Daily Journal Corp. (DJCO)

investment, explained, newspaper, business

So this firm has a MCap of 99M.

Looking at their balance sheet, there is 0 Debt, 5.7M Cash plus an investment portfolio of 78.27M = 83.97M

They also have a newspaper business that generates roughly 4-6M annually in free cash flow. The business is surely in decline, but so much of the company's value is explained by the investment portfolio that it's hard to believe that their business is trading at 7x trailing PE, or 3x Free Cash Flow.

This really reminds me of Sanborn Maps, but it could be a value trap as well. I would love to hear any opinions on this.

Oh, and the firm's Chairman is one Charles Munger.

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发表于 2011-10-8 02:31 | 只看该作者

Hi Palantir, I looked at this company about a year and a half ago and passed. You have to deduct capital gains taxes owed when they liquidate the investment portfolio (might not be much of a tax bill but when I looked at them it was material). In addition, the operating business is benefiting from what seems like a temporary surge in advertisements announcing foreclosures, which apparently is required by law. Once those advertisements go away free cash flow will obviously be much less than it is currently. I of course liked Charles Munger's presence as well, but at the time I looked at it the stock wasn't selling cheaply enough.

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torontoanalyst

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发表于 2011-10-8 02:34 | 只看该作者

@Palantir, It is not correct that they have 0 debt (depends how you look at debt). They have about $6 million in long term accrued liabilities up from the previous year (I think this is probably future pension payments but I'm not sure). But it definitely has a small amount of debt to cash and strong earnings.

Why I wouldn't buy this stock:
1. The company is sitting on a large amount of cash and they are not paying a dividend nor does it appear that they are trying to grow through acquisitions (looks like they are playing defense when they should be playing offense).
2. Traditional media appears to be the wave of the past.

Why I would buy this stock:
1. This company appears to be a good acquisition target for one of the larger media outlets through an all stock deal

To recap, I don't see this as an intrinsic value proposition but as a speculative play on continued ad revenue due to continued foreclosures announcements (as mentioned above) or speculation of an acquisition.

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transferpricing

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发表于 2011-10-8 02:36 | 只看该作者

Good points all. I don't see an acquirer paying a premium to acquire this firm, since it's basically an investment portfolio with a declining newspaper business on the side, there is no significant brand name or potential acquirer synergies.

My basic idea is that this is basically a pool of liquid assets, that I'm trying to buy at a discount. I suppose though, that the discount really isn't large enough to merit taking on the risk that the share price will never appreciate...maybe it will be a stronger proposition if the investment portfolio became higher than the market capitalization.

Another potential source of trouble is that Mr Munger may just be cheap, and buy this business into Wesco without paying a premium for acquisition....

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