The cyclicality of share buy-backs: Costco edition

Currently looking through Costco - one of the finest companies I know. (We do not own a stake...)

Anyway this is hardly a Costco specific comment - but here is a run of their buy-backs (after issuance/option exercise etc). Negative numbers are net repurchases.


Year Ended
Cash from stock issuance
($million)
 2,016 -412
 2,015 -395
 2,014 -212
 2,013 77
 2,012 -459
 2,011 -355
 2,010 -348
 2,009 2
 2,008 -548
 2,007 -1644
 2,006 -1039
 2,005 -135


The company - as you can see - has bought back a lot of stock. The lack of a buyback in 2013 followed a purchase of a non-controlling stake in Costco Mexico.

But whatever - the company stopped repurchasing stock at the bottom of the market in 2009 - only to start again in earnest as the market and their stock price went up.

This happens in almost only cases - and in this
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Canadian non-standard mortgages: a state of play

Regular readers of this blog will be aware that Home Capital Group - a Canadian non-standard mortgage lender - is in financial trouble.

The gossip is that the regulators in Canada are also putting some pressure on lenders to improve underwriting standards. There is similar gossip in Australia, however Australia has not had the collapse or near collapse of any lenders.

Canada Mortgage & Finance Group (CFMG) is a broker in the Greater Toronto Area (GTA). The CEO of CFMG (Ameera Ameerullah) writes a blog on LinkedIn which I have been reading for some time.

She has recently posted about the state of play for even slightly non-standard mortgages in the Greater Toronto Area.

Below (and without further comment but with her permission) I reprint her latest post.


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CLIENTS ARE STUCK AND BROKERS SCRAMBLING - WHAT IS THE GOVERNMENT DOING?

Private lending rates increased and lending
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Bob Carr and the possible Chinese spies

Last week Four Corners - the premier news program of the Australian Broadcasting Commission ran a story about the influence of the Chinese Communist Party in Australia.

Some of the story was obvious - for instance how Chinese students are coopted to drown out rallies by Falun Gong or other opponents of the CCP. A typical story involves a CCP figure visiting Australia, a bunch of human rights rallies and hundreds of Chinese students bussed to the rally with the intention of overwhelming regime opponents.

A Chinese student involved in organising these rallies was interviewed. She made it clear that the embassy helped. Moreover it was clear there was social pressure (or worse) on students to conform - and that non-conformity had a negative effect on the family back home.

--

But the more interesting part of the story was how these sudden billionaire Chinese businessman (including businessmen who hung
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Taking the bull case for Valeant seriously

Last night I had dinner with a friend who had a friend who was buying Valeant. Whatever - it led to a discussion of Valeant fundamentals - and that in turn led to this blog post.

The stock has been on a tear lately - rising from $10 to $13.59 in the last week - poking above $14. To some degree this is just standard volatility for a bombed out stock. But it was prompted by Valeant producing results with a sharp rise in "adjusted EBITDA" and guiding for higher adjusted EBITDA. As the FT put it Valeant "bumped guidance".

The Valeant adjusted cash flow caper

I want to explore this "adjusted EBITDA" number. Then I want to lay out the valuation directly.

Valeant has a history of producing little or no GAAP earnings but very large adjusted cash flow. The adjustments are after a collection of
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Selling our Telecom position

Several people on twitter and some in person have asked me for an update on my very bullish position on Verizon - especially since the results were not as good as expected last quarter.

I promised I would be forthcoming - but that I wanted to spell it out to our clients first. This is an extract from a client letter.

I want to start with the original bull thesis.

The original thesis

The original thesis came from watching Randall Stephenson (the CEO of AT&T) talk at a Milken Conference in 2012. The original recording is here. The relevant portion of the video starts at about minute 18.

Randall Stevenson tells a story of the iPhone’s introduction. The introduction of smart phones ran the company out of capacity in parts of country. [Apple offered the iPhone exclusively through AT&T in the USA.]

In New York the problems were intense.
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Trex’s mysteriously high margin: a business analysis problem for you…


Apple is a definitively high margin manufacturer. Everything about that company screams high margin.

The stuff feels expensive and (frankly) is expensive. But you are willing to pay for it because (a) it defines your identity and how you feel about yourself, (b) really does work pretty well and (c) has very good ways of keeping competition out - so you can't buy a true substitute.

On top of that Apple has software sales which (typically) are fatter margin than manufacturing.

Let's spell out just how high margin.

Here is Apple's 2017 second quarter results (link). Note these results are unaudited and in millions of dollars.










Reported sales were $52,896 million, Gross Profit was $20,591 million, and Operating Income was $14,097 million.

These are stunning numbers (especially because of their size) but lets spell them out as percentages...

Gross margin was 38.9 percent.
Operating margin was 26.
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