Like @Jimmy_C, I also dabbled profitably in the stock in 2013/14.
And upon reflection, like Jimmy_C, the profits I made from my PMP investment had an element of luck about it. If I had to conduct a quality audit on my PMP investment, then the conclusion would be, "Sure, I made a buck, but it is really cigar-butt investing, and the type of which I'd prefer to do less."
One of the reason that I say that there was good fortune involved was that one of my overarching assumptions - which I discovered in recent years as I have continued to follow the company with one eye - was completely flawed; namely that EBITDA is a reasonable approximation for Net Receipts.
It isn't.
As @jamwolf suggested, because of the declining nature of the business, it has a near-perpetual need to restructure itself, and to reduce its cost base.
But this does not come free: there is a cost to this restructuring.
And the cost is not trivial in quantum; for context, over the past 5 years, cumulative EBITDA has been a seemingly impressive $255m (not an insignificant figure in the context of a company which had an EV of a similar order of magnitude at the start of that period).
Problem is that cumulative Net Receipts over that period amounted to just $112m, so less than a mere 45c in every EBITDA dollar made it to the cash flow statement!
(And that has not been due to significant investment in working capital; in nominal terms, working capital levels today are very similar to what they were 5 years ago
So, when you use EV/EBITDA - especially when you apply it to busted-and-down-on-their-arse business models - you need to be aware that not all "EBITDA"s are made equal.
You need to make some substantial quality-adjustments to them in some cases.
And in PMP's case the quality of the EBITDA is notoriously poor when it comes to the thing that really matters for fundamental valuation, namely Free Cash Flow.
So, while - optically -we may "see" PMP's EV/EBITDA multiple being just above 3 times, when you adjust for the capital leakage out of the business, I put it to you that the "purer" EV/EBITDA is somewhere between 5 and 6 times. Which suddenly doesn't sound that cheap to me.
(And that's if one is able to have much conviction in any EBITDA number they provide because, recall that within the space of just 6 months ago the view of the company's own management - so, ostensibly the guys with their collective fingers on the financial pulse of the company - went from EBITDA of $70-$75m to $40m-$45m. No small variation in relatively short period of time.)
And then there is also the question of the capital replacement cycle, which explains the big mismatch over time between the depreciation charge in the P&L (cumulatively, >$150m over the 5-year review period) and the Expenditure on PP&E in the cash flow statement (<$35m in total over that period).
What happens in this business is that the capex cycle is very lumpy: every 8 or 10, or whatever, years those big printing machines need to be upgraded (at a capital cost that runs into the tens of millions of dollars); and then there is a capex "holiday" for the next 8 or 10 years. This "running down of the balance sheet" phenomenon - which needs to be reversed every now and then - is another factor for which vanilla EV/EBITDA multiples fail to account.
Don't get me wrong; the stock might indeed go up from here for reasons related to perceived under-valuation.
But you need to be aware that there are a number of not-immaterial "nasties" that lurk beneath that apparent under-valuation of the company which could quite easily render it simply an ongoing value-trap.
PMP Price at posting:
22.5¢ Sentiment: None Disclosure: Not Held
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