Posts tagged WILC
Money McBags is busy today so just a few quick shout outs as the market goes through a bit of a sell off due to concerns over increased taxes in the health care bill, Germany backing out of bailing out Greece, and the officiating in the Robert Morris-Villanova basketball game yesterday which was so bad that investors are questioning the integrity of all markets (though it surely left Nova alum Tim Donaghy very proud).
The big news of the day is that Alan Greenspan is out with a begrudging mea culpa in the form of a paper titled “The Crisis or: How I Learned to Stop Worrying and Love the Bubble.” He’s presenting this paper to the Brookings Institute and when he’s done, the institute will likely use it to replace their dwindling toilet paper reserves. In the paper, he says about letting banks get bigger than Kirstie Allie’s tuchus after a week long Sizzler binge:“Regrettably, we did little to address the problem.” Wow, you think Captain Obvious? I hear Joseph Hazelwood also regrets doing little to avoid crashing into Bligh Reef and Lady Gaga regrets doing little contain this country’s noise pollution problem. About creating the housing bubble, Greenspan said “We had been lulled into a sense of complacency.” Awesome, really just awesome. The market had its biggest crash in 80 years because the guy in charge of trying to regulate it was lulled into inaction like a John after a post-coitis taint massage (of course that kind of inaction just leads to your wallet getting stolen while Greenspan’s inaction led to 10% unemployment). But Greenspan still refuses to take full responsibility and to quote the NYTimes article (notice how Money McBags sources his material, even when it is from the NYTimes so probably all made up anyway) he believes the housing bubble was caused by “a sharp drop in long-term interest rates from 2000 to 2005, brought about by export-oriented growth in developing economies, especially China, after the end of the cold war.” He then went on to blame the Chinese for stealing WMDs from Iraq before the US invaded, for any movie starring Adam Sandler, and for putting way too much pee pee in his coke. But to further drive home his innocence (upcoming bolding from Money McBags), he said “it was long term mortgage rates that galvanized prices, not the overnight rates of central banks, as has become the seeming conventional wisdom.” He then further decried conventional wisdom by saying it is ok to run with scissors, to swim fewer than 20 minutes after eating, and to say “Beetlejuice” 3 times quickly. He did lay out some ways to help curb another financial meltdown and those included higher capital requirements and liquidity ratios (which wouldn’t have mattered since there were no capital requirements on CDS), having debt convert to equity when capital levels fall to a certain level, and never to hire him to make policy decisions. He ended by placing the blame solely on the shoulders of capitalism: “Unless there is a societal choice to abandon dynamic markets and leverage for some form of central planning, I fear that preventing bubbles will in the end turn out to be infeasible.. Assuaging their aftermath seems the best we can hope for.” Ok, look, first of all Money McBags was not an English major and he admits he only read his copy of Strunk and White for the pictures (though he is still a bit scarred from the centerfold featuring the longest dangling particple he has ever seen) but Mr. Greenspan, you can’t end a sentence with a fucking preposition. “Assuaging their aftermath seems the best for which we can hope” fixes that problem, I mean for fucksake you have proofreaders, right? But diction aside (and Money McBags would love to serve Hayley Atwell a side of his diction), Greenspan gets all human nature on us by basically saying as long as people are greedy, bad shit is going to happen. And you know what? That is one thing about which this guy is right. No matter what regulations are put in to place, people will always find ways around them so it is up to the regulators to be pro-fucking-active to try to quell this rather than being lolled in to complacency by their Wall Street tickle friends like Senior Greenspan was during his reign of error. And if the Fed can’t do it, Money McBags would be happy to bring Warren G. in to regulate shit because Wall Street bankers aren’t going to fuck with the LBC.
In international news, Germany conjured up their second most famous citizen in history, Sargeant Shultz, by telling Greece, “I see nothing, I hear nothing, and I know nothing” and therefore, “you get nothing.” Germany basically called Greece out in their game of chicken and told them they won’t support a bail out and to take their problems to the IMF. It is embarrassing for Greece to be shunned by daddy like this but they shouldn’t have spent their whole allowance on ouzo and a night with Julia Alexandratou while still ordering those CDs from Columbia House (and if you’re going to order CDs from Columbia House, at least use a fake name like Richard Hertz from Holden, MA). France disagrees with this move citing the desire for the EU to remain united and reminding people what happened the last time everyone followed the Germans. In other international news, India surprisingly raised their interest rates today by 25bps to try to curb inflation brought on by their continued growth. Money McBags has no jokes for this, sometimes one just has to report the news.
In small stock news, PALM once again put up a quarter so bad that even Bernie Madoff questioned their integrity. They lost $.61 per share which was much worse than analyst estimates of a $.42 loss per share and gave revenue guidance for next Q of $150MM which is less than half of estimates. Wow. This has driven the stock down 20%+ and caused several analysts to question the company as an ongoing concern. Canaccord Adams’ analyst dropped his stock price to $0 and said “Palm’s troubles will only accelerate as carriers and suppliers increasingly question the company’s solvency and withdraw their support.” That is just awesome. Money McBags fully supports any analyst who comes out with a $0 price target for anything. Also, Money McBags unloaded his shares of WILC today. He made a small profit and believes the company has huge upside if you can believe anything management says. The problem is, their actions go against everything they say (which Money McBags broke down for you last week) so why bother fighting this one when there are easier ways to make money?
3/12/10 Midday Report: Macro data sending more mixed signals than a drunk married co-worker at a holiday party
The market was down in the morning with conflicting economic data having been released. Retail sales increased in February by .3% which easily beat estimates of a .2% decline (though the difference is so insignificant it could be contributed to a rounding error or some d-bag buying that one extra pair of Joes Jeans). Excluding auto sales, retail sales were up .8% which should give investors confidence that people will still buy shit even though they can’t get jobs (and snowstorms in the Northeast didn’t stop people from continuing to run down their savings either). Alternatively, making matters worse was the University of Michigan’s consumer sentiment index coming in below expectations. The index came in at 72.5 (not 72.4 or 72.6 for those of you scoring at home) and was below last month’s 73.6 and expectations of 74. Look, Money McBags continues to be befuddled by what any of those numbers mean. How much worse is 72.5 than 74? Really? If the number had been up just an additional 1.5 points then the market would have been fine. The consumer sentiment number seems more fictitious than Larry Craig’s wife and more preposterous than someone with a constipation fetish (and I’m pretty sure that guy is not a mathematician even though he apparently likes to work things out with a pencil). So retail sales were good, but consumers apparently feel bad about spending on shit they can’t afford. Welcome to America, no go buy a flat screen (that you can’t afford).
In other news, apparently Janet Yellen, the current president of the Federal Reserve Bank of San Francisco (where everyday is funday) is set to take over for Donald Kohn as Ben Bernanke’s #2 in charge after a strong showing in the swim suit competition. It was neck and neck between Yellen and Federal Reserve Bank of Boston president Eric Rosengren until Rosengren went for the hail mary by breaking out a thong and prancing down the runway to the Go-Gos “We’ve Got the Beat.” In the end (both literally and figuratively), the thong worked against him. Yellen is said to be in favor of low rates, economic stimulus, and long walks on the beach. In her free time she studies the labor markets, authors economic texts, and makes a mean peach cobbler. She is also married to a Nobel Prize winning economist who won the award for his work on assymetric information, though he clearly understood the work better than the Nobel judges (and for you non-economics geeks out there, trust me, that was hella funny). So welcome to the job Janet, working directly under Benny B should be quite an experience, just ask Mrs. Bernanke (Oh! drumshot please).
In stock news Schwab warned that Q1 will fall short of Q4 as trading volume in February was down 14% and the company now expects to earn around $.10 per share which is below estimates of $.15. Most troubling is that trading volume was down despite February being the first month of lowered prices for small investors. This either says that trading is inelastic (which it is) and thus they should raise their prices (oligarchy be damned) or they should just keep prices where they are and start a monthly contest to stimulate trading. Money McBags would propose a contest where each time a trade is made, that person should get an entry in to an end of month drawing with the prize being a momentum day trading session with CNBC’s Amanda Drury where she’ll interpret your bollinger bands and show you how your wiener process can cause her some brownian motion (and yes Money McBags used that joke the other day, but it needed to be said twice). Look Money McBags knows Schwab has to lower prices in order to be competitive with other online brokers to bring customers in, not to actually stimulate trading, but still, the whole industry needs to either just make trading free, or stop lowering prices in their poorly played game of chicken. Online brokers are so bad at game theory they must think the Prisoner’s Dilemma is whether the prisoner should pick up the soap or not once he has dropped it in the shower. In other news, POT raised their Q1 earnings guidance from $.70-$1.00 per share to $1.30-$1.50, well ahead of analysts $.94 estimates. The increased guidance was caused by a rebound in potash demand and higher-than-expected margins in nitrogen and phosphate, or to put it more simply, more people were buying the shit out of POT’s nutrients at much higher prices. Money McBags has owned POT for quite some time as a way to diversify his portfolio (he found that simply reading The Biography of Frederick Douglass to his portfolio was not an effect diversyfing tool, though it did increase his portfolio’s empathy) so he’ll take the increased guidance.
In small cap news WILC finally placed their 3MM shares to raise $20MM of cash to go with the $26MM of cash they already have while diluting shareholders by 15% (or about what the stock is down today). The offering price was $6.05 so Money McBags is a fucking idiot for not selling yesterday when he told all of you readers he was a “Vern Troyer taint hair” away from selling. This company is Biz-fucking-zarre. We might as well hold on now until the phone call so Zwi can share his wisdom with us as to why a $70MM market cap company needs almost $50MM in cash and perhaps he’ll also let us know why he includes discontinued operations in his quarterly earnings summaries. Money McBags is less happy about this share offering price than when he found out that that no talent assclown Mario Lopez was boning this chick (and Money McBags would love to be saved by her bells). IMAX is also trading down today after their big Q yesterday which may have triggered a momentary short squeeze while also likely triggering a few cases of epilepsy in those who actually sat through Avatar in 3D.
Money McBags is short on time today and will likely be short on time next week but will still try to pump out a daily market update. Stock analysis may just be lagging. Either way, join Money McBags on twitter and enjoy the weekend.
3/11/10 Midday Report: Yield curve spread continues to fatten, claims it wants to star in Precious sequel
The market is holding steady today as foreclosures in the US rose at their slowest pace in four years. While slowing rates of foreclosures are sort of pyrrhic news similar to declining new cases of AIDS or slumping sales of country music cds, a slower rate means a slower rising homeless population and that can’t be bad (unless you’re scabies). Though foreclosures were up 6% from last year, they were down 2% from January, and were aided by government legislation and loan modification programs such as helping homeowners to lower monthly payments, refi to lower rates, and break in to loan officers’ file cabinets to burn original copies of their mortgage documents. California saw default filings down 15% though still remained the state with the most default notices, but interestingly Florida’s defaults rose by 16% and Michigan was up a ridonkulous 59% which begs the question “who knew people still lived in Michigan?” Also making the market nervous today is investors increasing their bets on inflation with the yield curve within spitting distance of swallowing up its all time high. The spread between thirty year bonds and two year bonds is now 377 bps as investors are starting to demand more yield for buying long term bonds thanks to the potentially Madoff-ian style recovery the US government is attempting to manufacture by borrowing $7ishT which they will pay back later once they raise some more debt or win the Powerball lottery just a few billion times. Jobless claims were also out today and they fell by 6k to 462k which is also about the number of people who caught ear herpes from inadvertently turning on the radio to a Black Eyed Peas song. Economists were expecting claims to fall by 8k, so the number was slightly disappointing but the difference between dropping by 1.3% instead of the expected 1.7% is less meaningful than William Henry Harrison’s presidency or Tom Cruise’s marriage. While initial claims were slightly down, 4.56MM people continue to receive unemployment benefits and to put that number in perspective, it’s more people than the entire population of Irleand and only slightly less than the number of “working” actresses Ron Jeremy and Peter North combined to bone in the 1980s.
In international news, Greek workers have continued to strike with no flights, trains, or buses operating in Greece yesterday so it’s good that tourism only accounts for 15% of their GDP (and yes that was sarcasm). The Greeks contiue to cut their well chiseled greek noses just to spite their faces (and if they go near Maria Menounos‘s face, they will have to answer to Money McBags). Courts also shut down while hospitals remained with just emergency staff. Wow. So with no transportation, no laws, and little medical attentions, Greece has just become the Detroit of Europe. In other international news the Chinese CPI was up 2.7% which is below the government’s 3% target but a bit higher than estimates. Depending on which news source you read, the 2.7% number is either manageable or way too high, so draw your own conclusion (though if Money McBags were to draw a conclusion, it would probably look something like this(maybe NSFW)).
In stock news, financials continue to rally with AIG and C leading the way as Enron executives now lament not receiving a government bailout as they opine: “if only we had more time.” Money McBags remains less interested in owning C than he is in getting in to a tickle fight with Eric Massa (and honestly, Money McBags doesn’t care if it’s your 50th birthday but if you ever try to tickle him and your name isn’t Kate Bosworth or you weren’t born with a uterus, there will be a fucking problem). In other stock news Navistar continues to plunge after driving itself off of a cliff with an earnings number the other day that was only 1/3 of what analysts were expecting ($.23 per share vs. expectations of $.85). A spokesman for the company said “if you just round up the nearest dollar, we at least met expectations.” He then pointed to a spot behind reporters and yelled “Hey look. Kool Aid!” before bolting out of the room.
In small cap news, Money McBags still eagerly waits for a response from WILC COO Zwi Williger to the questions posed yesterday on When Genius Prevailed. Money McBags’ finger is now a Vern Troyer taint hair away from hitting the sell button on his computer to ditch his WILC shares. IMAX was out with their 4Q results last night and posted a profit while forecasting a “very strong year” ahead. Avatar helped fuel their profit for the year as people love getting motion sickness while not moving, yet it was not a huge contributor to Q4. The company continues to perform well as box office receipts for the first two months of the year are up 6x to $187MM. Additionally, their JV strategy has increased gross margins from 24% to 51% and they believe that they have a continued strong upcoming movie schedule with Alice in Wonderland, How to Train Your Dragon, and a 3D remake of Ishtar. The company just earned $60MM of EBITDA for the year and $20MM in the quarter with about $30MM of net debt so they are trading at around 13x an $80MM annual EBITDA run rate which isn’t crazy expensive for a compay producing these results. Of course one could argue that the current EBITDA run rate is way too low based on recent performance and growth of JVs. Now look, Money McBags has said the stock seems expensive, and it’s certainly not cheap, but they just blew away his expectations. They continue to outpace his skepticism so it is definitely worth doing more research on the name. The 3D trend apears to have more staying power than an American Idol winner and the JV strategy is ridiculously profitable. Money McBags only wishes they would show any of Gracie Glam‘s heartwarming movies in 3D, that is if he could have the theatre to himself.
The market is higher today on the strength of a banking sector rally, positive economic news from China, and a likely date tonight with Izabel Goulart (because why else would it be this excited?). The macro news today has been slightly positive with wholesale inventories down only .2% sequentially in January after being down 1% in December. While this is the 13th consecutive month of wholesale inventory declines, the second derivative continues to sink like John Meriwether’s hedge fund career and a continued decline in the rate of inventory cuts is certinaly a positive sign. The Commerce Department, led by esteemed Secretary Gary Faye “Reagan” Locke also said that sales were up 1.3% and that dropped the ratio of inventories to sales to a record low of 1.10. This is an interesting metric as company inventories are now leaner than James Polk’s credentials in 1844 or Adam Sandler’s Oscar trophy shelf. If the economy can somehow forget about the 10% unemployment rate, the mounds of money printed by the US government, and Hillary Swank’s Academy Awards dress (and really, where did those come from?), and just start to gradually build back some inventories there could be some real recovery, despite what the great Roubini is out saying today about the increasing odds of a double dip recession (ugh). New unemployment data is also out at the state level with the unemployment rate increasing in 30 states (though more if one includes the states of panic, fear, and pants shitting) and decreasing in 9. One of the states to see declining unemployment was Michigan where the rate dropped from a national high of 14.5% to a still “you’re fucked” rate of 14.3%. But those three extra people who got hired to man the Burger King drive-through line in Kalamazoo could be a signal (unfortunately that signal is “we need some fucking jobs”).
In international news, Greece’s economic crisis is more over than Corey Haim (what, too soon?) according to Romano Prodi who is a former Italian Prime Minister, now teaching at a college in Shanghai. Money McBags has always said if you can’t trust an Italian Prime Minister, especially one who has been out of office for years and has had absolutley no real role in anything having to do with the Greek crisis, then you can’t trust anyone. Prodi will continue his “speaking out of my ass” tour by taking part in a roundtable on how global warming has finally ended before chairing a conference on the demise of the internet. Also fueling the market today is that China’s exports rose 46%. This likely signals increased consumer demand for products that cause nervous system and kidney damage to infants, or as they are more commonly known as: toys. Infant nephrologists across the nation are excited by this uptick in China and are anxiously awaiting orders of their new CT scan machines to be delivered.
In market news, the always delightful Dick “Don’t call me Richard” Bove (with the last syllable of Bove pronounced like the last syllable of oy-vey), was on CNBC talking up the financial sector. Mr. Bove (Money McBags refuses to call anyone Dick), said he thinks bank dividends will go back up to their previous levels in the next two years and he gave a vote of confidence to Citi. And let Money McBags tell you, getting a vote of confidence from an analyst who missed the symptoms of the ride down is as valuable as being dong-less in Vietnam (though to be fair, they all missed the ride down except perhaps the lovely Meredith Whitney whom Money McBags has such a crush on that he would body slam Mr. Whitney and put him in the Camel Clutch were he ever to meet him).
In small cap news, WILC had their quarter last week and Money McBags promised he would break it down for all of you this week. Unfortunately, Money McBags needed a fucking talmudic scholar to decipher WILC’s press release as it was more confusing than a plague of frogs (no really, you’re doling out 10 plagues and frogs is the best you can do for one of them? Really? You ever hear of small pox, syphilis, or grizzly bears?). Money McBags wonders if he should have read the release from right to left to better understand exactly which numbers were real numbers and what went in to them. Unsurprisingly, WILC’s conference call contained enough jibberish and was hard enough to hear that it made the press release look like a fucking Dr. Seuss book. Between COO Zwi Williger’s accent and the fact that they refused to take questions, WILC’s conference call was as helpful as giving a band aid to a hemophiliac or an all expense paid trip to the Mustang Ranch to a eunuch. Seriously guys, you’re running a fucking public company, can you at least, you know, present the information in a user friendly manner to your shareholders (and Money McBags is a shareholder). Anyway, on the surface, their Q was pretty good. They grew sales 12% in NIS (New Israel Shekels) and increased their gross margins which they said was the result of continuing to introduce new higher margin products. They said they earned $.20 per share in US which puts them at $.80 for the year. They have $26MM of cash on the balance sheet which is roughly 1/3 of their market cap. That said, their selling expense was up as a % of sales from 11% to 15% which they attribute to promotions, and their G&A was up as a % of sales as a result of management bonuses. On the call they also talked about product launches to a big box US/Canadian retailer but ZWI’s accent was thicker than the always lovely Carmella Bing so Money McBags could not make out to whom or to what he was referring. Now look, Money McBags is also a Jew and while his hebrew language skills are more non-existent than Satyrs, weapons of mass destruction in Iraq, or money shots in lesbian porn, he honestly feels he would have got more out of the call had ZWI just spoken in his native language. The most confounding part was that he did not take any questions, citing their pending share offering of $20MM. Come on Zwi let’s sit down and talk about this yid to yid. We can kibbitz a bit about the old days and all of the shiksas we’d like to have boned, but just be fucking honest with me so we can avoid any Jew on Jew crime. If you’re not going to take questions on the call, then perhaps you’ll answer them here for your shareholders. Below are things investors need to know:
1. Why is there no quarterly income statement or cash flow statement? Why only give the annual summary? For fucksake, even in your share registration statement you filed with the SEC the day of the earnings release, you only include Q3 numbers. WTF? Can you give your shareholders a break and just give us the information without making us break out excel and remember how to run a fucking vlookup table?
2. Along those lines, you quote a $.20 eps and a net income of $2.12MM. Yet in the same paragraph you say income before taxes was $1.84MM. Now look, I’m no Harry Markopolos, but how the fuck is your net income higher than income before taxes seeing as how you are a tax payer? Honestly, this is more confusing than a Thomas Pynchon novel or trying to figure out exactly of what Captain Crunch is the captain (and don’t say crunch). Money McBags broke out his proverbial magnifying glass and it looks like $.04 of your $.20 eps this Q was from discontinued operations. And that extra $.04 is almost enough to meet the discrepancy. Even if that is not the discrepancy, why the fuck are you quoting earnings of $.20 when only $.16 of it was from continuing operations?? As of 9/30/09 you had earned $.59 per share with $0 from discontinued operations and for the year you earned $.79 with $.04 coming from discontinued operations. So that sounds like a $.16 Q4 to me. So why would you quote the $.20 number? Work with me here.
3. How much of your increased gross margin was due to currency effects? It’s great that margins are rising but you have talked about the advantage you get through currency differences between your costs and revenues, so would it kill you to break that out for us? You said some of the margin increase was due to selling higher margin products, but how much? Could you do shareholders a mitzvah here and let us know how the actual business is tracking ex. currency effects?
4. Why did your cash balance go down in the quarter if you were profitable? Since there was no cash flow statement, Money McBags had to copy/paste the last two balance sheets into his outdated excel and use the delicious text-to-columns feature just to figure out what was going on and let me tell you, when Money McBags has to start breaking out old school excel functions, he is less happy than Mark Sanford’s wife on a family trip to Argentina. You earned $2.1MM from continued and discontinued operations and yet your cash balance was down by about $2MM. With your PP&E remaining about the same (and in Money McBags younger club days, he would often see people pee-peeing some E) it looks like the cash outflow was from a $4.5MM increase in inventory and $2.5MM increase in trade receivables. Hmmmmmmmm. Care to answer WTF caused this cash decline?
5. As related to what we found in question 4, why did inventories go up by more than 50%? Seriously, can you help me on this one? Is this a normal seasonal inventory tick-up of matzo, gefilte fish, and grape juice for the upcoming Passover seders or is something else going on here? You said you are launching more products so is this the ramp up of that?
6. Why are you raising $20MM? Is this really related to expansion or does this have to do with the declining cash balance in the quarter? You have $26MM of cash on your balance sheet and are a $75MM market cap company, why do you need to dilute share holders by 20%ish to bring in $20MM? You have stated that you are looking to buy a distribution center in the US or form a JV, but do you really need to an additional $20MM for that kind of acquisition?
So ZWI, if you’re reading this, and I know you are, can you help a fellow semite out a bit? I mean it’s not like I am asking you where the afikoman is (don’t tell me, it’s in the bookcase?), just help me analyze your actual business. Money McBags wants to be a longterm shareholder but he is thinking about selling despite the ridiculously cheap valuation because he is not clear what the actual earnings power is. You said you will answer questions after the share offering which will likely include or be followed shortly thereafter by some “important announcement” (hopefully that announcement isn’t that you have run off with the cash), but can you tickle Money McBags’ balls just a bit here and give some real information? And let Money McBags be brutally honest with you, if you ever quote your eps/net income number again and include discontinued operations, Money McBags will go to the Wailing Wall and pray for someone else to take over the company. The whole press release/call/equity raise is just so fucking meshugganah that shareholders need to know you are not boozing on Manischewitz and can actually run a public company.
The dreidle is in your court Zwi. You know where to reach me. MoneyMcbags@gmail.com or www.twitter.com/moneymcbags. I’ll be here all day.
Today marks the one year anniversary of the bear market’s devilish low of 666. To celebrate the nearly 70% rise since then, unemployed workers throughout the country are taking a day off from job hunting to resole their well worn and tattered shoes while Wall Street bankers are wiping their delicate behinds with their beluga caviar scented toilet paper made from the eyelashes of the Dalai Lama as a symbol of their spoils. That said, macro news is more non-existent today than John Edwards’ ethics. The only slight news comes from Federal Reserve Bank of Chicago President Charles Evans saying that weakness in the job market will cause the Fed to keep rates low for some time and they will continue to be more accommodative than Mr. Roarke was to Heather Locklear when she visited Fantasy Island (and one can only imagine the fantasies Tattoo had about her islands). Mr. Evans also said that as a result of the deep recession, policy makers may need to shift their view of full employment to correspond to a 5.25% unemployment rate as opposed to the 4.75% they currently use as a base line. So good on you Charles. Way to lower the bar instead of trying to find proactive solutions. It’s like if Perfect 10 magazine(NSFW) all of a sudden started putting 9s in their photo spreads or if Einstein rejiggered his theory of general relativity by adding some fictitious comological constant (umm, ok, maybe scratch that last one). At least we now know why Charles Evans is considered to be one of the Fed’s fluff girls as he is a Federal Reserve Bank President and yet not a voting member of the FOMC.
In international news Greek Prime Minister George Papadopolis is supposed to meet with President Obama, though there is no word as to whether Mr. Papadopolis will be bringing Webster along with him. In the meeting, the Greek Prime Minister will walk through his detailed plans of economic recovery with President Obama which will include vilifying hedge funds who bet against Greece and their faltering economy while placing the rest of the blame on a faulty johnson rod Greece had installed last year.
In stock news, Burger King had disappointing same store sales numbers for the first two months of the year posting 8% declines across the US and Canada. They blamed 3% of the decline on bad weather and the other 5% on shitty food. This comes a day after McDonalds posted slightly up US same store sales. Burger King’s CFO Ben Wells said “For us weather is a big deal because you don’t stroll to a Burger King restaurant, you have to be in an automobile.” Now look, Money McBags is no Le Corbusier so he is not an authority on how cities are laid out, but if the weather is bad, wouldn’t more people be getting in to their fucking cars and driving places than walking? Yeah, I get that if you’re snowed in you’re not going anywhere, but that should have hit McDonalds too. Consider Money McBags skeptical of that excuse.
In small cap news MLNK came out with their earnings last night and to call their earnings crappy would be an insult to crap everywhere. Now Money McBags is an owner of MLNK and has been touting them on When Genius Prevailed from time to time, so this just shows that nobody is perfect (except for maybe Jayde Nicole). This was Money McBags’ break down of MLNK last Q, the key part being management said this Q (their fiscal Q2) would be flat with fiscal Q1 and the end of the year would see an uptick. So they earned $18MM of EBITDA in fiscal Q1 and taking their guidance that put them at a $72MM run rate or an EV/EBITDA so ridonkuously cheap that even Matthew Lesko couldn’t believe it. That said, they fell short of their guidance this Q and earned only $13MM of EBITDA and then took down guidance for next Q (fiscal Q3) saying it will be flat to lower than fiscal Q2, with fiscal Q4 then being up sequentially from fiscal Q3 (though unclear if it will be up from this Q). Oy, fucking vey. So let’s use $13MM as the new EBITDA run rate assuming it drops next Q but picks up to this level again in 2Qs, with anything after that being unknown (though it should be up). So a $52MM annual EBITDA run rate with $163MM in cash on the balance sheet and no debt yields an EV/EBITDA of still only 5.5x after today’s drop. So it is still cheap and Money McBags has no intention of selling, but the fact that they were down when ther biggest customer HP had revenue up 8% this Q (and HP is 28% of revenue) is a bit head scratching (though if it were Money McBags’ head and Destiny Dixon were doing the scratching, everything would be ok). MLNK revenues in the Q were down 9% Y/Y and 4.5% sequentially, but those numbers include $4.8MM of revenue from their acquisition of Tech For Less, so comparable revenues were actually down about 2% more than that (though they said this is usually a sequentially down Q). The good news is that gross margins were up 100bps and they generated about $30MM of FCF and guided to positive FCF for the year. Europe was a main driver of weakness, down 16%, as were getting new engagements which were down 62% from last year’s fiscal Q2 which probably isn’t a great sign unless you hate making money. They said this was “a direct result of our clients delayed decision-making due to the economic headwinds in the spring and summer of 2009″ but then later they say that the six month lead times they get should put them at the front of the cycle. Hmm, Money McBags is now more confused about their business cycle than Larry Craig is about his sexuality (or at least publicly about his sexuality, because he knows in private he loves burgling turds). Luckily, Money McBags is not the only astute one out there as some guy from Harvest Capital Strategies spoke up on the conference call and asked: “you initially had expected Q2 to be flattish with Q1 and then a gradual uptick in Q3 and Q4 to now a down Q2 versus Q1 and the subsequent down Q3 versus Q2 before we see a resumption of sequential growth. Maybe if you can can just provide a little more color around what changed in the last three months?” Management said there were three reasons for the change: 1. Volumes were simply less than they expected in their base business. 2. Start-up activity is taking longer to get up and running so new business that was supposed to be in Q2 will now be in late Q3 and early Q4. 3. A little something called “Shut the fuck up” (ok, maybe they didn’t say this one). Anyway, to sum this all up Money McBags can’t be right all of the time. With consumer technology spending bottoming out, he though MLNK would see the benefits (as did their management) and they didn’t. That said, the company remains cheap (thanks to the 10% drop today) but their growth may now take longer to come back than John Travolta’s career after Staying Alive or Tiger Woods’ dignity (ok, hopefully not that long). Money McBags is not selling here, but he’s not buying either. This company simply should have done better.
Also, WILC is up almost 10% today on big volume after their Q last week. Money McBags will break that Q down in the next couple of days, but he has let you know many times that this company isn’t just chopped liver.
2/25/10 Midfternoon Report: Goldman Sachs seeks nobel prize for literature after (under)writing biggest Greek tragedy since Euripides
Greece’s debt issues are once again scaring the market like the snake ridden visage of the famous gorgon from ancient Greek mythology known more familiarly as Lady GaGa. Rising debt, a spiraling deficit, and a massive bidding up of CDS by traders betting against Greece has created somewhat of a Foucault current around the Greek islands which is now threatening to pull the entire EU and global economy in with it. Greece hasn’t been in such imminent trouble since the Battle of Thermopylae and they can only hope that the bankers whom they used for currency swaps did not run to the other side and push up the price of CDS with their inside knowledge of the obfuscated rising Greek debt and hence betray them like Ephialtes did in that same battle. Moodys is now threatening to downgrade Greece (perhaps to Jamaica, or maybe even Puerto Rico), so the global markets are very skittish today, since we all know how great Moodys is at predicting debt defaults (except when they happened to miss something called the entire global financial system meltdown). As if the Greek issue weren’t bad enough, the EU came out today (luckily their parents already knew) and forecast 2010 to be a year of fragile growth, even more fragile than the tears of a newborn unicorn upon learning it is just the figment of someone’s imagination.
In US macro news, orders for durable goods excluding transportation fell .6% which was below estimates of a 1% gain though they rose 3% when including the jump in aircraft orders. While durable good orders may have been down, non-durable goods orders or as their better known as, “shit made in China,” appear to still be doing very well. The new claims for unemployment number was also out today and it was much worse than expectations as it was up by 22k to 496k people filing first time claims. Luckily the labor department shrugged it off as being partially inflated by poor weather in the Northeast causing construction jobs to be cancelled over the past few weeks and also partially being inflated due to something else called employers laying a lot of fucking people off. They said without the weather, new claims would have been down by a “healthy” 10k to 440k jobs lost and if 440k job losses is considered healthy, then the labor department must think Michael Jackson has “just a little breathing problem.”
In stock news, CCE is up 33% on a takeout offer from KO, while KO is down 4% on that same news. KO’s CEO and Chairman said the move was a way to convert “passive capital into active capital” and when asked to clarify what exactly he meant by that, he simply said “Chewbacca was a wookie.” While Money McBags is an owner of KO, and thus 4% less happy today than he was yesterday, the global sales growth trends and brand equity have not changed at all by the deal and thus he is content to hold and potentially add a bit as soon as he can get a hold of some numbers on the deal. In other stocks reporting, SIRI somehow turned a profit this last quarter even if it was still less than $.01 per share. Subscriber growth in satellite radio has largely been stagnant due to the recession and the hundreds of other ways to get music for cheaper prices. With Howard Stern’s contract ending at the end of the year, Sirius may be more fucked than Houston during her 500 man gang bang. This company sells a product that is becoming outdated faster than the eight track or Jennifer Aniston (and take a few seconds on that pun, it will hit you in a bit, but e-mail me if you need help) as the prevelance of iPods, smart phones, and internet radio make paying a monthly fee for that same content as bad of a financial decision as the Olympics were for NBC or plastic surgery was for Greta Van Susteren. Money McBags would stay further away from SIRI stock than he would a hemophiliac AIDS patient in the throes of leprosy.
In small cap news PALM annouced their smartphones aren’t selling as well as they hoped as they have seemingly failed to put a dent in the duopoly that is the iPhone and the Blackberry (and honestly, taking on those two behemoths was about as smart of a move as introducing a soft drink to compete with Coke and Pepsi, a search engine to compete with Google and Yahoo!, or a cure for herpes to compete with Valtrex and staying 100 feet away from Paris Hilton). Palm also said their sales will be “well below” their forecasts like Vern Troyer is “well below” the clown’s hand to ride the roller coaster as apparently even a color blind lepidopterist is better at his/her job than Palm’s head of strategy is at his. Also Money McBags favorite WILC is up 10% today after a ridiculous and unwarranted sell-off over the past week. WILC remains the most ridiculous, cheapest name Money McBags has ever run across which is a bit worrisome because the last thing he thought was too good to be true was marriage, so buyer beware. And finally SMSI put up a decent Q and is up 14%. SMSI is a pretty interesting name in that they sell software that allows netbooks internet connectivity and net books continue to grow faster than a steroid user also suffering from pituitary gigantism. While the Board of Directors looks like they are waiting for the comet Hale-Bopp to hit the Earth, the company has done a decent job over the years of buying technologies in growing markets. SMSI is pretty much a one-trick pony right now with that one trick being connectivity and the pony having been purchased, but they are relatively cheap. Their wireless business grew 22% this year, though the pace slowed as the year wore on while overall topline growth was 9%. They guided to around 20% top line growth for 2009 and estimates are for them to earn in low $.70s per share which is about what they earned this year but their tax rate will be going up. The company has a nice balance sheet with $45MM of cash and no debt and is only trading at 12x estimates despite growing the topline 20%ish (again, profit growth may be negligible due to the tax rate increase). The issue with this company is that they have missed guidance before, have really only one product/area of focus, and rely on acquisitions to find the next new technology. While they have already wrapped up most of the big netbook producers as clients, competition is getting fiercer. So it’s not the best business model but it is moderately cheap with good prospects. The jump today is likely short covering but it is worth reading the transcript of the call and figuring out if a good entry point will exist once the short covering is over.
2/18/10 Midevening Report : Bernanke preemptively raises discount rate, causes Alan Greenspan to roll over in his grave
Aw shit, it is now on like donkey kong as the Fed is getting serious about some shit. This ain’t your Greenspan pushover, lolligagging, lobster tails and blow jobs for everyone, bubble creating Federal Reserve. No siree, this Bernanke guy is a straight up pimp and will bitch slap the market back to reality and remind them not to take daddy’s money before they get too uppity on him. With the markets running off of a 3 day orgy filled with earnings, mediocre economic news, and a potential bailout to get the EU out of the greek headlock in which they have been painfully trapped, Bernanke had had enough. We all remember when the fed minutes were released yesterday and one of Bernanke’s henchman, T-Ho (Fed Reserve of KC bank president Thomas Hoenig) started to warn Ben about getting high off his own supply by keeping rates too low. Well Benny B took that to heart and after the market closed he took out his pimp hand and smacked the shit out of the market by surprisingly raising the discount rate to 75bps while yelling “That’s right market, don’t forget, I’m you’re daddy. Come on, say it. Who’s your daddy? Let me hear it. You know you want it tight in the discount window.” This is the first time the rate has been increased in three years and will likely halt the market’s rally tomorrow.
Aside from Bernanke trying to win his cock-off with the market, macro news was mixed today with the Philly Fed saying manufacturing had picked up again and new orders are at their highest levels in 5 years (of course in Philly, those new orders are for Uzis, Butterscotch Krimpets, and fecal matter to make the city even shittier than it is). New claims for unemployment also came out today and were worse than expectations, rising by 31k to 473k as opposed to falling as analysts had expected. Money McBags has been through this before, but if you’re an analyst, can you at least get the direction correct? For fucksake you have a 50% chance, I mean it’s not like the 33% chance you have in guessing “man, woman, or tranny?” with Kathleen Turner. Finally the PPI came out today (as opposed to the pee pee eye that landed R Kelly on trial) and was up 1.4% signalling inflation. While the core rate was only up .3%, it was still worse than the .1% expectation. The point is, inflation is coming and it’s a good thing Bernanke looks to be proactive about it.
WMT had their earnings announcement today and beat earnings expectations yet had negative same store sales growth as a result of declining traffic. Their guidance for Q1 was also almost as bleak as John Tyler’s 1844 re-election campaign or Heidi Montag’s Celebrity Jeopardy! prospects as they said it will be a challenging quarter. The stock was down moderately today but if Bernanke is determined to quiet the market, shares of WMT may become more interesting if they fall another 5%.
Finally in small cap news WILC was down 10%. Really? No, really? There are people who want to puke out a company trading at less than 4x EV/EBITDA, less than 10x earnings (or 5x earnings if you take out the 50% cash they have on the balance sheet), with growth prospects to potentially double revenues? Seriously? Unless you think CEO Gee Willi Zwi Williger is blowing smoke out of his shofar and is fooling his auditors and submitting his financials in crayon on the back of a discarded yarmulke, there is absoltuely no fucking reason to be selling this stock here. It is still cheaper than a pail of salt water on the sunken island of Atlantis or the self respect of an 18 year old wanna be model on her first Hollywood casting couch. Yeah, Money McBags knows it is a weird fucking company (he broke it all down for you way back in 2009) and he also knows that the volume on this stock tends to be thinner than a bulimic with an oversensitive gag reflex, but for fucksake, what is it going to trade down to? Cash? A business earning money with no debt and growing is going to trade down to cash (which is only 50% downside from here)? If that’s the case than Money McBags clearly has no idea what he is doing and needs to get of this business and into whatever idiots do, like maybe politics, making oven mitts, or running the LA Clippers. Unless this company is completely full of shit like a constipated political consultant, it is a fucking screaming buy. And yes Money McBags owns it, so yes he is talking up his book. Full fucking disclosure, as always.
12/30/09 Midday Report: The market mimics the Alabama school system as investors close their books until the New Year
With the year coming to a close, trading is thinner than a bulimic after a good gastric banding while market news is scarcer than Paris Hilton’s panties or Bernie Madoff’s investment returns. The only real market news out today is that the Chicago ISM was released and measured a whopping 60, though it is unclear what 60 is out of and what 60 actually means, but it was higher than estimates so that must be good. Apparently, readings over 50 signal expansion which means every time Bar Refaeli shows up on my screen, my pants would read about a 99 on the Chicago ISM scale. Directionally, the results point to manufacturing in the midwest gaining strength and could signal positive changes for the job market as long as you are looking for a job as a competitve eater, snow shoveler, or corrupt politician (Chicago’s 3 big industries).
The dollar is also on a bit of a rally as people forget how much money the US printed and borrowed, thus sending metals prices down. Money McBags has talked about gold’s Bubblicious rise in the past and we are now witnessing some sell off. Long term, gold still remains a good hedge, though not as good as wearing two condoms when in Thailand.
Finally, GMAC may need more money from the government to the tune of $3B to $3.5B as not only did they finance shitty cars, but they financed them shittily. As a result of this news, the financial services sector is down as the fear of more bad loans and bail outs is leaving a slight scent on the market (and that scent is a bit like a young skunk who has been urinated on and left to sleep with Amy Winehouse for a week). That said, remember, these banks are getting free money and lending it out for a heck of a lot more than free so they should be raking in the dough so there are still some good buys out there.
In stock news, Money McBags favorite WILC hit its 52 week high as the shekel increases vs. the dollar and companies (unlike overweight strippers and kleenex) just can’t stay ridiculously cheap forever. Also there appears to be a sell off of momentum names in the weight loss space as NTRI and MED are dropping like Alan Greenspan’s credibility. NTRI announced a $5MM impairment charge yesterday, MED’s CEO is regstered as having sold shares, and these names have been flying higher than a coked up Ruppell’s griffon so a sell off is not unexpected. Money McBags does recommend keeping an eye on NTRI as they have had solid returns, recently entered the diabetic market, and have new deals with WMT and Walgreens. The company is a solid cash flow generator and this country has more fat people than Tiger Woods has STDs, so their business has plenty of room to grow. It is worth following and waiting for the momentum buyers to finish selling.
The only real news today (other than that Nell Mcandrew is still hot) is that the extra day of shopping this year led to an increase in retail sales. Amazingly enough, analysts also found that an extra serving at dinner led to an increase in people gaining weight, an extra shot of Jager led to an increase in people throwing up, and an extra hour in a Bangkok brothel led to an increase in people getting AIDS (and Money McBags loves any city whose name is a verb followed by a noun). Retail sales were up 3.6% as retailers were better able to hold price and manage inventory, plus that whole extra day thing. Without the extra day, analysts estimate retail sales were up 1% to 4%, so throw your favorite dart at whatever number you prefer. Interestingly though and a positive sign, sales of electronics were up 6% as consumers still want their iPhones, netbooks, and Rabbit Habits.
In other market news, the street awaits Wednesday’s treasury auction which has caused yields to increase and thus tempered market gains today and Israel raised their interest rates by another 25bps to fight off inflation. Israel also announced that if inflation continues to rise, they will either send the Mossad after it or simply have it’s mother nag it to death. The rise in Israeli rates will increase the value of the shekel vs. the dollar which is good for Money McBags’ favorite WILC though bad news for Americans planning on going on a kibbutz this summer.
In stock news, a tiny Money McBags watchlist stock, MBND, continues to rise after raising revenue estimates last week. MBND installs Direct TV across the country with a specialty in multi-dwelling units and recently rolled up a number of players to become the largest Direct TV installer. They finally worked out operating kinks last Q and earned $3.3MM of EBITDA and just guided to $260MM-$270MM of annual revenue. So as long as they don’t fuck anything up (which they did in the 2Qs prior to this last one, so the leash is shorter than a midget’s nut hairs), they should earn at least $14MM of EBITDA and they have only a $20MM market cap and ~$55MM EV. So they are trading at ~4x EV/EBITDA and <.1x revenues and that is if they realize no operating efficiencies. This is either a $6+ stock or a roll-up cluster fuck, but worth keeping an eye on and doing some research as Direct TV continues to grow and MBND could ramp with it now that they have their operational issues “under control” (at least until the next fuck up).
What they do: G. Willi develops and distributes kosher food, mostly in Israel but is starting to grow in the United States. They also own 51% of Shamir Salads which makes hummus and is the #3 market share humus maker in Israel.
Look, before we go on I know you’re all thinking “What a stupid name for a fucking company” but need I remind you of Yahoo! and Dick’s? Sure G. Willi sounds like something a 12 year old says when he gets boner for no reason (and yes I am starting off this analysis with a joke about adolescent penis, so it may be too high brow for most of you, but stick with me), but it comes from the founder/CEO’s name which is Williger. Just be lucky his last name wasn’t Whizzberg or Fuckfacestein.
As an aside, Money McBags is going to be making many Jewish jokes in the proceeding paragraphs but he is Jewish so it is allowed (His great great grandparents changed their name from McBagberg simply to McBags when they reached Ellis Island), just like Chris Rock is allowed to make african-american jokes and Robin Williams is allowed to make gay jokes. You can make fun of your own kind, so please keep that in mind.
Why Money McBags likes them:
1. Oy vey are they are cheap, we’re talking wholesale prices: Honestly, this stock is cheaper than an AIDS ridden whore in a bangkok brothel (and Money McBags loves any destination that is also a command). WILC has an equity market value of $59MM (Money McBags will be using $US figures), $29.5MM in cash and equivalents, and no debt. So an enterprise value of $30MM.
In the first six months of this year they earned $.27 per share. This past quarter, they earned ~$.33 per share (using $1/3.785 New Israel Shekels to translate). However, that $.33 is a bit misleading. Included in their income statement was a one-time capital gain of ~$1.38MM. If you take that one time gain out, their EPS was really closer to $.17. Still, it means they have earned $.44 in 9 months.
If you take the current run rate of $.17 and say there is no seasonality (the company says there isn’t), and assume the company is in steady state (which it isn’t, more on that later (huhuhuh, I said moron)), that is an annual run rate of $.68. The stock is at $6 including the 50% cash. So it’s trading at ~8.5x earnings or ~4.5x earnings not including the cash. Honestly, that is so cheap it’s like buy one get one free and you know how us yids like things wholesale. Most packaged goods companies trade at ~14x-15x eps so this is a huge discount (and as you’ll see later, there probably should be a discount, but not to these levels).
But let’s not just look at EPS, let’s look at EBITDA which is a better measure of the company’s operating cash flow without having to worry about financing decisions. In the first 9 months of the year, the company has earned ~$5.7MM in operating income. Adding back depreciation of ~$300k per Q, you get EBITDA of ~$6.6MM in the first 9 months. Assuming that is a base case run rate, that is ~$8.8MM annual EBITDA and remember the enterprise value is ~$30MM. I am no maffmatecian (though I will flaunt my Finance MBA when the negotiations for “happy endings” come up), but that is about 3.5x EV/EBITDA. You know what else sells at 3.5x EV/EBITDA? Dirt.
2. It’s not just kosher food, it’s for fat people, and there are alot of fat fucking people: First of all, I know what you’re all thinking, the kosher food market has to be smaller than Lindsay Lohan’s panty drawer because Jews make up less than 1% of the world’s population. While the Jews are a very small population, they are not the only ones who eat kosher food.
First of all the company estimates the kosher food market in Israel is ~$13B and growing in mid-single digits whereas the kosher food market opportunity in the US is at $14B with global growth of 15%.
Secondly, only 20% of their US customers are Jewish. The rest are Muslim, 7th day adventists, Scientologists, and Mickey Rourke (perhaps not scientologists, but there is no real data). People perceive kosher food as being better quality, I mean after all a rabbi blesses the food and you’ve never met a dirty rabbi, have you? Kosher food is playing in to the whole organic/food quality craze and it’s just starting to grow shelf-space.
And here’s the best part. G Willi is different because their food is both Kosher and low fat. They have engineered their food to take the fat out of it, something other kosher food providers have not done. The example they like to give is that parmagiano cheese requires some sort of pork enzyme to make it parmagiano (and to be clear, Money McBags is anti-porking enzymes, but to each their own). So in order to make parmagiano cheese kosher, they had to re-engineer it and by re-engineering it, they also made it non-fat.
So not only do you get to play the better food craze, but you get to play the “there are a lot of fat fucking people craze.” Most of the US health care costs are caused by fat people, they’re everywhere and their weak little hearts keep giving way under the intense pressure of bloated internal organs and ginormous intestines. It’s a fact. So not only does G. Willi address this growing segment of people (pun intended) but no other kosher food company in the US does so. Go to your local Supermarket and if you are not in the midwest or the south, you’ll likely see a small kosher section and all it will have are the classic Jewy foods that no one eats (except Money McBags) like Gifelte Fish, Matzo, and horseradish. There is a wide open opportunity for G. Willi to come in with regular food that is perceived to be better (because it is kosher) and non-fat. Even the nazis would probably be ok with that.
and here is where it gets good…
3. They are negotiating private label deals with 4 to 5 large US supermarkets: They just put their noodle soups in over 700 US grocery stores, but for the past year they have been negotiating with 5 major carriers (Whole Foods is one that has been mentioned) for those stores to private label G. Willi’s low fat kosher products. The stores love it because they get better margins as they can charge a premium price for kosher food and G. WIlli loves it because they don’t have to pay any kind of slotting fee or do any advertising. Hey Whole Foods, you want a store brand kosher parmagiano cheese? Cut me a check and it’s all yours. Done and done.
Management thinks that by the end of 2010 deals like this will cause US sales to be 50% of company sales. US sales are currently 10% and the company estimates their Israel business will grow mid single digits, so if you stop and think about it, they are estimating sales to double by the end of 2010. From point 1 we saw they are cheap at their current run rate, but if they sign these deals to near double revenue (and they say the net profit margins will be the same or better), then you have a doubly cheap company. And what is double really fucking cheap? I think it’s really really fucking cheap. Or maybe really fucking fucking cheap.
4. Hummus hummus everywhere: Have you been to your local supermarket store lately? There are now like 5 hummus brands. One of them, Sabra Salads, Pepsi bought 50% of two years ago. Management from G. Willi has estimated that Pepsi paid $100MM for Sabra and Sabra was the #1 market share in Israel with ~45% share. G. Willi recently took a 50% stake in Sabra competitor Shamir Salads and paid only ~$2MM for a company that has ~7% market share in Israel. There is obviously a big difference between 45% market share and 5%-10% market share and it’s not 100% clear if Pepsi paid $100MM for Sabra or that is what they paid for 1/2 of Sabra or what the exact deal was, but the numbers are directionally correct. So G. Willi got a seemingly good deal on company in a market where there is alot of growth as Pepsi wouldn’t be buying in if they didn’t think people liked themselves some hummus (and by the way, if you say “hummers” with a thick Boston accent, it sounds like hummus, just an fyi in case you are a lady and run into a Boston meathead asking for a hummer. Hint, you might want to leave the pita bread in the cupboard). The point is, G. Willi now has this hummus brand which they are intent on bringing to US supermarkets in the next 1 to 2 years, and they probably bought it on the cheap.
5. Management is with you and fixing their margins: Management owns 70% of the company and is focused on the bottom line. They recently divested two subsidiaries, one a danish cheese/milk provider as they were simply “schlepping” product for them (and yes on the call, the CEO said they are not schleppers. And if you’re keeping score at home, he had me at “Schlep”). Those subsidiaries were impacting gross margins so they were sold for the same price at which they were purchased. As a result gross margins have gone up from low 20% to 32% (though 25%-27% is the stated run rate).
6. The Protocols of the Elders of Zion: Ok, Money McBags is 99.6% sure this is fictitious, as he has never been asked to join, but in the .4% chance it is real, wouldn’t it be good to have them on our side?
Why you need to be wary:
1. It’s an Israeli company: Like all foreign companies, who the fuck knows what is really going on there. Plus as a Jew, Money McBags feels confident to say that doing business with Israelis is the worse than having your balls licked by a woman suffering from xerostomia (though not as bad as doing business with Mormons). Not only that, but war breaks out in Israel more often than Dane Cook tells an unfunny joke, so one can never be too sure about WILC’s operations being safe. This company should really be private but they feel that the US listing helps them get US business.
2. It’s not just Israeli, it’s small and illiquid: You know what no one gives a shit about other than tennis? $50MM companies with no float. WILC trades fewer than 5k shares per day so it is hard to build a position for anyone other than a small investor. It’s less liquid than a burrito shit.
3. They aren’t known by the street and need to figure out how to communicate with investors: There is no sellside coverage, which Money McBags usually likes but this company is also very green at reporting. Money needed a magnifying glass and a fucking translator to figure out exactly how much money WILC earned in $US this last Q. Hey guys, just fucking give me all of the quarterly numbers in $US and take out the fucking one-timers like the capital gains. Seriously, they communicate worse than an armless Helen Keller (quick oldie but goodie: Why was Helen Keller’s leg yellow? Her dog was blind too. Thanks, I’ll be here all day). Oh yeah, their topline shows a revenue decline of 2% but when prodded on the call, management said Q3 2008 included $10MM in revenue from a subsidiary they no longer have. It’s unclear why this wasn’t in discontinued operations, but it’s also unclear why people listen to country music, so fuck if I know. Either way this should have been made clear in the release. The other thing they didn’t make clear in the release and marginally clarified on the call was the gross margin improvement. 6% of the improvement was due to the dollar decreasing against the shekel, the other 6% was selling off lower margin subsidiaries and some cost improvement. So instead of the 32% gross margin they earned this Q, a 25% to 27% is more of a steady state (should the dollar appreciate back to where it was). It would be great if this had all been in the fucking release instead of making me do actual work. I get paid to ask questions, not to fucking have to think, you got that G Willi Willger?
Let’s assume the five things that could go wrong for this company do go wrong:
1. The dollar immediately appreciate and the exchange rate goes back to 4.2 NI/$1, causing gross margins to drop to 26%.
2. Their deals with US Supermarkets never materialize, like all of Money McBags hopes and dreams.
3. They spend $5MM on a distribution plant in the US for Shamir Salads and that has less success than Dexter Manley in a spelling bee.
4. No growth in israel.
5. War breaks out in Israel.
Well the downside for point 5 is probably $0, but war could break the fuck out anywhere so Money McBags is going to turn a blind eye to that (assuming he can find Stevie Wonder and have him slightly turn his head).
As for the other four occurences, if those happen, WILC will likely earn somewhere around $.05 per share a quarter or $.20 annualized. Assuming they blow $5MM on a plant, that would leave them with ~$2.40 a share in cash and if they trade at 10x (a 33% discount to peers), that would yield them an equity value of $2.00 + $2.40 in cash for a $4.40 price. So
Base Case Scenario:
1. Dollar appreciates a bit (though with about a gajillion dollars having recently been printed, the dollar has as much chance of appreciating as Vern Troyer does of winning the high jump at the 2012 Olympics) thus bringing margins down slightly.
2. US sales don’t begin until late 2010.
3. Israel has modest growth.
4. They spend $5MM on buying a US facility for Shamir Salads.
In this scenario, they should be able to earn at least what they did last Q with a decrease in margins being made up for by Israeli growth and some US private label business coming to them. So let’s say they can earn at a $.17-$.20 quarterly rate which we’ll call $.75 annually.
Throw a 12x multiple on that (discounting them because they are small and Israeli, and Money McBags will keep his Golda Meir jokes to himself) and add back the cash and you get a stock worth ~$11.50 or almost twice it’s current price.
1. Margins stay where they are.
2. The US business grows to be 50% of revenues by the end of 2010
3. Israel business grows 8%
4. Shamir Salads takes off.
If that happens, this is lobster tails and blow jobs for everyone involved. That is the valuation.
WILC is a ridiculously underpriced company that only needs business to remain as it is to double from it’s current valuation. You can simply view their growth prospects as an option and give Money McBags some love when you cash out 2x richer. Mazel Tov bitches.
Note: For purposes of full disclosures, Money McBags has a personal long position in WILC as of this post (he also would like to have a personal long position in Faye Reagan). For other purposes of full disclosure, Money McBags loves vagina. And as always, while Money McBags loves making money, everyone is wrong from time to time (some just less frequently than others), so do your own work.