Henry Singleton: A Case Study in Capital Allocation by Beowulf Capital Management
[klarman]
Key Additional Notes
- Both Companies in Comparable Industries
- Both Companies have Great Management
- Both Companies Growing Net Income Faster than Sales Growth
Key Additional Notes
- Both Companies in Comparable Industries
- Both Companies have Great Management
- Both Companies Growing Net Income Faster than Sales Growth
- Average ROE of Company B Twice of Company A
- Average ROA of Company B Twice of Company A
- Company A Growing Sales and Net Profit At Least 5 Times Faster than Company B
What Else We Need to Know as an Owner?
Both Company A and Company B Created Significant Shareholder Value Over the 10 Years; Company A by Growing Net Income Faster than Shares Issued; Company B by Buying Back Shares Aggressively
Combined – Company A and Company B Would Create Significant Value for Shareholders as Both the Companies are the Same One Over Different Periods of Time
Welcome Master Capital Allocator Henry Singleton
Founder and Former Chairman of Teledyne
Company A is 1961 to 1971
Company B is 1972 to 1982
EPS Growth in First Decade 20% CAGR Building a $1B
Sales Firm by Issuing Shares at High PE
EPS Growth in Second Decade 34% Buying Back Shares in a Depressed Environment
Teledyne Compounded at 17.9% over 25 Years Starting 1966; 53X over 6.7X over S&P 500
Cisco
- Cisco Bought Back Shares at Market Price and Issued Shares to Employees for Compensation
- Net Decrease over 5 Years was 567M Shares with Average Price of $55
- Cisco Defends this as Required to Retain Talent
- Cisco Could Show ONLY 2.5% CAGR on EPS for Retaining these Employees that Cost the Share Holders $55/Share for Every Share
- Buyback or Maintenance Costs of Employees?
- Magnitude of Value Destruction to Shareholders ??
Microsoft
- Microsoft Bought Back Shares at Market Price and Issued Shares to Employees for Compensation
- Net Decrease over 5 Years was 528M Shares with Average Price of $76
- Microsoft Defends this as Required to Retain Talent
- Microsoft Could Show ONLY 6% CAGR on EPS for Retaining these Employees that Cost the Share Holders $76/Share for Every Share
- Buyback or Maintenance Costs of Employees?
- Magnitude of Value Destruction to Shareholders ??
See full slides below.
