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Of the multiple sub-prime lenders I follow, RM, ELVT, and ENVA are holding up pretty well in a big down day for the markets.
RM, ELVT and OMF all trade at 6-6.8x forward earnings (FY20). CURO is at 3.3x and ENVA is at 5.4x.
I own CURO and ENVA.
ENVA is reporting this week; I expect the stock to rally a bit into earnings....they haven't warned, jobs at the lower end of the spectrum seem plentiful, and they have a history of beating guidance and estimates.
CURO reports next week and I expect the same results....but ENVA's outlook will probably be a key tell for CURO. I assume that CURO's weakness is likely due to the remaining shares from FFL being placed somewhere; if that overhang gets cleared out there isn't any reason why this shouldn't be trading in the 15s immediately, and perhaps up into the 18s if valued similarly to its competitors.
RN, re CURO. The short answer as to why the decline after stellar earnings is that one of the largest shareholders (FFL - a private equity fund) sold off a large chunk of its holdings in the 14s.
FFL still holds roughly 10% of the outstanding shares.
They are likely sellers in the 14-15 range, but the stock is quite cheap at current levels. The forward estimates probably don't include the recent accretive acquisition of Ad Astra, which could add another 0.08 - 0.10/sh to FY20 estimates. At its current price around 10, you have a stock that is trading at 3.25x PE. Other competitors in the space have forward valuations of 5x eps.
The recent decline from yesterday was in response to one of the analysts lowering his price target on CURO to 15 (from 18).
HX has a good Q1 earning report and maintains its guidance for FY19, BUT, they are forecasting a loss for Q2. Lots of their smaller investors pulled money from the platform after other P2P lenders went under. Many of these investors are taking a "wait and see" approach until the sector stabilizes, and that, in turn, has impacted the company's ability to make new loans.
Stock could go either way in the short run, but I still think its a decent LT hold. Demand for higher interest rates and access to loans aren't going away in China. Increased regulation will force out many of HX's competitors and that will allow them to grab market share....but it could take a while for confidence to re-emerge.
If HX can hit the low end of its guidance, that means they expect 2H net income of at least 97MM US (about 0.92 eps/qtr) . Seems a bit aggressive, but they haven't disappointed on guidance...yet. I am surprised they didn't guide lower.
ER: https://finance.yahoo.com/news/hexindai-reports-unaudited-first-quarter-101900854.html
I'll be closely watching the earnings report of HX this week. Hexindai (HX) is a Chinese peer-to-peer (P2P) lender that focuses on medium size loans (~$12,700 avg) to middle and upper middle class borrowers who don't have access to bank loans.
Last year, ending in March 2018, they reported Net Revenues of 107MM up from 22.9MM in the year earlier. Net income soared from 8.6MM to 65.5MM (taxed at 14.5%). FD eps rose from 0.20 to 1.37.
The company has been publicly traded since October 23, 2017.
For those not familiar with this industry, its an interesting combination that offers higher interest rates to lenders (typically individuals, but a growing number of institutions) and then HX lends that money out to borrowers at interest rates that are now capped at 28% APR). Loans that are not repaid are covered under insurance at a separate firm, so HX does not have to reserve for bad debt. Borrowers and lenders pay a fee to the insurance company in addition to the interest expense. They were out in front on this issue, as other P2P Chinese lenders have had to convert their platforms over to this structure as per new govt regulations.
The company has guided for the following:
Three Months Ending June 30, 2018
· Total loans facilitated will be in the range of US$460.0 million to US$510.0 million.
· Net revenue will be in the range of US$51.0 million to US$56.0 million.
· Adjusted net income will be in the range of US$26.0 million to US$29.0 million.
Fiscal Year Ending March 31, 2019
· Total loans facilitated will be in the range of US$1.9 billion to US$2.1 billion.
· Net revenue will be in the range of US$240.0 million to US$260.0 million.
· Adjusted net income will be in the range of US$115.0 million to US$127.0 million.
Using the FDS count of 53.3MM shares from Q4 2018, that would equate to Q1 eps of 0.49 - 0.54, and FY19 eps of 2.15 - 2.37.
At a current price of 8.30, that would be <4x forward eps growth. The company does pay a dividend based upon 15%-25% of net income; Book value is around 2.62; EV/EBITDA valuations (TTM) are at 3.9x so its cheap!
YRD is the best comp for the company, and is another stock I own and recommend, but its been on a tear lately. YRD trades at forward multiples of 6-7x
The entire sector has been tarnished by a number of smaller Chinese P2P lenders that have been unable to pay back their investors and collapsed without warning, triggering a national outcry and a crackdown by regulators. Long-term, this should benefit the larger and better capitalized companies in the industry like YRD, HX and PPDF. I think all three are good LT holds.
Really it is all about my 20% sector rule....
Good suggestion! Forces one to limit exposure to only your best ideas and improve diversification. What's your max limit on one position as a % of the total portfolio?
I tend to go a bit higher than 20% allocation to a specific sector, but I guess it depends on how broad (or narrow) the definition is, and why the sector has sold off.
David Tepper had almost 25% of his fund (Appaloosa) in MU as of the end of Q2. Ouch.
Having said that, I think its a decent contrarian plan at 40-41 for a bounce. I bought a starter position today in MU for a trade.
I think it fills the gap at 42.35 soon.
nice to see the homebuilders get a lift today. One of the most confounding sectors I've been invested in.
All they do is beat and raise, have record backlogs, growing margins and analysts that project earnings growth out over the next 3 years.
And they trade at 52 week lows and forward 5x PEs and below book value!
Long CCS, MHO, LGIH, PHM, LEN, WLH
Also long suppliers too: BLDR, BECN
Agreed, cliff. This is selling by those who are pricing in a contraction coming in 2019-2020. There is no sign of any problem with CCS in the current numbers. I thought it was a great report: backlog way up, net new orders strong (even adjusting for acquisitions), pretax margins higher y/y. The analysts here are much too conservative with their eps numbers, and I think the company will earn close to 4.57/share in FY18 (GAAP).
The bearish case would say that FV is only 7 - 7.5x that number because 2019 will be as good as it gets....i guess.
Frustrating, because the growth is very strong at present and fear of slowdown is high because of rising rates and a hint of a slowing in mid Q2 for several homebuilders (which CCS said it did not feel)
ASP of units in backlog is coming down, but that is because the homebuilder they acquired (Wade Jurney) sells much cheaper homes than the average CCS community. Profit margins are very similar, however.
The fear on FTSI is that a massive amount of its shares are coming off their lock-up restriction in early August:
From the Feb IPO:
Sales of Restricted Shares
Upon completion of this offering, our 69.258777:1 reserve stock split and the recapitalization of our convertible preferred stock, we will have issued and outstanding an aggregate of 106,349,564 shares of common stock, based on the initial public offering price of $18.00 per share, assuming no exercise of the underwriters' option to purchase additional shares, and no exercise of options after such date. For additional information regarding the recapitalization of our convertible preferred stock, see "Description of Capital Stock." Only the 19,500,000 shares sold in this offering will be freely tradable without restriction or further registration under the Securities Act, except for any such shares purchased by our "affiliate," as that term is defined in Rule 144 under the Securities Act. Except as set forth below, the remaining 86,849,564 shares of common stock outstanding after this offering will be "restricted securities" as such term is defined in Rule 144 under the Securities Act and may be subject to lock-up agreements. We expect the remaining shares will generally become available for sale in the public market as follows:
•
977,935 restricted shares will be eligible for immediate sale upon the closing of this offering;
•
85,871,629 shares will be eligible for sale upon expiration of the lock-up agreements 181 days after the date of this prospectus, subject to any volume and other limitations applicable to the holders of such shares; and
•
76,396,159 shares registered in accordance with the terms of the registration rights agreement. See "—Registration Rights Agreement" below.
The numbers above do not reflect any shares of common stock that 5% stockholders, directors and executive officers may purchase through the directed share program or otherwise through a directed allocation of shares in this offering that will be subject to a lock-up agreement.
------------------------
Clearly, the shares look very cheap at the current levels. I'm just watching from the sidelines right now as I'm not sold on the LT growth prospect here...but this could/should get at least 4-5x multiple on fully taxed eps? Probably need to wait until we get through August to start buying in, just MHO.
Thanks Nelson! Was not aware of that....
Have seen studies that show that stocks kicked out of major indexes often do better than average. Not what you would expect.
Nelson, re SQBG. Interesting block trade Friday afternoon after hours; just over 3MM shares were traded at 1.74.
No news yet on the debt refi that had been expected to be announced during Q2. Given that the quarter is nearly over, I think that might have been why the seller dumped their shares. Frustration over the lack of actionable catalysts from management?
I'll be watching to see the reaction today and if there are any subsequent filings that might explain the action. (And who might have bought the shares.)
Best,
Market is on Fed watch right now. Announcement on int rates due this afternoon, so the "playbook" is to sell this sector ahead of the fact because of fears of the impact of rising rates on demand.
SQBG...still own it, although I sold some in the 2.30s. Last Q came in as expected. The first half of the year will be challenging in terms of rev and eps comps.
Next two catalysts to watch for:
a) Debt refi announcement, hopefully this month. That could have a immediate positive impact on margins and eps growth.
b) Easier y/y sales and margin comps starting in Q3.
Decent EV/EBITDA multiples, but not mind-blowing cheap. Somewhere around 7 to 7.5x using adjusted EBITDA
Adjusted eps numbers are largely untaxed. New accounting rules also impacted Q1 by 0.02, otherwise they met the analyst eps number of 0.08 (vs. 0.09 y/y)
Think it should be trading in the low to mid 2s. Your thoughts?
I think the sell-off today of the homebuilders is overdone. I realize that they have a bit more headwinds now than before, esp with int rates rising and some commodity inflation, but they are as cheap as I've seen them. This feels like shoot first....virtually all of the builders I follow have reported record or near record backlogs, rising orders, rising ASPs and margins that are only slightly impacted by rising costs. Nothing that I can see on the near or intermediate term horizon that shows that any of the headwinds have filtered through in a major way to change the trend. It could mean that demand and sales/margins in 2+ years may be hurt, but selling now seems way too early.
MHO is at book value and has record backlog and orders as of March. NWHM is below book and has a share buyback in place. CCS, WLH, LGIH, TPH...all look really cheap based on earnings growth and reasonable forward PE multiples.
Its hard to step in front of the train on these; if you buy here, you would have to like contrarian and out-of-favor stocks/industries. That's often the best time to buy.
JB Capital now owns over 10% of PCMI. A form 3 filed this evening from partner Alan Weber shows that JB Capital now holds 1.18MM shares.
Mr. Weber purchased 30,500 shares himself on April 6 at 8.07/share.
As recently as January 24, they only held 636k shares, so the fund added 544k shares in less than 3 months.
The founder of CAI died two months ago:
http://www.secinfo.com/d13ACs.k369.d.htm
This led to the selling of 1.25MM shares from his Trust into the market.
The family still retains a sizable chunk of shares. As per the 2017 proxy, Hiro Ogawa held 3.9MM shares of stock (roughly 20%) and was the single largest shareholder.
I think until this stake is disposed of or the family decides how many shares it will retain, the stock may remain under pressure.
CAI also pays a very low tax rate compared to TRTN, so that also has to be factored in to some degree.
Are those GAAP eps? If so, given the impacts from tax law changes and charges that companies have been taking on their Q4 income statement results, I don't think TTM eps numbers will be especially helpful this year. Arguably, the smaller companies should benefit the most from changes in the federal corporate rates since most of them operate primarily in the US.
Also, what about non-cash items like Stock comp exp, amortization charges, one-time exp/inc....??
Nothing new to report on SQBG, Tika1. Its getting sold off at the year end because a) its in the retail sector which has been shorted heavily this year and b) tax loss harvesting from longs. Reported adjusted y/y quarterly eps growth was disappointing in Q3, but the debt overhang of 600MM is what many may be focused on. The 9 mos YTD adjusted eps figures were much better, showing strong growth. The glass is half full or half empty depending upon your focus.
We'll see what happens going forward. I expect it to be limited to the upside until the debt refinance occurs during Q1 18 and we get a bit more clarity on FY 18 expectations. Technically, it probably needs to retest that 1.40 level again and hold for some other buyers to come in.
The stock is just below the range where there was a lot of insider buying after the last Q earnings report, so if you are contrarian and like to follow the insiders it might be a good entry point.
Agreed on SQBG. I think the debt refi concerns are overblown, and a deal should get done in Q1 of next year, which will help lift ST liquidity concerns and may even help reduce interest expense somewhat.
CHKE, which is arguably in worse financial shape, just got extended by their creditors and its stock jumped over 50% the next day. The fear there was that CHKE was going to have to issue stock for cash. Still a concern, but not immediately. The stock has drifted lower since then, reflecting the difficult and murky outlook.
Beigledog, here are the transcripts for prior SQBG CCs:
https://seekingalpha.com/symbol/SQBG/earnings/transcripts
Seeking alpha is a great resource for this!
What adjusted EBITDA number are you using? They are guiding for 95 - 98MM for 2017, and the net debt is 614MM, so that would mean about 6.5x levered. I don't have the TTM figure handy.
Better transparency of online sales would be really helpful. They've been asked this question a few times on previous calls and the most recent Q3 call as well. Its a small but growing portion of their sales and marketing focus, and they know they need to bulk this up.
------------------------------------
Camilo Lyon
Thanks. Good morning everyone. I was hoping you could just talk about how the e-commerce portion of your sales are unfolding in your key brands? And what the outlook is for the international growth component of those key brands as we go into 2018?
Karen Murray
Hi, Camilo, it’s Karen. So, even on the last call, we talked about the digital and the international opportunities and I still believe they are by far the biggest – one of the biggest opportunities that we have within Sequential with each and every one of our brands. Digital to be specific, we are looking, as I stated last call to bring in some new talent that really has expertise in this area.
We are getting close to announcing some new hires. It’s an opportunity for all of our brands because, as you know, we are underpenetrated in the digital area. We continue with a three-pronged approach. The first one is, really figuring out a way that each and every one of our brands are represented in the right way on Amazon and they are all moving forward and building their partnership with Amazon.
In addition to that, we continue to grow with all of our retail partner sites, such as Macys.com. And the third opportunity is really building out branded ecommerce sites. So, again, three opportunities to grow in the digital space as well as really focusing in on all of our brands and ensuring that we have a digital strategy that makes sense for substantial growth in the future.
As far as, international, that also is an area that is underpenetrated, but I believe is one of our biggest opportunities, probably even more so than digital at this point because of the fact that, we again are hiring some key talent to help us figure out the roadmap to grow our brand.
We have tremendous opportunity with the Martha business and bringing that to Asia and building that brand, we already are in dialogue with Alibaba in a substantial way. We are doing Macy’s through T-Mall. But there are many opportunities to grow our brands, specifically in Asia. But globally as well. So, big opportunity for us.
Thanks Nelson.
Another insider buyer for SQBG is Al Gossett, filed today.
He bought 200,000 shares on 11/14 at prices ranging from 1.66 - 1.70
Huge accumulation going on by the insiders in SQBG. I count nearly 734,00 shares bought by five different individuals during 11/13-14. That's 1.2% of the shares outstanding, and they may not be done!
Not sure if everyone saw this article yesterday in the WSJ, but its alarming if accurate:
The New Tax on Stock Investors Hidden in the Senate Tax Plan
Provision would require investors to sell older shares before selling those more recently purchased
A provision in the Senate tax bill would require investors who are selling partial positions to assume that lots of securities bought at different prices are sold on a “first-in, first-out” basis. Photo: aaron p. bernstein/Reuters
By Laura Saunders
Nov. 14, 2017 12:14 p.m. ET
48 COMMENTS
Some of the largest fund companies in the country are pushing back against a little-noticed provision in the Senate tax bill they argue will cost investors millions.
The provision would prevent investors from minimizing taxes by choosing the specific shares that are being sold when they sell part of a position. Instead, investors would have to sell their oldest shares first.
If the provision becomes law, “markets will work less well. Our fund managers will have their hands tied, and our shareholders will owe more in taxes,” said Thomas Faust, chief executive of Eaton Vance Corp., a fund firm that manages more than $419 billion.
The provision included in the Senate bill requires investors who are selling partial positions to assume that lots of securities bought at different prices are sold on a “first-in, first-out” (FIFO) basis. The provision would affect “passive” index funds and exchange-traded funds, as well as actively managed ones.
“Vanguard is concerned with language that requires funds to sell their oldest shares first—mostly likely increasing significantly the amount of taxable distributions made to investors every year,” a Vanguard spokeswoman said in a statement.
Here’s how the provision works: Say an investor owns two lots of one stock bought at different prices, and they are held in a taxable account rather than a tax-deferred retirement account. If the stock is trading at $100 now, each share acquired five years ago for $60 would have a $40 taxable gain.
But each share bought two years ago at $110 would have a $10 loss.
Current law allows investors, including fund managers, to choose which shares they part with. So selling shares bought for $110 would yield a loss that could offset other gains, while selling shares bought for $60 would produce a taxable gain.
If the provision takes effect, the first shares sold would be deemed to have a cost of $60 each, and an investor couldn’t sell the $110 shares until all $60 shares were gone. The change would take effect for sales in 2018. It is estimated to raise $2.7 billion over 10 years.
Supporters of the change say it would simplify a complex record-keeping issue. “Having all these choices is harmful to taxpayers and to the tax system,” says Steven Rosenthal, a tax attorney now with the Tax Policy Center. The summary does contain language that seems to allow fund investors using “average cost” to continue. The wording of the statute isn’t yet available.
The proposed change would affect individual investors who have taxable accounts and holdings of one security bought at different times as well as funds.
The provision would make it more difficult for investors to “harvest” losses by selling specific shares that have gone down in value. Many investors consult their adviser’s annually about such sales.
It would also affect taxpayers’ ability to maximize the value of charitable donations of appreciated securities.
Under current law, taxpayers often don’t owe long-term capital-gains tax on shares they donate while getting a deduction for their full market value. The best shares to give may not be the oldest shares they acquired.
“People who want to maximize tax savings by donating specific lots that aren’t their oldest ones should do it before year-end,” says Robert Gordon of Twenty-First Securities, a tax strategist in New York
Write to Laura Saunders at laura.saunders@wsj.com
SQBG - more insider buying reported yesterday, also from Nov 13.
Karen Murray, CEO
Bought for her spouse
33,370 shares at 1.48
http://www.secinfo.com/d12TC3.k1PP1.htm
Gary Johnson, Director
10,000 shares at 1.54
http://www.secinfo.com/d12TC3.k1PPu.htm
SQBG CEO purchased 62,500 shares yesterday at 1.47.
http://www.secinfo.com/d12TC3.k1P57.htm
The analysts following the stock have all downgraded it, so that must mean its time to buy...LOL. I'll take it as a good sign, but will be mindful of the debt refinance risk (i.e. the need to issue stock for cash)
My adjusted fd eps for the company this year is 0.37, taxed at 35%. The lowest analyst estimate for non-GAAP eps is 0.44 in FY17.
https://finance.yahoo.com/quote/SQBG/analysts?p=SQBG
The stock trades at 1.60, so a lot of risk is priced in at the moment. Could be a decent play for a January recovery once the tax loss sellers are done.
Thanks for that info on ICON. Relative to SQBG, its LT debt payment schedule doesn't ramp up significantly until 4-5 years from now.
Here is the relevant info from the 10K:
Payments Due by Period
Contractual Obligations Total Less than 1
Year 2-3 Years 4-5 Years After 5
Years
(in thousands)
Operating leases $ 13,443 $ 7,390 $ 2,367 $ 1,583 $ 2,103
Capital leases 230 230 - - -
Guaranteed payments in connection with acquisitions 12,002 4,300 6,500 1,202 -
Long-term debt obligations:
2016 Term Loans 582,500 28,300 56,600 124,100 373,500
2016 Revolving Loan 80,500 - - 80,500 -
Total $ 688,675 $ 40,220 $ 65,467 $ 207,385 $ 375,603
Wow, must be an institutional seller today. Hard to step up and buy more here since I'm down a bunch on this one....but it does look compelling at the current price. I'm not selling either.
Specialty retail has been a disaster sector this year...a real house of pain.
One can hope, but its a big miss. They explained the top line miss (around 4MM) as being due to deals that didn't close when expected and also because of a Heelys distributor issue. Adjusted earnings were also light, likely due to margin compression and a tough y/y comp.
They still expect to close on their refinancing in Q1 of 2018 which should provide some savings next year.
Guidance provided on the call was for mid to high single digit rev growth and low to mid single digit growth in adjusted ebitda.
Looking ahead to Q4 2017, the company's mid range guidance for FY17 would put them at 46.4MM in revenues.
A similar margin profile as in Q3, would put their adjusted EBIT (i.e. pretax) at around 0.12/share.
My own adjusted, ft, fd eps number for SQBG is around 0.33 for FY17.
Well, I certainly think the SQBG debt is manageable via their cash on hand and projected cash flow through the second half of the year, which is the strongest part of their calendar year on a seasonal basis.
The debt issue was addressed on the last CC, including the timing of a potential refinancing of the current LT debt which has a relatively high interest rate of ~9%/yr (29.4MM in int exp for first 6 mos of FY17; avg debt of 639MM over the same period)
Taken from the 2017Q2 call:
https://seekingalpha.com/article/4092226-sequential-brands-groups-sqbg-ceo-karen-murray-q2-2017-results-earnings-call-transcript?part=single
Dave King
Great to hear. And then I guess last one for me. All right. In terms of the free cash flow guidance that you outlined, the $41 million to $45 million, do you have -- what, do you expect that to be on a GAAP basis. And then in terms of refinancing, is the thought still to look to reduce the interest rate primarily? Or is the plan also do try to bring down that balance to some extent as well. I guess, what are the current thoughts because it sounds, Karen, like the plan is still to try to be somewhat acquisitive to the extent you're afraid to do so with the debt facility. Thank you
Gary Klein
Hey, Dave, it's Gary. So I'll start with cash flow. So again, we're focusing on what we call the adjusted free cash flow just to get it lined up better with our licensing business, which we said is approximately $40 million to $44 million. And that's where we're focused. So if you look at where we are year-to-date, $16 million on the GAAP statement. So -- and we've said that $4 million of it is reduced because of the change in balance sheet items because of deferred revenue, I mean that we collected it in 2016 and that's why we're a little bit lower this year. And the thought [ph] for us to completely estimate that because as we get to the end of this year, we're going to do the same thing. We're going to try to collect minimums that are going to be recognized in 2018, we'll try to collect them this year. So that's why it's a little bit harder for us to give the exact GAAP number, other things slide into it such as collections of AR and payments on AP.
So again -- and we feel good about the number of $40 million to $44 million on the adjusted free cash flow. And again, the GAAP, it will be in that range on how well we do with collecting minimums early and collecting on AR.
Andrew Cooper
Okay. And on the capital structure, we've talked about that a lot in the past and from a timing perspective, just 1 comment there. Of course, we have the make whole in our current arrangement that goes through September 30th and then we've prepayment penalties that drop down. So by the first quarter of 2018, we're in a better position to working with our current lenders and on refinancing alternatives and executing something in early 2018. So we still have that same time line in mind, and are working behind scenes on preparing the company to pursue those alternatives.
As far as the ultimate objectives of it, we really want to identify -- we really want to optimize our capital structure. And as we get towards concluding that process, we'll determine exactly what it's going to take in order to get to that optimal level and reduce our interest rate. So that could go in a couple of different directions in terms of total leverage, but we'll keep everyone posted as we progress through that over the next six months.
===========================
So, managing the debt and refinancing it could be a very big deal for the bottom line. If they can cut their 9% interest rates to approx 5%, a reduction of 400 b.p., they would cut their pretax interest expense by $25MM annualized. With 63MM fds outstanding, that would increase eps by about 0.40/share pretax, and 0.26/share using a 35% proforma tax rate.
If the company can get close to its EBITDA targets for the end of 2017, the stock at $2.35/sh trades at a little over 7x EV/EBITDA. Maybe its not screamingly cheap on that basis, but then again, the company doesn't have a need for inventory or plant and equipment...it merely licenses its brands. It could easily chop more expenses (reduce staff, optimize advertising) to maintain margins and boost cash flow.
Will be very closely watching SQBG this week. They report their Q3 on Thursday AM, and analysts are expecting non-GAAP eps of 0.14, a pretty big number for a stock trading at 2.35.
Because its part of the retail category, its been hit very hard this year even though it exceeded estimates for the last quarter and they haven't warned since. The big brand they hold is Martha Stewart, but they own a few other recognizable names as well:
We own a portfolio of consumer brands in the home, active and fashion categories, including Martha Stewart, Jessica Simpson, AND1, Avia, Joe’s Jeans, GAIAM and Heelys.
The company has decent cash flow, is paying down debt and is very likely to refinance some high interest debt in early 2018 to help margins. GAAP numbers have been impacted YTD by restructuring, losses on investments and CEO transition costs. I think the 0.52 consensus estimate (non-GAAP) is a bit high and uses a lower tax rate, but I still calculate their non-GAAP fd eps range as being in the 0.39 - 0.43, taxed at 35%. With any kind of growth expected in FY18, I'm hoping that investors will re-examine names like SQBG and perhaps give them a higher multiple than they currently are getting.
I think this is an excellent hold into earnings and a great moment to be bottom fishing at a 52 week low. End of year tax selling from institutions and individuals might persist through December, but I think with any luck this is a decent bounce back candidate assuming they can demonstrate some kind of growth prospects for FY18 earnings. (Shouldn't be that difficult to do with their type of operating model.)
I started a position in RWM (the inverse ETF of the R2000) at the close today. Will be gradually adding to that if it continues to go down from here, but I expect a 2-3% fall in the Russell very soon. I haven't seen the Russell this overbought since the end of November 2016. Back then it fell about 2.9% over the next few days
And that in addition to doing a bit of trimming in some longer term winners today. (MU and MGA)
Mermelstein, you are misunderstanding the concept of EV and its relationship to EBITDA. If you are going to include the net debt in EV, then you have to include the debt service payments as well in EBITDA.
Otherwise, you are creating a different metric that isn't really useful in comparing companies across different industries.
If SQBG is able to hit their targets for adjusted EBITDA (adjusted for CEO firing expenses) by year end, they would be trading at an EV/EBITDA of around 8x, assuming the stock stays at its current price of $2.65 and no substantial changes in net debt. As you say, its not dirt cheap but I would definitely not call this company "expensive"
Sskillz, I agree with your logic on non-GAAP earnings and eps.
The tax rates used by a lot of companies and posters widely vary and its definitely one of the most abused parts of the metric.
Another good way to verify relative value is to use a different measure like EV/EBITDA or at least pair it with your non-GAAP earnings number to see how net debt levels and cash flows are impacting the company vs its other comps in the industry.
In general, the lower the EV/EBITDA ratio, the cheaper the company is and more likely to be an acquisition target.
I've been a buyer of SQBG today at current levels. Its certainly getting hurt by blowing through levels of technical support AND being in the brutal retail sector, which has just been decimated this year.
The eps estimates aren't fully taxed, and its not clear what tax rate the analysts are using. Even if you assume its untaxed (which I don't), the adjusted eps number would be 0.34. My own estimate using company guidance is for a range of fd, ft (35%) adjusted eps of 0.39- 0.43, if you exclude all depreciation/amort and 0.34 - 0.39 if you don't.
I think FV is closer to 4.50, not 2.50 but I've been wrong about where the bottom is on this one so far. This is a case of a few (?) big sellers out there overwhelming any buying activity. Fundamental trends and guidance from management isn't lining up with what the stock action is doing. Buy the fear? Or sell and wait for clearer visibility?
Yes, the tax rate was close to 75% of adjusted pretax.
Seems crazy high to me, so I wanted someone else to check my math. I did find a BAML analyst note on the subject:
In-line quarter based on CFPS
SWN reported adj. EPS / CFPS of $0.08 / $0.50 compared to consensus of $0.15 / 0.49 (BofAML of $0.09 / $0.50) after we add back our capitalized interest estimate to our operating CF. Based on CFPS, we see the quarter as in-line. The earnings miss versus the Street we see as likely due, in part, to the treatment of the mandatory preferred.
Production of 222 Bcfe was in the lower half of guidance (220-225 Bcfe); sequential growth of 8% was driven by NE PA (up 10% qoq or 99 mmcfe/d) followed by SW Appalachia which hit a new record level of 500 mmcfe/d in June with production averaging 472 MMcfe /d during the quarter (up 19% qoq or 77 mmcfe/d). FY production and capex guidance are unchanged at 2%-4% and 1,175-1,275mm, respectively.
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I think that is part of the story, but they should have gone through the tax portion of the non-GAAP breakdown more thoroughly. I'll check the CC transcripts when they are available, missed the call this AM
You can derive the non-gaap tax rate for SWN, but you have to back in to it the way I explained, by starting with GAAP pretax and then looking at the pretax adjustments they provide in the PR to arrive at non-gaap pretax income.
They provide the non-gaap net, so the difference is the non-gaap tax assumption.
That is complicated in SWN's case because of the valuation allowance accounting rules and the presence of the mandatory convertible preferreds.
SWN. Anyone check the math on the adjusted net income used for the Q2 eps of 0.08? I'm having a hard time reconciling the proforma tax rate they used....seems like a very high tax to me.
If they had used a 38% rate the adjusted net income would have been a lot higher, along with eps. I also excluded any impacts from the converts on the net income and assumed their full conversion into stock, using a fd share count of nearly 580mm.
Ex:
GAAP Pretax: 284 (in MM)
Less net gain on derivatives -134
less gain on sale -2
plus loss on debt ext +10
less inventory valuation -1
==============================
Adj Pretax (non-GAAP): 157 MM
Adj Net: 40MM
PF tax rate: 75%
If they had used a 38% tax rate, the quarterly net (adj) would have been 97.34MM
FDS (GAAP): 498.2MM
Add the mandatory converts: 80MM
ADJ non-GAAP fds: 578MM
ADJ non-GAAP fd eps (ABH): 0.17
I must be missing something.....
I think one of the analysts that follows PCMI dropped his estimates for FY18 by a lot, so the consensus figure is now below FY17.
https://finance.yahoo.com/quote/PCMI/analysts?p=PCMI
That is a pretty big negative swing. I don't have any other details; I would caution readers that sometimes those eps estimates can be typed in wrong.
Re: SQBG. The OCF numbers improved dramatically in Q1 2017 vs last year, and the company used that improved cash flow to pay down debt by $7MM and repurchased $1MM worth of stock during that quarter. Q1 OCF was +13.4mm vs +6.8MM a year ago.
The bulk of the difference between GAAP and non-GAAP pretax income in 2017 was the cost of the former CEO being fired.
You are right that much of retail ex-Amazon is down in the dumps right now and investors are in a "show me" mode. If SQBG is able to reiterate their guidance for the 2nd half of the year, this could trade in the mid 4s.
I have a decent position in SQBG, the company that owns the licensing rights to the Martha Stewart brand, as well as a few other retail licenses.
They have partnered with Amazon Fresh to help deliver the Martha/Marley Spoon meal kits, which is at the heart of the patent dispute announced today between Amazon and Blue Apron.
http://www.marketwatch.com/story/blue-apron-shares-sink-after-amazon-files-meal-kit-patent-2017-07-17
I use both services and like them both a lot. SQBG is really cheap on an adjusted forward PE basis, but has been beaten up like virtually all retail excluding Amazon this year. Partnering with Amazon is a smart move in this competitive space, although the meal kit delivery business is not broken out separately so its hard to know how profitable the licensing stream is. The company has been through the some rough patches in the past year, reducing guidance from a year ago and then firing the CEO with little warning earlier this year.
The second half of the year is the strongest for SQBG, and the comps should be pretty good on an adjusted, fully taxed, fully diluted basis.
Yes, they will show taxes on the GAAP income statement, but pay minimal cash taxes. That GAAP tax rate they show on the income statement should be close to the statutory rate, but its not what they will pay in actual cash.
Usually the taxes paid (in cash) is revealed in the operating cash flow statement. It can be far lower than the statutory rate.
They should report a big non-cash "gain" on the income statement due to the recognition of the deferred tax asset (i.e. bringing it on to the asset side of the balance sheet) that had formerly been an off-balance sheet "valuation allowance" used to offset taxes on the GAAP income statement. Over the next few years, they will pay down this asset, using it to offset cash taxes, even as they show a normalized tax rate on the income statement. It improves their balance sheet initially, but it impacts the GAAP income statement, making the reported GAAP PE higher in the future.
The use of valuation allowances and the difficulty of figuring out what Nelson discussed (i.e. when it is more likely than not that the company can fully use the NOL/valuation allowance) is the primary reason that I typically ignore what is on the income statement and use my own pro-forma tax rate. Just assume its gonna happen at some point.....
You can see why many investors find the income statement virtually useless these days with all the non-cash charges from options, intangible asset amortization, onetimers, and odd tax rates. Its why the EV/EBITDA ratio is used so extensively to value companies across different industries.