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Compass Diversified Holdings Message Board

  • mthiker2004 mthiker2004 Mar 13, 2009 8:18 PM Flag

    Not as bad as I thought it might be ...

    Well, I waded through most of the +150 page 10K and just listened to the CC. I was fairly concerned with the portfolio's sensitivity to the dismal economy, but pleasantly surprised that CODI did well in spite of things. Here's my take on it and invite others to correct me or share opinions (if anyone else reads this board!):

    FFO for the quarter was $.3555 vs distribution of $.34, and for the year FFO of $1.60 vs distribution of $1.36, so distributions are well within FFO coverage (not including 2008's huge cap gains).

    The February debt repayment (sadly, at par rather than a discount), brings total debt to about $78m so debt/equity is an envious 17%. According to the CC, the debt repayment will also save about $5.5 interest in 2009, plus whatever mgmt fee savings is generated. No meaningful debt maturity until 2012 with $340m untouched in the revolver for futre acquisitions.

    Not likely to close any new major acquisitions until after 6/30/09 (implied in CC by decision to repay the $75m loan).

    NAV looks like it has declined from $15.21 (Yahoo), to $14.74. ($474m equity on the balance sheet, divided by 31.5m shares o/s.)

    A/R is a pretty lofty $164m, my concern being the credit quality of the other side. I assume most of this is from CBS/Staffmark, but haven't looked.

    CC predicted negative FFO for first quarter of 09, but Massoud said in the CC (if I understood correctly), that the policy towards distributions remains unchanged, ie., paying distributions of less than FFO. That could mean no distributions for the first quarter if no FFO (or CAD), or it could mean distributions are at the mercy of FFO. My personal guess is that he means they will continue to be conservative with distributions but unless FFO deteriorates dramatically, distributions will likely hold up. (He pointed out that there remains $109m cap gains that has not been distributed.)

    Current cash on hand is about $22m, more than enough to pay this quarter's distribution (not declared, I'm just guessing) of $.34 (about $11m).

    He spoke of buying businesses at about 3x cash flow, and seperately, selling the two last year for about 10x cash flow. (Good business to be in!)

    CBS Q4 was down 21%, and has continued to deteriorate in Q1. Because it represents the largest single investment in CODI, it bears watching, IMO.

    Per the CC, predicted 2009 cash flows: Fox, Anodyne and Advanced Circuits, flat. Halo down to flat. AFM down. CBS, way down.


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    • I agree with you. I put in a buy order at $8.50 before the cc (when it was trading higher) just in case it traded much lower after the cc. But the order executed way before. So I again wanted to buy more at a much lower price. Unfortunately I put it in too lower ($6.50). But I just sold some AFL today and will put in a buy order at $7.00 for CODI (as long as it trades lower on no specific negative news). Hope to get there in time for the dividend.

      Just remember that insiders own alot of the Company. I would love to see some more insider buying at this time though.

    • As you know, paying distributions from anything other than CAD (normally) is at the expense of NAV, so yes than can keep paying, but is that a good idea if CAD doesn't cover it? I guess everyone has their own opinion on that. And I agree ... An accretive acquisition would surely be helpful, but I'm okay to wait patiently if Massoud doesn't think there are any good candidates out there right now. But my confidence level in management has increased such that if I had some more free cash and CODI was trading lower, I would increase my position. I was actually kind of hoping for a divi cut (in light of the predicted negative CAD), so I could add to my position.

    • The comments made today ("CODI's ability to generate significant cash flow on a normalized basis, combined with its considerable financial strength, positions the Company to continue to pay distributions while also pursuing attractive acquisition opportunities.") by Mr. Massoud makes me think that they're sticking with the current dividend. Remember they have access to a very large credit line. I feel comfortable with it. My only concern is that they dont make an accretive acquisition soon.

    • Now we know ($.34). But if, as predicted on the CC, CAD is negative for the quarter, I'm not sure the $.34 is a good thing either.

    • They walked away from two transactions late last year/early this year. One of those transactions comes back a more motivated seller & the DD cycle is greatly reduced. Anything can happen & there is no way for even CODI to zactly say what or when.

      CODI's tellin' you a couple of things. First they want a stable and growing distribution. Second they are keeping their powder dry until conditions stabilize & the future is clear. If ya can't trust 'em through two quarters of skinny CAD coverage of the dividend then don't know how you could trust 'em at any point previously.

      Don't forget they took a permanent pay cut when they sent that term debt back.

    • Yup that's my understanding too, that was part of their thinking behind paying down that debt. But hey, can't complain about the 20% jump today, what the heck was that all about, 3x the broader market!

    • Except I think they said in the CC they had no acquisitions in the pipeline and hinted there wouldn't be any until at least after 6/30, if I recall correctly (too many CC's to keep them all straight!)

    • Understand the concern. CODI sez in their S1 that the goal is to provide stable and growing distributions. Same thing they talked about in the conference call.

      Seasonal CAD fluctuations are not gonna drive distribution policy.

      CODI could make an acquisition next week that makes full year CAD more than cover the distribution. None of us know when that's going to happen. When it does, we'll be among the last to know....and before we find out it'll run up like it's doing...

      Right now!!

    • Yea I'm a little concerned about that too ... no analyst is projecting positive CAD for Q1, let alone anything close to the distribution amount ... sure sounds like they plan on maintaining it though. Personally I expect the April payout to be unchanged, but all bets are off after that.

    • The new cad projections are way down for 09 and 2010. Some as low as .70 cents. That hurts! However, those numbers are already baked into the share price. Of course, some reduction in distributions is necessary. My guess is .25 a quarter for the next couple of years. Still a good yield

      • 2 Replies to hpgast
      • "My guess is .25 a quarter for the next couple of years."

        Nope. No way.

        The distribution isn't going to get cut at all. Two things are going to happen:

        1.) CODI is going to finance bolt on acquisitions at existing subsidiaries at very accretive multiples. This will act as a stop gap to keep distributable cash flattish.

        2.) CODI will move to acquire another subsidiary by the end of the year. They will purchase this subsidiary at an attractive multiple of trough EBITDA. If they spend 60MM to 70MM on the right deal they will fill up the entire CAD gap to the distribution.

        CODI has a lot more liquidity than 60 to 70 million.

        Regardless, the current static CAD projections are not going to go on for two years. They might not even go on for two more quarters.

      • I am surprised the analysts updated so quickly on CODI.

        I am very curious to see what CODI does with the divi in light of Massoud's CC comments, which I frankly didn't understand. CODI has massive retained cap gains earnings to continue to fund the current divi, but his comments suggest divi was going to be in line with cash flow. Of course, that could mean a negative divi for the first quarter, then positive!

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