Reitmans Ord Shs V.RET

Remains Dirt Cheap

[robocop123]

What are people so worried about? YTD CFO before WC adjustments is ~$57m, lease payments and CapEx total ~$37m. YTD normalized FCF AFTER leases is ~$20m. 4Q could be a cash burning quarter due to holiday promotions... we will see... but if we ended the year at $20m, I think it'd be a great year given valuation.

$20m normalized FCF YTD (including leases). No need to include leases as EV as lease payments are considered in cash flow so EV is practically $10m? EV (excluding leases) should be a minimum of $100m (or 5x FCF), this implies a double in stock price. 

They also have real estate that I believe is valued at ~$150m. I'm not a local in Canada so I don't know how macro is shaping up relative to US, but things would have to get catostrophic to warrant current share price IMO.

[Northforce13]

I think the big concern is RET becomes the same value trap it was for years and years and years.   It used to have a great balance sheet, but was never very profitable, which was the problem.  It looks like we could end up back in that situation, run rate earnings right now might be 0.20 EPS per year. Going to be an interesting story 

[Dali812]

You are absolutely right...

[Torontojay]

There are several ways to look at valuations.  You can look at free cash flow to equity investors which is approximately $20m ytd. The other way is to look at free cash flow to the firm which includes equity investors and debt investors in the calculation. This is effectively,  operating income*(1-tax rate) =~ fcf to "the firm" "the firm" = equity

[robocop123]

I'm not sure I understand this comment... I thought that FCFE should be compared to market cap and FCFF should be compared to EV. In this example, I am comparing FCFF to EV. 

[Torontojay]

Yes, that's exactly what I said. In your original post, you used FCFE but you compared it with the enterprise value when you should have compared it with market cap.  FCFE to price/market cap  FCFF to enterprise value  from your post,  "$20m normalized FCF YTD (including leases). No need to include leases as EV as lease payments are considered in cash flow so

[robocop123]

The business has no debt and a huge net cash position. To only compare to market cap would be to discount the entire existing cash balance, which is all attributable to equity holders anyways. I'm not sure what academia would suggest but this makes sense to me.  

[Torontojay]

The term enterprise value is best suited for highly leveraged companies. 

[Torontojay]

Here is another way to think about it.  Ask yourself, how much money from their cash pile is not required to operate the business? Suppose you conclude that $50m is not required to operate the business and the rest is required for working capital purposes.  Remove this excess cash from the market cap and compute a reasonable fcf multiple on the business. For instance, suppose you