Tyler Technologies vs Daily Journal Corporation

Tyler Technologies vs Daily Journal Corporation
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During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Tyler Technologies, Inc. (NYSE:TYL) vs Daily Journal Corporation (NASDAQ:DJCO). Here’s an excerpt from the podcast:

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Bill: No, it’s Tyler. They do a lot of the payment stuff for governments. I was reading Morningstar writing about them. I haven’t done deep work, but a lot of the government systems are so antiquated that the people that have been employed to keep them up are now retired and the skill set is not– they’re not replacing the skill set. You do own a major, major arms dealer of software to government. That seems to me to be a decent place to play. If it trades at a massive multiple, I get it. You’re not buying some energy company.

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Jake: You can get that same thing at a lower multiple, and it’s your boy. [crosstalk]

Bill: No, it’s not even close. Those guys don’t have a clue what they’re doing in that space relative to Tyler, they just don’t, and they admit it. If they did, they’d be growing like a weed. Now, can they land that Australian deal? Maybe? Yeah. You’re telling me the Daily Journal is going to recruit talent against Tyler? That’s really the bet you want to come work for us in tech? What’s the quality of technician or engineer that’s going to go work at Daily Journal? At some point, it just doesn’t pass the smell test to me.

Jake: I guess it’s always a matter of how much are you paying to make that bet as well.

Bill: Yeah, but you can’t just buy shit and expect it to turn into flower. You got to have the players in place and you can’t be like, “Well, I paid shit multiple, so maybe if I get a flower out of–” Conjuring it in my mind because I worship Munger, that’s crazy. Munger would tell you that’s a terrible bet. He even said I wouldn’t buy the stock here. That’s his words, not mine. I’m not trying to be rude but they are older men, their competence is running a newspaper business that served the legal industry in runoff, and people are making a software bet on it. That’s fine if you want to play that game, but if it doesn’t work out, don’t act it wasn’t– whatever, it– [crosstalk] Yeah. If the bet is cheap, yeah, some shitty ass horse wins a race every once in a while, and you get paid out, but how often does that happen?

Tobias: You don’t have to back the one that’s 100 to 1. You can back the third or fourth horse at better odds.

Bill: Yeah, no doubt. I’m not saying that you have to play in that space. I’m just saying I don’t think Daily Journal objectively has a real shot to win in that space. I just don’t.

Tobias: I don’t know at all well enough. I’m just wondering if it has to win for it to be a worthwhile bet.

Bill: I don’t think that you can perpetually promise that a contract is coming that never comes. That doesn’t sound like winning to me. It’s been what, three years I’ve heard about this Australian deal?

Tobias: Well, the Aussies– [crosstalk]

Bill: Great, now you implement it. Then, how do you grow it? How does it expand? Where are you going to go into your next adjacency? Meanwhile, Tyler is an acquisition machine that that Charlie did talk shit about a couple years ago, and here, let’s see what the revenues have done since Charlie has said, “I wish all of our competitors were them.” Let’s pull it up. You guys can take the combo from here.

Jake: [laughs]

Bill: I’m pretty sure they grow at like 17% a year.

Tobias: Let me do my topic. There’s been quite a big move in the market. Tech’s come off quite materially. It’s probably technically in a– what do you–

Jake: Correction?

Tobias: Correction, is that–

Jake: 10%.

Tobias: Is that all it is?

Jake: I don’t know.

Tobias: I’d have thought more than– [crosstalk]

Jake: [crosstalk] -say that’s a– [crosstalk]

Tobias: Correction is 10%. What’s 20%? That’s a crash. That’s a bear market, okay. We’ve gone through correction, but we’re not in a bear for tech.

Jake: I guess. I don’t know. Is that right?

Bill: Certain of these names have gotten shellacked, man.

Tobias: Some of them have got. Yeah.

Bill: If you really think about Adobe, that’s sold off, I think like 20% or so, since I think it’s been over nine months. If you also include the business’s growth, that’s down 25%, 30%.

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com. The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”
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