- I’m certainly not advocating buying any stock for its land value right now. Land does have value that should be included in any valuation deep dive. The problem is that there is no market for land. I’m perfectly happy to argue that Las Vegas Strip acreage is worth $5 million or $10 million, but we don’t know until we actually see transactions at those levels. It is unlikely it’s worth $20 million per acre, as some analysts are still using in their target prices.
- I’d put land value way down the last of why BYD looks interesting. More pertinent aspects of the thesis include liquidity, free cash flow, and the balance sheet. From a relative viewpoint, a land analysis is very instructive, however. Chart 2 compares BYD and MGM along 3 valuation metrics: EV/2009 EBITDA, (EV less land value)/EBITDA, and (EV less land and construction in progress)/EBITDA.
- The beauty of this analysis is that it is relative and most of the land value for both BYD and MGM resides in Las Vegas (Strip and Locals). Any change in my assumptions for land value affects both companies. In these charts I value Strip land at $7.5m per acre, LV locals at $1m, and Atlantic City at $5m. I cannot defend these land valuations in a court of law. I only offer them up for comparison purposes.
- The implications are clear. BYD is a much cheaper stock. You want to focus on land? Fine, BYD looks more attractive. Land is not important? OK. BYD looks more attractive.
Recent NPD trends indicate a sequential tick up in July QSR pizza category traffic. I would also expect August to have been helped by the Olympics. These two data points along with the fact that DPZ is facing an easier U.S. same-store sales comparison in 3Q (0.8% in 3Q07 vs. 4.4% in 2Q07) should benefit DPZ’s U.S. numbers. A pick up in 3Q U.S. trends would complement DPZ’s already proven international momentum.
While the move is attracting foreign deposits to Irish banks (cash is king), the move is certainly controversial. The government is effectively exposing the taxpayer to the collective liabilities of the six institutions – €400bn – while Irish GDP is approximately €190bn and the national debt stands is at €45bn. This constitutes a commitment of roughly 2x GDP. To put this in context, the proposed $700bn bailout in the United States amounts to 5% of U.S. GDP.
Mr. Lenihan insists that the government is not in the business of bailouts and will be charging the banks for the guarantee. The concentration of risk that the government is placing in the banking sector is massive and, as a result, raises questions about the viability of the economy. As a long-standing member of the European Union, Ireland’s guarantee has sent ripples throughout Europe. The scheme is said to give Irish banks an unfair advantage over foreign competitors. Furthermore, the fact that the guarantee applies to branches within Northern Ireland and Britain could enhance the perceived advantage. Authorities in Brussels are investigating whether or not the guarantee constituted illegal state aid.
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Years ago when I was just starting out in the business I worked as part of a proprietary equity derivative group at a midsized investment bank. One of the market sentiment indicators that some of the old timers in the group followed were the difference between the put/call ratios for options individual equities and Indices. The theory was that Index options were primarily used as hedging instruments by large institutions while individual equity options better reflected the hedging and speculation of smaller investors –thus any divergence between the two ratios, particularly on a day with a major directional market move, was seen as a divergence in sentiment between big investors and the rest of us. During yesterday’s rally the put/call ratio for all index options cleared by the OCC exceeded the same ratio for individual equities by 83%. That is the only time that put buyers in the index market have outpaced put buyers in the single stock market by more than 60% on a day in which the S&P was up over 1% so far this year. Obviously the put/call ratios are currently skewed by the net-short ban on financial stocks but it’s still interesting to note that in the face of a 4.3% rally in the S&P 500 the put/call ratio for indices was so heavily skewed negative.
BKC does not provide monthly sales data so we don’t know what trends were in August, but on its August 21 earnings call, management stated that July was a positive month and that it was confident BKC will continue to deliver quarterly consecutive positive comp performance throughout FY09. Management also stated that in 1Q09, however, the company is lapping 1Q08’s U.S. comparable sales growth of 6.8% (U.S. and Canada up 6.6%), its best quarter since the beginning of BKC’s turnaround in 2004. On average, the restaurants surveyed are seeing a 4.4% lift in same-store sales in September, which is somewhat slowed from the past two quarters of 5%-plus growth, but still a strong number relative to the comparison from 1Q08.
In discussing the timing of acquisitions and the fact that the company is going to be reliant solely on organic growth in Q4, Eric Weisman (rightfully) stressed that short-term deal timing is largely out of his control, and that he is focused on the multi-year plan.
Talked a lot about the process behind which VFC acquires brands. Sounds like this will be a part of the presentation at the meeting later today.
Last year, all of the acquisitions that were consummated were companies that came to VFC, not vice versa including Seven, which was totally unsolicited. Will VFC have to go after more candidates in ’09 instead of the other way around?
The company is typically in talks with 20-40 companies simultaneously at any given point in time. There is no significant uptick in discussions to note at this time; although VFC thinks/hopes that is very likely to tick up over the next few months.
Culture and financial position of the target is very important.
The company has looked at TBL, but to date there has been either a) cultural fit issues, b) management issues, or c) state of business issues that precluded a deal. [McGough: This sounds like a tonal change from my vantage point. Sounds like VFC won’t chase this one.]
Also discussed the rumor of an interest in UA. Bottom line -- not on the board for discussion.
a. Very positive on TNF opportunity in china
b. At the end of 2 yrs they will already surpass their 5 yr targets for that business
c. Essentially trying to create and outdoor brand presence over there like Nike has done with athletic footwear.
d. North Face is "well over a Billion" dollar brand
e. Wrangler is still substantially bigger
f. TNF and Vans is ~25% of total revs
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