(GuruFocus, October 10, 2009) Whitney Tilson presented his cases for investing in Berkshire Hathaway (BRK-A) (BRK-B), General Growth Properties (GGWPQ, Financial), and Iridium Communications Inc. (IRDM, Financial) on February 3, 2009 in the Habor Investment Conference. The event was organized by Bill Ackman to benefit of charity organization Boys & Girls Habor. Whitney Tilson was an invited speaker.
Market Outlook
Tilson thinks we are likely in the midst of a secular bear market. He based his opinion based on the facts that both the US households and federal government have high level of debt; over the past 30 years, the US have become a nation gorged in debt. With the current interest low and P/E ratios high, Tilson does not think any bull market is sustainable.
Case for Berkshire Hathaway
Tilson repeated his analysis on Berkshire that we discussed earlier. He estimated that the company can make about $5,000 in pre-tax EPS excluding all income from investments. Applying a conservative multiplier of 10, plus the investment per share of $92,500, he reached the intrinsic value to $142,500, which was about 36% above the current price.
It is hard to argue a seasoned investment manager like Tilson might be using a wrong formula. Having seen the estimate twice, I could help questioning what the justification is to add the investment per share plus an estimated value of the operating businesses (including the insurance subsidiaries). No argument on the second part, but doesn’t the total investment per share include all sorts of liabilities? Tilson seems to have reached his estimate formula by an empirical observation, which contains a logic that I could not grasp.
Case for General Growth Properties
This bankrupt mall owner attracted not only Whitney Tilson, but also Investment Gurus such as Bill Ackman, and Bruce Berkowitz, who recently bought some convertible debt. Perhaps there is compelling value here that the market perceives.
For his part, Tilson believes that company has a liquidity problem not a solvency problem. In valuing the stock, he compared General Growth Properties to Simon Properties, which has a better balance sheet, on the net operating income basis. Assuming the same Cap Rate of 7%, General Growth Properties should worth $26.83 per share. GGWPQ traded around $9.50 per share at the time he was speaking.
Case for Iridium Communications
The satellite communication provider had a rough start. Motorola spent $5 billion in 1990s on the project through a consortium but had to let the company file bankruptcy. The re-organized and re-listed company has achieved phenomenal growth in the recent years. As of the end of 2008, the company achieve annual EBITDA of $108 million.
The challenge for Iridium is that the current satellite constellation will need to be replaced starting in 2014. The total cost to replace the 66 satellites is estimated to be $2.7 billion.
Tilson thinks the requirement can be met by internally generated cash flow, debt and equity offering and revenue offsets of hosted payloads.
Based on these assumptions, Tilson thinks the current Iridium stock price represents a 25-35% IRR for many years to come.
How credible you find Tilson’s investment theses on these three companies? You are invited to provide your opinion.
Thanks to Marketfolly, who shared the full presentation here:
T2 Partners Investment Presentation
Market Outlook
Tilson thinks we are likely in the midst of a secular bear market. He based his opinion based on the facts that both the US households and federal government have high level of debt; over the past 30 years, the US have become a nation gorged in debt. With the current interest low and P/E ratios high, Tilson does not think any bull market is sustainable.
Case for Berkshire Hathaway
Tilson repeated his analysis on Berkshire that we discussed earlier. He estimated that the company can make about $5,000 in pre-tax EPS excluding all income from investments. Applying a conservative multiplier of 10, plus the investment per share of $92,500, he reached the intrinsic value to $142,500, which was about 36% above the current price.
It is hard to argue a seasoned investment manager like Tilson might be using a wrong formula. Having seen the estimate twice, I could help questioning what the justification is to add the investment per share plus an estimated value of the operating businesses (including the insurance subsidiaries). No argument on the second part, but doesn’t the total investment per share include all sorts of liabilities? Tilson seems to have reached his estimate formula by an empirical observation, which contains a logic that I could not grasp.
Case for General Growth Properties
This bankrupt mall owner attracted not only Whitney Tilson, but also Investment Gurus such as Bill Ackman, and Bruce Berkowitz, who recently bought some convertible debt. Perhaps there is compelling value here that the market perceives.
For his part, Tilson believes that company has a liquidity problem not a solvency problem. In valuing the stock, he compared General Growth Properties to Simon Properties, which has a better balance sheet, on the net operating income basis. Assuming the same Cap Rate of 7%, General Growth Properties should worth $26.83 per share. GGWPQ traded around $9.50 per share at the time he was speaking.
Case for Iridium Communications
The satellite communication provider had a rough start. Motorola spent $5 billion in 1990s on the project through a consortium but had to let the company file bankruptcy. The re-organized and re-listed company has achieved phenomenal growth in the recent years. As of the end of 2008, the company achieve annual EBITDA of $108 million.
The challenge for Iridium is that the current satellite constellation will need to be replaced starting in 2014. The total cost to replace the 66 satellites is estimated to be $2.7 billion.
Tilson thinks the requirement can be met by internally generated cash flow, debt and equity offering and revenue offsets of hosted payloads.
Based on these assumptions, Tilson thinks the current Iridium stock price represents a 25-35% IRR for many years to come.
How credible you find Tilson’s investment theses on these three companies? You are invited to provide your opinion.
Thanks to Marketfolly, who shared the full presentation here:
