Tender Offer / Management buy back - Global Sources Limited (Bermuda)

Global Sources Limited (NASDAQ: GSOL)

If you want to make hundred dollars on a ~$400 investment in 2 months almost risk free, read further.

Tender offers usually provide an odd lot provision, which is a priority to buyback less than 100 shares in any shareholders account. The company Global Sources Limited didn't specify this in the SEC filings or in the buyback offer announcement. But, I believe they had something like this as they had done a similar transaction (buy back) in 2010, where they considered 50 shares ownership as an Odd lot.

So, the opportunity is to buy 50 shares of Global Sources Limited (NASDAQ: GSOL), and ask your broker to tender all the shares in the management share buyback @ $10/share. Currently the shares are trading at @ $8.00, you pocket the difference between (10-8)*50, less brokerage costs. Tender offer completes at the end of May 2014. 

You can even do this in multiple brokerage accounts to leverage this idea to enhance your returns on your total invested capital. Here is the announcement of this tender offer.

https://www.sec.gov/Archives/edgar/data/1110650/000095016214000015/ex99_1.htm

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

Disclosure: I own shares of Global Sources Limited.

Super Cheap Indian Steel Pipes Manufacturer - Maharashtra Seamless Limited (NSE: MAHSEAMLES)

Business:

Maharashtra Seamless Limited is an India-based company engaged in manufacturing seamless steel pipes and tubes in India. The Company also manufactures coated pipes and electric resistance welded (ERW) pipes, along with the seamless pipes. The Company has two segments: steel pipes and tubes and electricity. The Company’s product range caters to application areas like oil and gas sector, hydrocarbon industry, boilers and heat exchangers, automotive, bearing and general engineering industries. As of March 31, 2012, the Company commissioned the 6th seamless pipe plant at Mangaon. As of March 31, 2012, the Company had two subsidiaries: Maharashtra Seamless (Singapore) Pte Ltd, Singapore and Maharashtra Seamless Finance Ltd.

Business units and Plants:

Seamless Era and Pipes

Wind Power

Solar Power

Board of Directors:

 D.P. Jindal (Chairman)

 Saket Jindal (Managing Director)

 U.C.Agarwal, P.N.Vija, Sanjeev Rungta and N.C.Jain

Selected figures from financial statements:

Particulars	2004	2005	2006	2007	2008	2009	2010*	2011	2012	2013
Gross Turnover (Rs. Lacs)	55529.00	86724.00	107695	151961	164037	218351	169122	188741	242820	183782
EBIDTA (Rs. Lacs)	10031.00	12851.00	20801.00	34101.00	29762.00	34244.00	39990.00	42331.00	39129.00	17053.00
PBT (Rs. Lacs)	10507.00	12624.00	20685.00	35269.00	30190.00	38503.00	43109.00	49373.00	44258.00	19774.00
PAT (Rs. Lacs)	7146.00	8488.00	13960.00	23384.00	19522.00	25784.00	28459.00	34166.00	31073.00	15332.00
Gross Block (Rs. Lacs)	26709.00	32768.00	35303.00	37416.00	44321.00	51441.00	139084	150008	163593	168703
Net Block (Rs. Lacs)	21970.00	26992.00	28075.00	28579.00	33746.00	39064.00	120783	125758	133257	130670
Equity (Rs. Lacs)	2882.00	2882.00	2882.00	3497.00	3527.00	3527.00	3527.00	3527.00	3527.00	3527.00
Reserves (Rs. Lacs)	21527.00	28399.00	38509.00	88913.00	105814	127472	225230	250389	272454	278745
Net (Rs. Lacs)	24409.00	31281.00	41391.00	92410.00	109341	130999	228757	253916	275981	282272
Book Value (Rs.)	85.00	109.00	144.00	132.00	155.00	186.00	324.00	360.00	391.00	400.00
Equity Dividend (Rs. Lacs)	1153.00	1441.00	2132.00	3720.00	3527.00	3527.00	4232.00	4232.00	4232.00	4232.00
Dividend Per Share (Rs.)	4.00	5.00	7.00	5.50	5.00	5.00	6.00	6.00	6.00	6.00
Earning Per Share (Rs.)	23.72	29.54	48.26	38.38	27.70	36.56	40.35	48.44	44.05	21.74

Valuation & Analysis:

The company trades in the market for around 1100 Cr. Rupees (Rs. 170/share).  The company has excess cash (700 Cr) on their balance sheet, which is invested in various mutual funds. If we exclude the excess net cash, it is trading for less than 3 times of the depressed annual profit & 1/3 of the stated book value, and the RONW is over 15%.  This is a cheap company by any valuation metrics.

Market Cap – 1100 Cr. Net Cash – 700 Cr. Book Value – 3527 Cr

Enterprise value – 400 Cr. Net Profit -152 Cr

Enterprise Value / Net Profit – 2.63

Market Cap/ Book Value - 0.37

The company has a low cost operation which has the benefit of making huge profits when sales go up in the upcoming years. The company’s board authorized a buyback of ~10% of the shares outstanding & the buyback is currently in progress. This is great capital allocation at work. The company also has a policy of paying out 1/3 of the profit as dividends to the shareholders. In today’s stock price, the dividend yield is more than 3.5%. The risk of losing the invested capital for the investor at these prices is almost zero; the business is earning healthy profits on the invested capital with excess capital in the balance sheet. At some point the market participants will come to their senses, and bid up the stock prices relative to the company’s 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.

Shareholders:

The company’s promoters hold 55% of the shares outstanding, the remaining float is held by these following funds:

Odd & Even Trades and Finance P. Ltd. - 16.57%

Stable Trading Company Ltd - 16.00%

Brahmadev Holding & Trading Ltd - 8.16%

Global Jindal Fin-Invest Ltd - 7.69%

Franklin Templeton Investment Funds - 7.03%

Risks:

Continuous dumping of steel pipes by abroad manufacturers decreases the revenue & profits of this company.

Disclosure:  

I own shares of this company.

2013 Portfolio performance

I got around consolidating the portfolio performance for the 2013 now. Here is my annual portfolio performance for the year 2013. My accounts net-worth increased 41% as of 31st of Dec 2013 since the beginning of Jan 2013. This has been a wonderful year following an even better year 2012. For 2012, my net worth was increased about 59%. I knew I wasn't going to repeat the performance of 2012 unless I am very lucky. Overall, 2013 was a great year for my portfolio both in terms of absolute and also relative to the S&P performance (32.3%).

Major contributors for the performance were

Chanticleer Holdings (+155%)

Fiat (+70%)

Infinite Computer Solutions (+45.4%)

Bank of America (+48.57%)

Direct TV (+37%)

Biglari Holdings (+24.45%)

BP (+15%)

Major detractors were,

Exco Resources (-27%)

Aeropostale (-18%)

Weight Watchers Intl (-16.8%)

Here are the top 10 holdings in my portfolio for 2014. Most of you noticed some of the investment write ups and my reasons for the below holdings in this blog. Wish me a good luck to repeat the performance of the past years.

Biglari Holdings (19%)

BP (12.7%)

Infinite Computer Solutions (6.8%)

Exco (5.3%)

Fiat (5.3%)

Direct TV (5.2%)

Bank of America (4.8%)

First Service Corp (4.3%)

Cash (4.2%)

Chanticleer Holdings (3.9%)

As always, feel free to contact me if you have any questions.

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.