Thinking Differently (Money Ball); Munsingwear Analysis

BREAKING BIASES



I HIGHLY recommend you go see Money Ball or read the book by Michael Lewis.  A metaphor for deep value investing.

Case Study – Munsingwear Analysis Q&A

Who earned their wingtips?  That case was about approaching the problem as a business person.  First you had to notice the two businesses, then break them out. Stop the bleeding, then leave the rest.  Often, the smartest students struggle to resurrect the uncompetitive business. (Buffett at Berkshire Hathaway!)

Next, I will post some questions and supplementary readings for Chapter Two in DEEP VALUE (the book) over the weekend.

Enjoy your Weekend!

6 responses to “Thinking Differently (Money Ball); Munsingwear Analysis

  1. John,

    Most of what i wrote with analysis is on point. I have questions regarding my valuation. Definitely, it took me hours to do both analysis + valuation.

    Can you please help me with where I may have gone wrong with my valuation numbers. Just my example shows how it is indeed a “numbers” game. We can come up with different numbers based on the premise or assumptions one starts from. I suspect, it is a mathematical error in my case.

    Would my scenario 3 for valuation be accurate, given that royalties are STABLE cash flow projected years into the future.

    My only question with your analysis is, why did you stop at 1996? Also, why did you not consider spinning off the royalty business…since all deductions, credits and income would pass through directly to the shareholder?
    Also, your estimate of SG&A = 50% of royalties is way OFF mark…I dont know if that is standarad practice

    thanks

    • OK, I just have to work on a few things. I will get back to you Sat.

    • 1) I agree with aaruni that ideally we would need to project the business performance for a few more years in order to value the business. However, the key issue is that the case study lacks a lot of information that one would need to build the projections and, given that we were asked to only use the materials in these 10 pages, too much would depend on our assumptions.

      2) regarding the suggested spinoff: the issue here, to my mind, is that licensing is what keeps Munsingwear afloat and spinning it off would eventually have the same impact as the solution suggested by John: the unprofitable apparel manufacturing business with no clear potential would likely be liquidated (also given the bankruptcy already implemented) in the near future and shareholders would be left with just the licensing business

      3) aaruni, could you please clarify why the SG&A figure seems so off mark to you? for an ordinary manufacturing business a 50% share of sales in SG&A would indeed seem unreasonably high to me, however, if licensing is the only business line to remain, essentially all of the costs will be in SG&A as no production lines will be operated.

      Thanks

    • dear arruni, id like to take a look at your valuation and comments , where can i access the file?

  2. @oxford, thanks. I was thinking of sink or swim(if manufacturing moved to far east). Maybe, the costs wouldn’t warrant 2 companies. Plain liquidation is a good idea.

    Also, I was acting on “knowledge we already have today and may have had”, manufacturing was moving to china and all textile manufacturing moved to asia over time…so I knew it was profitable to move manufacturing given 60% of it was being manufactured in the USA. If you see, COGS/SG&A both contributed to the bleeding. There was a possibility of firing staff here and moving west.

    Ofcourse, a business(licensing only) with a couple of paper-pushers cannot burn 50cents on every $ earned. If I owned this company, I wouldnt have it more than 5-10% (dont know if it is feasible)

  3. Pingback: Moneyball: Baseball & DEEP VALUE investing | Hurricane Capital

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