Or Bob Gauld for that matter?
http://www.theglobeandmail.com/globe-investor/seeking-speculative-thrills/article2349528/
Worst move
Mr. Gauld readily admits he “fell in love” with the Yellow Media Inc. (YLO-T0.140.0053.85%)story, as well as the strong yield – around 12 per cent when he bought it two years back at $6.75. But the once blue-chip income trust has cratered, last closing at 14 cents. Mr. Gauld dumped most of his holding just before Christmas at just 19 cents, the only upside being he was able to use the loss to offset other taxable capital gains.
Five years from now:
Best Move
Glen Bradford readily admits that he “fell in love” with the Yellow Media Inc. ((YLO-T0.140.0053.85%) story, as well as the fact that they cut their yield, which I bought around 5 years back at $0.15. The blue chip-income trust had cratered and people came out of the woodwork with their public profession that the company was worth at most a penny and other people came out of the woodwork voting it their worst move, ever. At $0.15, Glen saw unbelievable upside and didn’t mind paying future taxable capital gains on the difference between the company’s intrinsic value and the price he paid. The company, when he took most of his position, was trading at a P/FCF of about 0.25, a P/S of less than 1 month’s sales, 1/40 of P/B, was able to retire debt at less than 50% of face value, had a debt/ebitda ratio of 2.5x, was solvent and meeting its debt obligations and would continue to meet them as they came due, had consensus price targets of around a penny, had debt ratings downgrades !
out the wazoo, panic selling out of the wazoo, and was in the midst of having all of the shorts covering their positions as the stock was in the process of bottoming.
Glen went out and wrote articles on seekingalpha and the motley fool and perpetually sent annoying email blasts to anyone who would lend him their eyes as they glanced over his thoughts on the company. Glen invested heavily after visiting their office in indy and sitting on personal conference calls with the company where he debunked his greatest fears.
Assuming that Mr. Gardner, the analyst with the price target of $0.01, is correct with his EBITDA assumptions for 2012 and 2013, this highly qualified CFA is predicting EBITDA close to $1.1B over the next 24 months. All for a price of around $50M. How exactly do you assign a price target to a company able to make $1.1B of EBITDA in your future time frame of the next two years a price target of $5M is beyond me, sir, especially with a net debt of $1.8B, Glen thought to himself. “That seems extremely serviceable.” $5M seems a bit ridiculous. That would be like me walking up to someone who makes $100,000 a year and who owes $250,000 and offering to buy their future income stream for $2000.
If you know anyone who will take this deal, do it. Dare to be rich. At present, at $0.13, the price to buy that future income stream is equivalently $26,000. That is still ridiculous.
Here is the payout schedule for C’s and D’s:
D
2012 – 4 1.725
2013 – 4 1.725
2014 – 4 1.725
2015 – 2 0.8625 + 25
Total Value on June 2015 $31.0375
C
2012 – 4 1.725
2013 – 4 1.725
2014 – 3 1.29375 + 25
Total Value on September 2014 $29.74375
With a price of $0.89 on the D’s, and a payout of $31.0375, I am getting an upside of 3387.35955%
In order to be a millionaire, you would need to own 32220 shares with this payout.
So the cost to be a millionaire at present assuming all of this goes through is $28,674.99
Dare to be rich. If you are curious about measuring the cost to be a millionaire at any price here is your calculation:
= (32220 / Current price) = Cost to be a millionaire.
So if the current price goes to $0.50, the cost to be a millionaire is $16,110.
If you go with A’s and assume conversion to common and assume that the company will eventually get a P/E of 6 and 700M shares fully diluted, you’re looking at $0.312 EPS and a price of $1.872.
The preferred A’s just traded at $0.75, which should convert at a par value of $25.27 which leads to not 12.5 but 12.635 exchange rate. which implies that the A’s are trading at a common conversion value of $0.0593589
Which, with an intrinsic value of $1.872 gives you an upside percent return of 3053.69% ex any dividends, but if they ever bring back the dividends that this bad boy had, I figure they can cut 2 cents of dividends per month, which would juice your return even further.
So, for every monthly dividend they bring back your adjusted return on the preferred A’s goes up 40%. So if they bring back a full year’s dividend payment by 2014, that’s another 480% return in perpetuity that you’re clocking with the A’s.
http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=30724187&l=0&r=0&s=YLO&t=LIST
Folks,
I have been following Yellow Media on this board for over a year and have been a participant since August 2011.
In one of my early postings (Sep 25, 2011) I outlined my assessment of how Yellow had declined in value and discussed some of the factors I thought had contributed to the decline.
Here’s a link back to that post for anyone who wants to see it:
http://www.stockhouse.com/Bullboards/MessageDetail.aspx?s=YLO&t=list&m=30220516&l=0&pd=0&r=0
Since that earlier posting there have been a lot of other changes. Here are a few highlights:
- Dividend was eliminated on common shares
- Dividend was eliminated on preferred shares
- CFO resigned
- Yellow sold LesPAC
- New lending agreement has become partially known
- Market cap dropped so much that it forced a reassessment of goodwill and that resulted in $2.9B goodwill impairment charge.
As of market close on February 25, the stock price was sitting at 0.135 in spite of the fact that all normal indicators of value (as bradford86 and Lestat continue to point out) would suggest the stock is ridiculously undervalued. There have been plenty of postings which suggest how unusual this is, like market cap is about half month of revenue. Additionally, with normalized earnings per share of 0.53 for 2011 then the P/E(normalized) ratio is 0.25 against an industry norm of approximately 10.2 (per RBC), Price/Book ratio is standing around 0.03 when the industry norm is around 1.7 (again RBC)
So exactly what factors are contributing to the current share price levels? IMO we have:
Shorts – With the shorting level somewhere around 45M (anyone have a more recent figure) there are clearly folks who have a vested interested in seeing the price stay where it is or go lower. I am not sure exactly what the shorts can do but if they are, for example, willing to put out lots of buy orders at 0.13 and lots of sell orders at 0.135 they can accumulate a lot of shares from folks who are just giving up on Yellow. The danger with this approach, from the shorts perspective, is that it must be closely watched because anyone who came along who wanted the shares could potentially accumulate quite a few before it could be stopped. Did this play into the reasoning for Yellow being denied permission to buyback any of its common shares in the current lending agreement? Clearly the shorts have a huge vested interest in keeping the price low. Who exactly are the big players that are shorting?
2011 Financials – With a loss of $5.88 per share for the year, most investors would look at that and dismiss this company as an investment opportunity. Without digging any deeper to see this was mostly about a goodwill write down and net earnings from continuing operations were 172.6M (Yellow News release Feb 9, 2012) there would be no reason to consider investing.
Business Model – The “print revenues are in decline” concern remains. So, yes, it isn’t going away in the near term future but it continues to create uncertainty to keep investors away. The threat of competition, however real, is also a factor that plays to real or perceived risk.
Confidence in the Management Team – Clearly, the management team has been wrong about a lot of things – too numerous to detail here. Whether they fell victim to a serious attack from the shorts that they didn’t know how to address doesn’t really matter. They gave their investors incorrect information (I am speaking from hindsight) on numerous occasions and that has greatly eroded shareholder confidence in their ability to perform effectively. I am a proponent to replacing Tellier because I don’t believe he has fulfilled his single most important duty as a CEO and that is to drive shareholder value. So, yes, he may be doing the right things now but I am not sure that it matters – the confidence is just not there. We need someone new, with undamaged credibility, who can rally the troops and stimulate interest in the investment community. This is a big ship and it needs a capable captain.
Weak Lending Agreement – Yellow allowing itself (that is, breaching covenants from previous lending agreements) to be in a position where the lenders could dictate any lending terms they wanted has clearly paralyzed Yellow. This is also a concern for future investors as it positions the lenders to pull Yellow’s strings and force them into default at almost any time they please if it seems advantageous. Yellow needs to mitigate this weakness and I hope some of the new blood on the Board of Directors can help to facilitate this.
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There always seem to be more questions than answers.
The big one for me right now is what is Yellow doing with that war chest full of cash?
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Look to the facts. A fact is a commonly held belief. Am I wrong?
According to the analysts, this company is wildly profitable.
According to the analysts, this company is worthless.
According to the analysts, the company will be able to meet its debt obligations.
One of these things is not like the others. One of these things doesn’t belong. Can you tell which thing is not like the others by the time we finish our song?
http://www.youtube.com/watch?v=FClGhto1vIg
So, it is a fact that the market is saying that this company is facing a 95% risk of bankruptcy in the next 12 months. Facts are not axioms. It used to be a fact that the world was flat, or that the sun revolved around the earth. It is also a fact that the price that something trades at is influenced by the people that show up at market on any particular day at any particular time and either want to buy or sell. In my opinion, everyone who owned a year ago needed to sell out, mostly driven by fear and misunderstanding.
Lestate even says:
“YLO is a value, yes, but let us never underestimate the human factor.”
http://www.stockhouse.com/Bullboards/MessageDetail.aspx?p=0&m=30723334&l=0&r=0&s=YLO&t=LIST
The human factor has far more impact on price than it does on fundamentals, sirs. When you know something and have a high degree of confidence I really must point out that 10% is not enough. My level of confidence in Yellow Media and management is far higher than just a 10% position. I don’t care about the past much beyond how it allows me to intelligently predict and forecast the future. If you are honestly reading this and you find yourself wondering if management is in it for the shareholders, I can assure you that they are. This message board will be dust in the wind that powers my sail on a forward basis, but this is my plea to the people that read it. Look at the numbers, look at the facts. Look at how banks ACTUALLY make decisions as opposed to how they might make decisions if they were concerned about Yellow Media’s ability to pay at 2.5x Debt/Ebitda.
Frankly, I’m indifferent to what any of you actually decide to do. I’m going to do my thing and bet appropriately. To not own this indicates to me that you either:
1. Do not understand how to price companies using fundamental discounted cash flow analysis.
2. Are afraid of things that do not exist.
3. Let the past dictate your future.
I don’t know about you guys, but I wake up every single day and look at myself in the mirror and fully understand and comprehend that I am a product of all of my decisions past and present. I have spent countless hours studying this company and I very well could be wrong. I am a man that has priced over 10,000 companies in the past two years. I own Yellow Media. I stand by my purchase decision at present. I believe that this is the most undervalued opportunity that is scalable that I’ll be able to find in the next 2-3 years. Part of being undervalued is being misunderstood by “the masses.”
People that don’t know what they are doing are quick to cast their decision based on correlation as opposed to causation. A lower stock price is a source of great opportunity if the lower price is unsustainably low as I believe it to be here, in this case.
To those of you who are long and are licking your chops over the millions of dollars that you are about to make, I fully encourage you to contact me about future similar opportunities that come up and pass them my way for evaluation.