Tivo Conference Call Q2 2014 (Netflix Comments)

Richard Tullo

from Albert Fried

Fair enough, and just kind of one philosophical question. I cover Netflix okay. The stock is probably generating a fifth of the EBITDA you guys are generating or will generate. Your revenue is growing faster. 

I think management is doing a lot of the right things to create shareholder value here. What do you think needs to be done to transfer the shareholder value creation that’s been so manifest and the improvement in the balance sheet to the actual share price? 

Answer from Tom Rogers: 

Well, I can tell you, we’re not going to get into the production of original programming. I think that we obviously are disappointed that the share price does not the better reflect our operating business. We’re certainly very much hopping that being able to answer a question that, since that I’ve been at the company has been asked over and over again. So when does TiVo get to sustain profitability? Now that we can answer it and answer it in a way that I think provides a great roadmap in terms of the progress the company has made. 

We’re hoping that the operating business will get valued in a way that we think is more fairly reflective of the progress we’ve made. And certainly the sub-performance year-over-year growing almost by a 1 million subs. The ability to continue to show the innovation that we’re capable of which the reception of the Roamio product I think showed in a huge way, the fact that were launching between the second quarter and the third quarter I think six new operators who are launching with us and with that additional self deployments behind them we got a lot of that were showing now in terms of the operating performance of this company and I think over time that will be better understood and then reflected in the stock price. 


Guru Focus All-in-one Screen

In this post I will be discussing the prospects of three companies that came up using the Gurufocus All-in-one-screener using P/S (0-1), P/B (0-2), P/E (1-20), ROC (5-75%), debt to equity under 1, a share buyback rate of 2-15% (10-year average) and market cap in between 20M-500M.


Initially the screen brought back eight companies but I eliminated a few based on P/E exceeding ROE, P/B exceeding 1.5 and one (KYCN) was subject to a merger with Contran and is now a wholly owned subsidiary.  The ones that made the cut and deserve further research are below.

1) SL Industries, Inc.  (SLI)

Market Cap: 98M
P/E: 8.38
P/S: 0.49
P/B: 1.6
ROC: 39%
ROE: 15%

Debt-Equity: 0.05

Dividend: None

Incorporated in New Jersey as G-L Electronics Company in 1956. The company is made up of five subsidiaries, SL Power Electronics Corporation, TEAL Electronics Corporation, MTE Corporation, SL Montevideo Technology, and RFL Electronics Inc. The company manufactures various things from communications and Protection products to monitor and protect power grids, rail and highway systems to LED lights used in applications from aerospace and medical industries to common day use in street lights. At first glance a noticed excessive environmental fees booked as liabilities that you may want to examine further. On a more positive note the share float has been bought back over the last 3 years at an astonishing pace all the while retained earnings and book value have been growing steadily. The 10-year average revenue and free cash flow growth of is over 10%.

2) Core Molding Technologies (CMT)
Market Cap: 68M
P/E: 10.55
P/S: 0.48
P/B: 1.1
ROC: 19%
ROE: 14%

Debt-Equity: 0.11

Dividend: None

The company produces plastic and rubber products to the automotive after market industry. Company products include resin transfer (RTM), sheet-molding compound (SMC), multiple insert tooling (MIT), glass mat thermoplastic (GMT) and also manufactures products for other truck manufactures and the marine industry. The company’s two major customers are Navistar and PACCAR, Inc. The Company faces competition from a number of other molders including, Meridian Automotive Systems, Molded Fiber Glass Companies, Continental Structural Plastics, Sigma Industries and Premix. Retained earnings has been growing impressively with revenue and operating income.  The business is a predictable moderate grower with 10-year average revenue and EBITDA growth of 7% and 13%.


Acme United Corporation (ACU)
Market Cap: 44M
P/E: 11.82
P/S: 0.52
P/B: 1.3
ROC: 14%
ROE: 12%

Debt-Equity: 0.78

Dividend: 2.3% @ 25% payout ratio


Acme United Corporation is a global supplier of cutting, measuring and safety products to the school, home, office, hardware and industrial markets. The Company’s operations are in the United States, Canada, Europe (Germany) and Asia (Hong Kong and China). Products include scissors, shears, guillotine paper trimmers, rotary paper trimmers, rotary cutters, hobby knives and blades, utility knives, manicure products, medical cutting instruments, pencil sharpeners, rulers, math tools, tape measures, first aid kits, personal protection products and over-the-counter medication refills. Major competitors include Fiskars Corporation, Helix International Ltd. and Johnson and Johnson. The five main brands are Westcott, Clauss, Camillus, PhysiciansCare and Pac-Kit. Debt has more than doubled from 2010 and does not look encouraging at first glance. The brands of the company are not well known by me and I believe a competitive disadvantage is that consumers are not sticky to basic products that Acme United is in the business of selling, eventually ending in a price war or price follow strategy against a deep pocket market leader like J&J. Good 10-year average revenue and book value growth.


Notable 52-week lows to throw on watch.

It feels great to be actively viewing the 52-week low list and finding unusual characters in the list after the first four-day consecutive decline in 2013. All the companies below are sitting within 2% of a 52-week low as of August 19th, the most surprising being Royal Dutch Shell and International Business Machines. 


IBM: Sitting at a price of $184.23 with a trailing twelve month P/E of 13.10 and a dividend yield of 1.9%. Shares outstanding have been consistently decreasing while free cash flow has been growing at over 11% annually in the last 10-years. 



MLNX: Closed at $41.01 sitting at a trailing twelve month P/E of 32.40 and no dividend. This was a very hyped name last summer but has continued to fall ever since topping out just past $100. Impressive 5-year growth numbers although 2013 revenues look to be light and share dilution will only make the engineered picture look worse.


FIO: Finished off the day sitting at $10.63 down over 50% in 2013. Ugly misses in the first half of the year have led to the declines and with no dividend and negative earnings I don’t find it attractive and has become a show me story for Wall Street.



DX: Has had a terrible six weeks, falling more than 25% and now trading at under B/V of around $8.50 and a 4.9 P/E. A very solid earnings trend and worth further research at first glance. The dividend is 15% annually with a 5-year growth rate of over 10% annually and only a payout ratio of 40%.



EQIX: I have had the company on a watch list over the last eight weeks due to a personal hunch it may be temporarily overvalued. Equinix is resting at a B/V of 3.6, a P/E around 100 and no dividend. Growth numbers are impressive but a stretched valuation does not bode well for earnings misses.


RDS.A: A steady grower (4.1% annual revenue growth, 10-year average) being priced at a no growth scenario, Royal Dutch Shell has an 8.5 P/E and is about 10% above B/V. The dividend yield is 4.7%, payout ratio is modest and Q2 depreciation looks to be unusual at first glance.

Turkish Investment Fund Inc.

NAV: 21.38
Net Assets: 130.13 Million
Market Cap: 94 Million

Share Price: 15.50
Fund Dividend Yield 2.7%

37.9% Discount to NAV


Turkey TMC/GDP = 25%



GDP per capita has been steadily up trending over the last 10 years and has almost quadrupled from the 1961 low of 1556.00.  The total population is 74 million with a total GDP of 789.3 billion. There was an outperformance by TKF in the first half of the year against the benchmark peer Morgan Stanley Capital International Turkey Index (MSCI) until the month of June where the divergence became more obvious.
In the letter to the stockholders Arthur Lev, President and Principal Executive Officer provided some valuable insight. “Turkey has a strong entrepreneurial culture which has begun to think longer term given lower inflation and new regional opportunities. This is reflected in the stock market, with an interesting layer of companies in the mid- to small-cap range, which have been increasingly represented in the portfolio. Having said that, we believe Turkey is potentially entering a period of rising political risk. Over the past decade, the market has become increasingly comfortable with AKP stewardship of the economy and the current political modus operandi, which have been recognized in the sovereign debt upgrades by Fitch and Moody’s. This situation may change over the coming 12 to 18 months, with several elections, potential Constitutional reform, and the high probability that Recep Tayyip Erdogan will step down as prime minister when his third term expires. Further, the regional situation remains volatile with the growing conflict in Syria, ethnic struggles in Iraq, and elections in Iran. On a more constructive note, current events in the country and region could usher in a period of peace with the Kurds, as well as a potential solution to the recalcitrant issue of Cyprus. On balance, we believe political risk is rising for Turkey and hence a potentially rising risk premium in the Turkish market could be expected.”

Current members of the team jointly and primarily responsible for the day-to-day management of the Fund’s portfolio are Eric Carlson and Paul C. Psaila, each a Managing Director of the Adviser.

Two investment funds had perked my interest when going through SEC filings regarding Turkish Investment Fund Inc., one was Lazard Asset Management with a 5% stake and the other the City of London Investment Group PLC with 3.7% of the fund.

turkey-inflation-cpi On a promising note, Turkish inflation may finally be under control as shown in the last decade of under 20% CPI as well as government fiscal policy, specifically debt to GDP at a modest ratio under 50%.



Bill Ackman tells Charlie Rose: “It sounds like the government is looking into product quality issues in Herbalife.”

Last night Charlie Rose interviewed Bill Ackman of Pershing Square after he has resigned from the board after unsuccessfully pushing for yet another new CEO. They talked about his past and present positions in JC Penney, Herbalife, General Growth, CP Rail, Target, MBIA, the present problems plaguing him and future business prospects. Ackman commented on the on going feud between him and Carl Icahn, stating he is “Getting back at me” from a prior dispute over collecting money owed to him by Mr. Icahn that he eventually sued for. He also said to Charlie, “Look at our history over 10-years, I am not actually use to getting in disputes with people.” Bill’s view on Dan Loeb’s position was that it may have been a good trade but “I am not a trader” Bill told Charlie.

When talking about JCP and Ron Johnston’s mistakes he seemed composed and collected citing JC Penney real estate assets (over 1100 stores) as valuable, as well as the brand. Bill was a little perplexed explaining why JC Penney is once again pursuing a discount strategy stating “People would rather a $100 item at a 50% discount than an item marked at $40, a surprising psychology phenomenon.”

Between both his JC Penney long position and Herbalife short position, Bill Ackman has paper losses close to 1 billion. He sounded optimistic telling Charlie, “It sounds like the government is looking into product quality issues in Herbalife.” Although Bill is known to be very disciplined reflecting back on his MBIA short position that was held for over a 7 year period viewing his articulations as a warning sign for investors. “Short sellers are the canary in the coal mine,” he said.