Valuation: Valeant

I took the latest news and the decline of the Valeant stockprice as reason to make a fundamental analysis of the company and calculated what the business is probably worth.

I present you my precise DCF-Model:

vrx analysis.jpg

As Charlie Munger says: “There’s seldom just one cockroach in the kitchen.” I think a fundamental analysis of this kind of company is pointless as you cannot say witch numbers are wrong (phildor) and witch aren’t.

As usual Martin Shkreli also did some good work analysing Valeant. (link here) Its impressive when he is searching the revenue for each drug seperatly or looking up documents on the FDA homepage. Pointless but impressive.

By the way, Bronte likes the new CEO of Valeant (Link here)

amazon annual

You can find the 2015 letter to shareholders here.

Some noteable quotes and my coments:

They startet as online-bookshop, changed this to an everything-onlineshop, upgraded this to a logistic service for merchants (marktplace) … founded an IT/Cloud-Service-company out of nowere (AWS) … establisht a membership-service with Music and Movies … grew their revenue ~20% last year … Amazon in general clearly is an interesting company.

We want Prime to be such a good value, you’d be irresponsible not to be a member.

They are using tactics similar to Costco (a company witch Charlie Munger admires)

We took two big swings and missed – with Auctions and zShops – before we launched Marketplace

They also missed with their phone and tablets.

Many companies describe themselves as customer-focused, but few walk the walk. Most big technology companies are competitor focused. They see what others are doing, and then work to fast follow. In contrast, 90 to 95% of what we build in AWS is driven by what customers tell us they want. A good example is our new database engine, Amazon Aurora. Customers have been frustrated by the proprietary nature, high cost, and licensing terms of traditional, commercial-grade database providers.

Seems that they they are attacking SAP and Oracle

Hormel Foods

In the past few weeks Hormel Foods shares had lost about 15% from its 52W-high. I took this as a reason to take a closer look at the company.

Hormel Foods Corporation is an American food company based in Austin, Minnesota. The company was founded in 1891 so they will celebrate their 125th anniversary in 2016.

Hormel sells food under many brands, including the Chi-Chi’s, Dinty Moore, Farmer John, Herdez, Muscle Milk, Jennie-O, Lloyd’s,Skippy, Spam, La Victoria and Stagg brands, as well as under its own name. Hormel has a lot of nr. 1 and nr.2 brands.

Today they announced, that they will sell Diamond Crystal Brands (link)

So they are a non-durable consumer goods company, which usual are boring, unexciting, unsexy but steady, we will see if that is the point with Hormel. By the way I like boring, unexciting and steady companies.

Hormel-chart

The long-term chart looks impressive

I worked on a small model for Hormel to get a better feeling of how the company is going to do and how much the whole company is worth.

Hormel_Model

some notes to the model:

As always this are just some assumptions I made, this could be right or not.

  • from 2011 to 2015 they grew their revenue from 7895 to 9263 million dollar.
  • from 2011 to 2015 they grew their net earnings from 474 to 686 million dollar.
  • I assumed a steady revenue growth of 6% till 2020.
  • I assumed a margin expansion from 7,4% today – to 8,2% in 2020 due to scale effects, I am interested to see how this will play out.
  • this translates in 1016 million dollar net earnings in 2020, we will see
  • no share buybacks were assumed
  • In the five years from 2016 – 2020, the company will pay out 1816 million dollar as dividends.

 

In my next post about Hormel I will look more at the price of the whole company.

simple but not easy

Martin Shkreli says something interesting in his 4th Finance Lesson video :

Finance Lesson 4 (link to the youtube video with time bookmark)

He explains that if you want to build a real portfolio with 20 stocks you need about 10,000 hours of work to do so – this translates in around 3 years of work. He estimates that if you really want to understand a company you have to do 100 hours of research on them – and that only 10% of the companies around are undervalued and worth buying so that you have to do 1,000h of work to find one company worth buying.

I would argue that you don’t have to do 100 hours of research per company if you focus on simpler ones. Also you can filter out a lot of companies in the beginning – thru a screener or  following some investment-gurus. (But this clearly gives you no guarantee either)

But I like the point that investing is real/hard/painful work and not just some wealth creation machine were The Men Who Stare at Goats … forgive me … at Charts are making a lot of money.

You can think of Martin Shkreli what you want, you can disagree to him about investment subjects – but that guy really has some skills and he is sharing them with the world for free. I highly recommend watching his videos if you are interesting in the valuation of companies.

An first estimate of vivendis value

I worked on an excel spreadsheet to get a better overview about vivendi and its various assets; this is how far I have come jet:

VIV-FR_1

Cash and Assets (including the listed ones) are worth about 10,3 Billion €. This excludes the operating parts Chanal+ and Universal Music. The numbers in the spread sheet are EBITA, net income for vivendi is around 697 million €.

vivendi cash 2015

Vivendi’s market capitalisation today is around 25,1 billion €* (note: tomorrow is vivendi’s ex-dividend day)

market capitalisation – cash and other holdings = “Rest Enterprice-Value”

25,1 – 10,3 = 14,8  €B

So the continued core operations, which are basically chanal+ and Universal Music are worth approximately 14,8 billion € at the moment. This looks not so interesting to me considering that they generate around 0,697 billion € in yearly income which translates in an PE-Ratio of 21,2.

But then on the other side it seems that famous Investor John Malone whom I appreciate has made a bit for Universal Music Group of “somewhere upwards of $8bn” and that guy knows a thing or two about the content/media business. So maybe  14,8  €B for all that content is not that much? And Softbank also made a bid. (link to http://www.musicbusinessworldwide.com)

note to myself: vivendi sold out its 20% stake in Numericable SFR, that stock today trades around 52W-low. Could be that selling 20% of a stock has depressed the stock price. Maybe this is worth a look?

 

disclosure: no position in vivendi at that time

*number from ariva.de