Buffett’s Paramount Stock Holding Languishing- Despite 3 Offers

Contributed By: The Big Fat Whale

Despite 3 offers for Paramount Holdings, the stock has been languishing. This is one of the holdings of Buffett’s Berkshire Hathaway.

We have touched on Paramount in our previous write-up, where we think that it is worth being on your shortlist due to its valuation. Truth be told, there are now 3 offers tabled for Paramount after our article. We would like to think that is where great minds think alike.

3 Offers for Paramount Holdings

First and foremost, at the current price of 11 dollars, it has a market capitalisation of 7 billion dollars.

It has total debt of close to 15 billion dollars with 2.5 billion dollars in cash.

Skydance Offer

Skydance is led by David Ellison who is the son of Larry Ellison.

Their initial involvement was by trying to acquire National Amusement which owns 77% voting class stock.

This latest offer seems to be taken most seriously as they are currently in an exclusive discussion. Based on the grapevine, it could very well be a merger with an eventual cash infusion by Skydance to bolster the financials to deal with the debt situation ( Paramount debt was recently downgraded to junk status by S&P) based on a Reuters newsflow.

The deal seems more complex with Paramount raising funds to the tune of 3 billion dollars to facilitate this whole transaction. This sounds more like equity fundraising which could lead to a dilution of existing shareholders. Paramount would be the party to initiate the first move by taking over Skydance.

For this deal, the stock is to be continually listed and things would be back to normal with the majority of their assets intact.

There would likely not be a windfall for shareholders through a buyout offer with this deal.

Skydance will try to nurse Paramount’s business back to its glory days. They could be the right partner as they have been collaborating with Paramount from 2009 to 2021.

We can see why this is the preferred deal as Paramount assets are currently depressed. To sell off the assets in such a situation would be less optimal.

Moreover, their debt woes would also affect their negotiation chips.

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https://thebigfatwhale.com/buffetts-paramount-stock-holding-languishing-despite-3-offers/

Are Singapore REITs a Buy Now?- With Fed Potential Pivot

Contributed By: The Big Fat Whale

Many investment bloggers have touched on this topic given that the Singapore REITs have fallen by almost 30% from their mid-2021 peak. Is it a buy now?  Given the recent Fed guidance of a potential pivot to lower interest rates.

Frankly, the Fed has been flip-flopping but the all-important inflation numbers are at an almost ideal level of around 3%. It is still short of the 2% target but things seem to be under control.

REITs have been the bellwether for lots of retail investors given the perception of it being a safer instrument than true blue stocks. The attraction is that mandatorily, they have to pay out 90% of their income to shareholders as dividends.

Moreover, given that they are tangibly backed by shopping malls and industrial and commercial buildings, it added the assurance that their investment is not riding on some fads and whatnot.

 

SREITs Current Climate

They were doing well during the low interest rate environment which lasted since 2008 (Great Financial Crisis) and were stable in price fluctuations. The recent price drop would not be something that investors are used to. It is back to their Covid 19 lows or for some REITs, they set record lows.

With the Covid situation, it is understandable why REIT prices plunged as everyone is in locked-down mode, which will affect the rental situation in shopping malls and office buildings.

Source: Yahoo Finance

This time around, it is due to the rapid escalation of interest rates. In April 2022, the Fed rate was still hovering close to zero per cent and is now at the 5.5% rate. With the potential pivot hinted at by the Federal Reserve in  November 2023, it saw a renewed interest in REITs- the REITs index appreciated 15%. Prices have since retraced close to their all-time low due to the market perception of the credibility of the pivot.

Click Here for the Full Article:

https://thebigfatwhale.com/are-singapore-reits-a-buy-now-with-fed-potential-pivot/

 

Propnex A Value Play- Is Spore Property Prices Correcting?

Contributed by: The Big Fat Whale

• Propnex is trading at a PE of 11 and a dividend yield of 7.6%
• They have the largest amount of agents in Singapore
• Earnings have fallen by 18.8%
• Propnex Price has dropped 32% from their peak
• They have an impressive Return on Investment of 37%

Propnex has been a stock on our radar due to its great return on investment metric. Sadly, we have missed the good run that they had over the past 2 years. So with the recent correction in price, is it turning into a value play?

The stock market is a forward-looking proxy for the economy. Is the recent weakness in the price of Propnex an indication of a correction of Singapore Property Prices ahead?

We did an article on a likely property crisis in late 2022, and we still hold to the view that our thesis is valid.

We will dive into the different elements to hopefully unearth some useful insights. More importantly, we would like to know if Propnex at its current level is an investment worth considering.

 Property Price Trend- Singapore

Source: tradingeconomics.com

Let us first have a look at the property price trend in Singapore to have a better feel of the general direction. Looking at the URA Property Index which has done a coverage of private home prices, we are still seeing an uptick in the prices.

There was a slight decrease in 2023Q2 but for 2023Q3, the prices reverted back to their uptrend.

Looking through the charts from 2000, there were 3 evident corrections for the Singapore Property Market. They are in the early 2000s (9/11 and Sars), 2008 (Global Financial Crisis) and 2014 (Euro Crisis).

Source: HDB

The HDB (Public Housing) Price Index is showing an even stronger upward trajectory. There was no drop in prices for 2023Q2.

In essence, Singapore property prices are still in unchartered territories by reaching new highs. Even with the upsurge in interest rates, the government's restrictive policies (literally at 60% taxes for foreigners to buy a property- it has killed the interest of this segment), and big tech layoffs, the property market has remained resilient.

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https://thebigfatwhale.com/propnex-value-property-prices/

 

Is Paramount Warren Buffett’s Greatest Investment Mistake?

Contributed By: The Big Fat Whale 

• Buffett's Position is Down Close to 60%
• Streaming Business is still in transition
• Huge One-Off Losses from Programming Charges of 2.4 billion dollars
• An Interesting Turnaround Play

 

Paramount has been on a downward spiral since the start of 2021. Even Warren Buffett's endorsement and investment does not aid in slowing the decline. Berkshire Hathaway, as of this write-up, has a 15.4% stake in Paramount which makes it the biggest shareholder.

Based on Barron's estimate, Berkshire got their Paramount stake (93 million shares) at an average price of close to $30. Based on the current price of $12.5, Buffett is down by close to 60%.

The boiling question will be:

Is Paramount going to be Warren Buffett's Greatest Investment Mistake?

 

Video Streaming Industry Growth

Source: Statista

We have no doubt the streaming business is an extremely competitive industry. Only Netflix is able to churn out profits at this juncture.

Also, to keep consumers engaged, new content has to be regularly created in order to prevent subscribers from leaving their streaming network. So all these will require massive investments, not unlike the airline business. Amazon has budgeted 15 billion dollars on content creation for 2023.

Statista estimates that the revenue in the Video Streaming (SVoD) market is projected to reach US$95.88bn in 2023. Revenue is expected to show an annual growth rate (CAGR 2023-2027) of 9.47%, resulting in a projected market volume of US$137.70bn by 2027.

Grand View Research is more optimistic and is projecting an annual growth rate of 21.5% till 2030.

Source: FlixPatrol

Looking at the subscriber numbers, there is lots of room to grow for Paramount as they are currently in 7th position. With the combination of Paramount+ and Showtime, it would make it a more enticing package for consumers to onboard to Paramount's streaming offer.

However, we are of the view that consolidation is likely as there are just too many players. With the price war to gain market share, it will hurt the bottom line and only the fittest will survive. This explains why only Netflix is able to net a profit, likely due to their economies of scale.

Click Here for the Full Article:

https://thebigfatwhale.com/paramount-warren-buffett-investment-mistake/

Golden Village Cinemas as a Value Play?- Revisiting Investment Thesis

Contributed by: The Big Fat Whale

In an earlier article, we have covered Orange Sky Golden Harvest which is listed in Hong Kong. They are the owners of the popular Golden Village cinemas. They also have a presence in Hong Kong and Taiwan. Their latest foray is into China with a 360 theatre in Suzhou that is meant for live performance- it is able to house up to 2700 spectators.

Source: AAStocks

The stock has seen exciting movements after our article, on a quick upsurge to 18 cents in March 2023 from the 6.5 cents level. It has actually reached our target (18 cents) which was highlighted in our report. It was mainly speculative flow as it has since retreated back. The catalyst was mainly due to the newsflow that TVB is getting their stars to do live-stream sales on the Taobao online platform.

This is our recently published book where we touched on how we go about valuing stocks and our insights into the investment world. Authored by a Chartered Financial Analyst, it encompasses 2 decades of experience in the market that is condensed into this book. Hope you can lend support to our website and gain insights into the world of investment by purchasing the Kindle Ebook (Sample Copy) or the Paperback.

Loss More than Doubled

Source: Orange Sky Golden Harvest Announcement

Recently, the company has seen a further drop in prices to a low of 4.6 cents, which could be due to their latest financial results announcement. The headline number is the loss has more than doubled on a half-yearly basis.

However, the loss has more than doubled because there was a non-recurring gain in the first half of 2022 of HK$56.5 million. If we exclude the one-off gain from the disposal of office property, there was actually a 64% reduction in loss. So things are turning better from the numbers itself.

Click Here for the Full Article:

https://thebigfatwhale.com/golden-village-investment/

Investing in the Cinema Business at Good Value- Orange Sky Golden Harvest

Contributed by: The Big Fat Whale

The cinema business has weathered an unprecedented crisis brought by the pandemic. The massive plunge in patrons to the cinemas has drastically fallen off the cliff with all the measures by governments to contain Covid 19. However, things seem to be picking up with an about-turn to better days with the unwinding of earlier tough measures.

From Singapore's scenario, there is now no safe distance requirement and capacity could go back to 100%. With the pent-up supply where movie companies have held back launches of their blockbusters, the return of the good old days of the cinema business could be on track.

In recent times, the screening of Top Gun (meant to be released in June 2020), Jurassic World Dominion, and the upcoming Minions- The Rise of Gru, would generate the buzz for moviegoers to revisit the cinemas and get things back to normalcy.

Given this backdrop, an investment in the cinema business would be a way to ride this recovery thesis of the sector. Moreover, we have spotted a well-known company that is trading at a deep value which provides a good margin of safety.

 

Deep Value Play

The stock that we are considering would be no other than Orange Sky Golden Harvest which is listed on the Hong Kong Stock Exchange. They are owners of the Golden Village chain of cinemas in Singapore (14 cinemas) and also have exposure to the Hong Kong (10 cinemas) and Taiwan (16 cinemas) cinema industry.

Golden Village is an iconic name in the Singapore Cinema scene with the first multiplex (Numerous cinemas) established in Singapore on 27th May 1992.

Click Here for the Full Article:

https://thebigfatwhale.com/investing-in-the-cinema-business-at-good-value-orange-sky-golden-harvest/

Investing in the Recovery of the Public Transport Sector- SBS Transit and Transport International

Contributed by: The Big Fat Whale

There seems to be no safe haven in this current economic landscape with runaway inflation and plunging stock prices. Gold could be one asset class to look at and digital gold- Bitcoin- seems more attuned as a speculative venture that mirrors the drop with the once-mighty growth stocks.

Despite the challenging environment, we feel that these 2 stocks should hold well and even be a beneficiary of the current woes. All of us know the prices of oil and the prices of cars in Singapore's case are shooting up. The certificate of entitlement for a car is reaching almost 72k USD in Singapore and that is even before the cost of the car is factored in. In this double whammy scenario, many could be turning to public transport.

In a discussion with a friend, he suggested for those who are used to a car, would rather dine out less so as to enjoy the convenience of having a car.  So we have different sides to the notion of the shift towards public transport. If prices remain sky-high, we believe our thesis could be the more likely scenario.

Moreover, the prices of cabs have also been rising in tandem with inflation. Nowadays, it seems hard to flag a cab and they are usually available only through the different booking platforms. A normal trip could easily top $20 nowadays where it could be in the mid-teens previously.

 

What are the 2 Stocks?

So today we are covering 2 stocks namely, Transport International and SBS Transit. They are looking attractive given the tailwinds towards their business in this current inflationary situation. It is not only recession-proof but an essential industry.

Just a brief overview of their business, both of them are in the transportation business mainly as a provider of public bus services. Transport International is also a property play (Investment Properties make up 35% of the book value- Leading Hong Kong Property Developer, Sun Hung Kai, has a 33% stake in TIH) whereas SBS Transit has the train and commercial segment (Advertisement and Rental of Shops in the Train Stations) from their managing of the North East and Downtown lines in the Singapore MRT network that have 6 lines.

Source: TIH Annual Report 2021- TIH's Property Holdings

Click Here for the Full Article:

https://thebigfatwhale.com/investing-in-the-recovery-of-the-public-transport-sector-sbs-transit-and-transport-international/

Interview with the Dean of Valuation- Aswath Damodaran

Those who are into value investing would likely have heard of Aswath Damodaran. He is the Professor of Finance at New York University and has generously shared his lectures and valuation spreadsheets online for all to benefit from it.

In this podcast interview by We Study Billionaires- The Investor's Podcast Network on Spotify, he shared many of his thoughts on valuation and going to even philosophy of life.

Some interesting nuggets of knowledge I gathered from this interview will be:

1) To value a company, you just have to split the information gathered into 3 baskets. These are namely growth profile, operating margins and reinvestment needs.

2) In order to come up with a good valuation, you have to curate a story which you can do it better by talking to the stakeholders- tesla owners or Airbnb hosts.

3) His thoughts on Tesla which I would disagree with as his valuation is more towards Tesla just as a merely auto manufacturer.

4) The hype of ESG is overblown and focusing on it would not lead to drastic changes in cash flow and valuation.

5) His thoughts on crypto as an alternative investment and also on Alibaba.

6) Portfolio allocation and When to Sell your Winners?

7) How to keep your serenity under extreme market conditions?

There are many more snippets of sound advice that you could benefit from in this interview.

Here is the link to the full interview:

https://open.spotify.com/episode/2BAxBluC9l0VfytwzyEohQ?si=qahZpMx5S7unR0Nb0gZpfg

These are some old videos with him at the Google Talks that are also very insightful:

https://www.youtube.com/watch?v=Z5chrxMuBoo

https://www.youtube.com/watch?v=uH-ffKIgb38

Buffett’s Analysis of Geico in 1951- Why was it attractive then?

Contributed by: The Big Fat Whale

Here is a look into the mind of Buffett when he was just 21.  He was still a student at the University of Columbia embracing the teachings of Benjamin Graham.

In 1951, as Geico was one of its key holdings of Graham (Graham is also Chairman of the Board), Buffett would want to know more about the company. He took a train down to Washington on a Saturday when the Geico office was closed. He was persistent enough to get the building janitor to lead him to Lorimer Davidson who was the only one working that day. Davidson would eventually be the CEO in 1958.

The encounter gave him a huge head start in the business of insurance that would be one of the key foundations for his future investment framework. Free float in the form of premiums if successfully invested would unleash the power of compounding.

Buffett came up with the thesis of investing in Geico after the meeting and have it published.

Click Here for the Full Article:

https://thebigfatwhale.com/buffets-analysis-of-geico-in-1951-why-was-it-attractive-then/

The Warren Buffet of UK- Terry Smith

Contributed By: The Big Fat Whale

Terry Smith is known as the Warren Buffet of the UK and his fund have posted stellar returns of close to 18% per annum since inception in 2011. Like Buffet, he is into investing in good quality companies at a reasonable price. However, unlike Buffet, he never invests in oil and gas companies and also the banks. We got to know about him when we read his book on his investment philosophy.

Would highly recommend everyone to read through this insightful book which is full of investment wisdom and more importantly, it gives you a good guideline on how to choose good quality companies.

These companies are currently under Fundsmith's top 10 holdings:

Their fund is positioned to have their interest align with their shareholders where there will be minimal turnover which will lead to a lower expense ratio- 0.01% in 2021. The management fee is at 1% with no performance fees embedded in the structure. The Fundsmith Fund could be a potential investment alternative once Buffet and Munger are no longer around- Terry Smith is just 68 years of age and hence there is still a long runway.

The stocks Terry choose are usually those that have a long track record - decades- and have experienced several downturns. This is necessary to validate the resilience of the business that he buys. His main focus would be on healthcare, consumer staples, consumer discretionary and technology.

Just like Berkshire, they also hold annual meetings where they discuss the fund's performance and their views of the market. For this year, it was a virtual event. They shared about the merits of investing in Amazon, Unilever and Meta. The effect of war and inflation was also covered. 

Here is the link for the full video to the annual meeting:

https://www.youtube.com/watch?v=Ha2zG4sVTeo&t=8s

In a nutshell, this is a fund that we could consider for our retirement funds. It is only available to accredited investors for those based in Singapore.

 

We hope you liked this write-up and do subscribe to our website to receive insightful articles whenever they are published.

 

Disclaimer:

The content here is for informational purposes only and should NOT be taken as legal, business, tax, or investment advice. It does NOT constitute an offer or solicitation to purchase any investment or a recommendation to buy or sell a security. The content is not directed to any investor or potential investor and may not be used to evaluate or make any investment. Do note that this is not financial advice. If you are in doubt as to the action you should take, please consult your stockbroker or financial advisor.

 

 

 

Is Meta a Buy Now?- Not at Maximum Pessimism

As chronicled by John Templeton's famous bet in the Great Depression, he put in $100 on all the stocks listed in the stock exchange, which was 104 stocks that cost him $10,000 dollars (Equivalent to $185,000 today).

His bet was on the basis that the market has reached maximum pessimism. His good foresight has proven prescient and it netted him close to a 5 times returns when he eventually liquidated all of his positions years later.

The point we are trying to highlight is that the market tends to overreact and therefore, we do not feel Meta have reached the optimal entry-level despite the huge decline in recent times. The bearish trend might just have started and it would need some time to play out.

Let's first revisit some main points that led to Meta's plunge:

1. The fall in Daily Average Users (DAUs) for Facebook- an important barometer of growth.
2. Apple Privacy Policy would cost Meta 10 Billion a Year
3. 10 Billion a year to be spent on research and development for MetaVerse
4. Credible Competitor in Douyin (TikTok)

 

Source: Meta Corporate Presentation

Click Here for the Full Article:

https://thebigfatwhale.com/is-meta-a-buy-now-not-at-maximum-pessimism/

King of Internet of Things- Xiaomi

We could still remember the first exposure to Xiaomi was by ordering online their smartphones many years ago. They managed to create a cult branding as most of their smartphones are sold within minutes during those days. It is not surprising as they have most of the features of an iPhone but yet is trading at a fifth of their price.

 

Source: Xiaomi Homepage 

Xiaomi has since evolved from the early days and has now in their product catalogue, a mind-boggling amount of household appliances and gadgets, on top of their smartphone range. The household appliances are connected to the Mi Home and the data analytics from the usage of the products would be Xiaomi's edge compared to their competitors.

The more prominent products in their line-up will be smartphones, smartwatches, robot vacuum cleaners, smart tv, fridge, air-conditioners, laptops and washing machines. Their products are in more than 80 markets.

Xiaomi's vision is not to make huge profits from the sale of hardware as they have explicitly stated they would not surpass a net profit margin of 5%.

With their good value and quality products, they hope to link all the devices to their ecosystem, they would then be able to monetize from the strength of their ecosystem.

This strategy is similar to Gillette selling the shaver cheaply and earning huge margins from the sale of blades.

Here is the link for the full article:

https://thebigfatwhale.com/king-of-internet-of-things-xiaomi/

 

Riding The Commodities Boom- Wilmar

Contributed By: The Big Fat Whale

There has been recent talk about an inflationary spike and pressure on the overall economy. Commodities prices have been creeping up. This phenomenon is not surprising given the huge money press at work and it is still running on full steam- Biden's recent 2 trillion infrastructure bill was passed.

The current US debt is at 28 trillion dollars. We touched on the Fiat Money symptom in our article supporting Silver as a hedge against hyperinflation.

Source: Dow Jones Commodities Index- spglobal.com

Looking at the charts, the commodities prices have been on a steady ascent since mid-2020.

Looking around us, there have been new policies to increase wages of security guards to 3500 dollars by 2028. This is equivalent to or more than a fresh graduate pay in today's term. We can still remember our starting pay when we graduated ages ago was just 1800-2000 dollars.

Click Here to Read More:

https://thebigfatwhale.com/riding-the-commodities-boom-wilmar/