BLYTH INC BTH
May 02, 2012 - 11:02am EST by
devo791
2012 2013
Price: 83.00 EPS $0.00 $8.00
Shares Out. (in M): 9 P/E 0.0x 10.4x
Market Cap (in $M): 711 P/FCF 0.0x 0.0x
Net Debt (in $M): -119 EBIT 0 0
TEV ($): 592 TEV/EBIT 0.0x 0.0x

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  • Understated Earnings
  • International growth

Description

Blyth is a direct sales marketer whose value largely stems from its ownership of Visalus (over 80% of the company), a business which has been growing at a ~200% organic rate, a rate of growth which has actually been accelerating in 2012.  Amazingly, despite this hyper growth rate and huge untapped international opportunity the company trades for only around 8.3x 2012 earnings (assuming full ownership of Visalus, which will occur in 2013) of around $10 per share.  Due to having zero analyst coverage and a very non-promotional management team, I believe that investors have simply not woken up to how large Visalus actually is now.  Fortunately, members of the Visalus management team disclose each month the number of people that have “joined the challenge” -- i.e. started to subscribe as customers.  Using a multitude of publicly disclosed data points in conjuction with reported BTH results, I have been able to reverse engineer a fairly accurate model for predicting Visalus revenues based on these figures.  As of April, Visalus should now be up to $58 M in monthly revenues, a $700 M revenue run-rate, obviously massive growth over the $230 M they just did in 2011.

Importantly, I believe that the reporting of Q1 results in the next week, perhaps as early as in the next few days, serves as an imminent catalyst as I expect management to materially increase their earnings guidance for the year from $5.00 - 5.25 to over $6.00.  Due to the time sensitive nature of this recommendation, this report will probably be a bit briefer than I’d like, but I’d be happy to follow up on details in the discussion thread.

Roughly speaking, BTH’s enterprise value roughly consists of Visalus (80-85%), PartyLite Europe (10%), and another 5-10% spread among Party Lite North America, a catalog/internet business selling household goods and other knick knacks, and a chafing fuel/table top lighting business.  As a result this write up is entirely focused on my Visalus expectations as the other businesses don’t really move the needle at this point.

Please refer to hb190’s excellent writeup of BTH last October (http://valueinvestorsclub.com/value2/Idea/ViewIdea/58596) for more details on the Visalus business, and why it is well positioned to realize the huge future growth outside of North America.

The company reported year-end results in March and gave guidance of $5.00 - 5.25 in earnings for 2012.  At the time I believe that management was clearly low-balling as the business was on pace to easily do $7 per share.  Furthermore, as I shared in the comments to the prior BTH writeup, the company’s own internal expectations for the final earnout payment for Visalus imply substantially greater earnings than $5.25!  If you calculate the Visalus EBITDA implied by their earnout expectation, they believe that BTH will earn at least $6.30 in EPS in 2012 (and that’s assuming share declines in the other businesses, which is probably overly conservative).  I guess the auditors won’t let you use unrealistic projections when disclosing to shareholders the size of a potential cash earnout, but you can certainly release unrealistically low earnings guidance to shareholders!
Since then, Visalus has actually accelerated it’s growth rate considerably.  They had just done around $41 M in revenues in February, but during the month of March they added 159k customers -- 40% more than they added in the previous month!  I believe this has fueled growth from $41 M in February to $50 M in March to around $58 M in April -- a revenue run rate that is over 40% higher than when they just gave full-year guidance a few months ago.  I now believe the company will do around $8 per share in EPS in 2012, and while I expect management to remain conservative and low-ball investors, I think the huge acceleration in the growth rate of the business will force them increase guidance to at least $6 per share in the next week.

To get from $8 per share in EPS in 2012 to the $10 per share I cited in the opening paragraph, I am merely ascribing 100% ownership of Visalus to BTH (they are presently at 73% but an earnout payment next year will take them to 100%) and adding interest expense costs incurred from the financing of this final earnout.

Finally, while the imminent catalyst of an increase in earnings guidance is the main attraction to this investment and gives it an outstanding risk/reward, I should note that BTH is clearly undervalued as well and is worth at least $145 per share, without even factoring in the huge potential international growth opportunity within Visalus.  That valuation is comprised of around $108 per share for Visalus (10x the current run-rate EBIT, obviously you could argue for a much higher valuation considering the growth rate), $16 per share for PartyLite Europe (6x EBIT), $4 per share for PartyLite North America (2.5x EBIT), $3 per share for catalog/internet (probably less than asset value) $2 per share for chafing fuel/tabletop lighting (probably less than asset value), and $14 per share in cash.

Catalyst

An increase in 2012 earnings guidance when Q1 reports are reported in the next week
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