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Strategies & Market Trends : Value Investing

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From: 49erfan09	11/17/2010 6:02:06 PM
	of 78669

Amcon Distributing Co - Mohnish Pabrai analysis...a bit new to the board here and trying to learn some things. I was trying to value Amcon Distributing Co. on a cash flow multiple basis, a wholesale distributor of consumer goods (mainly cigarettes) to convenience stores in the mid-west (majority of the their business). Share price: $70.75 Mkt cap: $40.84M P/E: 5.91 TTM EPS: $11.97 (approx same as FCF) ROIC: 20% Net debt: $24m (or $41 per share) Let's conservatively give a healthy growing business like this a FCF multiple of 10x. Therefore, $11.96 EPS * FCF/PE 10x = $119.60....my question is what do you do with the debt here. Do you subtract it from this value and get about $80 per share ($119.60-$41.00)? Or do you say the company will continue to pay off debt and forget about it? I ask because Mohnish Pabrai does this type of multiple analysis. Pabrai states: 'In some cases you can only count on liquidation value. In other cases there is enough of a moat to focus on future cash flows. There is no need for Excel, it should be clear within a few minutes. If a business has zero growth and consistent stable cash flow, that business is worth 10x FCF plus any excess capital. I then divide by two and see if it's available at half off. If there is growth, depending on how much and how consistent, I'd be willing to value it at 12x-15x plus excess capital.'

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