VIC — Guy Gottfried

Notes from the Value Investing Congress -- two small Canadian value stocks

By Travis Johnson, Stock Gumshoe, September 16, 2013

Guy Gottfried has a nice, albeit short, record of choosing excellent little Canadian value stocks that have risen in value pretty substantially over the year or so following his presentation. Of course, that doesn’t mean his pick this year will jump right up — but he’s presenting before the market opens, and the 500 or so folks in this room know that he’s got this history, so it wouldn’t be surprising.

Gottfried’s first pick is Glentel, Inc (GLN.TO, GLNIF), which is small — market cap of about $330 million and a 3.4% yield. This is a wireless retailer, selling service and accessories — second largest Verizon retailer in the US, for example. They get most of their profits from commissions and bonuses from the wireless providers in the US, Canada and Australia.

Why is it a value stock? It is valued at 7.5X free cash flow, and it’s growing at double digits, management owns shares, and they’ve been raising the dividend.

Their largest ever acquisition, of Wireless Zone, hasn’t yet really hit the results — they have improved other acquired companies and divisions, and that’s not reflected in the stock yet. The accounting is confusing, there are non-recurring costs or non-cash adjustments, and some of the divisions lose money but will still be valuable. It’s hard to really assess “normalized” earnings, it’s hard to figure out, and that’s why it’s cheap — it takes work to understand it.

The CEO and his family own 46% of the company — the Skidmore family took control in 1989, so they have run it for a long time … it was a manufacturer at the time, so they started the wireless retailing business and have a good record of making excellent acquisitions to bring on new store networks and brands.

Their ability to continue to make undervalued acquisitions is a big element in assuming growth in the company — they made their last one, and biggest one, just last December. Within a few years, the acquisitions they’ve made have started earning very strong returns — their 2012 acquisition of Wireless Zone cost $87 million and is generating $11 million in free cash flow already, he expects that to improve as they boost cash flow. And their last Australian acquisition, AMT and its Allphones store network, gives them a beachhead into Southeast Asia and they’re planning to open up to ...

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