Booth-Laird Bullish Case For Outerwall Inc (OUTR)

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Booth-Laird Bullish Case For Outerwall Inc (OUTR)

Booth-Laird presentation on Outerwall on OUTR, posted with permission (PDF format here – Booth-Laird-Investment-Partnership-Outerwall-long-thesis)

At our 2014 Annual Meeting held on July 21, 2014, we presented our long thesis on Outerwall (OUTR), a beaten down, highly shorted stock that is misunderstood by the market and, in our opinion, presents substantial upside potential with limited downside.

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Profile

 

 

  • Outerwall (ticker symbol: OUTR) is U.S. leader in automated retail

 

  • Self-service, stand-alone kiosks in heavily trafficked locations

 

  • Founded in 1989 as Coinstar

 

  • Changed name to Outerwall in 2013

 

  • $1.1B market cap

 

  • Over 100 patents
  • Brands

 

Flagship Brands – cash cows
Redbox

Coinstar

Developmental Concepts – growth stage

ecoATM

Coinstar Exchange

SampleIt
Redbox Instant by Verizon

Available at very low multiples

• Stock selling <7 times 2013 free cash flow & for <6 times expected 2014 free cash flow

• Despite the fact that free cash flow is still growing

• Capital expenditures to decline substantially over next few years

• Highly variable cost structure

• Available at less than 50% of revenue despite high
margins

• Revenue still growing

• Margins expected to grow even faster

Opportunity

• Maximum negativity from market due to Redbox
Face of the company

Seen as another Blockbuster-in-waiting

• Very high short interest

44% of float shorted – 10 days to cover

• Shifting investor base from growth to value-oriented

• Market cap down 37% YTD

Down 25.5% in last 2 months solely on negative analyst reports

• Work-out investment

Expect company to beat lowered market expectations, overcome market’s fear, & likely cause short squeeze
Automated Retail

• Self-service, stand-alone kiosks in heavily trafficked areas

• Strong role in future of retail

• Allows convenience for fulfilling immediate need at lower costs than traditional brick-and-mortar retail, even lower cost than e-commerce

• Limited overhead
No large rent expense (take up 12 square feet of space)

1 part-time employee can service multiple kiosks

Outerwall Rules Automated Retail

• No competitor can come close to matching Outerwall

• Outerwall has prime real estate no competitor can get
Ex. just about every Wal-Mart has a Redbox and Coinstar

It does not make sense to have a second kiosk from competitor in same location offering same service ?Lends itself to natural monopoly within a store

• Long-term relationships with major retailers throughout the country creates high barrier to entry for competitors

Wal-Mart, Walgreens, Kroger, Target, malls, gas stations

Retailer receives percentage of revenue

Drives foot traffic to store

Automated retailer of choice for any new concept

Full presentation here – Booth-Laird-Investment-Partnership-Outerwall-long-thesis

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