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Strategies & Market Trends : Value Investing

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To: Suma who wrote (21640)	7/9/2005 4:46:55 PM
From: E_K_S	Read Replies (1) of 78751

Hi Suma - What is interesting about Albertsons is since the new CEO arrived there were two huge acquisitions; (1) Shaws (April 30, 2004 for $2.5 Billion) and (2)Bristol Farms (a high end specialty food store). These moves added almost $1.5 billion in new long term debt that bruwin has noted. However, almost $650 million of the financing for the Shaws investment was done using a "Hybrid Bond" which is bond like debt that converts to common stock in May 2007. I am not sure how all of this is recorded in the balance sheet but in May 2007, a good chuck of this long term debt turns into common shares. There will be a dilution in earnings per share due to the new shares issued with an equal reduction in the long term debt. Therefore, some of the ratios used to measure value and profitability will be off once this debt is converted into common shares. I believe the Bristol Farms purchase (11 stores) will allow ABS to gain experience operating a high end grocery business (w/ high margins) similar to the Whole Foods concept. ABS's biggest value is in their real estate holdings and it is up to management to devise a scheme to maximize their ROI using these land assets. The other value component in the ABS vault are their Osco and Save-On drug stores. It's a huge growth business compared to the grocery business especially as the baby boomers get older. Again management is the key in how they develop this business. These drug stores can utilize many of the same land assets now used for the grocery business (using the store w/i the store concept) but they must develop the separate "store" identity. That is why I see this as a value play (huge undervalued real estate holdings) but the key to success is how well management develops their different lines of business (pharmacy, high end grocery and main stream grocery/retail). Each business segment has different margins and growth rates. When evaluated as a whole, the potential PE should be higher and two of the divisions (Pharmacy and High-End grocery) should have excellent growth in the future. --------------------------------------------------------------- Like Spekulatius noted upthread "...find out if management has send out a consistent message. Did they accomplish the objectives set in earlier years?...". I would like to add that you need to understand management's theme for the "turnaround". The investor must make sure as the company achieves new milestones or acquire other companies) that they fit in with the overall "turnaround" theme stated by management. I have been blind sided by management doing something out of left field. This is when I get worried and bail on the investment. Finally, these turnarounds take time so the smart investor must have a lot of patients. EKS

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