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Compass Diversified Holdings Message Board

  • skierxtrem3 skierxtrem3 Jan 13, 2010 9:59 AM Flag

    Seeking Alpha Article

    After reading this
    I went to the authors web site and it turns out they are in the same business as Compass.
    In his seeking Alpha disclosure he says he is long, but it does make me think.....

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    • These are my thoughts on the article...

      Let's see if we can make a judgement about the veracity of his claim by examining verifiable facts. Start with the basic it true? Consider:

      "We estimate Compass is paying out in 2009 2x what it is earning in cash terms after paying all expenses, interest expense, etc."

      This passage is emphasized in the article. Is it true? Here is a recap of CODI's cash available for distribution in 2009:

      1q09: - 0.4MM
      2q09: + 7.8MM
      3q09: +11.7MM
      Total: +19.1MM

      According to the last CODI 10q, CODI paid out 33.9MM in distributions through the 1st 9mo of 2009. So CODI are not paying out 2x distributable cash.

      Fair enough, the assertion is false, but there is still cause for concern. CODI paid out 1.77x the distributable cash they earned in 09. Cause for concern is ameliorated by two things:

      1.) They cover the difference with proceeds from the sale of two businesses at what were very close to peak multiples.

      2.) !!3q09 distributions were 94% covered by cash available for distribution!! And some of CODI's platform businesses are seasonally very weak during that quarter.

      CODI business performance improved rapidly in the middle part of 2009. Based on results of peers, results are likely to continue improving through the fourth and first quarters. Especially results from Staffmark.

      I expect you'll see the distribution fully covered by CAD again during the 4q. 1q is seasonally weak again. Then CODI will announce an acquisition...then there might be room for distribution growth.

      So I have no problem with the article in a general sense. It's great to have a diversity of opinion! However, some of the facts aren't quite correct...and most of the concerns expressed are expressed using a rear-view-mirror point of view.

      • 1 Reply to Brennus01
      • As Brennus notes, the article speaks of paying dividends (actually distributions) from capital, when in fact, CODI has $110m of cap gains from which to pay distributions, enough for 2.5 years of distributions just from cap gains.

        And I agree. My guess is CAD will cover distributions for Q4. And although Q1 is historically weak, it is not going to take much incremental improvement in the labor market for Staffmark to add significantly to that bottom line.

        I also saw that Zacks moved CODI to a "strong sell." Ho hum ...

        As to the timing of that elusive acquisition, I'm tired of guessing and being proven wrong. Heck, I couldn't even get the day of Q4's distribution announcement correct!


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