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

To: Nya_Quy who wrote (62679)	10/10/2019 3:29:26 PM
From: E_K_S	Read Replies (1) \| Respond to of 78758

Two small things to add to the quality/valuation of the assets. First any real property is held on the books at 'Cost' not market (at least for US balance sheets). So for companies that own a lot of real estate for many years (like Macy (M)), the value reflected in their balance sheet does not reflect the current market price. When you see stated BV it will then under state true market value. There are many other things in BV which can over state that number like Goodwill and/or intangible assets. That is one of the reasons I like Macy's as a value Buy & hold play. The other item to consider in the quality/valuation of an asset is depletion allowance. Typically applied to oil and NG wells (assets worth less as oil/NG is pumped) but also, mines and even trees harvested (Reit CTT comes to mind). Depreciation usually takes care of this but not for all types of assets. Many of these companies (like miners) will adjust value through some type of depletion allowance. This can also work in reverse in these gold miners unless they sell future reserves at some spot price even though the commodity price may have increased. I own Barrick Gold (GOLD) but learned latter they had sold some of their reserves 'forward' at a reduced price to the market price. It eventually impacted revenues as well as next year's revenues. Their proven reserves were adjusted lower unless they discovered new reserves in other mines. Just other little items to consider in the value analysis. When you see an activist investor buying into a company w/ a lot of company owned real estate, it may be an indication that he may want them to sell some/all to recognize the current market price to bring shareholders some of that hidden value. I have seen proposals to spin off real estate to a subsidiary company and/or REIT and then do a lease back. This is more short term thinking as there are other ways to bring this value to the shareholder. Again Macy's is developing their NY property (high rise) store location into single family rentals (ie Condos) to be built above the store level. There is a big Capx investment but brand new sustained revenue streams to the company. Therefore, adding value in (1) property appreciation and (2) new future revenue streams). That's a much better long term solution to fixing a slumping retail business by transitioning some of those assets into rental properties IMO. More food for thought. EKS

To: Nya_Quy who wrote (62679)	10/10/2019 7:37:40 PM
From: William Cloutier	1 Recommendation Recommended By E_K_S Respond to of 78758

I totally understand unlevered operating FCF and why you want to use it. I think that ignoring or accruing growth capex is much more dangerous when someone tries to forecast and discount but I don't think it's what you do. Let's say my initial message was more in line with this thought: we need to remember the way we calculate something and its caveat. I was just raising what I think is an issue with the way we may operate with a certain valuation model. My definition of growth capex is: total capex minus any fraction, we can think of, that can represents maintenance capex. Dividing capex is like a form of accrual accounting: maintenance capex is immediately "expensed" and growth capex is placed on the balance sheet. So, if we modify a cash-based measure with accrual accounting, we need to think how it can distort the picture we're trying to draw. Good investing Will