Re: [CANSLIM] Re: CHTT (was: Identifying NEW leaders)

From: Harvey Brion <hbrion@ieee.org>
Subject: Re: [CANSLIM] Re: CHTT (was: Identifying NEW leaders)
Date: Thu, 08 Aug 2002 22:08:02 -0700
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Katherine,  The graphic certainly gives one a warm fuzzy that they're managing
debt.  From 30:1 to 3.92:1 over 6 years is definitely in the right direction.
Just goes to show you that you need to dig a lot deeper than DGO.

I need to get more familiar with the moneycentral.msn site.  (I found the 10
year summary in table form, but did you generate the graphic yourself?)  Thanks
again.  -Harvey

Katherine Malm wrote:

> Hi Harvey,
>
> One more thing that I meant to include last night might help...that is, I
> always like to get perspective on something like this. See the attached
> graphic showing CHTT's D/E over time... (available at
> http://moneycentral.msn.com/investor/invsub/results/compare.asp?Page=Financi
> alCondition&Symbol=CHTT )
>
> Katherine
>
> ----- Original Message -----
> From: "Harvey Brion" <hbrion@ieee.org>
> To: <canslim@lists.xmission.com>
> Sent: Thursday, August 08, 2002 3:20 PM
> Subject: Re: [CANSLIM] Re: CHTT (was: Identifying NEW leaders)
>
> > Thanks Katherine,  I now feel a little better about the debt but it is a
> bit
> > scary.  Normally, I'd expect buybacks when the debt is down and there's a
> lot of
> > cash lying around, but I guess it makes sense to go into debt to buyback
> shares
> > if (1) the stock price is considered way undervalued and (2) the cost of
> > financing (interest rate) the buyback is exceptionally low.
> >
> > I calculated from the 10Q that the buybacks over FY99 thru Feb02 were made
> at an
> > average share value of $12.83 or 38% of the current price so they've made
> a
> > hefty return on their investment..  Sounds like they're managing their
> debt and
> > I guess we just have to "have faith."  -Harvey
> >
> > Katherine Malm wrote:
> >
> > > Hi Harvey,
> > >
> > > The high Long Term Debt to Equity comes from 2 sources: an aggressive
> stock
> > > buyback program (reducing equity) and a strategy of financing
> acquisitions
> > > via debt (increasing debt). The latest deal, for example, was a purchase
> of
> > > SelsunBlue from Abbott Labs for about $75m, financed with $45m in
> > > borrowings. The company seems to be fairly aggressive about using
> leverage
> > > where possible, and that is not surprising given the mature products
> that
> > > they take under wing in their portfolio reshaping program. They are also
> > > fairly aggressive about managing their debt facilities, most likely to
> take
> > > advantage of  lower interest rates where possible. For example, they
> sold
> > > Ban in early 2001, then used the proceeds to retire $52m in senior debt.
> > > It's not all that uncommon for companies to rejigger their debt to
> equity
> > > ratios given their chosen business strategies. Interestingly, in June of
> > > this year, they announced a proposed primary offering of 1.8m shares,
> but
> > > withdrew the offering, citing "adverse market conditions." While a D/E
> of
> > > nearly 400% sounds scary, the more important thing to look for is their
> cash
> > > flow and ability to cover interest payments. If financing acquisitions
> > > through debt also allows them to build a broad product offering and
> increase
> > > net income as a result, then the interest paid becomes an investment, so
> to
> > > speak. If they do a lousy job of executing their strategies (sell non
> > > performing brands, acquire others, extend existing lines), then the
> interest
> > > will kill them. So far, so good.
> > >
> > > Beyond the D/E issue...CHTT  was just an example thrown out in the
> > > discussion on "consumer stocks." Just as in the discussion of P&G
> earlier
> > > today, the "N" can come from many sources. Sometimes it's something as
> > > simple as leveraging a brand properly, as P&G has done with the Crest
> > > spinbrush and Crest Whitening Strips (by the way, about $50 for the box,
> > > premium pricing, but still a fraction of what it would cost to have it
> done
> > > with a special light activated process like Brite Smile's (BSML), or
> done
> > > "professionally" by a dentist.).
> > >
> > > Katherine
> > >
> > > PS
> > > Here are some quotes form CHTT's 10Q, which you can see in full at
> > >
> http://www.edgar-online.com/bin/edgardoc/finSys_main.asp?dcn=0000931763-02-0
> > > 02300
> > >
> > > "We have historically financed our operations and acquisitions with a
> > > combination of internally generated funds and borrowings. Our principal
> uses
> > > of cash are working capital, servicing and repayments of long-term debt,
> > > acquisitions, repurchases of our common stock and capital expenditures."
> > >
> > > "In fiscal 1999, our board of directors authorized repurchases of our
> common
> > > stock of up to $10.0 million in the aggregate. In April 2000, our board
> of
> > > directors authorized repurchases of up to an additional $10.0 million of
> our
> > > common stock. Under these authorizations, 172,500 shares at a cost of
> $3.9
> > > million were repurchased in fiscal 1999 876,500 shares at a cost of $9.5
> > > million were repurchased in fiscal 2000 and 14,000 shares at a cost of
> $0.2
> > > million were repurchased in fiscal 2001. In February 2002, we
> repurchased,
> > > and returned to unissued, 44,000 shares for $0.6 million. As of May 31,
> > > 2002, the remaining amount authorized by our board of directors under
> our
> > > stock buyback plan was $5.8 million; however, we are limited in our
> ability
> > > to repurchase shares due to restrictions under the terms of the
> indenture
> > > for our 8.875% notes and our senior credit facility.
> > >
> > > We believe that cash provided by operating activities, our cash and cash
> > > equivalents balance, the net proceeds that we receive from our currently
> > > pending offering of common stock after debt repayment and funds
> available
> > > under the revolver of our senior credit facility will be sufficient to
> fund
> > > our capital expenditures, debt service and working capital requirements
> for
> > > the foreseeable future as our business is currently conducted. Any
> > > acquisitions that we make in the future may require us to obtain
> additional
> > > financing."
> > >
> > > ----- Original Message -----
> > > From: "Harvey Brion" <hbrion@ieee.org>
> > > To: <canslim@lists.xmission.com>
> > > Sent: Wednesday, August 07, 2002 1:13 PM
> > > Subject: Re: [CANSLIM] Identifying NEW leaders
> > >
> > > > These look interesting Katherine.  It's hard to get excited about
> > > > cosmetics and weight loss products but with the high GRS rating,
> they've
> > > > obviously been doing well.  I see they all have strong EPS estimates
> for
> > > > this FY.  CHTT looks the strongest in cash flow and ROE and I favor
> > > > smaller companies anyway so I'd lean toward this one.  The chart is
> > > > pretty wide and lose, so not classic CANSLIM.  Do you have any idea
> what
> > > > their 389% debt to equity ratio is all about?  -Harvey
> > > >
> > > > Katherine Malm wrote:
> > > >
> > > > > Here's another view of "consumer" stocks--take a look at stocks like
> > > > > NBTY, WTW, CHTT, all of which have pros/cons, but nonetheless
> > > > > something unexpected. Who would've thought that HD might've done so
> > > > > well simply by consolidating a fragmented industry and redefining
> > > > > "home improvement"? Sometimes it's the unexpected which does the
> best
> > > > > while everybody else is looking to the obvious. Katherine
> >
> >
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>   ------------------------------------------------------------------------
>                         Name: CHTTKeyRatios.jpg
>    CHTTKeyRatios.jpg    Type: JPEG Image (image/jpeg)
>                     Encoding: base64


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