I believe you judge the quality of a private equity firm by its ability to say no to a deal.
The PE firms have an advantage
This is a corrected version of a previous post. In the original I transcribed gross margins for operating margins in two companies. The comparison was fair - Focus Media was much higher margin whichever margin I quoted. It is just that I was quoting the wrong margin.
(My source for these photos is a Seeking Alpha bull on the stock here...)A lot of what used to be counted as LCD screens are simple posters:
Aug.13, 2012 -- Focus Media Holding Limited ("Focus Media") today announced that its Board of Directors has received a preliminary non-binding proposal letter, dated August 12, 2012, from affiliates of FountainVest Partners, The Carlyle Group, CITIC Capital Partners, CDH Investments and China Everbright Limited and Mr. Jason Nanchun Jiang, Chairman of the Board and Chief Executive Officer of Focus Media, and his affiliates (together, the "Consortium Members"), that proposes a "going-private" transaction for $27.00 in cash per American depositary share, or $5.40 in cash per ordinary share...
13. No Binding Commitment. This letter constitutes only a preliminary indication of our interest, and does not constitute any binding commitment with respect to the Acquisition. A binding commitment will result only from the execution of Definitive Agreements, and then will be on terms and conditions provided in such documentation.And so we have a due-diligence period in which some of the most reputable and largest private equity firms will do due diligence on a company that one of the most famous rat-bag short-sellers asserts is a fraud.
There are days I should not be allowed to hang around a spreadsheet. This post had not one but two - nearly identical mistakes in it. I simply read off the wrong line in my tables and quoted gross margins not operating margins. I have corrected below and put in an addendum with the original sources of the correct data in it. I have also republished the post as it should have been in the first place.
Just to make it clear - phrases removed from this post are instrike throughand additions are in italics.
If you have not read this post - just go straight to the corrected versions.
(My source for these photos is a Seeking Alpha bull on the stock here...)A lot of what used to be counted as LCD screens are simple posters:
Aug.13, 2012 -- Focus Media Holding Limited ("Focus Media") today announced that its Board of Directors has received a preliminary non-binding proposal letter, dated August 12, 2012, from affiliates of FountainVest Partners, The Carlyle Group, CITIC Capital Partners, CDH Investments and China Everbright Limited and Mr. Jason Nanchun Jiang, Chairman of the Board and Chief Executive Officer of Focus Media, and his affiliates (together, the "Consortium Members"), that proposes a "going-private" transaction for $27.00 in cash per American depositary share, or $5.40 in cash per ordinary share...
13. No Binding Commitment. This letter constitutes only a preliminary indication of our interest, and does not constitute any binding commitment with respect to the Acquisition. A binding commitment will result only from the execution of Definitive Agreements, and then will be on terms and conditions provided in such documentation.And so we have a due-diligence period in which some of the most reputable and largest private equity firms will do due diligence on a company that one of the most famous rat-bag short-sellers asserts is a fraud.
For the years ended December 31, | ||||||||||||
2009 | 2010 | 2011 | ||||||||||
(In U.S. Dollars, except share and per share data, unless otherwise stated) | ||||||||||||
Net revenues
| $ | 397,164,522 | $ | 516,314,697 | $ | 792,620,177 | ||||||
Cost of revenues
| 241,073,203 | 221,690,034 | 289,644,266 | |||||||||
Gross profit
| 156,091,319 | 294,624,663 | 502,975,911 | |||||||||
Operating expenses:
| ||||||||||||
General and administrative
| 88,833,305 | 79,759,757 | 127,012,894 | |||||||||
Selling and marketing
| 79,786,861 | 103,722,237 | 147,716,437 | |||||||||
Impairment loss
| 63,646,227 | 5,736,134 | — | |||||||||
Other operating expenses (income), net
| 13,111,043 | (14,143,945 | ) | (16,137,695 | ) | |||||||
Total operating expenses
| 245,377,436 | 175,074,183 | 258,591,636 | |||||||||
Income (loss) from operations
| (89,286,117 | ) | 119,550,480 | 244,384,275 | ||||||||
Interest income
| 4,945,946 | 7,259,508 | 15,538,943 | |||||||||
Interest expense
| — | — | 716,956 | |||||||||
Investment loss
| — | 1,287,881 | — | |||||||||
Income (loss) from continuing operations before income taxes
| (84,340,171 | ) | 125,522,107 | 259,206,262 | ||||||||
Income taxes
| 13,780,065 | 22,335,579 | 54,761,394 | |||||||||
Loss from equity method investment
| — | — | 43,632,613 | |||||||||
Net income (loss) from continuing operations
| (98,120,236 | ) | 103,186,528 | 160,812,255 | ||||||||
Net income (loss) from discontinued operations, net of tax
| (111,612,420 | ) | 83,077,575 | — | ||||||||
Net income (loss)
| (209,732,656 | ) | 186,264,103 | 160,812,255 | ||||||||
Less: Net income (loss) attributable to noncontrolling interests
| 3,524,388 | 1,990,626 | (1,864,783 | ) | ||||||||
Net income (loss) attributable to Focus Media Holding Limited Shareholders
| $ | (213,257,044 | ) | $ | 184,273,477 | $ | 162,677,038 | |||||
Income (loss) per share from continuing operations — basic
| $ | (0.15 | ) | $ | 0.15 | $ | 0.24 | |||||
Income (loss) per share from continuing operations — diluted
| $ | (0.15 | ) | $ | 0.14 | $ | 0.23 | |||||
Income (loss) per share from discontinued operations — basic
| $ | (0.17 | ) | $ | 0.12 | $ | — | |||||
Income (loss) per share from discontinued operations — diluted
| $ | (0.17 | ) | $ | 0.11 | $ | — | |||||
Income (loss) per share — basic
| $ | (0.33 | ) | $ | 0.26 | $ | 0.24 | |||||
Income (loss) per share — diluted
| $ | (0.33 | ) | $ | 0.25 | $ | 0.23 | |||||
Shares used in calculating basic income (loss) per share
| 651,654,345 | 707,846,570 | 671,401,000 | |||||||||
Shares used in calculating diluted income (loss) per share
| 651,654,345 | 731,658,265 | 693,971,258 | |||||||||
Turning to my own portfolio, I have just bought shares in XP Power (XPP), a designer and manufacturer of power converters. These are devices that allow electronic equipment to operate efficiently.
XP Power shares were in the 1,600-2,000p range during the first half of 2011. But investors ran for cover after the level of new orders began to slip in mid-year. The slowdown eventually caused lower profits in the first half of 2012.
But the company’s order rate is now spiking higher. I expect second-half results to be much higher than last year’s figures.
Even better, XP Power is quite optimistic about its future. It recently launched 10 product lines. It brags about its strong design win record in the current year. The share of revenues derived from products manufactured internally is rising. These are more profitable than those manufactured externally. Its new factory in Vietnam has just come on stream, which will also help to increase margins.
The dividend has just increased and now approaches 5 per cent.
Our strategy and its execution resulted in earnings per share of 106.4p for 2011, an increase of 27% over 2010. The compound average growth rate of earnings per share has been 27% over the last 5 years and 18% over the last 10 years.It is not Apple - but this is way more impressive than most companies. 18 percent for 10 years is more than 500 percent growth. Previous years are also at very high margins.
The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.