Boyar ValueInvestingCongress 131609

9th annual new york value investing congress
September 16, 2013 New York, NY Where do we go from here?

Mark A. Boyar, Boyar Value Group
www.ValueInvestingCongress.com
Where Do We Go From Here?

Thoughts on navigating a stock picker's market.
Mark Boyar Mark Boyar
www.BoyarValueGroup.com www.BoyarValueGroup.com
Disclaimer
The statistical and other information contained in this presentation has been obtained from sources we deem to be reliable, but we cannot guarantee its entire accuracy or completeness. The information presented is not intended to be an offer to sell or the solicitation of an offer to purchase any security or investment product. This presentation may not be published or re-distributed without the prior written consent of Boyars Intrinsic Value Research LLC. Investors should bear in mind that past performance of any investments described herein are for illustrative purposes only and are not necessarily indicative of future results. This presentation may contain, or may be deemed to contain, forward-looking statements, which are statements other than statements of historical facts. By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. The future of investment results of the investments described herein may vary from the results expressed in, or implied by, any forward looking statements included in this presentation, possibly to a material degree. Affiliated companies, clients, and employees of Boyars Intrinsic Value Research own shares in MSG, and SKS. The presentation represents the views of Boyars Intrinsic Value Research as of 9/16/2013 and is subject to change at anytime without notice.
Mark Boyar
www.BoyarValueGroup.com
About Mark Boyar

Mark A. Boyar has been a securities analyst since 1968. Mr. Boyar began publishing Asset Analysis Focus in 1975. Approximately 40% of the companies profiled in this publication have been acquired or liquidated the vast majority at significantly higher prices than when originally profiled. Boyars annual Forgotten Forty publication advanced 28% in 2012 and has outperformed the S&P 500 significantly over the past 10 years. Mr. Boyar began publishing Boyars Micro Cap Focus in 2010. The stocks contained in this publication have increased by an average of 78.5% compared to an advance of 28.8% for the Russell Microcap value index. Since 1983, Mr. Boyar has been formally managing money for both institutions and high-net-worth individuals through Boyar Asset Management.
Mark Boyar
A LOOK BACK AT MY SPEECH AT THE 2013 VIC IN LAS VEGAS
History Does Not Repeat Itself But It Sure Does Rhyme

Lessons learned from 40 years in the investment business.
Mark Boyar
LESSON #1:
You can purchase the best company in the world, but if you do not buy it at a reasonable price, you will not compound your capital at an acceptable rate of return.
Mark Boyar
Lesson #1 The 1960s produced a group of stocks that were affectionately dubbed the Nifty Fifty.
These were companies that were: Impervious to any economic downturn One decision stocks (buy at any price, no need to sell) Examples of Nifty Fifty stocks included:
Mark Boyar
Lesson #1
As these stocks advanced, more money poured into them and their multiples expanded. By 1972 the average P/E for this group approached 42x earnings, compared to the S&P 500s 18.9x. The average dividend yield for these stocks was significantly less than many other large capitalization stocks.
Nifty Fifty S&P 500
Mark Boyar
Lesson #1
In the 1960s Polaroid was the quintessential growth stock. It sold for approximately $140 per share, or almost 100x profits. By the end of the 1970s bear market its shares sold for approximately $14 per share. More than 20% of the Nifty Fifty stocks never eclipsed their 1970s highs.
Mark Boyar www.BoyarValueGroup.com
Lesson #1
By the 1990s large-capitalization stocks were once again commanding outsized multiples.
COMPANY
Ticker GE MSFT JNJ PFE DIS CSCO SYY INTC Company Name General Electronic Company Microsoft Corporation Johnson & Johnson Pfizer, Inc. The Walt Disney Company Cisco Systems, Inc. Sysco Corporation Intel Corporation Date Dec. 99 Dec. 99 Nov. 99 Apr. 99 May 99 Dec. 99 Dec. 99 Sept. 99 Peak Price 45.41 48.06 52.13 46.52 41.33 47.78 19.28 44.66
1990S PEAK
Trailing P/E Ratio 43.39 58.97 41.40 90.60 40.30 154.10 33.53 40.20 Annual Dividend Yield 1.03% 0.00% 1.07% 0.63% 0.50% 0.00% 1.25% 0.13%
Mark Boyar
Lesson #1
Today the majority of those companies are currently commanding significantly lower multiples and have a higher dividend yield!
COMPANY
Ticker GE MSFT JNJ PFE DIS CSCO SYY INTC Company Name General Electronic Company Microsoft Corporation Johnson & Johnson Pfizer, Inc. The Walt Disney Company Cisco Systems, Inc. Sysco Corporation Intel Corporation Date 9/4/13 9/4/13 9/4/13 9/4/13 9/4/13 9/4/13 9/4/13 9/4/13 Current Price 23.10 31.21 86.86 28.44 61.17 23.89 32.20 22.76
CURRENT
Trailing P/E Ratio 17.1 12.1 19.3 7.9 18.5 12.8 19.3 12.2 Annual Dividend Yield 3.3% 2.8% 3.1% 3.4% 1.2% 2.9% 3.5% 4.1%
Mark Boyar
Is there a multiple expansion on the horizon?
Mark Boyar
LESSON #2: Load up the truck
Mark Boyar
Lesson #2
Usually after bear markets or unforeseen geopolitical events common stocks go on sale.
Major Examples:
1970s Oil Embargo, Vietnam War, Watergate 1987 Stock Market Crash 2001 September 11, 2001 2008 - 2009 Lehman Brothers, Bear Stearns, Financial Crisis
Mark Boyar
LESSON #3:
NEVER EVER
listen to the Chairman of the Board of a company
Mark Boyar
Lesson #3
In the early 1970s Tiffanys share price exceeded $25 per share. By 1975 the shares declined to around $7.50 per share.
Shares outstanding: 2.3 million Market capitalization: 17.3 million Earnings per share: $0.85 Dividend: $.30 per share Owned one of the most valuable pieces of real estate in Manhattan, which was carried on its books for 3 million (mortgage 2.9 million). We valued the company at over $30 per share.
Mark Boyar
Lesson #3 Walter Hoving said he would NEVER sell the company. He wanted to remain chairman until he was 80 years old which was the age Charles Tiffany retired.
November 1978 he sold the company to Avon for $41.41 per share.
LESSON #4:
Industry specific analysts know a lot about companies within their given industry, but can they make you money?
Mark Boyar
Lesson #4
Almost every retail analyst had a sell or equivalent rating on Saks when it was trading at $1.85 per share in 2009. They only focused their analysis on same-store sales trends and did not analyze the company the way a business executive would. They did not factor in that Sakss real estate holdings were worth more than the entire market value of the company.
Mark Boyar
So Where Do We Go From Here?
Mark Boyar
The current bull market is approximately 53 months long and the average bull market since 1921 has been 29 months.
Current Bull Market

Months
Vs.
Months
Average Bull Market Since 1921
Mark Boyar
So Where Do We Go From Here? The average price increase from the bottom during the past 17 bull markets has been 153% vs. a 150% jump in the S&P 500 from 3/9/2009.
Vs.
The average price increase Jump in the S&P 500
Mark Boyar
The longest and strongest bull market which ended with the bursting of the tech bubble lasted 113 months and climbed 417%.
Mark Boyar
Six bull markets of the 17 that have occurred since 1921 have seen better stock gains than the current one.
Projected 2014 earnings Average P/E Since 1999
Mark Boyar

NASDAQ
Typically bull markets come to an end following a period of extraordinary performance.

The months leading to market tops share striking similarities:

Growth stocks outperform value stocks Small capitalization stocks outperform large capitalization stocks
Growth Value
Mark Boyar
Pay attention
to the yield curve!
YIELD CURVE
YIELD
MATURITY
Pay attention
to the yield curve!
INVERTED YIELD CURVE
YIELD
MATURITY
Mark Boyar
So Where Do We Go From Here? A look back at the granddaddy of all bull markets.
Mark Boyar
I think the multiples of technology stocks should be quite a bit lower than the multiples of stocks like Coke and Gillette, because we are subject to complete changes in the rules. I know very well that in the next ten years, if Microsoft is still a leader, we will have had to weather at least three crises. - Bill Gates
Its Dj Vu All Over Again!

LARGE-CAP COMPANIES WITH PRICE/EARNINGS RATIOS OVER 100
Company Cisco Systems Oracle Sun Microsystems Qualcomm Yahoo! S&P 500 Market Cap 3/7/00 (In billions) $452 $211 $149 $91 $90 $11,281 1999 PE 148.4 152.9 119.0 166.8 623.2 28.6
Mark Boyar
Its Dj Vu All Over Again!

TODAYS HIGH FLYERS
Market Cap (in billions) $17 $134 $20 $3.6 $27
Company Netflix Amazon Tesla Zillow Linkedin
PE Ratio 195x 2013 382x 2013 293x 2013 189x 2014 155x 2013
Mark Boyar
Did Yahoo Make The Same Mistake Again?
In 1999 Yahoo purchased Broadcast.com from Mark Cuban for $5.7 billion This year Yahoo purchased blogging site Tumblr ($14 million in revenue) for $1.1 billion
Mark Boyar
Our Thoughts on China
One of our BIGGEST concerns is China.

Our Thoughts on China In August of this year, the final beam was hoisted on the Shanghai Tower, which will be China's tallest building. At more than 600 meters, it will be the second highest in the world.
Mark Boyar
In December 1989 the Nikkei hit 38,915; today it trades at approximately 14,000. The real-estate value of the Emperors palace exceeded the value of all the real estate in California.
Our Thoughts on China Japan was expected to surpass the U.S. as the leading economic power in the world. A number of leading business periodicals had cover stories entitled The Rising Sun. The Setting Sun would have been more accurate.
Mark Boyar

Until recently, the consensus was that China will inevitably surpass the U.S. as the leading economic power in the world. With a population of over one billion, that still may be the case. However, do not make the mistake of assuming there won't be significant bumps along the way. As a matter of fact: There is a good likelihood that a housing bubble of major proportions is underway in China.
Mark Boyar
A Chinese Housing Bubble?

In 2007, we advocated to our research clients shorting the merchant builders. We believed it was different this time. We realize how dangerous those words can be. Our thesis was it was not an interest rate problem, it was an affordability problem. Homes were too expensive. There had been 4 or 5 years of double-digit price increases. Historical returns are 2%-3%. We believed there would be a reversion to the mean.
Mark Boyar

Homebuilder Price Decline from January 2007
Price
Ticker
Price
(9/13/11)
% Change
(1/31/079/13/11)
Price
(12/18/08)
% Change
(1/31/0712/18/08)
Company Name
(1/31/07 Issue)
ITB KB LEN MDC NVR WCI
Dow Jones U.S. Home Construction Index Fund KB Home Lennar Corp. M.D.C. Holdings NVR Inc. WCI Communities *
$42.66
$9.34
-78.1%
$11.50
-73.0%
$54.22 $54.38 $58.27

$692.52
$5.67 $13.33 $17.20 $616.50 $0.00
-89.5% -75.5% -70.5% -11.0% -100.0% -70.8%
$14.83 $10.12 $32.55 $484.21 $0.00
-72.6% -81.4% -44.1% -30.1% -100.0% -66.9%
$21.65
AVERAGE RETURN
* WCI filed for bankruptcy on 8/4/08
Mark Boyar
China is now facing a problem similar to what the U.S. experienced. In our opinion there has been massive overbuilding coupled with huge price increases.
Mark Boyar

In 2006 the average price of a new apartment in Chinas capital would cost $100kthe equivalent of 32 years of disposable income for the average resident. By 2011, the average price had more than doubled to over $250K. It would take 57 years of saving for the average resident to cover the cost of his home.
AVERAGE PRICE OF AN APARTMENT IN CHINAS CAPITAL
Mark Boyar
Possible Ramifications of a Chinese Housing Crisis
A real-estate collapse in China could cause a banking crisis that would dwarf our subprime problem.
Mark Boyar
A House of Cards?
Source: NY Times
Possible Ramifications of a Chinese Housing Crisis
By the end of last year, Chinas shadow-banking activity was valued at $6 trillion. This is twice what it was valued at in 2010 and currently equal to 69% of Chinas gross domestic product.
CHINAS SHADOW- BANKING ACTIVITY
Mark Boyar
A House of Cards? Ultimately who is responsible for the loan is not always clear, and thats where everyone starts getting nervous. If a wealth-management product ultimately fails causing bank customers to suffer losses, it could create a house of cards.
Think subprime on steroids.
Mark Boyar
Madison Square Garden Inc.

(Show us the Money)
Mark Boyar

Madison Square Garden was initially probed in the March 2010 issue of Asset Analysis Focus. The stock price at the time of publication was $21.91 which represented/offered 112% upside to our estimate of intrinsic or private market value.
Mark Boyar

Asset Analysis Focus published an extensive update on MSG in its May 2011 issue. The stock price at the time of publication was $27.51 which offered 69% upside to our then-estimate of intrinsic or private market value.
STOCK PRICE OF MADISON SQUARE GARDEN INC.
Mark Boyar
Investment Rationale for MSG

MSG boasts a number of trophy properties in the sports and entertainment industry including the legendary Garden arena, the NY Knicks and NY Rangers sports franchises, the MSG cable networks and Radio City Music Hall. In addition to its marquee assets, the Company owns significant air/development rights associated with the Garden arena.
Mark Boyar

Vornado has long talked about its desire to turn the MSG/Penn Station area into a massive mixed-use development. The only thing that stands in its way is the Dolan family, and we believe MSGs air rights are worth substantially more in Vornados hands than they are in the Dolans.
Prime Real-Estate Location

Madison Square Garden (depicted as point A on the following map) is situated right in the middle of a collection of Vornado-owned properties. We believe this to be extremely important given that Vornado has long held ambitious plans for development in the area.
X Y Z [ \ ^ ] _
Map Source: Mapquest.com Data Source: NY Observer \ Hotel Pennsylvania X 330 W. 34th Street Y Moynihan Station (Potential Development) ] Manhattan Mall Z One Penn Plaza ^ 11 Penn Plaza [ Two Penn Plaza _ 7 W. 34th Street
Mark Boyar

Furthermore, the Penn Station area is one of the few areas in Manhattan that has not seen a major redevelopment in recent years, and its proximity to a major transportation hub is appealing to developers.
Mark Boyar

The Supply Demand Imbalance Favors Land Owners Like MSG.
According to the above chart, there is limited new office capacity slated for Manhattan over the next five years, with no new supply targeted for midtown.
We believe that despite the current supply/demand real estate imbalance in Manhattan, the current environment may present an opportunity for a long-term oriented (and patient) investor such as Vornado.
Mark Boyar
Fears That MSG Will Be Forced to Move Are Unfounded
City councilwoman and former mayoral candidate Christine Quinn would like to force MSG to relocate in ten years in order to rebuild Penn Station. They are attempting to do this by refusing to issue MSG an operating permit in perpetuity.
Mark Boyar
Fears That MSG Will Be Forced to Move Are Unfounded
An actual move is highly unlikely to occur due to the tremendous tax payer cost that would be involved in transforming Penn Station, as well as the enormous compensation the government would have to pay MSG if they forced them to move.
Remember MSG does not lease the land it uses from the city, it owns it outright.
MSG is Sending Wall Street Mixed Messages

In early September, Madison Square Garden Co. announced it will set up an artist-management venture with former Live Nation Entertainment Inc. Chairman Irving Azoff, agreeing to pay $125 million (in addition to providing a $50 million credit line) for half of the new company. Azoff, 65, will contribute his company and be chairman and chief executive officer of Azoff MSG Entertainment LLC.
Mark Boyar

As John Malone, whom we believe to be one of the most astute investors around, once said of Live Nation:
Youre talking about rock musicians. This is not my kind of thing. I dont like a business where the assets go up and down on elevators. I like them to be fixed, hung on poles or up in space going around.
Mark Boyar
In our opinion, MSG should not consider itself to be a growth company, and should divert the massive amount of FCF it generates back to shareholders. Recent comments from CEO Hank Ratner include:
Mark Boyar
This is an exciting time for our company and, looking ahead, we feel confident that the successful completion of these significant capital investments, along with our strong balance sheet, will leave us well positioned to pursue opportunities to drive continued growth over the long-term.
AND
MSG is Sending Wall Street Mixed Messages Well, as weve been saying for a while, our priority is growing the company. Again, what we said, that isnt necessarily mutually exclusive with a capital return, and that we had not made a decision as to whether there would or wouldnt be any capital return, but emphasize and continue to that the priority is growing the company.
Ways to Unlock Shareholder Value at MSG

Investors are afraid MSG will use the companys free cash flow on money losing acquisitions (the history of M&A at Cablevision during the Jimmy Dolan era makes their fears justified). We believe there are many ways to unlock shareholder value:
Announce a massive share repurchase; Sell their valuable air rights and use the proceeds to pay a special dividend; Start paying a significant regular dividend; Undertake a recapitalization of the company
Mark Boyar
Cablevision Sale?
Cablevision Sale Could Provide Funding for the Dolan Family to Take MSG Private
Cablevision founder Charles F. Dolan (age 86), unlike his prominent counterpart who heads Viacom/CBS, is under no illusion (at least publicly) that he will live forever. Accordingly, we believe the elder Dolan will soon move to lock in/preserve his strong cable legacy by selling Cablevision in the not too distant future. Such a move would likely help simplify estate planning and address succession issues since we do not believe there is a Dolan heir apparent interested in running the Companys cable business.
Mark Boyar
Cablevision Sale?
We believe Charles son Jim (President/CEO of Cablevision and Chairman of MSG) is more interested in operating MSG than managing a cable business.
Mark Boyar
Cablevision Sale?
If JD and the Straight Shots gig
(the band in which Jim Dolan serves as the lead singer) as the opening act
for the Eagles 2013 tour is not enough evidence that the affinity of the next generation of Dolans lies with the MSG entertainment/ sports entity, then the July 2010 appointment of Jim Dolans son (Charles P. Dolan, age 23) to MSGs board should remove any doubts.
MSGs Valuable Air/Development Rights

Excerpts from our March 2010 MSG Initiation Report
Given the Dolans history, it does not surprise us that the Companys most valuable asset received only a cursory mention in MSGs 248 page Form 10, which was filed with the SEC in connection with the spinoff. The following are the limited details of MSGs air/development rights, which are buried on page 48 of that filing:
Mark Boyar
MSGs Valuable Air/Development Rights

We own the Madison Square Garden building, the platform on which it is built and certain development rights (including air rights) associated with the lot. Madison Square Garden sits atop Pennsylvania Station, a major commuter hub in Manhattan, which is owned by the National Railroad Passenger Corporation (Amtrak). While the development rights we own would permit us to expand in the future, any such use of development rights would require various approvals from the City of New York.
Mark Boyar

Absent a Dolan takeout, we believe that the wide discount (our current MSG intrinsic value estimate is 57% below recent levels) between MSGs market and intrinsic value will sooner or later catch the attention of a potential acquirer. MSG's real-estate holdings in midtown Manhattan sit right in the middle of a collection of properties acquired by Vornado, a prominent real estate developer.
Mark Boyar

MSG Media (12x FY 2013 AOCF; consistent with precedent cable network transactions; would likely Command 15-20x in sale) Knicks/Rangers Most recent Forbes values for Knicks and Rangers were $1.1 billion (including 300 million attributed to the stadium) and $750 million ($233 million for stadium), respectively. Air Rights Entertainment Likely understated given transformed arena and recent LA Forum purchase Net Cash/(Debt) Equity Value Diluted Shares Outstanding Per Share
Mark Boyar
No credit for FCF acceleration following renovation projects.
Value ($MM)
$4,188
$1,250
$750 $250 $278 $6,716 78.1 $85.99

% Upside to Estimate of Intrinsic Value
57%
ThankYou!
For more information, please visit: www.BoyarValueGroup.com Boyar Value Group 35 East 21st Street, Suite 8E New York, NY 10010 Telephone: (212) 995-8300 Fax: (212) 995-5636 jboyar@boyarvaluegroup.com
Mark Boyar Mark Boyar
www.BoyarValueGroup.com www.BoyarValueGroup.com

Boyar ValueInvestingCongress 131609

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Boyar ValueInvestingCongress 131609

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9th annual new york value investing congress

September 16, 2013 New York, NY Where do we go from here?

Where Do We Go From Here?

Mark Boyar Mark Boyar

About Mark Boyar

A LOOK BACK AT MY SPEECH AT THE 2013 VIC IN LAS VEGAS

History Does Not Repeat Itself But It Sure Does Rhyme

Is there a multiple expansion on the horizon?

LESSON #2: Load up the truck

So Where Do We Go From Here?

So Where Do We Go From Here?

Current Bull Market

Average Bull Market Since 1921

So Where Do We Go From Here?

So Where Do We Go From Here?

So Where Do We Go From Here?

Typically bull markets come to an end following a period of extraordinary performance.

So Where Do We Go From Here?

The months leading to market tops share striking similarities:

So Where Do We Go From Here?

So Where Do We Go From Here?

Its Dj Vu All Over Again!

Its Dj Vu All Over Again!

Company Netflix Amazon Tesla Zillow Linkedin

Did Yahoo Make The Same Mistake Again?

Our Thoughts on China

One of our BIGGEST concerns is China.

Our Thoughts on China

Our Thoughts on China

A Chinese Housing Bubble?

A Chinese Housing Bubble?

ITB KB LEN MDC NVR WCI

$54.22 $54.38 $58.27

$5.67 $13.33 $17.20 $616.50 $0.00

-89.5% -75.5% -70.5% -11.0% -100.0% -70.8%

$14.83 $10.12 $32.55 $484.21 $0.00

-72.6% -81.4% -44.1% -30.1% -100.0% -66.9%

* WCI filed for bankruptcy on 8/4/08

A Chinese Housing Bubble?

A Chinese Housing Bubble?

AVERAGE PRICE OF AN APARTMENT IN CHINAS CAPITAL

Possible Ramifications of a Chinese Housing Crisis

Possible Ramifications of a Chinese Housing Crisis

CHINAS SHADOW- BANKING ACTIVITY

Think subprime on steroids.

Madison Square Garden Inc.

Madison Square Garden Inc.

Madison Square Garden Inc.

Investment Rationale for MSG

Investment Rationale for MSG

Prime Real-Estate Location

Prime Real-Estate Location

Prime Real-Estate Location

Prime Real-Estate Location

Fears That MSG Will Be Forced to Move Are Unfounded

Fears That MSG Will Be Forced to Move Are Unfounded

MSG is Sending Wall Street Mixed Messages

MSG is Sending Wall Street Mixed Messages

MSG is Sending Wall Street Mixed Messages

MSG is Sending Wall Street Mixed Messages

Ways to Unlock Shareholder Value at MSG

MSGs Valuable Air/Development Rights

MSGs Valuable Air/Development Rights

Investment Rationale for MSG