Guy Gottfried: Needles in a Haystack

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Guy Gottfried, Rational Investment Group; Needles in a Haystack: More Small Cap Values from the 9th Annual Value Investing Congress in New York (live coverage). Guy is the first speaker at the Conference and we will be live blogging Guy’s presentation as well as other presentations today (and tomorrow).

Guy Gottfried: Needles in a Haystack

Guy Gottfried is the founder of Rational Investment Group, a value-oriented fund. Rational Investment Group, looks to uncover securities exhibiting material upside potential along with minimal risk of capital impairment, mostly in the Canadian small cap universe.. Prior to launching Rational Investment Group, Mr. Gottfried was an analyst at Bruce Berkowitz’s Fairholme Capital Management. Gottfried is a graduate of York University in Toronto.

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Guy Gottfried live coverage

Guy Gottfried is the first speaker and is scheduled to start his presentation at 8:30 AM EST. The title of the presentation is called Needles in a haystack.

Investment Idea:

Glentel (TSX: GLN) — Mobile phone retailer

Market cap 331M, 3.4% yield

Sells cell phone, wireless subscriptions and accessories.  Mainly sales in Canada and Australia, with some US business. Second largest Verizon Retailer in US.

7.5x FCF, with 13.3% FCF Yield –Must make many adjustments to get the correct FCF number, which is major reason it is undervalued

Management aligned with shareholders, lots of skin in the game

Acquired Wireless Zone in Dec 2012.  paid 7.8x P/FCF

Certain divisions making no money, with some unusual accounting, many non-recurring items on financials.  Normalized earnings and FCF are complicated at this point, and investors have not accurately assessed their valuation.

CEO Thomas Skidmore and his family collectively own 46% of company.  Took control in 1989 when it was manufacturer of communication equipment.  Excellent track record of acquisitions.

New relationships not yet contributing to results: Target, Bj’s, Phillipines  (opened up in 24 target stores, believes ramp in BJ’s will be faster)

CEO buying shares in the last month.  Guy believes they have considerable growth

Next Idea:

Supremex Inc (TSE:SXP) –very illiquid!

$46M market cap – Largest manufacturer of envelopes in Canada – 60% market share – Declining industry – trades at 3.1x FCF, 7.5% Dividend yield (payout ratio 23%)

Potential Major catalyst and lead investor generating shareholder value

Clarke, Inc (45% owner) made a preliminary offer to acquire Supremex at highly depressed price…special comittee formed to break up offer

Considerable debt reduction since Q3 2008

Ebitda of $29.6M, pension adjustment is -$5.4M

Supremex could double dividend and still have room to pay down debt (ample room for 15% dividend yield)

Clarke (Geosam), have substantially raised dividends at investee companies  (TerraVest, Bonnett’s and Clarke)–Companies Clarke/Geosam have increased dividend yield

Catalysts: owns 2 manufacturing facilites in Toronto and Montreal

Considering the sale of its two properties to lease them back

Canadian commercial real estate is hot

ValueWalk readers can get a 53% discount on the Value Investing Congress in Vegas (April 3rd and 4th), just use this link to register.

Use code ‘WALK’ to save an extra $100.

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