I’ve been wanting to write about CHK since it reported its Q3 numbers. The stock got hit a bit due to lowered production guidance in Q4. Like most of our investments, when investors focus on the wrong things it creates a buying opportunity. Although CHK never dropped enough for me to add more, I wanted to write about it. My take from the Q3 release was the company is hitting all cylinders and the progress is very good.
CHK did a recent investor presentation. They do a great job of highlighting the key points and success in the transformation of his huge energy company.
- Operating Cash Flow is up 22% and CapEx is down 57%. The increase in cash flow is due the increasing reliance on oil production. This is great news for investors as the company is focusing on the right things, increasing production where the margins are much better.
- Total production is down but oil production is up 23% and gas production is down 10%. This is exactly what we want, oil production to keep increasing and becoming a bigger part of their mix. As for gas, we need the big producers to dramatically cut back. The 10% drop is good but I’m looking for a bigger cut back. With gas prices at the sub-$4, most producers can’t make money. The industry needs to get rational with production before prices will move up.
- Huge cut-back on CapEx where the returns do not make investment worthwhile. Leasehold capex and Other capex has been cut back. I would expect 2014 to be a much better alignment of CapEx against returns on investment. I think investors in CHK will be very happy in 2014.
I except CHK to have a very very good 2014.
Part of the settlement with AMC was that MovieTickets.com would start adding AMC theatres. I’ve been watching the MT.com site to see when they add the AMC theatres. Finally, today I saw an AMC theatre in my area getting added to the MT.com site.
What does this all mean? Well the company is moving fast to add the AMC theatres. This is definitely a win-win situation for MT.com and AMC. In terms of valuation, MT.com now has the additional revenue stream from these theatres. I don’t expect the addition of AMC theatres to have fast impact on revenue. MT.com has definitely lost value due to what AMC did in the past, moving the theatres to Fandango. But adding AMC theatres atleast shows MT.com is moving in right direction, adding more theatres and returning to increasing revenue.
In the long run, I’m still of the opinion that MT.com is sold or merges.
This is amazing find from ClassicValueInvestors. Now this is rumors and there is no news to confirm anything but if there is something going on in the background with HOLL, it would explain why they have been keeping parts of the settlement with AMC confidential.
A short update on recent buys. I have been active in the market in Nov but just haven’t blogged about it.
– MBIA Jan ’15 call options: I bought some MBIA call options. The play here is clear, MBIA is going to get a credit rating upgrade, they will write new biz, stock will move up. Options give me a good way to play the upside and the Jan ’15 date gives plenty of time for the company to get the rating upgrade. I think the upgrade happens in a few months.
– Freddie / Fannie stock: I have been buying this up as I think the Berkowitz lawsuit has leg. The stock has been risky bet until Berkowitz came out with his plan to take parts of Freddie/Fannie private and Ackmann reported his 10% position. It will be an interesting ride to watch. I expect the stock to do very well.
– Hollywood Media: I bought shares of HOLL the day I saw the settlement on the court website. I was buying more on 11/14, as people are selling the shares due to the confidential nature of the settlement. I think the stock has plenty of upside once the details come out. I think the details will come out fairly soon.
– Auxilio: This was one of the few micro-cap positions that I had bought for my basket. It was the second biggest after XPEL. I sold the shares to buy Freddie/Fannie stock. The return on this was a nice 40%+ in little over 2 months. It is still cheap given the tailwinds, but I liked other things more.
It has been interesting that after HOLL put out a 8-K saying it has settled with AMC, the stock has basically not moved. The stock was at $1.50 before the settlement news, and today after close we are back to the same place. The settlement has been a huge deal and a huge value generator for HOLL. A case that was dragged on for 2 years has finally been settled. But investors couldn’t care less. Why? Because there is lack of information on the settlement. The terms haven’t been disclosed. So uncertainty is creating an interested buying opportunity, and I have been buying.
Today HOLL filed another 8-K in which it lists some more details on the settlement.
On November 10, 2013, Hollywood Media Corp. (the “Company”), MovieTickets.com, Inc. (“MovieTickets.com”), National Amusements, Inc. and AMC Entertainment Inc. (“AMC”) entered into a settlement agreement (the “Settlement Agreement”) pursuant to which the Company, MovieTickets.com and National Amusements, Inc. reached a settlement with AMC, on confidential terms and without admitting liability of one to the other, with respect to the lawsuit relating to MovieTickets.com that was initially filed in October 2011 by the Company and National Amusements Inc. against AMC. As a result of the Settlement Agreement, the Company’s equity interest in MovieTickets.com increased from approximately 26% to approximately 34%. In addition, in connection with the Settlement Agreement, AMC and MovieTickets.com entered into a non-exclusive ticketing agreement, the terms of which are also confidential.
So HOLL created more value for shareholders by moving the equity holding from 26% -> 34%. But if you watch the stock price, you won’t notice it. More importantly, the “non-exclusive ticketing agreement” is very interesting. Besides being vague, what does it mean? First of all, MT.com has been working on adding more theatres to its online website. If you search the MovieTickets.com tweets, you will see that they are working on adding more theatres. With the settlement having occurred and the “non-exclusive ticketing” agreement, I see MT.com adding more theatres from AMC properties. I have no idea how many they are adding. But I think AMC wanted this so they can still keep Fandago and please MT.com. AMC has invested lots of capital in its relationship with Fandango, so they are not going to want it to end that easily. Although MT.com does benefit by doing this non-exclusive agreement as they can now sell tickets also. Finally, MT.com will get monetary compensation from AMC. This is not mentioned in the settlement but I think this is where the confidential part of the agreement comes in. There is some more interesting pieces to this settlement that will be great value creators for shareholders.
At current prices, you are paying little for the uncertainty with the settlement. At a 33m market cap and 25m in cash, you have a 8m difference. The equity interest in MT.com just went up to 34%. Now, I don’t think HOLL is stupid to increase equity interest in MT.com unless there is value in it. So you have to believe value of HOLL has gone up from prior to settlement. Also, the non-exclusive ticketing and adding more theatres will bring in additional revenue. It also makes it an interesting buyout option. Finally, there will be monetary compensation from AMC. So put it all together and HOLL at current prices is extremely cheap. I think shareholders will see their shares appreciate in short-time, as details of the settlement become public. In the meanwhile, I’m buying more shares if they keep trading at this price level.
This one is a list minute idea so it could go away quickly, but just goes to show that market is not efficient.
Hollywood Media has been written up quite a bit. Baker Capital owns a nice 15% of the equity. Basically it is an asset play. The market cap is 33m w/ cash of 25M. The biggest asset that has been hard to monetize so far is the stake in movietickets.com. There has been a case going w/ AMC and Hollywood Media. HOLL saying AMC is in contract to sell tickets via movieticket.com. AMC broke this contract when it went to fandango.com. This has been a legal case that just has been dragged out for years. although AMC has been looking to go public and has impetus to settle.
The court case was suppose to go in-front of judge on Nov 13th, tomorrow. But if you look at the court website it says the case is now settled. If you google or search on SEC you don’t see any filings. I just googled the court page from google cache as of Nov 4th and the case was not settled. But today the same page says settled. so looks like it is an event that has just occurred but no one has really reported anything.
Now this could just take off but given that HOLL is a small cap, i wouldn’t be surprised if you get a day or 2 purchase window. We don’t know the details of the settlement, so there is an uncertainty here. But for 33M market cap, w/ 25M in cash you are basically putting very little at risk. Unless HOLL got out foxed in the negotiation, there should be plenty of value created for HOLL from this settlement to cover the risk at current prices.
Sears is basically putting its value creating strategy to work this year. After the spin-offs this year, we are finally seeing Sears Canada realize the value from its real estate assets. This news out today, from Sears Canada:
Sears Canada Inc. is selling its 50-per-cent joint venture interest in eight properties in a deal valued at about $315-million.
This news is following a $400M sale that Sears Canada announced just a few months ago. So what does Sears Canada do with all these cash?
Mr. Howlett said he continues to expect Sears Canada to pay a special dividend of $4 to $5 before the end of the year from the proceeds of selling department-store leases back to landlords. But the additional proceeds from the Montez sale could push the dividend to as high as $6, he said.
Sears Holdings own 51% of Sears Canada. So this dividend will be a sweet addition to the Sears cash pile. More importantly, this is another sign that the asset value at Sears is finally getting realized and shareholders will benefit.
Sears Canada was selling at less then $10/share at start of 2013. I was looking at it and knew the value of the shares was atleast high-teens to $20+. One of my favorite investors, Francis Chou, bought a good stake in first-half of 2013. But I just sat there and sucked-my-thumb. A mistake we regret now, as the stock has almost doubled. But atleast we did the right thing and pulled the trigger on Sears.