Glacier Media 2012 Fourth Quarter Update

Glacier Media recently reported results for 2012.  While sales were up significantly, increasing 23.4%, cash flows from operations, the company's preferred gauge of profitability, were flat from the earlier year, at about $44 million.  More importantly, though, the company required virtually no tangible equity to generate these cash flows, the mark of a dominant business.  The somewhat soft results were due to weakness in national advertising, sluggish economic growth in the important B.C. market, and mediocre performance in the assets acquired from Postmedia near the end of 2011, as well as increased investments that are likely to result in stronger earnings in the future.

On a happier note, business and trade publications performed well, and management is making energetic efforts to increase the "decision dependence" of those assets: the more businesspeople rely on the information, data and analytics these publications provide, the higher Glacier Media's cash flows will be.
 

In the area of capital allocation, the company pursued its usual balance between investing in its own operations, making acquisitions, paying down debt, funding the dividend and repurchasing shares.  Unlike in most years, when capital expenditures tend to range from $2-5 million, Glacier spent around $15 million, mostly on a printing press, a one-time expense that will both increase revenues and decrease costs.  However, sustaining capex was a paltry $2 million, though that figure may rise somewhat in the years to come after the elevated spending in 2012.  Perhaps the sound and responsible capital allocation is because management is relying on share/dividend returns for their own wellbeing: after all, just $4.5 million was spent on wages for all directors, senior executives and divisional managers, a refreshing difference from what generally prevails in the corporate world.
 

Despite a lackluster year, Glacier Media remains a compelling investment.  The share price stands at about $1.90, and net debt is $1.42 per share, meaning the company's enterprise value is $3.32.  Even assuming only modest organic growth, the company is likely to generate $0.45-0.55 in free cash flow per year over the next few years.  Buying stock in a company that generates $0.50 in free cash flow and costs $3.32 is the equivalent of buying a bond that yields 15%.  However, this particular arrangement is better still.  In theory, Glacier Media could retire debt in about three years, and pay all of its FCF out as a dividend in the ensuing years.  If it did so - it won't, but it could, and all other capital allocation decisions should be weighed against this alternative - shareholders would be buying the equivalent of a bond that yields nothing for the first three years, but beginning in year four yields a staggering 29% ($0.55/1.90) with the coupon likely to grow modestly over time.  Not bad for a bond.
 

Disclosure: At the time this article was published, the writer was long GVC stock.

Here is my Investment Analysis of Glacier Media.

Disclaimer: The host of this blog shall not be held responsible or liable for, and indeed expressly disclaims any responsibility or liability for any losses, financial or otherwise, or damages of any nature whatsoever, that may result from or relate to the use of this blog. This disclaimer applies to all material that is posted or published anywhere on this blog.

 

Terex - 2012 Fourth Quarter Update

Terex recently reported fourth quarter and annual earnings, both of which were significantly better than the year-ago periods, though the improvement was due in part to easy comparisons.  More importantly, management forecasted 2013 earnings of $2.40-2.70, and published their internal "goal" of reaching $5 in EPS by 2015, but insisted that this wasn't "guidance."  The CEO, in the past a bit of a shop-a-holic, promised to move towards the goal by focusing on operational improvements, not through acquisitions.  In addition, the company is aiming for a 15% return on invested capital in 2015.

Just as important as the P&L is the balance sheet, which has been strengthened considerably over the past few years, and the company pledged further improvements in the years to come.  Indeed, the 2015 EPS goal appears to assume little or no remaining debt (management forecasted operating income in 2015 of $1 billion, and assuming a 35% tax rate and 120 million shares outstanding, EPS would amount to around $5.40, leaving little room for interest payments).

The $5 goal is a bit light, so Terex shareholders must be hoping that management is under-promising with the intention of over-delivering.

Disclaimer: The host of this blog shall not be held responsible or liable for, and indeed expressly disclaims any responsibility or liability for any losses, financial or otherwise, or damages of any nature whatsoever, that may result from or relate to the use of this blog. This disclaimer applies to all material that is posted or published anywhere on this blog.

Home Capital Group - 2012 Fourth Quarter Update

Home Capital Group posted a strong fourth quarter, to cap off yet another strong year.  Earnings per share were $1.70 for the quarter, up 17.2% from the prior year period.  For 2012, earnings were $6.40, 16.8% higher than in 2011.  Just as important, return on equity remained high, at 25.5% for the year.  With HCG, growth never comes at the cost of a weakened balance sheet or significant risks.  Indeed, its tier one capital ratio stands at a formidable 17.01%, and the total capital ratio stands at 20.68%.  Non-performing loans amounted to just 0.33% of gross loans, a superb figure.  In addition, Home Capital Group increased its savings and fixed-term deposits, which are cheap, safe forms of funding.

The company has a long and commendable record of delivering on its promises, and this year was no different.  Shareholders ought to be excited about the year to come, too: the company is forecasting earnings growth of 13-18% in 2013, and return on equity exceeding 20%.  Importantly, these expectations are not based on starry-eyed assumptions about the Canadian economy or housing market.  Management foresees slow but steady economic growth, and a moderate decline in housing starts, resales and prices.  While it remains early, the first six weeks of the year were strong, management noted on the conference call.

The mid-point of the 2013 EPS estimate is about $7.35, meaning that even after a 20% or so increase in the stock over the past year, Home Capital Group currently trades at just 8x earnings.  This offers a large margin of safety on the downside, and a tremendous opportunity on the upside.  The dividend now stands at $1.04 per year, offering a 1.7% yield, slightly less than the market average, though there's a good chance it will rise before the year concludes.

Disclosure: At the time this article was published, the writer was long HCG stock

My investment analysis of Home Capital Group is here.

Disclaimer: The host of this blog shall not be held responsible or liable for, and indeed expressly disclaims any responsibility or liability for any losses, financial or otherwise, or damages of any nature whatsoever, that may result from or relate to the use of this blog. This disclaimer applies to all material that is posted or published anywhere on this blog.