 30, 2020. PikCo may decide in its sole discretion to pay all or a portion of the interest payable for any interest period in cash or in kind.

The indenture governing the Senior PIK Toggle Notes contains covenants that, among other things, restrict the ability of PikCo and certain of its subsidiaries, including us, to: incur or guarantee additional indebtedness; issue, redeem or repurchase certain debt; issue certain preferred stock or similar equity securities; make loans and investments; sell assets; incur liens; enter into transactions with affiliates; enter into agreements restricting certain subsidiaries’ ability to pay dividends; and consolidate, merge or sell all or substantially all of its assets. These covenants are subject to a number of important exceptions and qualifications. In addition, in certain circumstances, if PikCo sells assets (including a sale of capital stock to third parties pursuant to a public equity offering or otherwise), or experiences certain changes of control, it must offer to purchase all or a portion of the Senior PIK Toggle Notes at a price equal to par plus a premium."

Details from the 20-F filed on 3/31/2015 page 86

A proportion of the PIK Notes were redeemed at the time of the IPO, amounting to 24,368,574.97 of the EUR tranche and 33,747,581.60 of the USD tranche.