from value investing to modern value · the value investing process search •cheap •ugly...
TRANSCRIPT
![Page 1: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/1.jpg)
From value investing to modern value
Tano Santos
David L. and Elsie M. Dodd Professor of Finance
Columbia Business School
Heilbrunn Center for Graham & Dodd Investment
May 2020
![Page 2: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/2.jpg)
…………………………………………………………………………………………………………………………………………
VALUE INVESTING … FOR PEOPLE IN A HURRY
![Page 3: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/3.jpg)
…………………………………………………………………………………………………………………………………………
Risk Management•Margin of safety
•Some diversification•Patience – Default strategy
The Value Investing Process
Search•Cheap•Ugly
•Obscure and otherwise ignored
Valuation•Assets
•Earning Power•Franchise
Review•Key issues
•Collateral evidence•Personal biases
3Tano Santos Heilbrunn Center
![Page 4: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/4.jpg)
…………………………………………………………………………………………………………………………………………
Value and growth
Asset ValuesAV
Earnings Power ValuesEPV
Franchise ValuesFV>0
Barriers to entry?
yes
no
Franchise ValuesFV≤0
Growth creates value
Growth destroys value
Tano Santos Heilbrunn Center4
Risk Management
![Page 5: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/5.jpg)
…………………………………………………………………………………………………………………………………………
Value and growth
Asset ValuesAV
Earnings Power ValuesEPV
Franchise ValuesFV>0
Barriers to entry?
yes
no
Franchise ValuesFV≤0
Growth creates value
Growth destroys value
Tano Santos Heilbrunn Center5
Risk Management A bit about this today
![Page 6: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/6.jpg)
…………………………………………………………………………………………………………………………………………
OF SHOCKS AND TRENDS …
Tano Santos Heilbrunn Center
![Page 7: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/7.jpg)
…………………………………………………………………………………………………………………………………………
Managing the stock: The many taxonomies of risk
Temporary Permanent
IdiosyncraticManagement
Operational
Industry
Input prices
Technology
Regulation
Import penetration
Aggregate
Recession
Depression
Inflation/deflation
Political
Tano Santos Heilbrunn Center
Nature of risks
On shocks: classification
![Page 8: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/8.jpg)
…………………………………………………………………………………………………………………………………………
Managing the stock: The many taxonomies of risk
Temporary Permanent
IdiosyncraticManagement
Operational
Industry
Input prices
Technology
Regulation
Import penetration
Aggregate
Recession
Depression
Inflation/deflation
Political
Tano Santos Heilbrunn Center
Nature of risks
On shocks: classification
How to think about technology and value? • Disruption and value creation• Example: The payments industry and Adyen
What triggers regulation? • Regulation and value creation• Example: Should we regulate AMZN, FB, …?
What are the effects of import penetration on local industries?
• Import substitution and value creation• Example: The bankruptcy of FBI
What are the effects of a drop in oil prices?• Example: Energy and value traps
![Page 9: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/9.jpg)
…………………………………………………………………………………………………………………………………………
Managing the stock: The many taxonomies of risk
Temporary Permanent
IdiosyncraticManagement
Operational
Industry
Input prices
Technology
Regulation
Import penetration
Aggregate
Recession
Depression
Inflation/deflation
Political
COVID-19
Tano Santos Heilbrunn Center
Nature of risks
On shocks: classification
�
![Page 10: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/10.jpg)
…………………………………………………………………………………………………………………………………………
Adverse shocks: Is the shock permanent?
Yes No
Short term impairment• Cycles in demand• Temp. disruptions
in the supply chain• Temp. disruptions
in operations• Management turnover• Lawsuits …
Do they eliminate barriers to entry?
Yes No
Permanent impairments • Patent expiration • Technological / process innovations• International trade openness• Expropriation …
Limits to profitability• Regulation• Bounds on practices
• Bundling, pricing …
MARGIN OF SAFETY
HORIZONREINVESTMENT
Are there barriers to entry?
Yes
No
Are the shocks industry-wide?
Yes
Survival
No
Exit
Is the firm highly levered?
No Yes
Exit
Tano Santos Heilbrunn Center
On shocks: risk management
![Page 11: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/11.jpg)
…………………………………………………………………………………………………………………………………………
On shocks: What do disruptions (permanent shocks) do?
1. They kill a particular economic activity
Example: Technology – Horse carriage and the car
Example: Regulation – The jitney craze of of 1914 – 1918
2. They transform how a particular economic activity either supplied or consumed
Example: e-retailing,
Example: The payments industry
3. They unbundle how particular economic activities are either supplied or consumed
Example: advertising and news
Tano Santos Heilbrunn Center
![Page 12: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/12.jpg)
…………………………………………………………………………………………………………………………………………
On trends: What do trends do?
● Trends refer to the widespread adoption of practices, behaviors and institutions that are already operational in another:
– Country
– Sector
– Demographic groups
● It is the process of diffusion rather than of disruption
– It is predictable and dominated by the trend rather than by the fluctuations around the trend
● It is irreversible, though it can be overtaken by another trend
● Companies benefit from that trend if, and only if, their business operations are protected by barriers to entry.
12Tano Santos Heilbrunn Center
![Page 13: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/13.jpg)
…………………………………………………………………………………………………………………………………………
SHOCKS
13
![Page 14: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/14.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Product
Tano Santos Heilbrunn Center
The evolution of the payments system
Product
![Page 15: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/15.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
“Cash”gold
Product
Tano Santos Heilbrunn Center
The evolution of the payments system
![Page 16: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/16.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Cashcoin
Tano Santos Heilbrunn Center
The evolution of the payments system
Royal Mint
The KingProduct
![Page 17: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/17.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Product
Tano Santos Heilbrunn Center
The evolution of the payments system
Royal Mint
CoinProduct
CoinGold
The KingCapital
Revenue?
Coin (taxes)
Services
Services
Coin (taxes)
Cashcoin
![Page 18: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/18.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Product
Tano Santos Heilbrunn Center
The evolution of the payments system
Royal Mint
CoinProduct
+seignorage
Coin
Gold –
inflation tax
The KingCapital
Revenue!
Coin (taxes)
Services
Services
Coin (taxes)
Cashcoin
![Page 19: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/19.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
ProductCheck
Customerbank
Check
Cash – t/2
Check
Cash + t/2
Merchantbank
Clearing
Tano Santos Heilbrunn Center
Check
Cash
Cash
Check
The evolution of the payments system
![Page 20: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/20.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Presents Card
Customer/issuing bank
Authorizationrequest
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit card
Authorizationrequest
Authorizationrequest
Product
Credit card: An open systemStep 1: Authorization
![Page 21: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/21.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Presents Card
Customer/issuing bank
Authorizationrequest
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit card
Authorizationrequest
Authorizationrequest
yes
yes
yes
Product
Credit card: An open systemStep 2: Authentication
![Page 22: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/22.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Presents Card
Customer/issuing bank
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit card
Payment – Interchange fee
Product
Credit card: An open systemStep 3.a: Clearing & settlement: 24 – 48 hrs
Payment – Interchange fee –– Assessment & processing fee
Debit
Payment – Interchange fee –– Assessment & processing fee –
– Merchant Discount Rate
![Page 23: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/23.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Customer/issuing bank
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit card
Payment (+ interest)
Credit card: An open systemStep 3.b: Clearing & settlement: end of the month
![Page 24: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/24.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Customer/issuing bank
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit card
Credit risk
Credit card: An open systemWhere is the risk?
Fraud, CNP risk
![Page 25: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/25.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Presents Card
Customer/issuing bank
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit cardProduct
Credit card: An open systemIndustrial Organization – 1
MastercardVisa
CitiChase
Bank of America …
Citi Merchant Serv.Chase Paymentech
BofA Merchant Serv.Wells Fargo Merchant Serv.
![Page 26: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/26.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Presents Card
Customer/issuing bank
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit cardProduct
Credit card: An open systemIndustrial Organization – 2
Non-merchant bank acquirersIndependent Sales Org. (ISOs)
![Page 27: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/27.jpg)
…………………………………………………………………………………………………………………………………………
Customer
Merchant
Presents Card
Customer/issuing bank
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit cardProduct
Credit card: An open systemIndustrial Organization – 3
Citi Merchant Serv.Chase Paymentech
BofA Merchant Serv.Wells Fargo Merchant Serv.
MastercardVisa
CitiChase
Bank of America …
Fiserv (First Data)FIS (Worldpay)
Global Payments (TSYS, Heartland)
Non-merchant bank acquirersIndependent Sales Org. (ISOs)
![Page 28: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/28.jpg)
…………………………………………………………………………………………………………………………………………
Customers
M1
Customer/issuing bank
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit card
Credit card: An open systemIndustrial Organization – 4
Non-merchant bank acquirersIndependent Sales Org. (ISOs)
M2 Mn…
POS Infrstr.Payment
Aggregators
![Page 29: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/29.jpg)
…………………………………………………………………………………………………………………………………………
Customers
M1
Customer/issuing bank
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit card
Credit card: An open systemIndustrial Organization – 5
Non-merchant bank acquirersIndependent Sales Org. (ISOs)
M2 Mn…
SquareStripePaypalAdyen
MastercardVisa
Citi Merchant Serv.Chase Paymentech
BofA Merchant Serv.Wells Fargo Merchant Serv.
Fiserv (First Data)FIS (Worldpay)
Global Payments (TSYS, Heartland)
CitiChase
Bank of America …
POS Infrstr.Payment
Aggregators
![Page 30: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/30.jpg)
…………………………………………………………………………………………………………………………………………
Customers
M1
Customer/issuing bank
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit card
Credit card: An open systemIndustrial Organization – 5
Non-merchant bank acquirersIndependent Sales Org. (ISOs)
M2 Mn…
SquareStripePaypalAdyen
MastercardVisa
Citi Merchant Serv.Chase Paymentech
BofA Merchant Serv.Wells Fargo Merchant Serv.
Fiserv (First Data)FIS (Worldpay)
Global Payments (TSYS, Heartland)
CitiChase
Bank of America …
POS Infrstr.Payment
Aggregators
![Page 31: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/31.jpg)
…………………………………………………………………………………………………………………………………………
Customers
M1
Customer/issuing bank
Merchantbank
Tano Santos Heilbrunn Center
The evolution of the payments system
Credit card
Credit card: An open systemIndustrial Organization – 6
Non-merchant bank acquirersIndependent Sales Org. (ISOs)
M2 Mn…
MastercardVisa
Chase PaymentechSquarePOS Infrstr.Payment
Aggregators
![Page 32: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/32.jpg)
…………………………………………………………………………………………………………………………………………
Merchant Gateway Risk management Processing
Acquiring bankCredit cardIssuing bankAuthorization
………………………………………………………………………………………………………………………………………
Where is Adyen in the payment process
Tano Santos Heilbrunn Center
![Page 33: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/33.jpg)
…………………………………………………………………………………………………………………………………………
TRENDS
33
![Page 34: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/34.jpg)
…………………………………………………………………………………………………………………………………………
Trends: Taxonomy
34
Trends
The consumer The firm Governance & Institutions• Wealth accumulation• Demographic changes• Behavioral changes• Technology adoption
• Business process adoption• Automatization• Direct to consumer• Standardization• HR practices• Compliance
• Regulation• Market adoption• Political trends
Tano Santos Heilbrunn Center
![Page 35: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/35.jpg)
…………………………………………………………………………………………………………………………………………
Trends: The death of the movie theater
35
$10.00
$10.50
$11.00
$11.50
$12.00
$12.50
$13.00
$13.50
$14.00
$14.50
$15.00
1,000
1,100
1,200
1,300
1,400
1,500
1,600
1,700
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Tickets Sold (in millions; left) Box Office (adjusted for inflation; in billions; right)
Tano Santos Heilbrunn Center
US: Tickets sold (in millions) and Box office receipts (in billions). 1995 – 2019 Source: The Numbers
![Page 36: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/36.jpg)
…………………………………………………………………………………………………………………………………………
Trends: The death of the movie theater
36
0
5
10
15
20
25
30
35
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Walt Disney 20th Century Fox Paramount Pictures Sony Pictures Universal
US: Major releases by big studios. 1995 – 2019 Source: The numbers
Tano Santos Heilbrunn Center
![Page 37: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/37.jpg)
…………………………………………………………………………………………………………………………………………
Travel agencies: Stock Prices: This year
37
0
2
4
6
8
10
12
1/2/20 2/2/20 3/2/20 4/2/20
TUI AG: Stock price (€)
1000
1200
1400
1600
1800
2000
2200
1/2/20 2/2/20 3/2/20 4/2/20
Bookings: Stock price ($)
Tano Santos Heilbrunn Center
![Page 38: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/38.jpg)
…………………………………………………………………………………………………………………………………………
TUI AG: Stock price (£): 03/17/2006 – 04/21/2020
38
0.00
2.00
4.00
6.00
8.00
10.00
12.00
14.00
16.00
18.00
20.00
03/17/06 03/17/07 03/17/08 03/17/09 03/17/10 03/17/11 03/17/12 03/17/13 03/17/14 03/17/15 03/17/16 03/17/17 03/17/18 03/17/19 03/17/20
Tano Santos Heilbrunn Center
![Page 39: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/39.jpg)
…………………………………………………………………………………………………………………………………………
TUI AG
39
-800
-600
-400
-200
0
200
400
600
800
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
18,000
20002001200220032004200520062007200820092010201120122013201420152016201720182019
Revenues (left) EBIT (Operating Income; right)
TUI AGRevenues and operating income (mns. of £)
2000 – 2019
0.0
5.0
10.0
15.0
20.0
25.0
200620072008200920102011201220132014201520162017201820192020 (A
pril)
EBIT: Guidance (€
622) divided by 5EBIT:FY
2019 EBIT
TUI EV/EBIT2006 – 2019
Tano Santos Heilbrunn Center
![Page 40: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/40.jpg)
…………………………………………………………………………………………………………………………………………
Is it growing?
40
-6
-4
-2
0
2
4
6
8
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Rate of growth of international arrivals. Source: UNWTO
Tano Santos
1.5bn visitors
Heilbrunn Center
![Page 41: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/41.jpg)
…………………………………………………………………………………………………………………………………………
The “Travel” business: A bird’s eye view
41
The “Travel” Business
Tourism
Mass AdventureWildlife
Cultural Religious
Corporate travel
Households Firms
Tano Santos Heilbrunn Center
![Page 42: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/42.jpg)
…………………………………………………………………………………………………………………………………………
The “Travel” business: Exposure to Coronavirus
42
The “Travel” Business
Tourism
Mass AdventureWildlife
Cultural Religious
Corporate travel
Households Firms
Short
Long
High High High High High
HighLow Low Low Low
Tano Santos Heilbrunn Center
![Page 43: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/43.jpg)
…………………………………………………………………………………………………………………………………………
The “Travel” business: Main economic determinant
43
The “Travel” Business
Tourism
Mass AdventureWildlife Cultural Religious
Corporate travel
Economies of scale
Limited supply
Safari Venice Middle EastSpain
Industry Retreats Conferences
World Mobile Congress
AEA/AFA
Firms’ balance sheet
You know …
Tano Santos
![Page 44: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/44.jpg)
…………………………………………………………………………………………………………………………………………
Tourism: Is this a good country for tourism?
44Tano Santos Heilbrunn Center
![Page 45: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/45.jpg)
…………………………………………………………………………………………………………………………………………
Tourism: Is this a good country for tourism?
45Tano Santos Heilbrunn Center
![Page 46: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/46.jpg)
…………………………………………………………………………………………………………………………………………
Tourism: Is this a good country for tourism?
46Tano Santos Heilbrunn Center
![Page 47: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/47.jpg)
…………………………………………………………………………………………………………………………………………
Tourism: The value chain
47
Tourist
Travel Agencies
Transportation
Hotels & Accommodations
Transportation
Amenities & services
Expedia (Travelocity, Worldwide Travel, Orbitz, …)Bookings (priceline, agoda, …), BCD , Amex, CWTTUI Group, Trip.com, Google Travel, …
American, Delta, United, Air France/KLM, Ryanair,Tui Airlines, IAG, China Eastern, China Southern, ...
Wyndham, Marriott, Hilton, Best Western, Accor, JinJiang, Hyatt, InterContinental, Airbnb, …
Local arilines (Vueling,Wow, Ryanair, Norwegian, …)Car rental (Hertz, Avis, …)Trains, public transportation, …
Insu
ranc
e, a
dver
tisin
g, …
Tano Santos Heilbrunn Center
![Page 48: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/48.jpg)
…………………………………………………………………………………………………………………………………………
Tourism: The value chain
48
Tourist
Travel Agencies
Transportation
Hotels & Accommodations
Transportation
Amenities & services
Insu
ranc
e, a
dver
tisin
g, …
Tano Santos
Barriers to entry: Sources of customer captivity
High: Network externalities
Low: Rewards programs
Traditional: Low: Rewards programsAirbnb: High: Network externalities
Low: Rewards programs
High: inelastic supply
Heilbrunn Center
![Page 49: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/49.jpg)
…………………………………………………………………………………………………………………………………………
Tourism: OTAs
● How do you book a hotel in Rome?
1. OTA
• Bookings, Expedia
2. Metasearch/aggregator
• Trivago, TripAdvisor
3. Alternative
• Airbnb
4. Direct booking
• Le Meridien Visconti
5. Search engine
49Tano Santos Heilbrunn Center
![Page 50: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/50.jpg)
…………………………………………………………………………………………………………………………………………
Tourism: OTAs
● OTAs: Business models
1) Merchant model
• OTA buys blocks of rooms at a discount and resells them for a profit
• Customers pay the OTA in time of booking and the OTA pays the hotel at checkout.
• 20-30% fee
• Example: Expedia
2) Agency model
• Middleman and no payment upfront
• 10-15% fee at checkout from hotel
• Small versus large hotels (think Europe)
• Example: Bookings
50Tano Santos Heilbrunn Center
![Page 51: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/51.jpg)
…………………………………………………………………………………………………………………………………………
Tourism: OTA
● OTAs match customers with hotels
– The logic of platform economics
– Example: Mastercard or Visa
● Problem
– Most travelers start their trip by searching locations, amenities and hotels in … Google.
– Would Google steal the business away?
• How much does the travel industry pay Google in marketing expenses? $14bn
• Value of travel industry payments to Google (annuity) at 10% with 5% growth: $280bn
– Cost of reproducing the network?
• Operating margins of a network at work next
51Tano Santos Heilbrunn Center
![Page 52: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/52.jpg)
…………………………………………………………………………………………………………………………………………
OTAs: Bookings: Operating margins
52
-10
-5
0
5
10
15
20
25
30
35
40
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
Bookings: Operating margins. 2000 – 2019 Source: Annual Reports
Tano Santos Heilbrunn Center
![Page 53: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/53.jpg)
…………………………………………………………………………………………………………………………………………
OTAs: Bookings: Revenue and operating income growth
53
0
10
20
30
40
50
60
70
80
90
100
2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Sales Operating income
Bookings: Revenue and Op. Income growth (MA4) . 2008 – 2019 Source: Annual Reports
Tano Santos Heilbrunn Center
![Page 54: From value investing to modern value · The Value Investing Process Search •Cheap •Ugly •Obscure and otherwise ignored Valuation •Assets •Earning Power •Franchise Review](https://reader030.vdocuments.net/reader030/viewer/2022041105/5f05e7c27e708231d4154e83/html5/thumbnails/54.jpg)
…………………………………………………………………………………………………………………………………………
OTAs: Bookings: EPV
item FY2019
Revenues 15,066.0Operating Margin 35.5
Op. Income 5,345.0Adjustments
Performance marketing 4,419.0
Brand Marketing 548.0Adj. Op. Income 5,893.0
Tax Rate (%) 22.8NOPAT 4547.1
Discount rate (%) 10.0EPV Op. Buss. 45,470.8
Cash 7,330.0Debt 9,251.0
EPV Equity 43,549.8Market cap
(05-11-2020)56,730.0
Market cap(03-23-2020)
47,303.2
54
0.0
10.0
20.0
30.0
40.0
50.0
60.0
200220032004200520062007200820092010201120122013201420152016201720182019
Bookings: EV/ebit
Tano Santos Heilbrunn Center