This article is third in my series of articles about share buybacks and whether the company doing them is returning value to share holders. The previous articles can be found here.
Companies With Buybacks: ISRG Edition
Companies with Buybacks: AMAT Edition
The Company
Logitech International S.A. (LOGI, Financial) is a manufacturer of devices for PC navigation, Internet communications, digital music, home-entertainment control, and gaming. The company sells its products through major electronics retailers, such as Best Buy (BBY, Financial), Radio Shack (RSH, Financial) as well as through original equipment manufacturers such as Dell (DELL, Financial). Nineteen of the top 20 PC manufacturers sell self-branded Logitech hardware as upgrades available during the purchase of a computer.
Risks
The growing popularity of notebook computers have negatively impacted Logitech's sales of mice and keyboards because laptops do not require these devices. Additionally, an increasing number of laptops are being made with built-in webcams. While Logitech makes some of the webcams embedded into new laptops, it is not a significant part of their revenue, and the margins are much lower than on retail webcams.
Balance sheet
Logitech has a very strong balance sheet. It has no long term debt since 2006. Let us look at the relevant parts of the balance sheet.
Logitech has enough current assets to pay all liabilities and still have $400 million left.
Dividend and buybacks
Logitech has never paid any dividends. It has a strong history of buybacks though. Since 2002 the outstanding shares has decreased from 204 million to 179 million. This is a 12.2% decrease in the outstanding shares.
In August 2010, Logitech International S.A. announced that it was beginning a $250M share repurchase program which is in effect, at the latest, until Aug. 10, 2013.
Management
Reading the reports I get the feeling that Logitech is a very well managed firm. One of the original founders is still on the board (Daniel Borel) and owns 6.3% of the company. The executive committee and the management as a whole owns 8.3% of the shares outstanding. In the last year, following buy transactions has occurred.
In the last decade, the company never had a negative FCF.
Compensation
The Compensation Committee adopted share ownership guidelines for executive officers and other officers who report directly to the CEO effective September 2008. These guidelines require the CEO to hold a number of Logitech shares with a market value equal to 3 times his annual base salary. Officers who report to the CEO must hold a number of Logitech shares with a market value equal to 2 times annual base salary.
The 2006 Plan expires on June 16, 2016. An aggregate of 17,500,000 shares is reserved for issuance under the 2006 Plan. As of March 31, 2011, a total of 4,493,291 shares were available for issuance under this plan. Under both plans, eligible employees may purchase shares with up to 10% of their earnings at the lower of 85% of the fair market value at the beginning or the end of each six-month offering period. Purchases under the plans are limited to a fair value of $25,000 in any one year, calculated in accordance with U.S. tax laws. There are two offering periods, each consisting of a six-month period during which payroll deductions of employee participants are accumulated under the share purchase plan. Subject to continued participation in these plans, purchase agreements are automatically executed at the end of each offering period. A total of 16,000,000 shares have been reserved for issuance under both the 1996 and 2006 ESPP plans. As of March 31, 2011, a total of 1,643,369 shares were available for issuance under these plans.
The executive committee as a whole was paid $17.56 million (5 members), out of which $11 million was in restricted stock units and only $3 million was in cash.
Growth
The company has grown quite well in the past. In the last decade sales have grown from 944m to 2.3b.
Valuation
With a 15% hurdle rate the current price of $7.85 represents a reverse DCF growth of -46.88%. The company has P/S of 0.6, P/CF of 9.1 and PEG of 0.7.
Conclusion
I conclude with the following table:
I am long on LOGI, and will buy more if stock goes down around $7.
Companies With Buybacks: ISRG Edition
Companies with Buybacks: AMAT Edition
The Company
Logitech International S.A. (LOGI, Financial) is a manufacturer of devices for PC navigation, Internet communications, digital music, home-entertainment control, and gaming. The company sells its products through major electronics retailers, such as Best Buy (BBY, Financial), Radio Shack (RSH, Financial) as well as through original equipment manufacturers such as Dell (DELL, Financial). Nineteen of the top 20 PC manufacturers sell self-branded Logitech hardware as upgrades available during the purchase of a computer.
Risks
The growing popularity of notebook computers have negatively impacted Logitech's sales of mice and keyboards because laptops do not require these devices. Additionally, an increasing number of laptops are being made with built-in webcams. While Logitech makes some of the webcams embedded into new laptops, it is not a significant part of their revenue, and the margins are much lower than on retail webcams.
Balance sheet
Logitech has a very strong balance sheet. It has no long term debt since 2006. Let us look at the relevant parts of the balance sheet.
| Sep 30, 2011 | in $ thousands |
| Cash and equivalents | 379,450 |
| Current assets | 1,084,198 |
| Goodwill | 560,343 |
| Total assets | 1,863,703 |
| Current liabilities | 529,087 |
| Total liability | 714,364 |
| Total equity | 1,149,339 |
Logitech has enough current assets to pay all liabilities and still have $400 million left.
Dividend and buybacks
Logitech has never paid any dividends. It has a strong history of buybacks though. Since 2002 the outstanding shares has decreased from 204 million to 179 million. This is a 12.2% decrease in the outstanding shares.
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | |
| Shares Outstanding | 203.76M | 205.64M | 200.64M | 198.25M | 198.77M | 190.99M | 187.94M | 182.91M | 179.34M | 178.79M |
| Stock Bought Back | - | -0.92% | 2.49% | 1.21% | -0.26% | 4.07% | 1.62% | 2.75% | 1.99% | 0.31% |
In August 2010, Logitech International S.A. announced that it was beginning a $250M share repurchase program which is in effect, at the latest, until Aug. 10, 2013.
Management
Reading the reports I get the feeling that Logitech is a very well managed firm. One of the original founders is still on the board (Daniel Borel) and owns 6.3% of the company. The executive committee and the management as a whole owns 8.3% of the shares outstanding. In the last year, following buy transactions has occurred.
| 08/16/2011 | Junien Labrousse Executive Vice President, Products and President, Logitech Europe | 11,500 | Buy at $ 9.05 per share. | 104,075 |
| 06/01/2011 | Werner T. Heid Senior Vice President, Worldwide Sales and Marketing | 4,170 | Buy at $ 13.05 per share. | 54,418 |
| 05/27/2011 | An executive memeber | 16,100 | Buy at CHF 10.32 | CHF 166'199.78 |
| 05/26/2011 | An executive member | 3,900 | Buy at CHF 10.54 | CHF 41'118.65 |
In the last decade, the company never had a negative FCF.
| 2002 | 2003 | 2004 | 2005 | 2006 | 2007 | 2008 | 2009 | 2010 | 2011 | |
| Retained Earnings | 204.39M | 303.23M | 435.39M | 584.65M | 765.76M | 995.61M | 1.23B | 1.34B | 1.41B | 1.51B |
| Retained Earnings Growth | - | 48.36% | 43.58% | 34.28% | 30.98% | 30.02% | 24.01% | 8.67% | 4.84% | 7.65% |
Compensation
The Compensation Committee adopted share ownership guidelines for executive officers and other officers who report directly to the CEO effective September 2008. These guidelines require the CEO to hold a number of Logitech shares with a market value equal to 3 times his annual base salary. Officers who report to the CEO must hold a number of Logitech shares with a market value equal to 2 times annual base salary.
- Annual RSU grant with a market value of approximately CHF 120,000
- Base salary starting from CHF 60k, this generally tops at CHF 100k.
The 2006 Plan expires on June 16, 2016. An aggregate of 17,500,000 shares is reserved for issuance under the 2006 Plan. As of March 31, 2011, a total of 4,493,291 shares were available for issuance under this plan. Under both plans, eligible employees may purchase shares with up to 10% of their earnings at the lower of 85% of the fair market value at the beginning or the end of each six-month offering period. Purchases under the plans are limited to a fair value of $25,000 in any one year, calculated in accordance with U.S. tax laws. There are two offering periods, each consisting of a six-month period during which payroll deductions of employee participants are accumulated under the share purchase plan. Subject to continued participation in these plans, purchase agreements are automatically executed at the end of each offering period. A total of 16,000,000 shares have been reserved for issuance under both the 1996 and 2006 ESPP plans. As of March 31, 2011, a total of 1,643,369 shares were available for issuance under these plans.
The executive committee as a whole was paid $17.56 million (5 members), out of which $11 million was in restricted stock units and only $3 million was in cash.
Growth
The company has grown quite well in the past. In the last decade sales have grown from 944m to 2.3b.
Valuation
With a 15% hurdle rate the current price of $7.85 represents a reverse DCF growth of -46.88%. The company has P/S of 0.6, P/CF of 9.1 and PEG of 0.7.
Conclusion
I conclude with the following table:
| Management | Good return of invested capital, excellent free cash flow |
| Financial strength | Strong balance sheet, consistent reinvestment of profits |
| Economic moat | 35% gross margin, satisfactory pricing power |
| Dividend and buyback | No dividend but strong buyback history |
| Valuation | With 15% hurdle rate, the current price reflects -47% FCF |
I am long on LOGI, and will buy more if stock goes down around $7.
