Chiquita Valuation. Part 2 Of Series On Valuation And Analysis Of Dole, Chiquita, And Fresh Del Monte

In post one of this series on Dole and their competitors here, I got into a valuation of Dole and the potential spin off that could unlock their value.

In my next two posts I will detail two of Doles biggest competitors, first Chiquita and then Fresh Del Monte, where I will value both of the companies and detail their businesses.

In the fourth post of this series I will attempt to determine if a merger between any of the three companies should happen, and what I think would be the best options. I will go over the margins of each company and try to determine if any of the three have any sustainable competitive advantages.  I will also put forth my thesis of which one, if any, would be a good long term buy without the possibility of a spin off or merger from any of the companies.

I will start with the valuations of Chiquita (CQB), and then get into the details and analysis a bit of their company.

Chiquita Brands International is a leading international marketer and distributor of high-quality fresh and value-added food products from energy-rich Chiquita® bananas and complimentary fruits to nutritious blends of convenient green salads. Description is taken from their website.  They do business under the Chiquita and Fresh Express premium brands and other related trademarks and operate in nearly 70 countries worldwide.  For further information please refer to their website.

Both Chiquita (CQB) valuations were done on 6-20-2012.  All numbers are in millions of US dollars, except per share information, unless otherwise noted.  Valuations done using March 2012 10Q and 2011 10K.

These valuations are done by me, using my estimates, and are not a recommendation for you to buy the stock. Do your own homework.

Assets: Book Value: Reproduction Value:
Current Assets
Cash

41

41

Marketable Securities

0

0

Accounts Receivable (Net)

267

190

Inventories

238

119

Prepaid Expenses

43

20

Other Current Assets

111

44

Total Current Assets

700

414

PP&E Net

370

185

Goodwill

177

77

Intangible Assets

555

166.5

Total Assets

1802

842.5

  • Total Shares are 46

Reproduction Value:

  • With IA: 842/46=$18.32 per share.
  • Without IA: 676/46=$14.70 per share.

Current Price is $4.84 per share.

Second Valuation:

  • Cash and Cash equivalents of 41
  • Number of shares are 46
  • Total Current liabilities are 383

Short term investments of 0 + cash and cash equivalents of 41- current liabilities of 383=-342

  • -342/46=-$7.43 in net cash per share.

Chiquita has a trailing twelve month EBIT of 25.

5X, 10X, and 14X EBIT.

  • 5X25=125+41=166.
  • 10X25=250+41=291
  • 14X25=350+41=391
  • 166/46=$3.61 per share.
  • 291/46=$6.33 per share.
  • 391/46=$8.50 per share.

Current share price is $4.84 per share.

Being an extremely conservative investor I usually use the lowest valuation number I get and use that one as what the company should be valued at.  So not only are they currently overvalued with my low estimate at $3.61, there is even less margin of safety due to the -$7.43 in net cash per share.  Even if I used the $8.50 number as my estimate of value, subtracting the negative net cash per share only leaves you at $1.07 per share.

Enterprise Value, which is taken from Yahoo Finance is currently 756.72 million.

I adjusted, and added to their enterprise value because they have a lot of obligations over the next few years that aren’t counted in the regular debt number.

To their enterprise value I added TOTAL operating leases, pension, and purchase commitments.

Adjusting their enterprise value is 756.72+2392=3148.72

  • Unadjusted EV/EBIT=30.27
  • Adjusted EV/EBIT=125.95

Both numbers are incredibly high, especially as you compare them to Dole and Chiquita.

On page 9 of Chiquita’s 2011 10K they state total debt outstanding is at $572.5 million.  Page 10 is where they list the other “contractual obligations” with the total obligations being $3,167 million.

This is another reason why you MUST read annual and quarterly reports.  When I first started I would have never known about those other obligations.  I would have taken the $572.5 million number and compared that to Dole’s debt and thought that Chiquita was in a much better position.

With the above information I will not be buying into Chiquita at this time.

In my next post, the third of the series, I will value and talk about Fresh Del Monte’s (FDP) operations.

In the fourth and final posting in this series I will look into Dole’s numbers again to see if I missed any of their contractual obligations.  I will also compare all three companies margins and decide if any of the three companies meet my criteria for a long term value hold, without any spin off or merger.

Vivendi: Extremely Undervalued, Long-Term Winner Could Unlock Value Through Spin-Off Or Asset Sale

Here’s my latest article entitled Vivendi: Extremely Undervalued, Long-Term Winner Could Unlock Value Through Spin-Off Or Asset Sale which has been published in seekingalpha.com

Check out some highlights below:

Vivendi (OTCPK:VIVHY) combines the world leader in video games (Activision Blizzard), the world leader in music (Universal Music Group), the French leader in alternative telecommunications (SFR), the Morrocan leader in telecoms (Maroc Telecom), the leading alternative broadband operator in Brazil (GVT), and the French leader in pay-TV (Canal+ Group). The previous information was taken from its website. I will get to further descriptions of the subsidiaries later.

For a discussion of the unsponsored Vivendi ADR , versus the foreign listing of Vivendi (OTCPK:VIVEF), view the comments on this article.

I have used two different valuation techniques for Vivendi. The first is an asset reproduction valuation done on 4-2-2012. All numbers are in millions of euros unless otherwise noted, except the per share numbers. Valuations were done using 2011 10-k..

These valuations are done by me, using my estimates, and they are not a recommendation for you to buy the stock.

The full article can be seen here.

Dole Valuations

Here are my valuations of Dole (DOLE)

Dole asset valuation done on 5-19-2012.  All #’s in millions of $.  Using March 2012 10Q and 2011 10K.

These valuations are done by me, using my estimates, and is not a recommendation for you to buy the stock. DO YOUR OWN HOMEWORK.

Assets:                                     Book Value:                               Reproduction Value:

Current Assets

Cash                                            106                                                   106

Marketable Securities                     0                                                       0

Accounts Receivable (net)          739                                                   628

Inventories                                   877                                                   438.5

Prepaid Expenses                        64                                                      32

Deferred taxes-tax liability           185                                                   55.5

Total CA                                     1,971                                                1,260

PP&E Net                                    901                                                   540.6

Goodwill                                      413                                                     124

Intangible Assets                        740                                                     370

689 million of IA is their estimate of what the DOLE brand is worth.

Total Assets                             4,025                                                 2,294.6

Number of shares = 88m

With IA: 4,025/88=$45.74 per sahre

Without IA: 3,285/88=$37.33 per share

Reproduction Value

With IA 2294.6/88=$26.08 per share

Without IA 1924.6/88=$21.88 per share.

Current share price=$8.96 per share

Second Dole valuation:

Done on 5-19-2012 using March 2012 10Q and 2011 10K.  Numbers in millions of $.

Cash and cash equivalents=106 + short term investments of 0=106

Number of shares=88

Total Current Liabilities=1,090

Short term investments+cash and cash equivalents-current liabiliites=-984

-984/88= -$11.18 in net cash per share

EBIT of 300 taken from 2011 10K

5X, 10X, and 14X EBIT= 5X=1,500, 10X=3,000, 14X=4,200

1,500 + C &CE above of 106=1606, 3,000 +106=3,106, 4,200+106=4,306

1606/88=$18.25 per share

3106/88=$35.05 per share

4306/88=$48.93 per share

Current price is $8.96 per share

Current market cap=782.9 million

EV=MKT cap+debt,minority interest & preferred shares- total C&CE

EV=782.9+1626=39=0-106=3,381 m                                      EV/EBIT=11.27

Dole owns 117,000 acres of land, mostly in Hawaii. 117,000 X $5000, which I think is a conservative estimate of land prices in Hawaii=$585 million in potential worth of land.

585/88= $6.65 per share potential of land per share, with again a current share price of $8.96 per share.

Subtracting my estimate of their potential land value you get the rest of Dole, cash, and debt for $2.31.

Being a very conservative investor, normally I would never touch a stock with this much debt in relation to market cap, EBIT, cash on hand, and a negative net cash number, even with the massive margin of safety.

Another knock against it is that it is a fresh fruit business, which makes it a commodity business leading to widely fluctuating prices, revenues, and margins.

However, the management has has been paying down debt slowly over the past several years. Dole is also currently under strategic review by their directors and management to see how they can unlock lost value and pay down debt at the same time.

http://seekingalpha.com/news-article/2700131-dole-food-company-inc-announces-first-quarter-2012-results-and-strategic-business-review

In the article they state that “As part of this review, the alternatives we may consider include a full or partial separation of one or more of our businesses through a spin-off or other capital markets transaction, as well as other alternatives that will enhance shareholder value. We are committed to enhancing shareholder value and this review is a company priority.”

Normally I would take the above statement with a grain of salt but their biggest shareholder Mr. David Murdock currently owns 58.1% of all shares.  He originally brought Dole public again in 2009 at a price of $12.50 per share meaning he has already lost several hundreds of millions of dollars.  Obviously he would want to do what is in his own self interest and hopefully what is best for the shareholders to make that money back, and unlock further value.

Leading me to believe that they are going to find under their strategic review that they are either going to sell off some assets, including some of the land, or more likely spin off one or more companies to help pay down some of their debt.

Personally I think they should move most of their resources into the packaged fruits section of their business as it has the highest margins by far, concentrate less on the fresh fruit section by selling or spinning off at least a portion of that business , sell or spin off the fresh vegetable section outright, and either lease or sell part of their land holdings which could substantially pay down debt and raise the stock price.  They would also be a more focused company if the above were to occur as well.

Again feel free to give feedback.

Vivendi to sell Activision? Description of other subsidiaries.

http://www.ign.com/articles/2012/06/08/vivendi-to-sell-activision

A little bit of nice timing here coming off my post yesterday.  Anyways I have been hearing these rumors for a month or so now and am just waiting for their meeting on June 22nd to see what they have decided or not decided to do.

Activision Blizzard (ATVI) description- Worlds biggest video game company, and in my opinion has the best overall portfolio of games in the entire industry.  Call of Duty, Skylanders, Diablo, Starcraft, World of Warcraft, among others are included in the portfolio. This is the asset that I think would make the most sense to sell or spin off.

Call of Duty produces over $1 billion of revenues by itself with every game they produce, which comes out once a year usually in November.

However most of these franchises have either just come out with games or are past their prime in my opinion. World of Warcraft while still a cash cow is gushing subscription members every month, and Blizzard has already started to move resources into their next MMORPG which has no release date. Diablo III just came out so won’t expect another game in that series for a while. Call of Duty while still producing huge revenues and profits is at its peak to me and can only go down from here. The development studio who makes the Call of Duty series has been fighting with and losing a lot of team members over the last several years which will also hurt quality in the future.

I also see the entire console video game industry in a decline as well.  You can only keep asking people to pay more for less, for so long before they decide to stop buying games and consoles, especially with cheaper games coming out either free to play or for under $10 on tablets and phones.

The next generation of gaming systems is going to start coming out later in 2012 which is also another reason they should sell before that happens due to the higher costs and lower profitability that comes from every new console generation.

In my opinion now would be the perfect time to sell ATVI, will likely never be able to get a higher price than they would now due to the above. The only problem would be finding someone big enough to buy them.

GVT description-Fixed phone and internet Brazilian telecom who Vivendi recently bought.  Has great growth potential but will cost a lot in the short term due to high amounts of cap ex in the telecom industry. Should be one of the better Vivendi holdings over the long term though as their margins are good.  My main concern with this one is that Vivendi over payed for it so it will take longer to recoup that investment, and being in Brazil you never know what company might be expropriated by  the goverments in South America.

Maroc Telecom description-Mobile/internet/fixed phone company with most of their business in Morocco.  Same problem with cap ex as GVT above especially since they are going to be transitioning into 3G coverage from 2G, also could eventually pay off due to more data plan subscriptions from the smartphones that run 3G.  Maroc has also been having problems with the government in Morocco as they have been having to cut rates thus losing out on revenues and lowering margins.

Canal+ description- Pay TV/cinema company with operations mainly in France. Another asset I could see them spinning off or selling. Owns 80% of Canal+ France which they have been trying to buy out completely to no avail which could lead them to sell their portion of it. Does own the rights to show Ligue 1 soccer matches and UEFA Champions League matches in France which is a major advantage.

Universal Music Group description-Biggest owner of music and music publishing rights in the world. Produces the lowest EBITDA and CFFO margin of the entire group.  Also doesn’t seem to fit the profile of the rest of the subsidiaries which might lead this to being sold.  However owns the rights to music from the likes of: Rihanna, Lady Gaga, Justin Bieber, Eminem, Taylor Swift and various other major music artists.  The music industry could also see a comeback to higher profitability with things like ITunes, Pandora, and Spotify though if they can figure out how to monetize their publishing rights properly.

SFR description- Mobile/fixed phone/internet company with operations mostly in France. Vivendi’s biggest revenue generator currently and probably most important to the groups success in the future.  Currently facing some headwinds in France with having to cut rates which is lowering margins. They are facing new, tougher, and cheaper competition in their market which is also currently lowering margins and causing a loss of subscribers.  Also losing some business due to the difficulties of the European economy and the loss of discretionary income by some individuals.  Recently bought out the remaining 44% of SFR from Vodafone which in my opinion they overpaid for, but should pay off in the future. Will hopefully return to profitability in the near future.

My valuations of Vivendi

I have used two different valuation techniques for Vivendi (VIVHY) Here we go.

Asset reproduction valuation done on 4-2-2012.  All #’s in millions of Euros unless otherwise noted.  Using 2011 10-k.

These valuations are done by me, using my estimates, and is not a recommendation for you to buy the stock. DO YOUR OWN HOMEWORK.

Assets:                                                   Book Value:                                  Reproduction Value:
Current assets
Cash                                                        3,304                                              3,304
Marketable Securities                              1,544                                              1,544
Accounts Receivable (net)                      6,730                                              4,500
Inventories                                               805                                                   500
Prepaid Expenses                                     0                                                       0
Deferred Taxes – tax liability                    700                                                  400
Total current assets                               13,083                                             10,248

PP&E Net                                                 9,001                                              6,000
Goodwill                                                  25,029                                            12,514.5
Intangible Assets                                     6,814                                                3,407
Total Assets                                            53,927                                            32,169.5

Number of shares 1,242
With IA: 53,927/1,242=43.42 Euros per share = $57.40 per share
Without IA: 47,113/1,242=37.93 Euros per share = $50.14 per share

Reproduction value:
With IA 32,169.5/1,242= 24.90 Euros per share = $34.24 per share
Without IA 28,762.5/1,242= 23.16 Euros per share = $30.62 per share

Current share price on 4-21-2012 = $16.50 per share

Sum of the parts valuations done on 4-26-2012 #s in millions of Euros unless otherwise noted.

44% of SFR bought in 2011 for 77,750 million Euros. Implied value of total stake since Vivendi now owns 100% of SFR = 17,360 Euros

60% of Activision (ATVI) =6,587 Euros

100% of SFR + 60% of ATVI =23,947 m Euros = $31,629 million

Vivendi has a total market cap currently of $23.46 billion

So you are getting most of the 60% of ATVI, all of GVT, all of Canal+, all of UMG, 53% of Maroc Telecom, which equals 5.41 billion Euros, all cash and debt for free, by just purchasing part of ATVI and all of SFR.
GVT, Canal+, UMG, and Maroc Telecom are the rest of their subsidiaries.

Valuing the whole of Vivendi, cash, and debt using above estimates, I am estimating very conservatively 40 Billion Euros = $53.832 billion of total value for Vivendi.

$53.832 billion/number of shares at full dilution of 1.250 billion= $43.07 per share

Current share price = $18.60 per share

This valuation would be used if they were to do a spin off or selling some of their assets and companies.

The reproduction valuation is generally the most conservative intrinsic value estimate and the one I use the most since I am very conservative and want the biggest margin of safety as possible.

Some other things I like about Vivendi besides the massive margin of safety are they pay a healthy yearly dividend. They have consistent free cash flow of at least 3 billion Euros per year after cap ex. Good margins. Cash and cash equivalents of over 3 billion Euros. Net operating loss carry forwards of around 8 billion Euros. Seth Klarman owns shares of Vivendi at his hedge fund Baupost Group, and has been buying more recently, actually got lucky and got in at a cheaper price than Klarman. Also the management of Vivendi is reviewing what they could do to unlock the value that is missing right now, by their own estimates at least 40%, could be spin offs or sale of some of their subsidiaries.

Risks: A lot of debt and continual huge amounts of cap ex in their telecom subsidiaries. European debt issues; most of their business is done in Europe, specifically France. If they decide not to do a spin off or asset sale it could take a while to unlock value, which would not bother me since it would enable me to acquire more shares.

Would like them to eventually do some kind of spin off or asset sale to pay down their debt which should also increase the share price. Would not even mind if they cancelled the dividend for a year or two to pay down debt either.

Feel free to give feedback.