General Motors

I do no like GM cars.  When I told my wife I was considering an investment in GM, she told me I was crazy.  She does not know, but she drives a GM (Buick) that she loves.  I hate it. I pay the repair bills.  But you know what, it is a 2008 Buick, lets give a chance to the new General Motors.



From wikipedia…

General Motors Company,[1] commonly known as GM, is an American multinational corporation headquartered in Detroit, Michigan, that designs, manufactures, markets and distributes vehicles and vehicle parts and sells financial services. General Motors produces vehicles in 37 countries under thirteen brands: Alpheon, Chevrolet, Buick, GMC, Cadillac, Holden, HSV, Opel, Vauxhall, Wuling, Baojun, Jie Fang, UzDaewoo.[7][8] General Motors holds a 20% stake in IMM, and a 77% stake in GM Korea. It also has a number of joint-ventures, including Shanghai GM, SAIC-GM-Wuling and FAW-GM in China, GM-AvtoVAZ in Russia, Ghandhara Industries in Pakistan, GM Uzbekistan, General Motors India, General Motors Egypt, and Isuzu Truck South Africa. General Motors employs 212,000 people and does business in more than 120 countries.[2] General Motors is divided into five business segments: GM North America(GMNA), Opel Group, GM International Operations (GMIO), GM South America (GMSA), and GM Financial.[9]:12, 13 As part of its 2009 bankruptcy restructuring the current company, General Motors Company LLC, (“new GM”), was formed in 2009, after the bankruptcy of the General Motors Corporation (“old GM”). The new company purchased the majority of the assets of “old GM”, including the name “General Motors”.



GM current CEO is Mari Barra. She has been named at that role January 15th of last year (2015).  She is at GM’s head for less than one year and worked at GM for all her life.  Starting has a co-op student in engineering she climed the ladders one at a time for the past 26 years (she started in 1980).  You have to respect that.  Her history has a CEO is short but great.

From Forbes…

Since taking control of GM, she faced revelations about faulty ignition switches blamed for at least 74 deaths and 126 injuries, a 30-million car recall and pressure from investors to return more cash to shareholders. In October the 35-year GM veteran finally got to lay out her strategy for the future, which includes turning Cadillac into a global luxury brand, continuing to grow in China and becoming a technology leader. Under Barra GM is also proving to be more disciplined financially, making tough decisions like pulling out of Russia, Australia and Indonesia or killing the Chevrolet brand in Europe if there’s not enough profit to justify continued investment.


Total executive compensation came in at over 51 millions in 2015, Mary Barra having most of it at 15 millions.  That is alot of money.  Most of the compensation is in stock.  On 5.4billions of net income it is a small percentage of the total profit (0.2%).


The governement of the United States have exited the ownership of GM (acquired from the restructuring).  The current owners are institutions including the value oriented Vanguard Group (5,12%) and Berkshire Hataway (3.12%).  Total institutions ownership is around 40%.


Overall Ratios

  • Market cap is around 46B for a 5.5B in net income resulting in a P/E of 12.  If you think about it, 2015 had an extra 2.2B charge related to the ignition switch.  Adding back this 2.2B charge and considering no improvement in operating cost / flat sales, you get 7.7B in forward net income.  This would give us a FP/E close to 6!
  • Return on equity around 12% is not an outstanding result but in the car industry it is considered good return considering the debt load.  Ford with 4 times more debt ROE ratio is at 17%.
  • GM’S ROIC (return on invested capital) is close to 5.5%.  In this low interest environnement, it is acceptable but I would prefer GM to return money to the investors because we should be able to invest our capital at an higher rate.
  • Dividend yields is around 4.6% and looks easy to maintain with a payout ratio around 30%.

Balance sheet

  • The company is using debt at a ratio debt/equity close to 1.2  It is a reasonnable ratio considering that current income covers 17 times the interest payments.  If you compare to Ford, GM debt is irrelevant.  Ford ratio stands close to 5!
  • Book value per share stands at 22$.


  • Automobile industry is a cycle industry.  When to many new cars are sold/leased, the overall market gets saturated and you must wait for those cars to get older and need replacement.
  • Revenues by market is important in GM revenue calculation.  US sales are accounting for 30% of total GM sales.  What is the current market condition?
Current car sales in US are at pre-recession level.  We cannot plan on sales growth in the future years.  We could even expect sales slowdown in the future (near or far, I do not know).

China represents the biggest market for GM (35%).  We all know China is in a bad mood in 2016.  It will probably impact GM.  I expect sales decline in 2016 in China.  But if China represents alot of volume for GM, the China profitability is not at US level.  US profitability is 10 times better than China profitability.  A drop in China sales would result in low impact (0.5 to 1B) in GM profitability.


  • Cashflow is almost identical to net icome.  No big news here.  If we get a FP/E of 6, FP/cashflow is 6 or 4.8$ per share!


My take on Future profitability

  • Current car sales will not deteriorate in the near future but will not increase needer.  I plan on flat sales.
  • China profitability will stay flat.
  • Mary Barra will continue improving operation by cutting non-profitable divisions and increase profitability (not included in estimates).
  • No new scandal will occur in the near future.
  • Current debt will stay the same.

Company estimated value

  • Future profitability will be close to the 7-8 billion range
  • At an industry P/E ratio of 12, we can estimate the market cap at 84 to 96M (roughly 60$ per share).

Disclosure : Author is Long GM



A Compelling Case for General Motors and its 4.5% Dividend Yield.

United States Total Vehicle Sales

Posted in Uncategorized

2 years later

How do I start? It’s been 2 years since my last post. I’ve ride a rollercoster for the last 2 years. I’ve taken confidence in 2014 with returns over 40% and found out in 2015 that confidence is not a good tool in value investing with returns of -3%.

I’ve taken a new year resolution regarding my investment career and it is to restart this blogging process before buying any shares. It helps me keep the confidence down and the checklist process in place.

So I’ll revive this blog.

See you soon.

Posted in Uncategorized

Tellza Communications inc.

One canadian blogger I really love to follow is Saj Karsan. I personally do not like all his ideas, but some of them gave me good hints about great companies. He is now a Seeking Alpha blogger (I assume he wanted to monetize his blog) and published a great article on Tellza lately. Following my lecture of his article, I’ve put TEL in my “Must do a due diligence” list of stocks and finally had the time to look into it this morning.

I propose you read his article here. He makes a good wrap up of the valuation and the businesses. I don’t have much more to add has Saj Karsan did a great job. The only thing is, since his article, Tellza bought a competitor (Matchcom) accretive 500k to profits immediately. I do not know the price of the 5M shares issued but at 0.15$/share + the 585k cash, it is an acquisition at a P/E less than 3! What a great job.

Anyhow, you got a 60% head-start discount and many new business opportunities given in for free.
It is a head I win, Tail I win way more situation. The kind I really love.

Disclosure : Author is long TEL.

Posted in TEL

LACO : a tale of hidden assets

Hey, it has been a while since my last write-up. I’m following my stocks and making few investments here and there but I’ve been lazy on this blog. I thought new development at Lakes needed attentions.


It is now in operation and meeting rooms are opening Monday next week. Results are ramping up but we can count on 0.5 to 1M EBITDA per month in the following year. I expect 7M profit on Evitts next year for a value (8x EBITDA) of 56M against a debt of 15M for a net value of 41M. By the was, the debt interest rate dropped to 5%!

Penn and Tribes

We received the cash! There also is a pending note of 60M that must be paid if the casino opens. It is planned to open in 2014 (let’s assume 2015) so we could get a new receivable of 60M from hashes. I love those kinds of surprises. There also is a land that should be purchased by Penn during construction (they took an option on it) at 7M value.

Rock Ohio

Casinos are not rocking has planned. They are making shy of 20M in revenues a month versus planned 25-30M. It is profitable but not pumping money. The original investment value of 18 bears interests at 15%. The actual value of the 20M invested in Rock is now worth (officially) 25M.

Rapid global valuation

Cash on hand 90M
AR adjustments (33% chance the 60M gets paid) 20M
Land 7M
Rock Ohio Venture 25M
Evitts 41M
Total 183M

Disclosure : Long LACO.

Posted in Uncategorized

Phillips 66 : Value analysis (profitability by segment)

Created from the spinoff of conoco philipps here is the company description from their web site.

Phillips66 is built on more than 130 years of experience, Phillips 66 is a growing energy manufacturing and logistics company. We rene and market petroleum products, such as gasoline, diesel, jet fuel and lubricants; gather and process natural gas and natural gas liquids (NGL) for powering businesses, heating homes, cooking and electricity; and manufacture petrochemicals, polymers and plastics found in cars, electronics and other everyday goods. This diverse portfolio enables Phillips 66 to capture opportunities in a changing energy landscape.

Part 1 : CPChevron

Phillips 66’s Chemicals business is conducted through a 50 percent equity investment in CPChem, a joint venture with Chevron. 
CPChem is one of the world’s top producers of ole-ns and polyole-ns and a leading supplier of aromatics, alpha ole-ns, styrenics, specialty chemicals, plastic piping and polymer resins.

This business have income before taxes related to Phillips66 ownership (50%) of around 1.2B dollars per year.  It is growing rapidly (from 2009 to 2012).  We have seen a drop in production in the last quarter but we could still calculate full year at about the same profit before tax at around 1.2B for 2013 and more than that for the following years.  In our evaluation we will use the conservative estimate of 10X Earnings before tax for a business including a no-growth valuation.  In this case, it gives us a value close to 12B for Phillips66 ownership in Chemical joint venture CPChevron.

Part 2 : MidStream

MidStream business is created from Philipps 66 own assets and a joint venture.  It is a transportation business.  The assets owned only by Phillips66 comprise more then 18000 km of pipelines and 55 terminals.  By its joint venture with Sprectra Energy (DCP Midstream) owns more than 62000km of pipelines, 62 processing plants and 12 NGL frationnator.  While I do not have a deep understanding of all those assets, it seems huge.   Anyhow, let’s check the value of MidStream business.

The last years of the midStream business were not happy days.  The business lost money on many quarters and started to make profit at around 150m per quarter for a total of 0.6B a year.  In our valuation we’ll use half of this expected profit to cover for those bad quarters (last year) and get to around 3B value for this MidStream business.

Part 3: Refining

One of the largest refiner in the united states and around the world, philipps66 have a wide coverage to every oïl types.  variances between WTI, Brent or other oïl type should not be an issue accepting that one plant will get the disadvantage to compensate the advantage of the other plant.  Revenues are between 4 and 5 Billion a year pretax for 2011 and 2012.  This major profit is offset by a loss in 2010 of close to 2 billions.  I’ll assume the lowball profitability in our valuation at 4B per year giving us a 40B valuation for this business segment.

Part 4: Marketing and specialities

This is the fuel pump business and lubricant business.  It is the “visibile” part of Phillips66 company to the consumer market.  It represents about a small profition of the overall valuation having naviguated from 900M to 700M earnings before tax in the last years.  It is comprised of over 10000 service locations across the world.  This portion of the business could well be sold to an independant operator (ex: Alimentations Couche-tard) in the following years.  Let’s assume a 7B value (lowball) to the Marketing and specialities business.

Estimated value

Chemical  +12B
MidStream +3B
Refining +40B
Marketing and specialities +7B
Total: 62B

For sure we got to offset those for the corporate expenses at another 10X before taxes.  It removes around 3B in the valuation but we evaluated every business at the lowball value so I’ll assume by evaluation is OK at 62B.

What is the current company value?

Market cap 38.14B
Debt  29.8B
– Cash (4B)
Total : 63,94B

Assuming low-ball valuation, Phillips66 seems fairly valuated at the current price.

Disclosure: Authors have a long position in PSX.

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Posted in PSX

Lakes update

Following my last article on what to do with a skyrocketing stock I’ve followed Lakes entertainement developments to ensure my evaluation of the company still holds its ground.


While Evitts resorts was scaled down, it should open earlier (summer 2013).  The financing was performed “in-house” and Lakes seems on plan and on budget.  But as for any construction project, you’re always on budget until you’re not anymore (see Fortress Paper reference in this blog). The original 27M tax estimates building up to 60-70M EBITDA is now a little bull.  Anyhow, in my original estimates I included 27M EBITDA and I’ll keep to it.  We’re still guessing anyhow.

Rock Ohio Ventures

Cleveland casino is in operation for almost a year now.  But Lakes investment in ROV have not been revaluated.  We still need to guess its value but we are not paying the taxes neither.  Anyhow, I’ve went throught the financials of Ceasars to obtain the estimated casino revenue for the Cleveland casino.  I could not get it split down to one casino but the “increase in management fees” for the category “ohio” is mostly due to management fees related to this new casino.  For the period from May to December 2012, Ceasar got 50M increase in management fee revenues.  Assuming 25-30% of EBITDA in management fees, we could track back the profit of Cleveland casino at 166 to 200M for 8 months or 250M to 300M for 12 months.  While we must get the 25% management fee out of the profits, we are still in the range of 200 to 240M profit higher than the original estimate of EBITDA.

I assume the brand new casino opened in march, find it here, will get the same return (around 200 EBITDA) even if we target under the actual first 8 months performance.

I will forget about the racetrack which is included in the partnership as I do not even know if it is profitable.  Althought this probably have alot of value to.

Jamul Tribes

While I thought Jamul Tribes receivables were lost, but yesterday Penn national made a deal with Jamul and Lakes restating the debt at 60M and carrying a 4.85% interest rate and must be repaid as soon as the new casino opens!  That is great news! Moreover, lands that Lakes own are next to the new casino and Penn took an option to buy those at 7M$.  So it is turning assets I thought lost to 67M$ cash in the next years!


So here we go on a valuation of 10 times EBITDA

Rock Ohio
Cleveland 200M * 80% * 10% * 10 = 160M
Cincinnati 200M * 80% * 10% * 10 = 160M
Hotel 1M * 10 = 10M
Casino 27M * 10 = 270M
Balance sheet items
Cash 6M
Jamul + lands 67M

Totals up to 673M value for a market cap of 88M + 47M debt or 135M market cap.

As far as I know, only the valuation of the “partnership” is included in the market cap at more than 50% discount.

Disclosure : Author is long LACO.



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Posted in LACO

HNZ group

As I previously said in march, I’ve liquidated my position in the helicopter
Transportation group HNZ in march. Since then, the company price dropped like a rock in a pond from 34 to 20.

My lowest estimate of eps were around 2$. At 10 times earnings I thought I would jump back in so took a meaningful position. Yesterday the earnings came out exactly at my bottom estimates of 0.51$/share.

I do assume a 30% profit drop in my estimates to get a 2 / 2.5 in EPS in 2013+.

Some opportunities still exists:

  • New military contracts or renewal
  • Ontario contract for medical transportation could be regained due to scandals in the Gouvernement owned service.
  • Canadian tar sands exploration and Australian petroleum platforms expansions.
  • A new acquisition in another part of the world (south America?) could be accretive.
  • HNZ could be a takeover candidate at only 10times earnings.

We could make fancy calculation and estimates but bottom line is CHL is a great company well capitalized with patient managers doing good acquisitions at the good time as quoted here from press release:

“We are looking at the year ahead, and beyond, with confidence. We believe that substantial revenues will again be generated in Afghanistan in 2013. Many of our traditional sources of business appear stable, and we will be commencing mandates that will bring growth for the Corporation in Asia. In Canada we believe that expected softness in mining activities will be largely offset by pipeline support work. With a strong balance sheet we continue to pursue potential strategic acquisitions in targeted regions of the world, and will act wherever the opportunity suits our business model,” concluded Mr. Wall.

I have confidence in management and would not sell under 13 times earnings (26$/share).

Disclosure : Long HNZ.A

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Posted in CHL-A, HNZ