A.H. Belo Update Following 2nd Quarter 2008 Results

Significant restructuring plan:

• 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.

In my opinion, management is taking rational steps towards coping with current difficult environment, which might be a chronic situation.

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

A.H. Belo: Why might it be a Value Trap?

A very smart friend of mine shared with me the following thoughts on why A.H. Belo could potentially be a value trap....

He thinks it’s a value trap for three reasons =>

1. The value is found in non-operating assets,
   
2. Management has no incentive to realize non-operating value and
3. Management controls the vote, so no potential for activist situation.
   

He spoke to management a couple of times and get the feeling that they have no interest in monetizing real estate at any point. He initially thought that management should take this company private given the balance sheet strength (plus it’ll be easier to go through business transformation out of the public eye). But then he realized that they cannot do that for 1-2 years due to tax repercussions of the spin. And if they want to take the company private, they will want to do so at the lowest price possible. So why not try to turn the business around in the public, if the stock stays here or lower (lower is likely given direction of newspaper businesses) they take the company private in 3-years at much lower valuation.

Poor operating business + no hard catalyst + no potential for activism = value trap.

What is your thoughts on A.H. Belo? If you have feedbacks, please shoot me an email.

A.H. Belo (AHC): A Value Stock or A Value Trap?

Below is my write-up on A.H. Belo, which was spun-off from Belo Corp recently.

I would appreciate your feedbacks, especially on why my thesis might be flawed.

Disclosure: I'm long on AHC.

Cautions:

1. This is not a recommendation to buy or sell AHC.
   
2. Please do your own work prior to investing in AHC.
3. The author will not be liable for any potential losses resulting from your AHC investment.

A.H. Belo (AHC): A Value Stock or A Value Trap?

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