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

To: E_K_S who wrote (55655)	7/10/2015 1:00:33 PM
From: Graham Osborn	Respond to of 78644

Story of my life :) Usually I use tbook both for growth and ratios but in this case I can't.

To: E_K_S who wrote (55655)	7/12/2015 4:23:51 PM
From: Graham Osborn	1 Recommendation Recommended By E_K_S Read Replies (1) \| Respond to of 78644

Re: CBI/ Chicago Bridge & Iron Energy infrastructure player with international reach. Reporting segments by 2014 rev are Engineering Construction Maintenance (9B), Fabrication (2.5B), Tech (0.6B), Environmental Solutions (0.8B). ECM per the 10K: Projects for this operating group include upstream and downstream process facilities for the oil and gas industry, such as refinery process units and petrochemical facilities, as well as Liquefied Natural Gas ("LNG") liquefaction and regasification terminals, and nuclear, fossil and renewable electric generating plants for the power generation industry. Customers include international energy companies such as Chevron, ExxonMobil, and Occidental Petroleum; national energy companies such as Ecopetrol (Colombia), Exelon (United States ("U.S.")) and Statoil (Norway); and regional energy companies in the U.S. such as Entergy, Freeport LNG and Sempra Energy. 30B backlog is 50% power, 30% LNG, 5% refining, 5% gas processing, 10% petchem/ oil sands/ other. A quick timeline for CBI since the 90s: Unadjusted ratios: Mkt cap: 5.0B Price: 46 NCAVPS: -28 Debt/ Book: 0.41 (note that 5B assets are goodwill) Working Capital: -690M Cash/ Cap: 0.065 Price/ Tbook: -2.7 Current Ratio: 0.85 Quick Ratio: 0.37 EV/ Rev: 0.54 EV to EBITDA: 5.7 EV/ FCF: -37705 EBIT/ Interest: 14 ROE: 22% ROA: 6.2% ROIC: 12% 10-year rev growth: 21% 10-year tangible book growth: NA GAAP vs cash flow: Btw, sorry the acquisition cost is included in FCF above, I used my rollup template by mistake. CBI has about 350M cash vs 2.3B LT debt. As noted their tangible book is negative, unlike the majority of US competitors. They have about 1B in payments due 2016-2018 per last 10K: Disclaimer: I think the PP report is as melodramatic as your typical short thesis, but I agree with their basic argument that CIP is being used as a capitalized expense account. PP provided the following table which is taken direct from the filings except for the Feb 2013 CIP number: As the PP IR call noted the CIP account is being applied toward COGS and revenue but doesn’t specify over what timeframe. You can read the report for some scenario analysis. The bottom line is (1) use of the allowance inflates EBITDA/ NI (2) if management is using COGS gimmicks, it raises the question of whether their revenue recognition practices are misleading as well – a huge concern in E&C. As such I find it difficult to establish a MOS for earnings power. The short float is currently around 12%: I’ll note officers and directors alike have given CBI a vote of “no confidence” with their money. Berkshire’s purchase price appears to have been in the 40s-50s. Hard to say whether he or his lieutenants made the buy call. And obviously now Einhorn and Greenblatt are in. While I think sometimes our reverence for Buffett on the thread blinds us to some of his mistakes (remember Freddie?), I’m as usual going to give him the benefit of the doubt. That means activism (new CFO), but also honesty about the company’s cash flow and debt problems if they want to stop destroying shareholder value and start creating it. As a retail investor without special insight, I cannot assume this will happen. FWIW, I randomly happened upon this old MB post on CBI: Message 1725064 In conclusion, IMO CBI is a rollup. I’ve been studying rollups recently wrt my AGN short, and you can see CBI/ AGN share the “lethal triad” of ascending-staircase goodwill, descending-staircase tbook, and mediocre FCF out of proportion to rev growth: CBI may not be a short at this point with Buffett and his disciples tying up so much of the float, but for me it’s not a long and definitely lacks a MOS.