CIBL (
CIBY.OTC)
Company website: http://www.ciblinc.com/index.htm
Price: $625
I want to thank Adam Sues from
Value Uncovered for mentioning this stock to me. If you don't know Adam he's an avid deep value investor who has an interest in the same types of stocks I like. I reached out to him a while back and mentioned a few obscure names and when he commented he'd already seen the companies and researched them I knew I found a kindred spirit. Adam doesn't post as often now that he's pursuing his MBA but I would highly recommend adding his site to RSS. Also I know he's looking for internships, so if you work at a value fund and have a position consider reaching out to him.
Edit: I made a slight change to this post after first posting due to a comment. I added in net income multiples to the TV Station spreadsheet. I also changed the final share total.
Background
CIBL is a small holding company that was spun out of LICT (posted about here) a bit over three years ago. LICT is a wireline company and when spinning out CIBL saddled it with a lot of seemingly random assets. CIBL has ownership interests in the following, two Iowa TV stations a wireless partnership interests in New Mexico, a loan to a LICT subsidiary and 10,000 shares of a privately held company Solix Inc.
The company has a familiar face on the board, Mario Gabelli of Gamco investors. Gabelli is a Graham and Dodd value investor, so there is some comfort there that value should be maximized for shareholders.
Structure
To understand CIBL you have to understand their holdings, and the structure of the holdings. CIBL doesn't own the TV stations or wireless partnerships completely, they own interests in these entities. CIBL owns 20% of WHBF and 50% of WOI-TV ABC.
The wireless partnerships are a bit more complicated, CIBL owns 51% of Wescel Wireless which in turn owns a 33% interest in New Mexico RSA #5 and a 25% interest in New Mexico RSA #3. CIBL also owns a portion of Wescel II which owns 8.33% in New Mexico RSA #3. The RSA's have a wireless service area of 160,000 people. The general partner on the wireless interests is Verizon Wireless and the wireless service is sold as Verizon.
Why is it cheap?
I have what I think are the reasons that CIBL is selling at such a low valuation.
- Small illiquid stock - Perfectly valid reason, $15m market cap with shares that trade rarely.
- Limited float - Most of the float is owned by Gamco partners, this ties into the first reason.
- No SEC filings - A lot of investors pass companies that don't file, CIBL is unlisted but publishes audited financials on their website.
- Complex structure - CIBL doesn't own any of their assets outright, they own interests in assets, this could complicate a valuation.
All of the reasons for cheapness can be summed up in the statement that CIBL is a very small unknown, under researched company that is hard to buy shares in. Not many people want to deal with something in the $15m range especially if the company doesn't file with the SEC. The good news is this leaves a lot of room for enterprising investors.
Catalyst
Usually I will present a company and a valuation before I talk about a potential catalyst. I'm switching things around for CIBL because the valuation depends on the catalyst.
In the latest annual report and then in subsequent quarterly reports there is a very interesting quote
"The Company has received, and is reviewing an expression of interest in certain of its remaining telecommunications properties at values in excess of the current trading price for CIBL stock. There can be no assurance that this expression of interest will result in a transaction of any sort, and the Company cannot predict the outcome, timing or any other element of this matter. However, it is possible that the result could be financially significant for the Company."
Let me summarize, someone wants to buy the wireless assets and the price for the wireless alone is greater than the current market cap which includes the TV assets among other things. Not only is the price greater than the current value of the company it's significantly greater.
Valuation
In light of the catalyst I want to break down CIBL's valuation into two parts the TV stations and the wireless assets. The way I want to look at both assets is on a buyout basis since management has stated that they intend to wind down the company if possible.
TV Stations
I did some searching and was able to find that in general TV stations usually sell for 6-10x broadcast cash flow. Broadcast cash flow is considered cash flow before depreciation, time brokerage fees, and corporate and general expenses. In addition to valuing the cash flow the value of the real estate is also considered. So a complete TV station transaction would be 6-10x BCF plus the value of the real estate. Notice that only the real estate is included not all the TV equipment, this is included in the BCF calculation, all that equipment is required to generate the cash flow.
The annual report and quarterly reports have a small footnote showing a summary balance sheet and three line income statement for both TV stations. Unfortunately the only values we have to work with are revenue, gross profit and net income. I put together a spreadsheet to estimate a potential range of TV station values based on what CIBL provides. I estimated depreciation at 8% and the real estate portion at 10% of PP&E. Both of these are estimates, 8% is what I've seen for capital intensive businesses, and 10% is based on the fact that TV stations need to buy a lot of expensive equipment to broadcast, it seems that 10% is probably a reasonable estimate for what the real estate is worth.
I put together a spreadsheet based on the 2010 annual report numbers. Trailing twelve month numbers are in the Q3 report, but I don't know enough about TV to extrapolate what a fourth quarter might look like. The Q3 numbers appear to be trending a bit better than last year at this time so if anything I'm a bit on the conservative side if the fourth quarter is similar to last year.
As you can see the range I came up with was $5.4m to $13.8m for the interest CIBL owns in the two TV stations. I find it interesting that the high end estimate is basically the market cap of CIBL.
If you're uncomfortable with my estimated BCF I have multiples of net income in the spreadsheet as well.
Wireless
As expressed in the company's MD&A there has been interest in buying out a part or all of the wireless assets for more than the current share price. So when thinking about a valuation it's safe to put a downside on the wireless assets at the current market price of $15m.
I did a lot of Googling and found some references stating that rural wireless companies have sold in the 9x EBITDA range over the past few years. Like the TV interests breakout we don't have much for the wireless outside of revenue, gross profit, net income either.
I put together a spreadsheet like I did for the broadcast assets and I valued the wireless on two different metrics. The first was I created an estimated EBITDA, I used 15% of revenue for depreciation, and figured the long term liabilities were debt at 5%. The second metric was I just did a straight valuation based on net income. This is a much more conservative approach, but even the lowest net income multiple valuation is higher than the market cap alone.
Here is the spreadsheet:
Other assets
When looking at a valuation there are a few other assets that CIBL owns that need to be valued as well, these include a note to a LICT subsidiary and 10,000 shares of Solix Inc a private company. For the purposes of a breakup valuation we can probably take the note at face value which is $961,000 as of Sept 30th. The note has a 5% interest rate and LICT's subsidiary has been paying it down over the past few quarters.
The value of the Solix stock is really tough, the company seems to be decent sized with over 400 employees and 65,000 sq ft of office space in NJ. I couldn't find much beyond the typical webpage marketing fluff. Solix could have 25,000 shares outstanding and this is an extremely valuable position or they could have 2b shares and the 10k that CIBL owns is a teeny tiny footnote. Due to the uncertainty I'm going to just assign a value of zero to this position.
Putting things together
When looking at the pieces of CIBL the absurd valuation is clear, for CIBL to be fairly valued at current prices the TV stations need to be worthless, and the wireless partnerships are valued at 3x net income.
Here is the sum of the parts for CIBL:
An argument could be made that the total company won't be liquidated so an investor won't actually see this sort of return. I would agree, but CIBL seems intent on paying out extra cash as dividends so in the worst case the return from the subsidiaries is paid out to shareholders while they wait for a liquidation. I would also say that as CIBL has sold off assets in the past they've returned the entire proceeds to investors as a special dividend, so I'm not sure why a wireless asset sale would be any different.
Other resources
Another way to approach a valuation of CIBL would be to look at the cash distributions from the subsidiaries and value the company on a multiple of cash distributions. If the company wasn't considering divesting a portion of itself I think this would be the best way to value CIBL. For anyone interested I put together the cash flows for the last few years into a spreadsheet and have a picture of it below.
Summary
CIBL is fascinating in that the obscure structure masks the true valuation. Management seems to know what the company is really worth and is attempting to sell off pieces, the problem for investors is that shares are hard to obtain.
I recognize that with this valuation I used a lot more assumptions than I normally would, but even in a worst case scenario where the wireless sells for 3x net income I still have a very large margin of safety. The point of a margin of safety is to protect an investor against errors in assumptions. If CIBL sells their broadcast for 2x BCF and wireless for 2x net income I would still make a profit at the current price.
Talk to Nate about CIBL
Disclosure: Long CIBL, attempting to accumulate more shares if possible.
. The book focuses on evaluating companies on a cash flow basis. This means looking at free cash flow, cash return on invested cash, and sources and uses of cash.
