Johnny’s Real-Life Acquirers Multiple Portfolio – (Month 3 – Feb 2016)

Johnny HopkinsStudy Comments

Some of you may remember, back in December 2015 I starting my own Real-Life Acquirer’s Multiple Portfolio, using my own savings, here at the The Acquirer’s Multiple.

For those of you that don’t remember, I buy the top two stocks equally weighted each month, that I don’t already hold, from “The All Investable Stock Screener”, until I hold 24 stocks over 12 months, then I re-balance.

Stocks must be selected without fear or favour. All stocks suffer from the ‘broken leg’ problem (significant issues that make them unfavourable). I don’t try to cherry pick the best stocks, I simply take the top two stocks in the screen that I don’t own and then track their performance right here.

Here’s the latest update showing the performance of the portfolio to date:

Johnny’s International Share Portfolio

Portfolio Performance to Date

As you can see, the portfolio is up nearly 6% this month, and up 14.3% from last month (-12.96%), while outperforming the Russell 3000 index by almost 4%. (This data excludes fees).

Great performances from Apollo Education and Nevsun Resources. while Moneygram and Bridgepoint are in negative territory. This is all part of being a deep value investor who follows a system.

You can read all about my Acquirer’s Multiple Portfolio investing strategy and monthly picks here:

Month 1 stock picks

Month 2 stock picks

 

Stock purchase #5, February 2016.

OK, now lets take a look at this month’s (February 2016) top two stock picks that I’m adding to my portfolio. The addition of these two new stocks equally weighted to my portfolio will mean that I now have six stocks, each representing 16.7% of my portfolio, which should help to lower the volatility just a little.

Top of the All Investable Stock Screener this month is Perion Network Ltd (NASDAQ: PERI). As you can see from the chart below, Perion’s share price has been hammered in the past 12 months, falling over 30%:

(Source:Google)

How does it look in the Screener?

Let’s take a closer look at Perion in the “All Investable Stock Screener”.

The company currently has a market cap of $157 million, while its Enterprise Value (EV) is significantly lower at $65 million.

The reason its EV is so low is because the company has an excess of $92 million of cash and cash equivalents once you subtract its total debt. As a acquirer, we subtract this $92 million from the current market capitalisation of $157 million, which leaves us with a total EV of $65 million.

The company’s operating earnings, which are taken from the top of the income statement, are $47 Million.

In other words, we’re paying $157 million for a company with an EV of just $65 million, that is returning operating earnings of $47 million on that $65 Million.

This gives us an Acquirer’s Multiple of 1.38, when we divide the EV ($65 million) by the operating earnings ($47 million).

Why has the share price been dropping?

Perion is an Israeli based media and internet company. The company provides online publishers and application (app) developers with advanced technology and a range of intelligent, data-driven solutions to monetize their application or content and expand their reach to audiences.

The company’s software monetization platform, Perion Codefuel, enables digital businesses to optimize installs, analyze data and maximize revenue.

The company’s advertising mobile marketing business enables developers to make decisions on where to spend advertising budgets. Perion is also developing other platforms and software to enable mobile application developers to optimize and monetize their existing user base. Products include IncrediMail and Smilebox.

The problem for Perion, has been falling operating earnings. As Toby pointed out back in August, the company has been beaten down almost 30% because its transitioning to a new business model, and the revenue run rate and operating earnings were likely to drop short term.

However, back in December the company announced it has revised its Q4 guidance, in part to account for its $180 million acquisition of digital brand ad service provider Undertone (closed on Nov. 30).  The company now expects Q4 revenue of $64 million – $66 million (up from a prior $52 million-$54 million) and adjusted EBITDA of $9.5 million to $10.5 million (up from $6 million – $7 million).

Late last year, the company also announced an advisory client of JPMorgan has invested $10 million in Perion, in addition to the company obtained a $20 million credit facility from Israel’s Bank Leumi.

Back in November the company announced, in addition to beating Q3 estimates, its Q4 revenue of $52 million – $54 million, would be above the $49 million consensus. with net income expected to total $4 million – $5 million, down from Q3’s $6.7 million.

Now let’s take a look at their numbers:

Acquirer’s Multiple – 1.38

P/E – negative

P/B – 0.77

P/S – 0.70

Based on all of these numbers, the company certainly does look cheap.

How safe is the business?

To figure out the stability of the company, we use a number of key metrics.

Its Altman Z-Score is a measure of the likelihood that a company will end up in bankruptcy within 2 years. The company scored 1.79 – indicating it is in the Distress Zone.

Its Piotroski F-Score is 5 – indicating the company’s financial situation is typical for a stable company.

Its Beneish M-Score is -4.45, suggesting that the company is not an accounting manipulator.

Details of the trade:

I have $300 Australian Dollars to allocate to each stock in my portfolio.

The AUD/USD Exchange Rate this month is: $0.72USD.

Therefore, I have around $216USD to allocate to the company.

I purchased 95 shares on February 22, 2016 @ Market for $2.31.

Total principal invested $219.45USD, excluding commissions/fees.

 

Stock purchase #6, February 2016.

Next pick in the “All Investable Stock Screener” this month is Transocean Partners LLC (NYSE: RIGP). As you can see from the chart below, Transocean’s share price has been crushed in the past 12 months, down almost 49%:

(Source: Google Finance)

How does it look in the Screener?

Let’s take a closer look at Transocean in the “All Investable Stock Screener”.

The company currently has a market cap of $534 million, while its Enterprise Value (EV) is significantly lower at $394 million.

The reason its EV is so low is because the company has an excess of $140 million of cash and cash equivalents once you subtract its total debt. As a acquirer, we subtract this $140 million from the current market capitalisation of $534 million, which leaves us with a total EV of $394 million.

The company’s operating earnings, which are taken from the top of the income statement, are $216 million.

In other words, we’re paying $534 million for a company with an EV of just $394 million, that is returning operating earnings of $216 million on that $394 Million.

This gives us an Acquirer’s Multiple of 1.83, when we divide the EV ($394 million) by the operating earnings ($216 million).

Why has the share price been dropping?

Transocean Partners LLC owns, operates and acquires offshore drilling rigs. Its assets consist of 51 percent ownership interest in each of the entities that owns or operates the three ultra-deepwater drilling rigs operating in the U.S. Gulf of Mexico.

The company’s operating earnings was down a staggering 533% for the 3 months ending September 2015, compared to the pcp (previous corresponding period). Here’s all you need to know:

(Source:nasdaq.com)

The problem for Transocean is simply that oil prices are currently sitting around US$33 and they’re not showing any sign of recovery. That means that energy companies slash their capital budgets, resulting in fewer contracts for offshore drillers. Offshore drillers then churn through their backlog, and their revenue declines.

This is typical of any company whose share price is tied directly or indirectly to a commodity price. Offshore drillers have been hit hard by the drop in oil prices. In early 2015, it looked like $100 per barrel would return by the end of the year, but instead the year ended with oil near $35 per barrel.

This is the type of news we love as deep value investors. Scary isn’t it!

Now let’s take a look at their numbers:

Acquirer’s Multiple – 1.83

P/E – negative

P/B – 0.44

P/S – 0.95

Based on all of these numbers, the company certainly does look cheap.

How safe is the business?

To figure out the stability of the company, we use a number of key metrics.

Its Altman Z-Score is a measure of the likelihood that a company will end up in bankruptcy within 2 years. The company scored .49 – indicating it is in the Distress Zone.

Its Piotroski F-Score is 6 – which usually means the business is stable.

Its Beneish M-Score is -4.31, suggesting that the company is not an accounting manipulator.

Details of the trade:

I have $300 Australian Dollars to allocate to each stock in my portfolio.

The AUD/USD Exchange Rate this month is: $0.72USD.

Therefore, I have around $216USD to allocate to the company.

I purchased 28 shares on February 22, 2016 @ Market for $7.82.

Total principal invested $218.96USD, excluding commissions/fees.

See you next month with our Month 4 performance update, and good luck with your Deep Value Investing!

Johnny’s Real-Life Acquirers Multiple Portfolio – (Month 2 – Jan 2016)

Johnny HopkinsStocks Comments

Some of you may remember that last month I starting Month 1 of my own Real-Life Acquirer’s Multiple Portfolio, using my own savings, here at the Acquirer’s Multiple.

For those of you that don’t remember, I buy the top two stocks equally weighted each month, that I don’t already hold, from “The All Investable Stock Screener”, until I hold 24 stocks over 12 months, then I rebalance.

Stocks must be selected without fear or favour. All stocks suffer from the ‘broken leg’ problem (significant issues that make them unfavourable). I do not try to cherry pick the best stocks, I simply take the top two stocks in the screen that I don’t own and then track their performance right here.

You can read all about my Acquirer’s Multiple Portfolio investing strategy and monthly picks here:

Month 1 stock picks

Portfolio Performance to Date

One of the difficulties of having just two stocks in your portfolio is that each stock equally weighted represents 50% of your entire portfolio, which means lots of volatility.

As you can see from the charts below, in the past month my total portfolio is down just 4.79%, compared to the R3000.

Month Gross Return R3000 RUA Return Difference
Month 1 -12.96% -8.17% -4.79%

0GAkn[1]
(Source: Google Finance)

Individual Stocks/Notable changes.

Russell 3000 (INDEXRUSSELL:RUA) is down 8.17%

Pick 1, MoneyGram International Inc (NAS:MGI) is down 24.64%.

Pick 2, Apollo Education Group Inc (NASDAQ:APOL) is down 1.29%

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Stock purchase #3 January 2016.

OK, now lets take a look at this month’s (January 2016) top two stock picks that I’m adding to my Real-Life Acquirer’s Multiple Portfolio. The addition of these two new stocks equally weighted to my portfolio will mean that I now have four stocks each representing 25% of my portfolio, which should help to lower the volatility just a little.

Top of the All Investable Stock Screener this month is Nevsun Resources (USA) (NYSEMKT:NSU).

Nevsun Resources Ltd. (Nevsun) is engaged in the acquisition, exploration, development and operation of mineral property interests. The Company’s principal mining operation is the Bisha Mine and the Company’s principal mineral property is the Bisha property, which is owned by Bisha Mining Share Company (BMSC).

The Company’s wholly owned subsidiaries include Nevsun (Barbados) Holdings Ltd., Nevsun Africa (Barbados) Ltd. and Nevsun Resources (Eritrea) Ltd. The Company has 60% interest in BMSC. Bisha is a volcanogenic massive sulphide (VMS) deposit located 150 kilometers west of Asmara, Eritrea, East Africa.

The Bisha mine hosts a gold, copper and zinc deposit and the overall Bisha district includes satellite VMS deposits known as Harena, Northwest and Hambok. The Bisha Main deposit is located within the Bisha Mining License and the Harena satellite deposit lies in a separate mining license 6 kilometers south. Bisha Main and Harena form 100% of the mineral reserves for Bisha.

As you can see from the chart below, Nevsun’s share price has dropped 33.42% in the past 12 months, and it’s now trading at around $2.45.

273ZA[1]

Source: Google Finance.

Let’s take a closer look at Nevsun Resources (USA) in the All Investable Stock Screener.

Nevsun currently has a market cap of $489 Million, while its Enterprise Value (EV) is significantly lower at $55 Million.

The reason its EV is so low is because Nevsun has an excess of $434 Million of cash and cash equivalents once you subtract its total debt. As a acquirer of Nevsun we subtract this $434 Million from the current market capitalisation of  $489 Million, which leaves us with a total EV of $55 million.

Nevsun’s operating earnings, which are taken from the top of the income statement, are $141 Million.

In other words, we’re paying $489 Million for a company with an EV of just $55 million, that is returning operating earnings of $141 Million on that $55 Million.

This gives us an Acquirer’s Multiple of 0.39, when we divide the EV ($55 million) by the operating earnings ($141 Million).

Why has the share price been dropping at Nevsun Resources (USA)?

The following charts illustrate what’s been impacting the fall in the share price at Nevsun. These charts clearly show the quarterly decline in revenues, operating and net income, and operating and profit margins for the company.
7qfq0[1]

(Source: Google Finance)

Now lets take a closer look at what’s happened to the price of Copper over the last 12 months:

s6w3o[1]

(Source: Nasdaq.com)

What does all that mean?

Without getting too scientific, it means that as of Q3 2015 Nevsun’s revenues fell 53% year-on-year to $70 Million, owing to a 31% decline in the copper price to $2.05/lb in the period.

The low-cost Bisha mine recorded C1 cash costs of $1.56/lb for the quarter. This was a 46% rise year-on-year.

Nevsun said the copper feed grade fell 40% year-on-year to 3.8% copper, compounded by recoveries decreasing from 85.5% to 79.6%. Concentrate output accordingly fell 42% over the comparable quarter last year, to 32.5-million pounds of copper, with sales down 38% to 30.8-million pounds of copper in concentrate.

Nevsun still managed to post a small profit for the three months to September 30 2015, despite lower grades, recoveries and sliding copper prices and despite a 95% year-on-year contraction in net earnings. Net income attributable to shareholders shrunk from $25.5 Million in the comparable quarter of 2014, to $2.8 Million, in the three months under review.

Nevsun advised that it remained on track to achieve its yearly target of 140-million to 150-million pounds at cash costs of between $1.20/lb and $1.40/lb.

So, as with lots of these commodity type businesses, even if they’re doing most things right, their revenues are closely tied to commodity prices.

Now let’s take a look at their numbers:

Acquirer’s Multiple – 0.39

P/E – 10.13

P/B – 0.78

P/S – 1.13

Based on all of these numbers, the company certainly does look cheap.

How safe is the business?

To figure out the stability of the company, we use a number of key metrics.

Its Altman Z-Score is a measure of the likelihood that a company will end up in bankruptcy within 2 years. Nevsun scored 2.7 – indicating it is in the Grey Zone. This means its not in the Safe Zone or the Distress Zone.

Its Piotroski F-Score is 5 – indicating the company’s financial situation is typical for a stable company.

Its Beneish M-Score is -2.77, suggesting that the company is not an accounting manipulator.

Based on all of these, the company certainly looks stable enough.

Details of the trade:

I have $300 Australian Dollars to allocate to each stock in my portfolio.

The AUD/USD Exchange Rate this month is: $0.71USD.

Therefore, I have $213USD to allocate to NSU.

NSU’s closing share price on Yahoo Finance for 25 Jan 2016 is $2.59.

I purchased 82 shares on January 25, 2016 @ Market for $2.59.

Total principal invested $212.38USD, excluding commissions/fees.

—————————————————————————————————————————————-

Stock purchase #4 January 2016.

The next top stock in the All Investable Stock Screener this month is Bridgepoint Education Inc (NYSE:BPI).

Bridgepoint Education, Inc. is a provider of postsecondary education services.

The Company’s academic institutions include Ashford University and University of the Rockies are academic institutions that offer associate’s, bachelor’s, master’s and doctoral programs online, as well as at the traditional campuses located in Iowa and Colorado, respectively.

Bridgepoint’s institutions conduct ongoing faculty and student assessment processes and provide a range of student services. The Company is also focused on developing new technologies through Waypoint Outcomes and Constellation, and is in the development of its institutions mobile learning platforms.

As of December 31, 2014, the Company had 55,823 total students enrolled in its institutions. As of December 31, 2014, the Company’s institutions offered approximately 1,580 courses, 80 degree programs and 150 specializations. As of December 31, 2014, the Company had more than 150 Constellation titles available.

As you can see from the chart below, Bridgepoint’s share price has dropped 31.91% in the past 12 months, and it’s now trading at around $7.

SdTLz[1]

(Source: Google Finance)

Let’s take a closer look at Bridgepoint Education Inc in the All Investable Stock Screener.

Bridgepoint currently has a market cap of $320 Million, while its Enterprise Value (EV) is significantly lower at $31 Million.

The reason its EV is so low is because Bridgepoint has an excess of $289 Million of cash and cash equivalents once you subtract its total debt. As a acquirer of Bridgepoint we subtract this $289 Million from the current market capitalisation of $320 Million, which leaves us with a total EV of $31 million.

Bridgepoint’s operating earnings, which are taken from the top of the income statement, are $29 Million.

In other words, we’re paying $320 Million for a company with an EV of just $31 million, that is returning operating earnings of $29 Million on that $31 Million.

This gives us an Acquirer’s Multiple of 1.07, when we divide the EV ($31 million) by the operating earnings ($29 Million).

Why has the share price been dropping at Bridgepont Education?

Total student enrollment at Bridgepoint Education’s academic institutions, Ashford University and University of the Rockies, was 49,982 students at September 30, 2015, compared with 59,552 students at September 30, 2014.

That’s a drop of 16%!

For the third quarter of 2015, the twelve-month retention for all Ashford students who were active on the last day of the third quarter of 2014 was 60.1%.  For the third quarter of 2014, the twelve-month retention for all Ashford students who were active on the last day of the third quarter of 2013 was 65.8%.

That’s a drop of 8%!

In terms of its financials, as you can see from the chart below, revenue for the third quarter of 2015 was $140.8 million, compared with revenue of$162.7 million for the same period in 2014.

Operating loss for the third quarter of 2015 was $34.5 million compared with operating income of $10.6 million for the same period in 2014.

Net loss for the third quarter of 2015 was $62.7 million compared with net income of $6.3 million for the same period in 2014.

Fully diluted loss per share for the third quarter of 2015 was $1.37 compared with fully diluted earnings per share of $0.14 for the same period in 2014.

VlZAX[1]

In the for-profit industry, nothing is more important than enrolments.

Now let’s take a look at their numbers:

Acquirer’s Multiple – 1.07

P/E – negative

P/B – 1.04

P/S – 0.57

Based on all of these numbers, the company certainly does look cheap.

How safe is the business?

To figure out the stability of the company, we use a number of key metrics.

Its Altman Z-Score is a measure of the likelihood that a company will end up in bankruptcy within 2 years. Bridgepoint scored 3.56 – indicating it is in the Safe Zone.

Its Piotroski F-Score is 6 – indicating the company’s financial situation is typical for a stable company.

Its Beneish M-Score is -3.45, suggesting that the company is not an accounting manipulator.

Based on all of these, the company certainly looks stable.

Details of the trade:

I have $300 Australian Dollars to allocate to each stock in my portfolio.

The AUD/USD Exchange Rate this month is: $0.71USD.

Therefore, I have $213USD to allocate to BPI.

BPI’s closing share price on Yahoo Finance for 25 Jan 2016 is $6.66.

I purchased 32 shares on January 25, 2016 @ Market for $6.66.

Total principal invested $213.12USD, excluding commissions/fees.

———————————————————————————————————–

Here are the current global market conditions:

Dow Jones 16,069.640
FTSE-100 5,931.780
Hang Seng 19,575.430
Nikkei 225 17,559.760
All Ordinaries 5,056.600
ASX SPI 200 4,965.000

Shiller P/E: 23.97
AUD/USD Exchange Rate: 0.71 (Source: Bloomberg)

Johnny’s Real-Life Acquirers Multiple Portfolio – (Month 1 – Dec 2015)

Johnny HopkinsStocks Comments

Starting this month, I’ll be using my own savings to construct and track my own Acquirer’s Multiple Portfolio, here at the Acquirer’s Multiple.

I’ll buy the top two stocks equally weighted each month, that I don’t already hold, from “The All Investable Stock Screener”, until I hold 24 stocks over 12 months.

As well as buying two stocks each month, I’ll write an analysis on the two companies that I buy, as I add them to my portfolio.

As Tobias always says, stocks must be selected without fear or favour. All stocks suffer from the ‘broken leg’ problem. I will not cherry pick the best stocks, I’ll simply take the two top stocks in the screen that I don’t own.

I’ll hold winners for one year plus one day to maximize after-tax returns, then I’ll sell.

If a stock is up, and remains in the screener after one year and one day, I’ll hold until it leaves the screener.

If a stock is down and remains in the screener, I’ll hold.

If a stock is down and leaves the screener, I’ll sell.

I’ll check the portfolios quarterly to see if a rebalance is necessary no less than quarterly.

If I sell a position, I’ll rebalance the portfolio into the next best position in the screener that I don’t already hold.

I’ll provide an update each month on the entire portfolio.

I live in Australia, so I’ve set up a USD account to buy US stocks, where necessary.

I’ll provide all brokerage fees and commissions, exchange rates, and the internet brokerage that I use, so that we can track all returns and costs.

Let’s get started!

Stock purchase #1 December 2015.

Top of the All Investable Stock Screener this month is MoneyGram International Inc (NAS:MGI).

MoneyGram International, Inc. (MoneyGram) is a money transfer and payment services company.

The Company operates through two business segments: Global Funds Transfer and Financial Paper Products. The Company’s Global Funds Transfer segment offers money transfer services and bill payment services primarily to unbanked and underbanked consumers. It utilizes point-of-sale platforms, including AgentConnect, DeltaWorks, Delta T3 and MoneyGram Online.

The bill payment service includes ExpressPayment service. The Company offers its services under the MoneyGram brand.

The Company’s Financial Paper Products segment offers money orders to consumers through its retail agents and financial institutions located across the United States and Puerto Rico, and provide official check outsourcing services for financial institutions across the United States.

As you can see from the chart below, MoneyGram’s share price has dropped over 23% in the past 12 months, and it’s now trading at around $6.80, which is great news for contrarian investors!

FYZBc[1]

Source: Google Finance.

Let’s take a closer look at MoneyGram in the All Investable Stock Screener.

MoneyGram currently has a market cap of $362 Million. Its Enterprise Value (EV) is significantly lower at -$287 Million, that’s minus $287 million.

If you’re wondering why the figure is minus. MoneyGram has an excess of $649 Million of cash and cash equivalents once you subtract its total debt. As a acquirer of MoneyGram we subtract this $649 Million from the current market capitalisation of  $362 Million, which leaves us with a total EV of minus $287 million.

MoneyGram’s operating earnings, which are taken from the top of the income statement, are $88 Million.

Therefore, to calculate our Acquirer’s Multiple we divide the Enterprise Value (minus $287 million) by the operating earnings ($88 Million) to arrive at the Enterprise Multiple of -3.25. More good news for the contrarian investor.

Why has the share price been dropping at MoneyGram?

In April 2014, the Wall Street Journal reported, ” Wal-Mart Stores Inc. is taking another step deeper into banking, rolling out a new money-transfer service that undercuts rivals including Western Union Inc. and MoneyGram International Inc.

The giant retailer on Thursday unveiled the new service, Walmart-2-Walmart, which will allow customers to send and receive up to $900 at a time at more than 4,000 stores. The new service applies only to payments that are sent and received in the U.S.

It aims to take a bite of the roughly $900 billion in so-called person-to-person payments made each year in the U.S., often in the form of cash or checks.

Shares in MoneyGram, which provides money-transfer services in Wal-Mart stores and said it was surprised by the move, fell 17.7%. Shares in Western Union dropped 5%”.

The article went on to say, “In its annual report filed with securities regulators, MoneyGram said Wal-Mart accounted for 27% of its total fee and investment revenue last year.

Walmart-2-Walmart transfers will be capped at $900 and are only available at U.S. stores. That leaves room for MoneyGram to cater to customers who need to send larger sums of money or who need to transfer funds outside the U.S”.

As if that wasn’t enough, the company’s 2015 September 10Q states:

ITEM 1. LEGAL PROCEEDINGS

The matters set forth below are subject to uncertainties and outcomes that are not predictable. The Company accrues for these matters as any resulting losses become probable and can be reasonably estimated. Further, the Company maintains insurance coverage for many claims and litigation alleged.

Litigation Commenced Against the Company:

Class Action Securities Litigation – On April 15, 2015, a putative securities class action lawsuit was filed in the Superior Court of the State of Delaware, County of New Castle, against MoneyGram, all of its directors, certain of its executive officers, Thomas H. Lee Partners, Goldman Sachs & Co., Inc. (“Goldman Sachs”) and the underwriters of the secondary public offering of the Company’s common stock that closed on April 2, 2014 (the “2014 Offering”).

The lawsuit was brought by the Iron Workers District Council of New England Pension Fund seeking to represent a class consisting of all purchasers of the Company’s common stock pursuant and/or traceable to the Company’s registration statement and prospectus, and all documents incorporated by reference therein, issued in connection with the 2014 Offering. The lawsuit alleges violations of Sections 11, 12(a)(2) and 15 of the Securities Act of 1933 due to allegedly false and misleading statements in connection with the 2014 Offering and seeks unspecified damages and other relief. On May 19, 2015, MoneyGram and the other defendants filed a notice of removal to the federal district court of the District of Delaware. On June 18, 2015, the plaintiff filed a motion to remand the case back to Delaware State Court. The Company believes that the claims are without merit and intends to vigorously defend against the lawsuit.

Government Investigations:

State Civil Investigative Demands — MoneyGram has received Civil Investigative Demands from a working group of nine state attorneys general who have initiated an investigation into whether the Company took adequate steps to prevent consumer fraud during the period from 2007 to 2014. The Civil Investigative Demands seek information and documents relating to the Company’s procedures designed to prevent fraudulent transfers and consumer complaint information. MoneyGram has cooperated fully with the attorneys general in this matter and submitted the information and documents requested. No claims have been filed against MoneyGram in connection with this investigation and the Company has denied any wrongful conduct. The Company is currently in discussions with the attorneys general to resolve any allegations that they might assert.

Based on our continuing discussions with the attorneys general, we have accrued $13.0 million in connection with such investigation and we believe this represents the total expected loss exposure to resolve the matter. Any estimate of a loss contingency involves judgments based upon currently available information and assumptions believed to be reasonable and is subject to uncertainties. There may be an exposure to losses in excess of any amounts accrued, and any actual loss may vary from the current estimate.

Tax Litigation

The IRS completed its examination of the Company’s consolidated income tax returns through 2013. The IRS issued Notices of Deficiency for 2005-2007 and 2009, and also issued an Examination Report for 2008. The Notices of Deficiency disallow, among other items, approximately $900 million of ordinary deductions on securities losses in the 2007, 2008 and 2009 tax returns. In May 2012 and December 2012, the Company filed petitions in the U.S. Tax Court challenging the 2005-2007 and 2009 Notices of Deficiency. In 2013, the Company reached a partial settlement with the IRS allowing ordinary loss treatment on $186.9 million of deductions in dispute. In January 2015, the U.S. Tax Court granted the IRS’s motion for summary judgment upholding the remaining adjustments in the Notices of Deficiency. The Company believes that it has substantive tax law arguments in favor of its position.

The Company filed a notice of appeal with the U.S. Tax Court on July 27, 2015.

The U.S. Tax Court has transferred jurisdiction over the case to the U.S. Court of Appeals for the Fifth Circuit.

But that’s not all. There’s a change to top personnel.

In October this year, MoneyGram announced, “Thirty-year financial industry veteran Lawrence Angelilli has been named executive vice president and CFO of MoneyGram International Inc. (Nasdaq: MGI).

He will take over the position on Jan. 1, succeeding W. Alexander Holmes, who will take the reins as MoneyGram’s CEO on the same date.

Holmes was named to the company’s top position after Pamela Patsley, nearing the end of her employment contract with MoneyGram, announced her resignation in August.

Patsley will remain with MoneyGram through the end of 2017 as executive chairman. The role gives her a greater hand in board governance; representing the company to customers, financial representatives and other representatives; and working closely with the company’s charitable arm, the MoneyGram Foundation.

So its easy to see why MoneyGram’s share price has taken a tumble.

Now let’s take a look at their numbers:

Acquirer’s Multiple – minus 3.25

P/E – #VALUE!, unable to calculate. MoneyGram’s diluted earnings per share for the trailing twelve was negative.

P/B – negative, MoneyGram’s Book Value per Share for the quarter that ended in Sep. 2015 was negative.

P/S – 0.30

ROE – negative, Average shareholder equity for the quarter that ended in Sep. 2015 was negative.

How safe is the business?

To figure out the stability of the company, we use a number of key metrics.

Its Altman Z-Score–a measure of the likelihood that a company will end up in bankruptcy within 2 years is 0.89 – indicating it is in Distress Zones. This implies bankrupcy is possibility in the next two years.

Its Piotroski F-Score is 2 – It is a bad or low score, which usually implies poor business operation.

Its Beneish M-Score is -2.39, suggests that the company is not a manipulator.

Details of the trade:

I have $300 Australian Dollars to allocate to each stock in my portfolio.

The AUD/USD Exchange Rate this month is: $0.72USD.

Therefore, I have $216.90USD to allocate to MGI.

MGI’s closing share price on Yahoo Finance for 21 Dec 2015 is $7.06.

I purchased 31 shares on December 22, 2015 @ Market for $7.08.

Total principal invested $219.48USD, excluding commissions/fees.


Stock purchase #2 December 2015.

The second stock for purchase in the All Investable Stock Screener this month is Apollo Education Group Inc (NASDAQ:APOL).

Apollo Education Group, Inc. (Apollo) is a private education provider. The Company offers undergraduate, graduate, certificate and non-degree educational programs and services, online and on-campus, principally to working learners in the United States and abroad.

The Company’s segments are University of Phoenix, Apollo Global and Other.

The Company’s University of Phoenix segment offers undergraduate and graduate degrees through its nine colleges in a range of program areas, as well as various non-degree programs.

The Company’s Apollo Global segment includes its institutions based outside the United States and its corporate operations.

The Company’s Other segment primarily includes Apollo Professional Development, which provides relevant programs for employers to help them recruit, develop and retain a workforce, and the Company’s corporate activities.

As you can see from the chart below, Apollo’s share price has dropped over 77% in the past 12 months, and it’s now trading at around $7.73!

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Source: Google Finance.

Let’s take a closer look at Apollo in the All Investable Stock Screener.

Apollo currently has a market cap of $838 Million. Its Enterprise Value is significantly lower at minus $1 Million.

Apollo has an excess of $839 Million of cash and cash equivalents once you subtract its total debt. As a acquirer of Apollo we subtract this $839 Million from the current market capitalisation of $838 Million, which leaves us with a total of minus $1 Million.

Apollo’s operating earnings, which are taken from the top of the income statement, are $203 Million.

Therefore, to calculate our Acquirer’s Multiple we divide the Enterprise Value (minus $1 million) by the operating earnings ($203 Million) to arrive at the Enterprise Multiple of 0.

Why has the share price been dropping at Apollo?

January 2015 – Dropping Student Enrolments

Apollo Education Group said Thursday that its first-quarter net income dropped 66 percent as student enrollment for the University of Phoenix fell.

The for-profit education company also posted a disappointing outlook, and its shares fell more than 12 percent.

Enrollment at for-profit schools has fallen amid increased scrutiny and criticism from government officials and regulators. At the University of Phoenix, first-quarter enrollment fell 13.5 percent to 227,400 from 263,000 the year before.

Apollo reported net income of $33.8 million, or 31 cents per share, in the three months ending Nov. 30, compared with $98.8 million, or 87 cents per share, in the same quarter a year ago.

March 2015 – Falling Revenues

Apollo reported revenue of $578.6 million for the quarter, down 14% year-over-year and short of analyst estimates by $6 million. Degreed enrollment at the University of Phoenix fell 14.6% year-over-year, with revenue from the segment declining by 17.9%. University of Phoenix makes up the bulk of Apollo’s revenue.

CEO Greg Cappelli had this to say about Apollo’s quarter: “While we faced challenges in the second quarter, we believe Apollo Education Group has the right long-term strategy in place. In a time of unprecedented change in the higher education industry, we are focused on enhancing outcomes through a deep understanding of student and employer needs. This includes differentiating University of Phoenix through its program-based colleges and diversifying our organization with the expansion of Apollo Global and other targeted growth initiatives. We are aligning education to careers, offering students tangible skills and helping employers develop a high-performance workforce.”

April 2015 – Apollo Education Group Announces CFO Departure; Joseph D’Amico Named as Interim CFO

Apollo Education Group, Inc. (NASDAQ: APOL) today announced that Brian Swartz, Senior Vice President and Chief Financial Officer, has resigned from his position with the company effective May 15, 2015. Joseph D’Amico has been appointed to serve as interim CFO effective upon Mr. Swartz’s departure, while the company conducts a comprehensive search, considering both internal and external candidates.

“We thank Brian, as a valued member of the management team, for his contributions during the past nine years,” said Greg Cappelli, Chief Executive Officer, Apollo Education Group. “He has developed a strong financial infrastructure to support the implementation of our long-term strategic plan. We wish Brian all the best going forward.”

October 2015 – More layoffs at University of Phoenix parent company, Apollo Education Group Inc.

Apollo Education Group Inc. (Nasdaq: APOL) let go of 50 information technology employees across 12 states last week.

Those 50 individuals were part of Apollo Technology, Apollo Professional Sales and Apollo Professional Development, said Mark Brenner, senior vice president of external affairs for Apollo.

“Our company continues to restructure and re-engineer processes to better direct investment toward workforce positions and technologies that improve students’ learning and career outcomes,” he said. ” As we re-engineer our workforce, it will also involve adding new positions, along with investing in associate faculty who bring their professional expertise to students throughout the world.”

This most recent round of layoffs follows 1,500 layoffs earlier this year. Most of those let go were enrollment counselors for its flagship University of Phoenix.

October 2015 – Apollo Education Group Announces New CFO

Apollo Education Group, Inc. (NASDAQ: APOL) today announced the promotion of Gregory Iverson to serve as the company’s chief financial officer, effective October 26, 2015. Mr. Iverson succeeds Joseph D’Amico, who has been serving as interim CFO since May, and will report directly to Apollo Education Group Chief Executive Officer Gregory Cappelli.

“I am pleased to welcome Greg into his new role at Apollo,” said Mr. Cappelli. “I have had the honor of working closely with Greg for the past eight years, and he has tremendous capability and experience. As a trusted and highly valued member of our leadership team, he will continue to build upon and expand the strong financial infrastructure and team he has helped develop.”

October 2015 – Department of Defence will no longer allow service members to use federal money to attend one of its subsidiaries, The University of Phoenix

In October 2015, Apollo’s stock price fell 10% on the news that the Department of Defence will no longer allow service members to use federal money to attend one of its subsidiaries, The University of Phoenix.

And so The University of Phoenix will also no longer be able to recruit on military bases, The Wall Street Journal reported.

“The institution will not be authorised access to DoD installations for the purposes of participating in any recruitment-type activities,” said Dawn Bilodeau, chief of the Defence Department’s Voluntary Education program.

“Further, no new or transfer students at the institution will be permitted to receive DoD tuition assistance.”

On Wednesday Apollo released an 8K saying that the DoD had put it on probation for using its logos without permission and holding events on military installations without the proper clearance.

On October 7, 2015, our wholly-owned subsidiary, University of Phoenix, Inc., was notified by the U.S. Department of Defence (“DoD”) that the University had been placed on probationary status in respect of its participation in the DoD Tuition Assistance Program for active duty military personnel, and that the DoD is considering whether to terminate the DoD Voluntary Education Partnership Memorandum of Understanding with the University (“DoD MOU”) which is the basis on which the University’s active duty military students participate in the DoD Tuition Assistance Program. While on probationary status, currently eligible enrolled students will remain eligible to participate in the Tuition Assistance Program, but newly enrolled or transfer students of the University will not be eligible. In addition, while on probationary status the University will not be permitted to engage in various activities at military installations, including job training, career events, fairs and other sponsored events.

Fall 2015 Conference | Brookings Papers on Economic Activity

In addition to all of the above, research company Brookings released their findings on, “A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising loan defaults”.

The research shows that out of the list of 25 Universities, The University of Pheonix is holding more student debt than any other college in the U.S., exploding from $US2.2 billion in 2000 to $US35.5 billion in 2014.

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Now let’s take a look at their numbers:

Acquirer’s Multiple – 0

P/E – 28

P/B – 0.73

P/S – 0.32

ROE – 3%

How safe is the business?

To figure out the stability of the company, we use a number of key metrics.

Its Altman Z-Score – a measure of the likelihood that a company will end up in bankruptcy within 2 years – 5.33, indicating it is in Safe Zones. This implies the Z-Score is strong.

Its Piotroski F-Score is 6 – indicating the company’s financial situation is typical for a stable company.

Its Beneish M-Score is -2.61, suggests that the company is not a manipulator.

Details of the trade:

I have $300 Australian Dollars to allocate to each stock in my portfolio.

The AUD/USD Exchange Rate this month is: $0.72USD.

Therefore, I have $216.90USD to allocate to APOL.

APOL’s closing share price on Yahoo Finance for 21 Dec 2015 is $7.73.

I purchased 28 shares on December 22, 2015 @ Market for $7.75.

Total principal invested $217USD, excluding commissions/fees.


Current Market Conditions

Here are the current global market conditions:

All Ordinaries 5,167.677
ASX SPI 200 5,095.000
Dow Jones 17,417.270
FTSE-100 6,083.100
Hang Seng 21,830.020
Nikkei 225 18,886.700

Shiller P/E: 25.4
AUD/USD Exchange Rate: 0.72

Have a great Christmas and a Happy New Year from Australia. Stay tuned for my (Month 2 – Jan 2016) update.

Why there’s a lot to like about Cummins Inc $CMI

Johnny HopkinsStocks Comments

Cummins Inc. (NYSE:CMI) is a global diesel engine manufacturer. The Company designs, manufactures, distributes and services diesel and natural gas engines and engine-related component products, including filtration, after treatment, turbochargers, fuel systems, controls systems, air handling systems and electric power generation systems.

It has four operating segments: Engine, Distribution, Components and Power Generation. The Company sells its products to original equipment manufacturers (OEMs), distributors and other customers. It serves its customers through a network of around 600 Company-owned and independent distributor locations and around 7,200 dealer locations in more than 190 countries.

In addition, engines and engine components are manufactured by the Company’s joint ventures or independent licensees at its manufacturing plants in the United States, China, India, South Korea, Mexico and Sweden. Its subsidiaries include Cummins India Ltd. and Wuxi Cummins Turbo Technologies Co. Ltd.

As we look at the Large Cap 1000 Screener this week, we can see Cummins has an Acquirer’s Multiple of 8.09 putting it in the top 30 Large Caps.

As you can see from the chart below, Cummins share price has dropped over 33% in the past 12 months, and it’s now trading at around $98, which is great news for contrarian investors!

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Source: Google Finance.

Let’s take a closer look at Cummins in the Large Cap Screener.

Cummins currently has a market cap of $17.43 Billion, which is just a fraction higher than its enterprise value of $17.36 Billion.

As of September 2015, the company has cash and cash equivalents of $1.688 Billion and its total debt was just $1.622 Billion, leaving it with positive cash to debt of $66 Million.

Its operating earnings, which are taken from the top of the income statement, are $2.147 Billion.

Therefore, when the divide the enterprise value of $17.36 Billion by the operating earnings of $2.147 Billion we get our Acquirer’s Multiple of 8.09, and an inverse 12.4% earnings yield.

What’s been happening recently at Cummins?

On October 27, Cummins announced it would reduce its worldwide professional work force by up to 2,000 employees in response to lower demand for its products in the United States and key markets around the world. The employee reductions will come from all parts of the company. The company will incur a pre-tax fourth quarter charge in the range of $70 million to $90 million for the headcount reductions. In addition to these reductions, it expects to close or restructure several manufacturing facilities over time which could increase the fourth quarter charge and may result in additional charges in the future.

What’s the outlook for Cummins?

In the near term, Cummins expects demand in the North American medium-duty truck market to remain stable. It also expects North American light-duty demand to remain stable.

The new ISG engine, which began production in the second quarter of 2014 as part of the Beijing Foton Cummins Engine Co., Ltd. joint venture, is expected to continue to gain market share in China in its first full year of production, and demand in India is expected to improve in some end markets as their economy continues to improve.

The company has been very honest about the challenges to its business, stating:
  • Industry production in the North American heavy-duty truck markets is expected to decline
  • Power generation markets are expected to remain weak
  • Weak economic conditions in Brazil will continue to negatively impact demand across its businesses
  • End markets in China to remain weak
  • Demand in certain European markets could remain weak due to continued political and economic uncertainty
  • Foreign currency volatility could continue to put pressure on its revenues and earnings
  • It expects market demand to remain weak in the oil and gas markets as the result of low crude oil prices
  • Domestic and international mining markets could continue to deteriorate if commodity prices continue to weaken

So where’s the good news?

Cummins has created a cost advantage moat over its competitors.

Engine maker Cummins currently has around 40% of the North American market.

History tells us that engine design is an extremely difficult business, and its been made even more challenging by having to meet the U.S. Environmental Protection Agency’s emission reduction targets. But so far, Cummins has delivered. These same challenges however, have forced some of Cummins major competitors out of the market.

We saw what happened to Caterpillar Inc (NYSE:CAT), who lost significant market share in the North American heavy-duty engines space. We also saw similar events with Navistar who attempted to build a heavy-duty engine business.

It seems obvious to me that engine manufacturers would need to spend considerable time and money to erode the moat that Cummins has created. The company’s ongoing commitment to R&D has made it the clear winner in meeting emission reduction targets, resulted in significant increases in its market share.

Moreover, as emissions and fuel efficiency targets have become higher, Cummins ability to design both turbocharger and after-treatment engine systems in the same organization also lends itself to greater competitive advantage. The company currently has greater than 70% market share in heavy-duty and medium-duty turbochargers.

As long as Cummins maintains its R&D investment in emissions control technology, this will lead to favorable revenue growth as more countries mandate tougher emissions standards. While North America remains Cummins largest market, faster growing emerging markets account for almost one-third of the company’s revenues.

While global economic weakness has hurt Cummins, the company does appear to be great at innovation, cutting costs and allocating capital. When you combine this with the company’s resilient competitive advantage, Cummins will be able to withstand the short term downturn.

Don’t take my word for it!

According to commentary at Gurufocus, we’re not the only ones that like Cummins right now. The website states that, “Bill Nygren’s most noteworthy third-quarter transaction was his acquisition of a 1,900,000-share stake in Cummins Inc. (NYSE:CMI), a Columbus, Ind.-based heavy equipment company, for an average price of $123.51 per share. The deal had a 1.31% impact on Nygren’s portfolio”.

At Cummins current share price of around $100, this would seem like a much greater discount than what Mr Nygren paid at $123.51.

Valuation

Now let’s take a look at the numbers:

Acquirer’s Multiple – 8.09

Magic Formula Earnings Yield – 12.4%

P/E – 10.69

P/B – 2.29

P/S – 0.92

ROE – 21%

In terms of valuation, Cummins looks cheap!

How safe is the business?

Cheap is one thing, what we want is a cheap safe investment! So we use some other metrics to determine the stability of the company.

Its Altman Z-Score–a measure of the likelihood that a company will end up in bankruptcy within 2 years–of 4.34 indicates that it is far from financially distressed (greater than 2.6 is considered safe).

Its Piotroski F-Score is 6 out of a possible 9, which is about average for a stable company.

Its Beneish M-Score of -2.57 means it’s not an earnings manipulator (anything greater than -2.22 is good news). From a statistical perspective, it’s not close to financial distress (in fact it’s financially strong), and there’s no indication of earnings manipulation.

It’s safe!!

So, there you have it. For this investor, Cummins Inc is clearly a great stock to add to your portfolio right now.

Opinion: Are You a Value Investor?

Tobias CarlisleStudy Comments

Submitted by Valueaki.

I am an investment banking associate by trade.

I deal with A LOT of private equity firms. They all define themselves as great fundamental value investors that like to back great management teams, etc … As such, it is getting harder to identify true value investors (as defined by Graham) … esp. since Buffett touts investing it great companies at a fair price > a bad company at a great price (he’s not wrong, he’s just confused things)

Even Graham has been misunderstood. In Intelligent Investor, Graham states the best investor is the most ‘business-like.’

This statement of being impartial and un-biased has been confused and read as “the best investors are the ones whose knowledge of the industry rises to that of an operator in said operator’s business” … this confusion, I believe, possibly exists b/c of Buffett’s misunderstood definition of ‘Circle of Competence.’

Believe it or not, in Intelligent Investor, Graham actually recommended minimizing all industry analysis …

But here is the tell sign … and no one really quotes this from The Intelligent Investor:

The future itself can be approached in two different ways, which may be called the way of prediction (or projection) and the way of protection.

Obviously these options are on two opposing sides of the spectrum.

But if you fall hard under the ‘prediction’ side, you start asking too many due diligence questions, get too involved, expose yourself to too many biases to act rationally, probably have high due diligence costs, etc. and will almost always never buy a bargain. You sacrifice value to fulfill your curiosity.

When selling companies as a banker, I often think that I’d greatly help the private equity investor’s investment process if I limit the amount of questions he/she can ask the bankers or management team. If you ask too many questions, you don’t have an investment philosophy that you have internalized…

Food for thought …