Chairman and CEO of Gamco Investors
For all the Barron’s 2018 Roundtable articles and notes click here.
Canyon Distressed Opportunity Fund likes the backdrop for credit
The Canyon Distressed Opportunity Fund III held its final closing on Jan. 1 with total commitments of $1.46 billion, calling half of its capital commitments so far. Canyon has about $26 billion in assets under management now. Q4 2020 hedge fund letters, conferences and more Positive backdrop for credit funds In their fourth-quarter letter to Read More
Madison Square Garden (MSG), $211 ($212.87 when published). Worth $280-$300
- Sports and entertainment holding company. It owns the NY Knicks, NY Rangers, the Radio City Rockettes and a variety of live-entertainment venues. (I wrote a review of MSG while ago here.)
- 23.5 million shares outstanding. Equity capitalization of $5 billion. $1.1 billion of net cash.
- MSG also owns a lot of hot real estate (Hudson Yards development) and air rights above the Madison Square Garden.
- Several opportunities for deal making exist.
- Adding up the value of the company’s assets, the stock could be worth $280 to $300 a share.
Liberty Braves Group (BATRA), $24 ($22.27 when published). Worth $35 in two years.
- Media and entertainment company.
- It is part of John Malone’s ecosystem. Liberty Braves is a tracking stock that owns Liberty Media’s interest in the Atlanta Braves.
- Malone is as tax-sensitive an investor as Warren Buffett, but he is more visible about it.
- With Liberty Braves, you’re also getting the new SunTrust Park built in Cobb County, an Atlanta suburb. Attendance has gone from roughly 25,000 to 31,000 per game.
- The team is improving, too. Plus, the company owns land.
- Liberty Braves has about 58.5 million shares outstanding. At $22 apiece, the market cap is $1.3 billion.
- This is a small-cap stock. Based on prices paid for other sports teams, coupled with the stadium and the Battery Atlanta, a mixed-use property, the company could be worth $35 a share in two years.
MGM Resorts International (MGM) $37.12 ($33.89 when published).
- Based in Las Vegas and owns casinos in the U.S. and Macau. It is run by James Murren.
- The company has 566 million shares outstanding, and the stock is trading for $33. The market cap is $19 billion.
- MGM put most of its U.S. properties into a REIT, MGM Growth Properties (MGP), in 2016. This is worth about $10.50 a share at market.
- The value of the publicly traded Macau properties, or MGM China Holdings [2282.HK] is $10.50 and MGM’s stake in the REIT at $10.50, only paying $12 a share for the U.S. business. Assuming an ex-China, ex-MGM enterprise value of $14 billion, and 2018 EBITDA of $1.8 billion, the stock is selling for about 8x EV to EBITDA.
- MGM didn’t put the Bellagio or MGM Grand into the REIT, so the company has other assets it can monetize.
- The Macau asset, MGM China, is undervalued in part because of concerns about what Chinese President Xi Jinping is going to do. Also, gaming-company licenses in Macau are up for renewal in 2022. There is some question about the renewal process.
Davide Campari-Milano (CPR.Italy) €6.39 ( €6.36 when published).
- Based in Milan. Brands include Campari, Aperol, Wild Turkey, SKYY Vodka and Grand Marnier.
- Spirits are about a $475 billion business globally. Demand is increasing, as is the emphasis on premium products.
- There are 1.160 billion shares outstanding trading at 6.30 euros.
- Estimate that 2017 revenue totaled €1.8 billion
- The company earned 17 euro cents a share two years ago and about 20 euro cents this past year. It could earn maybe 23 euro cents in 2018.
Zimmer Biomet Holdings(ZBH) $124 ($125.98 when published).
- Body part business. As the population ages, people are dealing with replacement body parts. It is a $38 billion business on a global basis. Knee and hip replacements are $14 billion. Spine parts are $9 billion. Trauma-related replacements are another $5.5 billion. The industry is growing by 2%-3% a year.
- Makes products for knee replacements, spine surgery, and other uses.
- There are 202 million shares outstanding, and the stock trades around $125.
- Zimmer’s market cap is $25 billion, and the company has about $10 billion of net debt stemming from its $14 billion purchase of Biomet in June 2015.
- Expect that Zimmer will earn about $8.50 a share this year, and will do $9.50 next year and $14 over the next three or four years.
CNH Industrial (CNHI) $14.92 ($14.05 when published).
- The former Case New Holland. Construction play.
- CNH has 1.3 billion shares and is trading for $13.75.
- The company is controlled by Exor, the Agnelli family investment company that also controls Fiat Chrysler Automobiles [FCAU].
- Both Deere and CNH underproduced agricultural equipment to reduce inventory in the system. If demand stays flat, production will be rising. The construction business is turning around, too.
- The third part of CNH is Iveco, a European truck maker. It has about 6% of the European heavy-duty-truck market.
- CNH earnings will go from 65 cents a share in 2018 to $1.25 by 2021-22. The stock could trade for 16 times those earnings, and you make a 50% profit in the next three years.
- Believes that Sergio Marchionne (chairman of CNH and CEO of Fiat Chrysler), before he steps down, is to do a transaction with Iveco.
GCP Applied Technologies (GCP) $33.60 (also $33.60 when published).
- Building products. GCP was spun out of W.R. Grace in February 2016.
- GCP makes chemical additives for concrete and cement. It also makes waterproofing products used in construction.
- Its chief competitor is a Swiss company, Sika [SIK.Switzerland].
- GCP has a transit-management program called Verifi that allows it to monitor ready-mix trucks and get everything to the right place at the right time.
- GCP could generate revenue of about $1.2 billion this year. Earnings could climb in the next three or four years from $1.10 a share to nearly $2. The company has about $195 million in net cash before a year-end transaction.
Paccar (PCAR) $77 ($75.10 when published).
- Makes two truck brands, Kenworth and Peterbilt.
- There has been a surge in demand for truck components. In December alone, there was a 37% increase in Class 8 truck orders. Paccar participated fully in that.
- It is logical for Paccar and Iveco to merge because of consolidation elsewhere in the European and U.S. markets
- The company has a great balance sheet. It has been around a long time.
- The size of the Class 8 market in the U.S. will rise dramatically in the next 12 months.
- Good infrastructure play
- Paccar could report earnings of $4.40 a share for 2017. This year, they could do $5.10 to $5.20, and for 2019 our estimate is for $6.20 per share.
Textron (TXT) $58.79 ($58.50 when published)
- Business jets. Makes the Cessna.
- It introduced a new plane, the Cessna Citation Latitude, in 2015, and it has been doing extremely well. Next up is the Cessna Citation Longitude. Textron also owns Bell Helicopter, and makes aircraft parts and industrial products.
- Question: If Boeing buys Embraer, given its political clout, it is going to try to convince the Air Force to buy the Tucano instead?
- There are 21,350 commercial and 36,700 business aircraft in the worldwide fleet. The Chinese own comparatively few. At some point, will the Chinese market open up?
Energizer Holdings (ENR) $54.68 ($51.59 when published).
- The battery maker that was spun out of Edgewell Personal Care [EPC] in July 2015
- Batteries are a $6 billion business globally. There is no growth.
- Duracell was bought by Berkshire Hathaway [BRK.A]. Spectrum Brands Holdings [SPB] is looking to sell its Rayovac unit. (After the Roundtable, Energizer announced its intention to buy Rayovac for $2 billion.)
- Meanwhile, the price of zinc, a major ingredient in batteries, has gone from 60 cents a pound to $1.30 in recent years.
- Energizer has a terrific management team.
- Energizer generates half its revenue overseas. The euro is strengthening against the dollar, as is the pound. Many companies will get a tailwind from currency translation.
Article by Brian Langis