A Data Dump on Torstar My thoughts on recent events:
· Star Paywall Redux – The brain trust has determined that the failure of 2015 won’t be repeated in 2018. No doubt they have fed some incredulous numbers to the brain dead Board to make the transformation look credible. The Globe and Mail by the last account had approximately 70,000 digital subscribers. What inflated number do you think the Board was fed to make the future look rosy? You can be sure the next few quarters will be filled with a series of lame excuses as to why the numbers didn’t materialize. It couldn’t be the content? The price point? The competition? And of course, bad old Google and Facebook will be cited as a prime culprit when it all comes crumbling down.
· The Pension Plan Transfer – This is probably at best a neutral event as every company with a defined benefit pension plan would jump on this wagon if they could escape all of their future liabilities. Optically it plays well to the unsophisticated investor and employees are probably relieved to know that someone other than the clowns running Torstar as responsible for their pensions.
· Insider Ownership - DSUs and RSUs are retention gifts and don’t require senior management or Board members to dip into their own precious pockets to buy shares. The fact they haven’t purchased shares in years and in particular the CEO hasn’t is a clear indication in my mind that an agreement with Fairfax precludes them from buying shares. None of the Voting Trust members has sold any B shares in years and that also suggests they know that something is imminent.
· The Recent Spike in Share Price – We are coming up on a year since Fairfax purchased several million shares to take a 40.6% interest in the B shares. Perhaps savvy investors are scooping up shares in anticipation of some sort of move by Watsa. Alternatively, perhaps investors remain convinced the dividend will continue and the yield is sufficiently attractive enough to chase the shares up the price ladder. I don’t know it the current price is sustainable if Q3 results are weak. I would still buy the shares on weakness and to assist in averaging down your past purchases if necessary.
· CEO Credibility – The recent problems encountered by Elon Musk should give Boynton cause to pause when pronouncing glorious results regarding VertigoScope. Stating the business has enjoyed solid growth without acknowledging it all came from acquisitions is tantamount to fraudulent misrepresentation. To be clear the acquisition of VS was a mistake from the outset and didn’t happen on Boynton’s watch. Trading the significant cash flow from Harlequin for no cash flow from VS and paying stupid multiples funded by debt for businesses that can be snuffed out by Google in a heartbeat is gross incompetence. Honderich wears this strategic disaster.