Selling Down Turning Point Brands

After a decent run up I sold a half position in TPB as it overshot my previously defined price target.

Due to the lack of better investment opportunities I am willing to hold on to half a position despite what I believe is now a fully valued price for the OTP company.

In my writeup of the company I claim TPB to be a compounder in the making, which I still consider true. However, the company as of late has been actively pursuing M&A opportunities in Vaping Products which I consider much riskier than further building their smokeless tobacco offerings. The vaping industry is relatively new, faces deep pocketed competition from incumbents such as Imperial Brands, Philip Morris but also upstarts such as Juul, while facing an uncertain regulatory future.

I am thus discounting growth in the vaping segment with a higher rate than growth in the smokeless segment and believe an EV/EBITDA in excess of 10x is a decent valuation to start exiting a successful investment.

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TBT 2017

The year has ended on a high note for my portfolio. Turning Point Brands´ value increased almost 20% over the days between Christmas and New Years. It seems like the market has suddenly woken up to recognise what the Trump administration´s tax cuts will do to a business that generates almost all of its profits in the U.S. Further, dialysis services provider Davita announced the sale of its Healthcare Partners division for USD 4.9 bn. which has been a drag since its acquisition in 2012. This was rewarded by the market with a 30% run. An allocation of these proceeds to share buybacks and debt retirement should push the value of Davita´s equity further up towards USD 90 per share.

Incorporating this stretch towards the finish line of the old year Investing0711 returned 13.57% for the full year. Continue reading

Turning Point Brands – A Compounder With 80% Upside

Turning Point Brands (TPB) is a textbook low risk, high return investment with immediate catalysts. Based on conservative assumptions I estimate that Turning Point Brand´s equity provides at least 80% upside to today´s valuation. The company is in the business of selling other tobacco products, which among others includes moist snuff, chewing tobacco, cigars, cigarette paper and liquid vaporisers. A 2016 IPO has provided relieve to TPB´s sky-high pre IPO debt load. Further refinancing and deleveraging of the balance sheet, which is supercharged by utilisation of loss carry-forwards, will reveal true earnings power of the business in 2018. Fetching a conservative multiple on 2018e earnings of 15x, implying an earnings yield of 7%, I arrive at a fair value of USD 23 per share. Continue reading