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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: Kapusta Kid who wrote (43853)	8/11/2011 11:11:54 AM
From: E_K_S	1 Recommendation Read Replies (2) \| Respond to of 78751

Hi Kid - Welcome to the Value Investing Board. Good call on SUPERVALU Inc. (SVU). Have you arrived at a fair value for this company. I have been wrong on this one for many years but actually have mad a little money buying shares on the way down and selling them on the surprise pops to the upside. Earlier this week, I increased my position by 63% thinking this was a pretty good entry point w/ a Forward PE around 5 and more importantly excellent FCF to cover LT debt (to spare). I have put this in my AG basket as the company has a profitable Food distribution business in the U.S. which I value at $3.00/share. I also view the company as a defensive holding especially in a low growth environment. People have to eat and buy groceries. I am looking for a fair value price around $15.00/share - $17.00/share over three to five years especially as they pay down their debt and real estate values stabilize (SVU own a lot of real estate). The key is for them to keep generating that FCF and building their distribution business and their Save-A-Lot stores. According to their last 10Q "...Fiscal 2012 total debt reduction is estimated to be approximately $500 to $550...." which translates to $2.61/share. BV at $6.68/share (according to YAHOO Finance) would then increase to $9.29/share. Seems like a low risk high return value opportunity (potential 212% return $7.00/share to $16.00/share) w/ a 5% dividend while you wait. EKS

To: Kapusta Kid who wrote (43853)	8/13/2011 4:04:22 PM
From: Spekulatius	Read Replies (1) \| Respond to of 78751

re SVU - yes they trade at low FCF multiple, but adjusted for debt, their EV/EBITDA (the quickest way to calculate leverage adjusted valuation) of 4.4 in not much lower than KR 5.2 (KR is better positioned) or SWY 4.6. Because of the large debt load it's actually much more expensive on that measure than BBY (EV/EBITDA ~2.6). ALl of these have their own set of issues. While SVU debt has been shrinking, so have their revenues and margins - the company delevers byt selling of business. this can go to the point where all the benefits acrue to the debt holders and nothing is left for the equity. SVU for me starts to trade like an option, if they can turn the business around, the equity slice will become much more valuable. Right now though, the company is shrinking and becomes less valuable - the debtholders are OK because they get slowly paid back , but at the current rate, ti will take 6-7 years to extinguish the debt and who knows what the situation looks then. In addition to above there are unions to content with that want their slice too, especially if the company starts to look better. As I see it, the shareholders are at the bottom of the trough - there is a shrinking business - and we have debtholders and unions that want to be fed first, before the shareholders. As it stands, I would not be surprised about another dividend cut as well. See the newspaper business over the last ten years to find out how this plays out. As a levered name, but with less structural issues, I have started to look at OI again. They trade at 6x EV/EBITDA and there is some asbestos liabilities on top of that 500-800M$ is my estimate. it's not terrible cheap but it is a decent business with a global footprint, that is in no danger to go away. my guess is that they will need 2 more quarters to fix the operational problems (my guess is that the fixes that they talked about in the last CC will increase costs first). This business should be able to grow in the single digits and generate 300M$ in FCF We discussed OI before on this thread, it's now 40% cheaper: Message 26893928