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Value Investor Congress Las Vegas 2013 - I Like Big Dividends and I Cannot Lie - Vitaliy Katsenelson
Value Investor Congress Las Vegas 2013 - I Like Big Dividends and I Cannot Lie - Vitaliy Katsenelson
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Join us for the 9th Annual New York Value Investing Congress!
5 Years Later
Cyclical Markets:
E
Bull Markets
P/E
Returns
Adding 2 positives = great returns Net-net earnings growth is cancelled out by P/E decline = a lot of volatility and no returns Adding 2 negatives = horrible returns
Sideways Markets
High
Low
Bear Markets
High
Low
$65 $61
$50
=
38%
1,590 = 61 1,590 = 65
26 25
Revenues (GDP) continue to grow at a good pace. Given the exciting macro picture (China bubble, Japan debt bubble, Europe, QEs ) maybe or maybe not.
If you are not confused about the economy, you dont understand it.
Charlie Munger, Berkshire Hathaway Annual Meeting 2013 P/E continues to expand unlikely: past secular bull markets ended at this type of valuation.
Sorry, could not spend more time on sideways markets, but you can read about them in 7 languages:
In theory, there is no difference between theory and practice. But, in practice, there is. - Yogi Berra / Jan L. A. van de Snepscheut
Whistler Blackcomb
Owns a 75% direct interest in two connected mountains an hour and a half from Vancouver predictably named Mt. Whistler and Mt. Blackcomb. The largest ski resort in North America and #1 in everything: Ranked #1 by SKI Magazine beating Vail, Aspen/Snowmass, Breckenridge # 1 - largest skiable area (8,171 acres)
REASON 1:
Alpine skiing is the laziest winter sport ever invented gravity takes you down, the lift takes you back up. (Okay, some may argue that bobsledding is the laziest winter sport; after all, you dont even have to stand).
REASON 2:
The skiing experience has improved dramatically since the mid-1990s: shorter, parabolic-shaped skis made skiing much easier and thus accessible to a much larger demographic (from little kids like my 7-year-old daughter Hannah, to middle-aged couch potatoes like me, to baby boomers).
This is my daughter Hannah in in Vail in 2011. She started skiing when she was 3.
REASON 3:
Great family sport. Can ski together with kids or put them in the ski school (the only school theyll beg you to go to).
REASON 4:
Those who wish they were surfing can now snowboard. Finally something for surfers to do in the winter time.
REASON 5:
Detachable (high-speed) lifts are two and a half times faster than the old fixed-grip lifts. They shorten the wait for the lift and the time spent on the lift leaving you more time to ski.
OLD NEW
Note: Advances in snow-making equipment allow resort operators to have much better control over something they had little control of in the past: snow (or, as we say in finance, to have a put option on snowfall). Allows the mountain to open sooner and close later.
REASON 6:
Who Doesnt Want to Escape to This?
I took these pictures at Keystone in Colorado, but just imagine how beautiful the Whistler-Blackcomb mountains are. After all, it is the resort rated #1 in North America in 2013 by SKI magazine.
KSL purchase
IPO
40% of ski revenues come from season passes which are sold before the season starts.
Unlike Vail Resorts, WB is not a real estate development company nor does it own hotels. This is a (relatively) asset-light model that produces much higher free cash flows than Vail Resorts.
Whistler Blackcomb Became an Even More Valuable Asset after the Vancouver Olympics
REASON 1:
The government spent $500 million on improving Highway 99 from Vancouver to WB, which shortened the commute by 30 minutes and increased visitations by regional visitors by 250 thousand (a 23% increase).
REASON 2:
Increased awareness and cemented the reputation of Whistler Blackcombs brand (after all, the Olympics were only watched by 3.5 billion people).
Destination visitors, who travel from other parts of Canada, the US, Europe, and other regions (Asia, Australia, etc.). Spend about 30% more per visit (rent skis, go to ski schools, and unlike locals they dont pack their own lunches and thus spend more money in restaurants). Pay twice as much per lift ticket per day as locals.
The number of destination visits dropped off by 400 thousand over the last five years. The weak global economy, the decline in the euro, and the strength of the Canadian dollar were responsible for the decline. They will come back as the global economy improves.
2.9%
British Columbia lowered its tax rate for ticket sales from 12% to 5%, so WB will keep its pre-tax ticket price flat, which will result in an effective 7% price increase in 2014.
Opportunities
Summer visits to WB resorts exceed winter visits; however, summer tickets are only 15% of total ski ticket sales. Vancouver is beautiful in the summer a lot less rain! WB is working on providing new activities to get more people to the top of the mountain.
WB doesnt own hotels. This creates a very interesting dynamic: peak hotel occupancy is only 62% hotels have a significant incentive to promote WB resorts; in fact, 38% empty rooms creates an enormous incentive.
The biggest risk to WB: a Canadian housing bubble. Canadians looked at the US housing bubble, liked it, and created one of their own. The bursting of the bubble will reduce visits by local visitors (as a proxy, ski visits in the US declined about 6% when our latest housing bubble burst) and drive the Canadian dollar down, thus driving earnings and dividends in US dollars down.
The weaker Canadian dollar will make WB more affordable and will bring destination visitors back.
Because of the IPO, WB had to revalue its assets. This revaluation doubled depreciation and amortization expense, which significantly exceeds maintenance capital expenditures. It looks expensive on EPS (20 plus times earnings) but is very cheap on free cash flows (in single digits).
Note: In 2013 WB will spend $18mm to double capacity of two of its lifts. Growth capital expenditures are lumpy, we estimate them to be on average about $6mm a year and $16mm a year in Great scenario as WB will have to expand the mountain.
Summary
Great, unique, and growing business with pricing power. Solid balance sheet Debt to EBITDA: 3.2 times Free cash flows / interest expense: 3 times Valuing WB doesnt require nearly as much imagination as does valuing Amazon: Cheap on a relative basis Vail Resorts is almost 2x more expensive on Enterprise Value / EBITDA and is 44x Price / Free Cash Flows (dividend yield 1.4%) On an absolute basis the worst-case scenario is 9.3 times free cash flows WB is an inflation-protected, significantly undervalued bond yielding 7.4% with optionality for growth if/when the global economy improves.
Thank You!
You can browse the full version of the sideways market presentation: http://bit.ly/swpresentation