|New Threads Only:|
|New Threads & Replies:|
Forum List » Value Ideas and Strategies|
Share and discuss value investing ideas and investing strategies.
Post Holdings – A Classic Case of Spin-off
Posted by: Valueground (IP Logged)
Date: February 20, 2012 08:57AM
Spin-offs are often great places to look at as value is often created from the underpricing of the business being spun off.
The most recent example is the spin-off of Post Holdings from its parent, Ralcorp Holdings. Post is the maker of branded cereals while Ralcorp basically does private-brand food products. A classic example of spin-off whereby the 2 businesses target different consumer segments.
As Post is more of a premium product player, they are more sensitive towards market conditions. Existing shareholders of Ralcorp would dump the shares of Post after spin-off in view of today’s recessionary-like environment. In addition, the newly spun-off Post would not be covered by most analysts and it would take a while before their value get realized.
Post was spun off at $26.89 and went down to $25.51 the next day. We managed to buy in at the cost price of $25.54, and now the stock is trading at $31.02! That's a nice return of almost 21%! Nothing to cheer about though, as we could have bought more but did not as we succumbed to being greedy and hoping the price would go down more. The good news is even at current price, Post is still a great buy.
The current enterprise value of Post at a stock price of $31.02 is about $2B. Ralcorp bought Post from Kraft a few years back at a price of $2.6B, that’s a difference of almost $600M. Of course, it might not be a fair comparison as they might have overpaid. But take a look at the numbers:
After adjusting for goodwill impairment, their average EPS is about $2.78, which translates to a PE of about 11.17. As compared to the other cereal makers, they are trading at the lowest valuation for a consumer franchise business, which we believe, should be valued at a higher PE.
At current price level, there is an upside of almost 32% to 41% if they move up to the valuation of their competitors. Furthermore, their earnings are depressed in the current environment.
Take a look also at their price to book ratio compared to the rest.
Post is currently trading below their book value. They should be at least valued at price to book of 1 for a company that is still churning out positive cash flows. Adjusted EBITDA of $275M and $256M for 2010 and 2011 respectively.
Long Post Holdings.
Re Post Holdings A Classic Case of Spin-off
Posted by: Adib Motiwala (IP Logged)
Date: February 19, 2012 02:51AM
Can you compare the balance sheets of the three companies or rather post EV/EBIT multiples.
Re Post Holdings A Classic Case of Spin-off
Posted by: tonyg34 (IP Logged)
Date: February 19, 2012 06:13AM
you can look that up on your own you know
Disclaimers: GuruFocus.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on GuruFocus.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The gurus may buy and sell securities before and after any particular article and report and information herein is published, with respect to the securities discussed in any article and report posted herein. In no event shall GuruFocus.com be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on GuruFocus.com, or relating to the use of, or inability to use, GuruFocus.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. The gurus listed in this website are not affiliated with GuruFocus.com, LLC. Stock quotes provided by InterActive Data. Fundamental company data provided by Morningstar, updated daily.