- Reduction of employees by 500 people or 14 percent of work force to eliminate $50 million of operating expense by 1st quarter of 2009.
- Reduction in capital spending by 10 percent. To maintain capital spending at $20 million per year for 2008 and 2009.
- Disposal of non-core assets, which potentially could fetch $35 million. The current operating losses would save capital gain tax.
- Reduction in dividend payout for 2009, which is still under discussion.
Goldman Sachs has issued a sell report on AHC (dated 28th July), and pegged its intrinsic value at $5.00 per share based on DCF analysis. However, it has not put any valuation on AHC's $150 million worth of non-core property values. At 25 percent haircut, the properties are worth at least $112.5 million, or $5.50 per share.
I have sent an email to Goldman analysts find out on their thoughts of these properties and should update you in due course.
Disclosure: LONG
3 comments:
How did you figure out they have 150mm of non core property Value? Do they need these properties to run business? This stock seems VERY cheap, but I start to wonder if Newspapers are a viable business anymore at any price. The past 6 mos Revenue went down 44 mm YoY and EBITDA went down 31mm...lets say revenue declines another 10% in next 6 mos to 290mm in revenue, because of the high operating leverage ebitda could decline 20mm for the next six months (I am assuming no seasonality) to -8mm or -16mm annually plus the 20mm in capex gets us to -36mm in FCF. Obviously, you would not want to own a business with those characteristics...but if there is 150mm in Property value, and get newspaper option for free (or paid for it) it might be worth it.
Hi Joe,
Thanks for your comment. Basically, I find what properties AHC own through various tax districts. The values that I come up with come from the appraised market values for tax purposes, which should be reasonable.
As you corrected pointed out, negative FCF will kill the company and errode any margin of safety. I believe that the management is well aware of this fact and has been very aggressive in laying off 14% of work force. It is a tough thing to do as many people would have worked there for many years.
I don't know how to handicap 3 years out, but I believe that management is doing its best to maintain positive FCF.
They need the properties to run the biz. The property valuation analysis would only come into play if the company liquidated. However, the real estate does provide a floor on valuation, in my opinion. I also think you could put in the value of AHC's share of the Classified Ventures LLC (probably around 15-20 mil) and perhaps the web domains (couple of mil) -- I mean if we are liquidating, we might as well liquidate everything!
On the 35 mil they might sell, I'm wondering if that is in fact excess real estate -- or perhaps they will need to leaseback the properties. I have a call into the company, but as of yet no response.
Post a Comment