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

To: James Clarke who wrote (4472)	7/24/1998 1:44:00 AM
From: Michael Burry	Respond to of 78715

Re: USU Thanks James. Buffett once said he wanted such a margin of safety that he doesn't have to carry it to the nth decimal point. So I was a little loose in my valuation. It sold SWU for 115 last year, so I figured present value of 90 wasn't too bad for a discount. You are correct though. Certain of its assets are separate from its business by and large. As the prospectus states: Substantially all of the Company's revenue is derived from the sale of uranium enrichment services, denominated in SWU. Although customers may buy enriched uranium product without having to supply uranium, virtually all of the Company's contracts are for enriching uranium provided by customers. So say, to be conservative, there's $17 in good net assets. Which are truly separate from the business? Well, to start with, the $1742M in transfers and current inventories incl. the uranium provided by customers. What liabilities offset this? Certainly the "Uranium owed to customers" and I'd throw in the long-term debt and "other liabilities" to be safe. So say $650 million against the "hidden" assets. Maybe $11/share? Discounted a bit more to maybe $9/share? Yes, your $7 is very conservative. And its business is primarily a service business, requiring little asset base depletion. So that business produces $2 in FCF and pays a $1.10 dividend. And its current revenue level is fairly well locked-in via its long-term backlog. I guess you were looking at it as a fair price of $18, or 9 times earnings/FCF with a 5.x dividend for a now non-growing company. The market is probably already valuing it off its dividend, thanks to confusion similar to my own. And 7X earnings doesn't seem to bother this market, for companies like this. So I'll stick with $15. Ok, so there's at least $24-25 in value. You win. I like it. I wish that I analyzed all my stocks this close. Good luck with it. I'll try to make room myself. I must say that I also hated it because of the IPO, but an IPO on a day the DOW is down 200? And with this confusing a prospectus? And with people suing to block the transfer of uranium? Yeah, there's a margin of safety. Now the hope is that it falls to 11-12 so I can get the business for free. Me buying it now might help achieve that goal ;) Good investing, Mike