Arbitrage Opportunity - Odd lot tender offer

Bridgepoint Education Inc

If you want to make little more than a hundred dollars on a ~$1800 investment almost risk free, read further.

The opportunity is to buy 99 shares of  Bridgepoint Education Inc(NYSE: BPI), and ask your broker to tender all the shares in management share buyback @ $19.5/share. Currently the shares are trading at @ $18.40. so, you pocket the difference between (19.5 - 18.4)*99, less brokerage costs. This needs to be done before Dec 21st. There is a special provision for the shareholders who hold less than 100 shares. Here is the SEC filing of this tender offer which includes the odd lot provisions.

http://www.sec.gov/Archives/edgar/data/1305323/000119312513439325/d626214dex99a1a.htm

Feel free to send this to anyone who would like to benefit from this idea. Let me know if you have any questions.

Overlooked gem in the media distribution industry??


Before we get into the business analysis of the company below, I would like to highlight the things that I look for in a business. In the article below, I hope to highlight each of the important metrics. You can also call this as a rough check list to identify a business or portion of a business (stocks) to purchase:

* Is it a good business?? High Return on Capital Employed? Debt load is manageable?
* Is the business growing? Revenue as well as profits?
* Is the management any good? Operational as well as capital allocation?
* Is it Cheap relative to current sales, profit and potential future?
* Current shareholders of the company any good? Are they intelligent/successful investors?

Direct TV (NASDAQ: DTV)

Business:

DIRECTV is a leading provider of digital television entertainment in the United States and Latin America. It operates two direct-to-home, or DTH, business units: DIRECTV U.S. and DIRECTV Latin America, which are differentiated by their geographic location and are engaged in acquiring, promoting, selling and distributing digital entertainment programming primarily via satellite to residential and commercial subscribers. In addition, they own and operate regional sports networks and own a 42% interest in Game Show Network, LLC, or GSN, a television network dedicated to game-related programming and Internet interactive game playing. 

DIRECTV U.S:

DIRECTV U.S is the largest provider of DTH digital television services and the second largest provider in the multi-channel video programming distribution industry in the United States. As of June 30, 2013, DIRECTV U.S. had approximately 20.0 million subscribers. 

DIRECTV Latin America:

DIRECTV Latin America is a leading provider of DTH digital television services throughout Latin America. It is comprised of: PanAmericana, which provides services in Argentina, Chile, Colombia, Ecuador, Puerto Rico, Venezuela and certain other countries in the region, and Sky Brasil Servicos Ltda., or Sky Brasil, which is a 93% owned subsidiary. DIRECTV Latin America also includes their 41% equity method investment in Innova, S. de R.L. de C.V., or Sky Mexico, which they include in the PanAmericana segment. As of June 30, 2013, PanAmericana had approximately 5.9 million subscribers, Sky Brasil had approximately 5.2 million subscribers and Sky Mexico had approximately 5.6 million subscribers. Management now expects net subscriber additions to be in the range of 1.5 million to 1.75 million.

DIRECTV Sports Networks:

DIRECTV Sports Networks LLC and its subsidiaries, or DSN, is comprised primarily of two wholly owned regional sports networks based in Denver, Colorado and Pittsburgh, Pennsylvania, and a regional sports network based in Seattle, Washington in which DSN retains a noncontrolling interest, each of which operates under the brand name ROOT Sports. DSN transferred 100% of its interest in a regional sports network based in Seattle, Washington, or DSN Northwest, to NW Sports Net LLC. The Seattle Mariners have a majority interest in NW Sports Net LLC and DSN retains a noncontrolling interest, which they account for using the equity method of accounting.


Financials from latest quarter:

DIRECTV U.S (June 30, 2013):
	2013	2012
Revenues($M USD)	5,943	5,647
Operating profit($M USD)	1,241	1,216
Total number of subscribers (in thousands)	20,021	19,914
ARPU($USD)	98.73	94.4

DIRECTV Latin America (June 30, 2013): 2013 2012 Revenues($M USD) 1,686 1,508 Operating profit($M USD)     139 224 Total number of subscribers (in thousands) 11077 9116 ARPU($USD) 51.13 57.2 Selected Key Financials($M USD): Revenue - 7,700 Operating Profit - 1,350 Interest Expense - 2,19 Pretax Income - 1,075 Net Income - 661 Net Income per share - 1.19 Cash on Balance sheet - 2,365 Satellites & PPE - 8,660 Debt - 18,516 Business Returns: ROCE = Pretax Income/ Tangible capital = 5085/8660 = 58% The business is growing even when increasing the price per customer in US. It shows the business quality, pricing power and customer retention. Latin American business revenue per customer appear to be decreasing, that is because of the currency devaluation relative to the USD and inflation in those countries (mostly Brazil & Argentina). Eventually the business can command higher price per customer in the region as it is half of the US prices. Valuation: Cheap?? YES The company is trading at $59/share, it translates into $32.8B. Enterprise value = Market cap + Net Debt EV = $32.8B + 16.15B = $48.95B EBITDA = 7.81B EV/EBITDA = 6.26 CF = $5.62B Market cap/CF = ($32.8/$5.62)B = 5.83 Capital allocation: Any good? YES The company management has been excellent in capital allocation as they bought back ~50% of the company shares  in last 6 years while they grew the business in double digits. They are utilizing the current low interest environment for issuing debt as the interest payment is only 1/7 of the operating income(The debt isn't excessive, although people will look at the debt amount & negative equity and think the business is in poor health). If you want to understand share buybacks and shareholder returns, one should read about Teledyne company history and its founder Henry Singleton. Major Shareholders: Successful Investors? YES The majority owners of this company are successful investors of our era. Here are the big shareholders: Warren Buffett - 6.75% South Eastern/Long Leaf partners - 5.7% John Malone - 2.3% Risks: Technological obsolescence. Latin American division hits the bump in terms of growth/revenue per customer. More competition in US media distribution business. Inability to pass on increase in content costs. Conclusion: The company fulfills all the things that I look for in a business: Good business, growing with the capable management trading at a low valuation. Latin American division grows in double digits with the price parity with US division although the US business appears to be mature. Disclosure: I own shares of this company.

Ultra cheap Indian Software services company?? Potential to make 5 times of your money??

Infinite Computer Solutions (NSE: INFINITE)

Business:

Infinite Computer Solutions is a global service provider of Application Management, Infrastructure Management, Product Engineering and Mobility, and Messaging Products and Solutions. It has a focus on Telecom, Energy & Utilities, Media & Content, Healthcare, and Banking & Finance industries. Our strength stems from the alignment with client business objectives, even as we engage with clients across multiple engagement models to align better with your business needs. With a global headcount of around 5000 professionals and offices spread across India, US, UK, China, Malaysia, Singapore and Hong Kong. This includes delivery centers in the US at Maryland, Illinois and Tennessee, and in India at Bangalore, Delhi, Hyderabad and Chennai. Established in 1999, Infinite today is a publicly listed entity headquartered in Bangalore, India, with an span across three continents, a diverse employee base and over 50 premier clients, including several leading Fortune 100 companies.

The company went public in 2010; the shares were oversubscribed by 43 times. The shares went public at 165 Rupees/share.

Revenue mix:

Applications Management Services – 68%

Infrastructure Management Services – 15.6%

Management:

Upinder Zutshi is the CEO and managing director of the company; he is the nominee & close in race for the 2013 CEO of the Year Award in India. The company was listed in Forbes Asia 200 Best under a Billion in 2011.

Clients:

Verizon, IBM, Fujitsu, Xerox, Alcatel-Lucent, Motorola/Nokia Siemens, Western Union, Iron Mountain & Tellabs.

  

Ownership:

Founder (Sanjay Govil) & Chairman owns about 60% of the shares outstanding. So we have an owner manager, whose interests are highly aligned with passive shareholders. Employees own about 10% of the stock. T. Rowe Price International owns little more than 5%.

Selected figures from financial statements (in Cr Rupees):

Year	FY 10	FY 11	FY 12	FY 13
Revenue	664.3	883.28	1,055.81	1390.61
EBITDA	121.34	147.89	183.49	218.42
EBIT	107.66	136.24	158.33	158.54
PAT	79.17	107.18	120.71	130.75
No. of Shares	43,959,995	43,959,995	42,559,995	42,559,995
EPS (in Rs.)	20.18	24.38	28.05	30.05
Net worth (in Rs. Crores)	326.95	416.28	508.84	596.26
Total cash (in Rs. Crores) *	118.04	94.62	156.54	171.81
Debt(in Rs. Crores)	47.7	46.1	59.13	85.86
Return on net worth	24.20%	25.80%	23.70%	21.90%
Cash per share	26.85	21.52	36.78	40.37

Valuation & Analysis:

The company trades in the market for around 475 Cr. Rupees (Rs. 112/share). If we exclude the excess net cash (about 100 Cr), it is trading for about 2 times annual profit & 2/3 of the stated book value, as the RONW is over 20%. The company has a huge tail wind in terms of market opportunity as the market for various software services grows globally. The company’s board recently announced a buyback of ~10% of the shares outstanding. This is great capital allocation at work. The company also has a policy of paying out ~30% of the profit as dividends to the shareholders. In today’s stock price, the dividend yield is more than 8%. The buyer of this stock at these prices risk of losing the invested capital is almost zero; the business is earning healthy profits on the invested capital and excess capital in the balance sheet. At some point the market participants will come to their senses, and bid up the prices relative to the company profitability. At that point the shareholders will realize huge profits via share price appreciation. If we are right about the assessment/prospects of the company, the capital will compound at very high rates. If this company trades at the valuation of many software services companies(both in India and global), the stock will be worth more than 10 times of annual earnings which will be 5 times more than the price it trades today.

Risks:

Client concentration:

Top 5 clients contribute 75% of the revenue, top client being 34% although the concentration is reducing over the years. It is quite common in a small size company like Infinite computer solutions. Most of the revenue is from the repeat business as the contracts with existing customers are long term in nature.

Geographic Risk:

US customers accounts for 76% of the revenue mix.

Disclosure:

I own shares of this company.

Owner Operated Business - Biglari Holdings (NYSE: BH) - Excellent Entry Point??

Business:

Biglari Holdings Inc. is a holding company engaged in a range of diverse business activities. The Company, along with its subsidiaries, is engaged in investment management and the franchising/operating of restaurants. As a capital allocating vehicle, it is also in the business of owning other businesses in whole and in part.  The portfolio companies are:

Steak n Shake restaurants (414 owned, 87 franchised) (100%)

Western sizzlin restaurants (5 owned, 92 franchised) (100%)

Biglari capital/The Lions fund (100%)

Cracker Barrel restaurants (621 owned, 0 franchised) (~20%) – Ongoing proxy war for last 2 years to be on board

Unico American Corporation (~10%)

CCA Industries (~10%) – Board member

ITEX Corporation (~8.4%)

Situation & Valuation:

Currently the company is selling in the market for ~$510M (Enterprise value of 625M), which has a look through operating earnings/cash flow of more than $65M & likely growing at a reasonable clip for years. The company is in excellent financial condition by both ample cash on the balance sheet & credit facility. There is a lot of flexibility with the capital structure; they can issue cheap interest bonds (as the case right now) or if the stock gets priced high, they can issue stocks to acquire other companies wholly or in part. There is a huge opportunity of franchising SNS both domestically & abroad. Recently the company is working with partners in middle eastern countries on its franchising efforts as it has a potential of achieving high returns on invested capital.

Market Cap – $510M

Debt – $115M

Look through earnings from portfolio companies – $65M

EV/FCF – less than 10 times

Management:

Sardar Biglari is the Chairman & CEO of Biglari Holdings, solely responsible for capital allocation decisions. He was running a hedge fund called Lion fund with over 20% annual return for 8 years just before he took a control position in Steak ‘n Shake. Phil Cooley (Vice Chairman) is a sounding board to the CEO and also his teacher in his business school days. CEO is incentivized properly to increase the per share value/book value of the company.

Catalyst:

There is no catalyst/situation/timeline to unlock the value of this business. Current value is its own catalyst, and an efficient way of deploying capital in the right business will increase the value of the company immensely. If value gets higher due to the combination of retaining earnings, investment in right areas/subsidiaries will ultimately unlock the value in time.

Reasons Why Opportunity Exists:

Complicated holding company structure, no analyst coverage, no guidance from the management on the quarterly/annual results from the company, unconventional CEO pay structure, high share price & low liquidity.

Risks:

Aggressive/confident CEO can run into a situation where he bets the company on a single acquisition by taking on excess debt, although it is highly unlikely.

Public market participants late to realize the opportunity.

Final Comments:      

The company is a wonderful platform for owning companies in part or full to increase the net worth of any investor. CEO Sardar Biglari is being young (36 yrs) & unconventional is great asset to the company.  I own shares of Biglari Holdings.