Sometimes I have to actually read articles twice, because it really seems that I have somehow missed the point the first time around. Well, on my third glance at this Bloomberg article, I still don't get itL SLM Sells Debt at Higher Interest Rate Than Students Pay: Credit Markets

March 17 (Bloomberg) -- SLM Corp., the largest U.S. student-loan company, raised $1.5 billion in the bond market, paying more than it charges some borrowers to begin addressing $11 billion of bonds maturing through next year.

Sallie Mae, as the company is known, sold $1.5 billion of 8 percent notes due in 2020 at a yield of 8.25 percent, according to data compiled by Bloomberg. Stafford federal loans disbursed between July 1, 2009, and June 30, 2010, have a fixed interest rate of 5.6 percent, according to the company’s Web site.

I know I'm not as good at math and finance as those fancy Wall Street banker guys, but isn't this a BAD thing? They are essentially borrowing themselves into a hole. I also don't see any indication in the article of the potential for a reversal in this trend, either.

Published in BoomBustBlog
Friday, 11 September 2009 01:00

LRN Quarterly Results Review

K12 released their quarterly results, causing a significant dip in the share price. These results featured quarterly revenues that were slightly off from both consensus and our estimates, but margin expansion that has also bested both for the fiscal year. The accounting loss that stemmed from the increase in expenses appear to be right on target with both our estimates and the consensus. This makes the expected growth prospects of this young, high growth company that much cheaper on a per share basis.

From the downloadable Q4 review (available for free download): LRN 4Q09 review_091009 LRN 4Q09 review_091009 2009-09-11 01:19:01 118.42 Kb

K12 reported results for FY09 on September 09, 2009. The company delivered robust sales growth as well as improvement in operating margins in FY09, in line with our expectations. Penetration in the existing markets as well as foray in the new states has fuelled the growth, with the Company’s average enrolments increasing 34.5% (y-o-y) in FY09. Growth in average enrolments along with 3.7% increase in revenue per enrolment resulted in about 40% (y-o-y) growth in revenues to $315.6 mn in FY09 compared to $226.2 mn in FY08. Further, the operating margin improved 130 basis points to 7.1% in FY09 versus 5.8% in FY08. Growth in the top line coupled with expansion in operating margin resulted in 72% ( y-o-y) increase in operating income to $22.3 mn in FY09 compared to $13.0 mn in FY08. Net income grew 81.1% (y-o-y) to $12.3 mn in FY09 against $6.8 mn in FY08 (after excluding one time income tax benefit of $27 mn recorded in FY08). K12’s results were in line with our expectations, the variation between the actual and projected operational performance being only marginal. Average enrolments and revenue per enrolment were 0.6% and 1.4% lower than our estimates, respectively. Although the revenues in FY09 were 2.0% lower than our estimates, the higher than expected expansion in operating margins resulted in 5.0% higher than expected operating profit. Net income of $12.3 mn is exactly in line with our estimates with a variation of just 0.2%.

For 4Q09, while our estimated revenues were higher than the actual revenue by 8.3%, the estimated operating income at negative $1.4 million was in line reported operating income figure of negative $0.3 million. The Company reported net income of negative $0.7 million (versus our estimate of negative $0.6 million) with EPS of negative $0.02 (same as our estimate).

I do recommend that those who are interested in my opinion on this company read the download linked above, particularly the strengths and caveats sections.

Published in BoomBustBlog
Thursday, 23 July 2009 01:00

DCF analysis explanation for K12 analysis

A few have wondered about the utility of using DCF in our K12 analysis posted the other day (see The Long-biased Forensic Analysis is Now Available to the Public). In particular, a question was brought to me as follows: "Isn't WACC at 7.4% really low for doing the DCF? You can't really use CAPM, because the beta would be skewed somewhat because the company just isn't that old. Using the build up method, I'm coming up with a WACC in the 11% plus range. Which would then drive down the per share price."

I would like to take the time to explain our conservative methodology.

Published in BoomBustBlog

This blog's first long biased forensic analysis is now available, and I am releasing it to the public (this one time) to illustrate the depth of the work that is put into these efforts.

This is the first of several long-biased research reports. I would like to make clear from the start - this is not investment advice. This is the result of my search for a company that has high growth potential, healthy metrics and is underpriced. I have a 6 to 18 month investment horizon. This research is for use in my own investment operations and is presented to subscribers and (for this instance) blog readers for illustrative purposes only. Althoug this is long-biased research, I am still bearish on the US equity market in general. This also serves as an opportunity for me to highlight a company that makes a tangible product that actually helps society (educates children), and exhibits rapid growth without bankrupting state governments, requiring billions in federal bailout funds, or having to resort in paying 50% of its net revenues to its employees after accepting said federal bailouts. I, of course, am not naming any names (but if I were to do so, here is where the names would be). I'm sorry, but the record bonuses generated from taxpayer funds really grates my nerves.

There are two things that will really stand out about the analysis and opinion that comes out of this site. For one, the team that generates it is very smart, with both a deep and broad knowledge base and skill set. They are not amateurs. The second thing is increasingly difficult to find in the investment world today - I/we are BRUTALLY honest. There are no big client's asses to kiss, there is no advertisers to be beholden to, and I have been a Wall Street outsider my whole life. I call it as I see it. The good, the bad, and the ugly. This has pissed off the management of General Growth Properties (who are now bankrupt - see GGP and the type of investigative analysis you will not get from your brokerage house), Lehman ("Is Lehman really a lemming in disguise?") and Bear Stearns (Is this the Breaking of the Bear?)) also both also bankrupt, or the equivalent thereof, MBIA and ABK (effectively in runoff mode, aka bankrupt - see A Super Scary Halloween Tale of 104 Basis Points Pt I & II, by Reggie Middleton, Ambac is Effectively Insolvent & Will See More than $8 Billion of Losses with Just a $2.26 Billion, Follow up to the Ambac Analysis, and Monolines swoon, CDOs go boom & I really wonder why the ratings agencies are given any credibility), and a whole host of other companies. Well, now I have some nice things to say, and I hope corporate management can be as sweet to me as they have been mean. If not, well, you know what I'll say...

I invite all to learn more about virtual schools, and the potential growth opportunity. I also welcome all to peruse and participate in the bear debate published in the Wall Street Journal concerning the subject of the long biased report. Of course, I feel that we have performed superior research, but sometimes one needs to hear the opposing argument to truly appreciate the quality of the extant argument. Feel free to download the professional version of the forensic analysis here: pdf K12 Forensic Analysis (ticker:LRN) 2009-07-20 07:54:32 619.70 Kb . Those who wish to subscribe to the research may do so by clicking here.

Published in BoomBustBlog

As is stated on my website, I am an investor that generates his own independent research. I usually use two teams of analysts to generate fundamental analysis reports and pursue macro research. These teams consist of consultants, CFAs and forensic CPAs. They often compete head to head, and they are encouraged to come up with their own independent ideas, openly challenge my thesis and findings, and most importantly to challenge each other's work in combination with a direct challenge to my theses, viewpoints and opinions. This creates a competitive, yet open environment where Hubris simply cannot survive, and where you must out your money where your mouth is in terms of backing up your viewpoints with facts and analysis. This is not the type of environment or analysis you can get from a sell side bank or brokerage firm!

I have just uploaded several internal documents illustrating a bull/bear debate we had over DeVry Inc. If you recall, I released a comparison of various companies in this sector along with a brief summary of DeVry. I never released the analytical and valuation work on DeVry, so the valuation portion of this is new to subscribers. All paying subscribers can download the debate here: The Battle of the BoomBustBlog Analysts - DeVry The Battle of the BoomBustBlog Analysts - DeVry 2009-06-09 16:51:13 771.03 Kb

Published in BoomBustBlog

Here is a shortlist of the weaker candidates in the sector: Education services companies Education services companies 2009-04-09 04:58:11 365.30 Kb

A summary and preliminary of a shortlist finalist: DeVry Inc, Preliminary Analysis Preliminary Analysis 2009-04-09 04:54:55 495.22 Kb

A trend analysis of all companies in the shortlist for professional and institutional subscribers: Trend Analysis in the Education Sector Trend Analysis in the Education Sector 2009-04-09 05:08:40 436.00 Kb

Comments are encouraged and welcome, of course, but if you wish to discuss subscriber only material openly I urge you to do so in the private forums:

  1. Retail Subscriber Private Forum
  2. Professional Subscriber Private Forum
  3. Institutional Subscriber Private Forum
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