Posts tagged MON
9/28/10 Midnight Report: Market stimulated by QE2 rumor. Rumor is that unlike that cocktease QE1, QE2 will provide happy ending
The market climbed today as investors all bet on the Fed continuing to manipulate its balance sheet like like RuPaul manipulates his/her junk in a gaff (and the things Money McBags had to look at while searching for that term/pic on the internet shall never be mentioned, so please laugh at that joke for the dignity Money McBags had to give up in writing it).
Equity strategists (and Money McBags uses that term loosely since it is more of an oxymoron than “sweet sorrow” or “comedian Dane Cook”) were all over the media today talking about quantitative easing and how the likely inflation associated with it will help drive the stock market higher by further devaluing the dollar like Stephen Colbert brilliantly devalued Congress. Of course, the non-hyped reality of QE 2 (which promises to be the worst sequel since Brokeback Mountain 2: Is That a Lasso in your Asso?) is that by purchasing more bonds, all the Fed is doing is turning the dollar in to a more worthless piece of paper than Barack Obama’s birth certificate (according to teabaggers that is) and that these measures are short term optical boons for the market but don’t do anything to solve the fundamental problems with the economy which are that unemployment is at unhealthy levels, the income gap keeps widening (like Kirstie Alley‘s eyes at a Krispy Kreme doughnut shop), and even with rates being held at 0% businesses simply can’t grow if people aren’t spending the devalued dollars they have. Fuck, hasn’t anyone in Bernanke’s office ever heard of Japan?
So the Fed is going to manipulate the market while the actual economy continues to struggle as noted by consumer confidence once again falling below analyst guesses of 51 to 48.5. This is the lowest confidence has been since February and is a result of unemployment remaining higher than a Jessica Simpson pant line, fewer CEOs expecting sales growth (and remember, these guys never saw a chart that couldn’t score a hat trick), and consumer’s losing their health care and thus no longer being able to afford ritalin to keep their confidence up. So the Fed can try to push companies in to hiring all they want by continuing to devalue the dollar, but unless companies bite on that stimulus soon, consumer spend is going to disappear faster than civility or Meaghan Cheung’s career and that is going to be about as good for the economy as Yoko Ono was for the Beatles or George Soros was for the Bank of England.
In the final bit of US macro news, home prices were up .6%, or down .1%, depending on if you like your numbers seasonally adjusted or not (and Money McBags likes his numbers over easy and rounded to the nearest 69). The Case Shiller index was basically inline with analyst guesses (so good on you analysts, Money McBags knew the coin flip would eventually come up sideways) and provides us with a great view of a blended 3 month number from July, which would be great if this were August and not two to five months after the data was recorded, but whatever, this data is about as relevant now as the lovely Peggy Eaton, so in one onomatopoetic word: Yawn.
Internationally, Standard and Poor’s warned that it may cut Ireland’s rating as the country continues to bail out Anglo Irish Bank after the bank had one too many pints of Guiness and started lending to any Tomas, Patrick, or Haley. Ireland’s debt is now 12% of GDP (though it could go up to as much as 25% depending on how much of a bank bail out they need) and credit default swaps on the country are spiking like sales of Ulysses on Bloomsday. Money McBags remains very wary of Europe and their banking system as like a waitress at AsiaSF, things likely aren’t as they appear to be.
In stock news, WAG jumped 10% after a good quarterly earnings report as their pharmacy business pushed a fuck load more drugs than the rest of the industry (if you remember last week RAD disappointed investors because of weakness in their pharmacy). When WAG was asked how their prescription business grew 6.5% vs the rest of the industry at .5% they credited the growth of 90 day prescription refills and their policy of not getting high off their own supply. Finally, MON shares dropped ~8% on concerns about their new premium corn seeds which if they fail, may lead a corn hole in the company’s revenues.
In small cap news, Money McBags hasn’t had a chance yet to mention KITD’s latest acquisition from Friday which on the surface sounds like another solid deal. And yes, Money McBags is going to talk about KITD again because it is one of his best ideas, potentially even better than the splashguard on the blumpkin table hat™ or ring tones (and yes, Money McBags came up for the ring tone idea in 1999 and yet never did anything with it, so good on him). Anyway, last week KITD bought another Czech company called Brickbox for ~$10MM up front of which $6.6MM was in cash, and then future earnouts of 10% of forward revenue for 4 years capped at a $20MM annual threshhold. Brickbox brought in $12MM in revenues last year, had $1MM of profits, and according to the release they:
“serve as an intermediary between content owners and distributors, offering products and services that include mezzanine file management, localization, digital cinema mastering, and authoring of media for replication. Brickbox uses order scale across regions to realize cost efficiencies for a global client base, which also requires outsourced replication, packaging, and distribution to the physical point of sale.”
What that means in English, Money McBags isn’t 100% sure but apparently they work with movie studios to transfer film in to other mediums and formats and KITD had been doing something with their back end already. So KITD paid <1x revenue or at least 10x EBITDA for this company which seems on the expensive side from an EBITDA perspective but if KITD is able to realize cost synergies then that multiple will obviously drop on a forward basis.
So after the two latest transactions, KITD should be at ~$120MM revenue for 2011 assuming no organic growth which is about as good of an assumption as assuming that intelligent design is where humans came from (because if the design were that intelligent, why would we have to poop?) or assuming that Britney Spears is wearing panties. The industry is growing 35% to 40% so say KITD grows at half that rate including current acquisitions (even though they are the market leader and in theory are growing at faster than the market, but whatever). So if one wants to low ball KITD , have them grow 20%, assume no more acquisitions (though they still have ~$46MM in cash), and throw a ~18% EBITDA margin on what would be ~$145MM. That gets you to ~$26MM EBIDTA and they have a ~$225MM EV so they are trading at ~8.6x EV/EBITDA. But if they grow at market, and increase their EBITDA margin, this stock gets closer to 5x EV/EBITDA and that is just TOO FUCKING CHEAP for a company with this kind of growth profile in the midst of a market land grab. Brickbox seems like a nice deal and Money McBags still maintains that as long as management isn’t doing anything nefarious to juice up the numbers in order to sell KITD sooner rather than later (and Money McBags would be very surprised if they were), this is going to be a big winner (of course he has been saying that for months and it has been stagnant, though volatile, but long-term this should perform).