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

Johnny HopkinsStocks9 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!

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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.

For more articles like this, check out our recent articles here.

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9 Comments on “Johnny’s Real-Life Acquirers Multiple Portfolio – (Month 1 – Dec 2015)”

  1. Didn’t you start this a few months ago or was that someone else ? Anyhow good onya. I’m in Oz too and hoping IB gets their forex licence back.

  2. Hey Christian. No, this is the first time I’ve undertaken this project.

    Not sure about IB getting their forex licence back. We’ll have to wait and see.

  3. Pingback: Johnny’s Real-Life Acquirers Multiple Portfolio – (Month 3 – Feb 2016) | The Acquirer’s Multiple®

  4. Hi Johnny

    I confused you with Bruce Murison , who started doing something similar on this bog in June or July last year. However, he hasn’t posted much for a few months which is why I thought it might have been you.

  5. Pingback: Johnny’s Real-Life Acquirers Multiple Portfolio – Month 4 – Part 1 | Deep Value Stock Screener - The Acquirer's Multiple®

  6. Pingback: Johnny’s Real-Life Acquirers Multiple Portfolio – (Month 2 – Jan 2016) | Deep Value Stock Screener - The Acquirer's Multiple®

  7. Pingback: Johnny’s Real-Life Acquirers Multiple Portfolio – Update | Stock Screener - The Acquirer's Multiple®

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