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

Johnny HopkinsStudy1 Comment

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!

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

FREE Stock Screener

Don’t forget to check out our FREE Large Cap 1000 – Stock Screener, here at The Acquirer’s Multiple:

unlimited

Join 11,106 other investors in search of undervalued stocks, value investing news, and investing strategies from the greats:

One Comment on “Johnny’s Real-Life Acquirers Multiple Portfolio – (Month 3 – Feb 2016)”

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

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.