List of steps for evaluation

BobMacKenzie

Newbie

Posts: 14

« on: October 26, 2008, 01:23:31 PM »

Hi guys and gals,

I apologize for the silence over the last few months. Being a financial advisor has been busy lately and I'm taking a statistics course at Algonquin. I thought that it would be helpful to have some formal training in it, and we are learning how to pick data from the Statcan website and work with it for forecasting and so forth. My thanks to Mark for his persistence in keeping things going on this site.

In the next month or so I hope to give a presentation on what I learned this summer to colleagues at our office, then in the new year to do the same at our Ottawa Canadian MoneySaver ShareClub. That should help me to consolidate the process of valuing companies. (There may be someone in Ottawa that takes the course next year which would give me a local contact for further study.)

I had said that I would type up and distribute the list of steps that we learned from the tutoring session with Saj. I hope to get that done soon. Looking over my list, I am still a little confused about points here and there. When I post it, I would appreciate comments and corrections or improvements.

In terms of my own investing, I have recently been buying Torstar at about $11.50 for its yield and potential appreciation. It is a favourite of value managers, but I have not had time to analyze it myself to any degree. Has anyone any thoughts on it?

Regards, Bob


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Mark Jr

Administrator
Newbie

Posts: 45

Re: List of steps for evaluation

« Reply #1 on: November 11, 2008, 04:04:55 PM »

Quote from: BobMacKenzie on October 26, 2008, 01:23:31 PM

In terms of my own investing, I have recently been buying Torstar at about $11.50 for its yield and potential appreciation. It is a favourite of value managers, but I have not had time to analyze it myself to any degree. Has anyone any thoughts on it?

Regards, Bob

Hi Bob, oddly, Torstar is one of our larger corporate clients but I don't know much about them, I know they're somewhat involved with Metroland Publishing (are they a sub?).

How well are they positioned in the new media space? When I think Toronto Star I think "newsprint", rising raw materials costs and declining readership, but obviously, I haven't looked too closely at them.


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BobMacKenzie

Newbie

Posts: 14

Re: List of steps for evaluation

« Reply #2 on: November 11, 2008, 06:27:17 PM »

Mark,
Thanks for the response. I am busy with the stats course (linear regression and correlation this week) and have not been able to work on my list of steps from my notes. I bought a good book for $2 on Saturday at a book sale, Tom Copeland et al, "Valuation:measuring and managing the value of companies" (John Wiley, 1990). It is fairly basic and has good chapters on finding target weights and so forth. Helpful for me to review these things, even if it is mainly the traditional method.
Torstar is a favourite of value managers and our Ottawa ShareClub looked at it when it was $21. It did not look like much value at that point and I asked a Cundill fund manager about it. He agreed, but said that the income was good. At half that price and a 6% yield I thought it was good for my needs. It is a conglomerate, which always has possibilities for spinoffs, something the Cundill funds have benefited from lately. The TO paper is just a small part of its makeup. There are also community papers, free papers, internet services such as Workopolis, 20% of CTV and other media, and Harlequin books.
The corporate structure is unusual, which may have impeded price appreciation. It is closely-held by members and others of a trust that took over the Toronto Star some years ago. The 'Atkinson' trust held it originally, but the 'Atkinson principles' did not put profit first and there was a challenge to the trust, with the paper being bought out. The TS.B shares are non-voting.
It would be interesting, although challenging, to do a valuation of this firm. I doubt that I will get around to it anytime soon. It has a good website that lists its holdings and has lots of corporate info on a long and interesting slide presentation.


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BobMacKenzie

Newbie

Posts: 14

Torstar

« Reply #3 on: July 28, 2009, 09:03:45 PM »

After a long absence dragging myself through the market decline with clients and enjoying some basic statistics courses at Algonquin College, I finally got around to doing some work on Torstar (TS.B). The first time thorough the process is not easy! But going back at it time after time helps to get things a little more in perspective and memory. At a current $5 share price it looks like a reasonable purchase, and a good investment with its 7% dividend (after a recent cut). I figured the WACC to be about 7.3% (4.3% debt plus 6% premium equity, tax rate 33%) on a 59 equity/41 debt ratio (difficult to assess). Average normalized earnings for 10 years were $177M and after-tax 119M. Average normalized OPM is 11.8%. ROIC was 10.4% (119 over Invested Capital of 1,139M). The portion of EPV for the equity holders was about 980k (EPV 1,650M). Market cap at the moment is 79M shares times $5 or $395M.

I have had a lot of difficulty with the NAV because of the very high goodwill (557M), pension shortfall and CTVgm writedowns. I'll have to think about it a lot more. But NAV at least equals market cap, I am pretty sure.
This is just some of my preliminary work, I must admit I'm not sure of myself. But it's fun nevertheless. I am reading the new edition of Security Analysis with all the great essays by Klarman et al to help me along. That's an outstanding volume! (I just finished Buffett's bio Snowball and really enjoyed it.)

TD Waterhouse downgraded TS.B a week ago (to $4.50) and it was removed from the index a month back. Ownership is almost entirely by five Toronto families, in a sort of trust (an interesting legal history there). The Toronto Star is a relatively small portion of the profit of TS, with its community and free Metro papers doing well. The big money-maker and probably engine of growth is Harlequin books. That's an amazing company with a huge line-up of books (paper and electronic) around the world. They have even started a non-fiction division which will be interesting to watch. I wonder what the covers will look like?

Torstar reports tomorrow at 6:30am. Not that it matters. I expect that it will take time for the stock price to regain the $20 or so it was for the last number of years. Bob


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