Mittleman investment management 2016 annual commentary


Sberbank’s stock price is rebounding as its earnings are rebounding, as Russia slowly emerges from two years in recession. Nyse stock market futures One year ago, in our Investment Review letter for year-end 2015, we noted that Sberbank’s stock at $5.79 on 12/31/15, up from $3.87 on 12/31/14, appeared to be worth at least $10.00, which would be 12.5x the $0.80 in EPS they appeared likely to produce in 2016, and 1.7x their book value of $5.88, also noting that any gain in the Ruble (RUB/USD was 76 on 01/29/16) would boost that fair value target. Gender differences in leadership Since then the Ruble has gained 23.5% versus the USD to 61.54 as of 12/31/16, but Sberbank’s earnings have been much stronger than expectations one year ago, with estimates for 2016 now at $1.55 EPS, nearly double the $0.80 consensus expectations of one year ago. Usd to sgd We are now targeting fair value at $17.20 per share, a P/E multiple of 10x estimated 2017 EPS of $1.72, and 1.8x book value of $9.60 (assuming a RUB/USD exchange rate of 60). Binary domain While the Sberbank position is now at a decent gain from our average cost of $8.01 per share, our initial purchases at $10 in June of 2014 were clearly not well-timed, as the stock plummeted to a low of $3.08 in December 2014, before rebounding to $11.58 on 12/31/16. Funny quotes Still we’ve done much better with Sberbank since June 2014 than we would have had we picked a much “safer” European bank like Deutsche Bank (DB) in Germany, which is still down from $38 to $18 over the same time frame. Cnn money stock market futures This highlights again how wrong consensus thinking can be at any given time and on any given subject.

Rallye SA was also in rebound mode in Q4 2016 and for the full year, as concerns abated about the effects a severe recession still underway in Brazil would have on their substantial grocery and retail holdings in the region. Euro today exchange rate Also a group of short sellers who had loudly denounced Rallye and its main holding, Casino Guichard in France, as untenably over-leveraged in a report issued on December 17, 2015, seem to have covered their short positions in Rallye and moved on to other targets, at least according to public filings in France disclosing directly held short positions.

Exchange rate usd rmb We obviously disagreed with the short thesis on Rallye and used the price weakness their report created to buy more shares. Us futures markets Casino Guichard sold assets in Thailand and Vietnam for over $4B in proceeds in 2016 at very attractive valuations, dramatically reducing leverage for the group. British pound us dollar exchange rate We continue to have faith in Rallye’s controlling shareholder, Jean-Charles Naouri, the French billionaire who owns 55.3% of Rallye’s stock, as he has an excellent, decades-long track record of buying low and selling high with supermarkets around the world, and the real estate he develops around them. Aud usd bloomberg Annual dividends paid by Casino Guichard have grown from €2.08 per share (€233M) in 2005 to €3.12 per share (€353M) in 2016, while Rallye’s dividend has grown from €1.68 per share (€65M) in 2005 to €1.83 per share (€89M) in 2016. Binary converter At 12/31/16 stock price of $19.43, the dividend yield on Rallye’s stock is 9.9%. Usd yen exchange rate So, while the holding company structure is confusing to some, and the leverage is significant (albeit much reduced), we take comfort in the long history of free cash flow generation and cash dividends representing almost all of it going to shareholders.

Carmike Cinemas exited our portfolio on 12/22/16, when AMC Entertainment Holdings (AMC) closed their acquisition of Carmike for cash and stock worth $34.09, thus ending just over a nine year investment that produced an outstanding return. Cool pictures of cars The stock fell from our Q3 2007 entry at around $16 to a low of $1.00 in March 2009, enabling us to lower our average cost then to about $7. Us dollar exchange rate in india today The business was much better than the volatile stock price implied, as patient investors ultimately enjoyed.

Like Carmike, Revlon also has a volatile stock price that belies a much more stable business underneath. Binary definition music That excess volatility in the share price is partially due to a limited float (Ron Perelman owns 77.5% of the shares, leaving only 22.5% for the rest of us), but also due to a highly leveraged balance sheet, which amplifies small changes in the total enterprise value to large changes in the equity value. The binary box So while Revlon was our worst performer in Q4 2016, it was our best performer in Q3 2016, our worst performer in Q2 2016, and our best performer in Q1 2016. Exchange rate usd to euro Over the long-term, since we started buying the stock at $10 in December of 2010, the performance has been very good, even at the recently marked down price of $29.15 on 12/31/16. Silver oz price The ostensible reason for the drop in Q4 2016 we think was disappointment with their Q3 report of weak sales in their consumer business in North America, -5.3%, but that was substantially mitigated by a 5.1% increase (+9.7% ex-currency effects) in their international consumer business. Dow market futures Overall, total company sales were +1.0% in Q3 (+2.5% ex-FX). Convert to binary number That compares well against their larger and