Free tips for firms which need them
A bit of advice could make a big difference
Ihave run two companies, and still (sort of ) do. I have been the chairman of a large hedge fund company. I have been on the board of directors of a public company, helping to take it public. Still, in no way at all would I consider myself an expert in running a company. In fact, I would say I was not too good at all, but at least managed to hire great partners to help things go much better.
Still, sometimes when I look at public companies I can’t help but think I could offer them some advice in how to run things better. It might be advice on strategy, investment relations or something else, but sometimes companies do things that just make me shake my head. So, I thought I would give the following five companies some very public advice in this column. It’s free to them.
APPLE INC. (AAPL ON NASDAQ)
Ho-hum, Apple held another ‘event’ this week, with yet more tweaks to the iPhone and Apple Watch. Now, I am not going to argue with Apple’s success: it is a great company. However, it is far too dependent on the iPhone, which makes up the majority of its business. As more and more models get rolled out, consumers just won’t need the ‘hot new features’ of Apple’s new phones. Heck, I am using an iPhone 6S, and it works just fine. I don’t need an X, or an XS, or whatever the company announced with great fanfare on Wednesday. A concentrated business is a risk: any Business 101 student knows that. What Apple needs to do is to go spend some money on an acquisition in order to diversify its business. The company has $244 billion in cash right now. It could buy anything it wanted to. Even Tesla (TSLA on Nasdaq), a long-rumoured target, at $50 billion would barely make a dent in Apple’s cash hoard. If iPhone sales plateau one day, and the company falters, don’t blame me.
DOREL INDUSTRIES (DII.B ON TSX)
Dorel had (and still does) a solid reputation as a manufacturer of juvenile furniture, safety and other products. It also has a bicycle division, representing about a third of its business. Now, I am a very avid cyclist and also have four children, but for the life of me I can’t figure out many synergies between a children’s furniture company and a bicycle company. But it’s not just me. Dorel started buying bike companies in the latter part of the last decade, and its stock today is still lower than where it was in 2008. Per-share earnings forecasts for this year are barely above half of 2008’s levels. Keep in mind that 2008 was not a great year for the economy, either. So, Dorel, maybe it is time to think about splitting these two businesses. When Dorel first moved into the bike business I shook my head, and now more than a decade later I still don’t get it. We are cautious on the stock, due to weak growth, and the stock is down 20 per cent this year.
FSD PHARMA (HUGE ON CSE)
FSD is an $800 million company in the cannabis sector. But this rant is not about the valuation of the sector, as much as it could be. The company has no control over that. My advice to FSD is to stop issuing superfluous press releases. What do I mean? Well, twice so far this month FSD has issued press releases announcing it ‘continues to make history’ by ‘breaking all-time stock trading volume records’. On Sept. 12, FSD traded more than 200 million shares. What’s wrong with these releases? Well, first, they cost money. Press releases are not free. Second, the company has 1.4 billion shares outstanding, so of course trading is going to be high. Three, this data is reported by exchanges, so paying money to release it is not necessary: any trader is going to know it is an active stock. And four, and most importantly, no one is going to buy FSD stock because of these press releases. It does not help the company. Such a press release will not make an investor more interested, but it may turn them off if the company is viewed as overly-promotional. So, it is a ‘heads you break even, tails you lose’ scenario. Save your money, FSD.
CRESCENT POINT ENERGY (CPG ON TSX)
After years of underperformance (the $7.60 stock traded at more than $48 per share in 2011), this year some investors had finally had enough, and Cation Capital launched a proxy fight for control to try and ‘fix’ the company. It lost, but Crescent Point did set off on a new direction, with a new CEO, selling assets and reducing its workforce. But maybe, Crescent Point, it is simply time to sell the company. In 2016, you raised money at $19.30 per share, and we can’t see how any shareholder, not just Cation, is very happy here. Sure, the energy sector has been lousy, but your $4 billion+ in debt does not help, nor does increasing your share count to 549 million from 126 million in the past decade. The best energy executives build a company, sell it, and then do it again. Why not sell CPG and reset things here? We don’t know many investors who would object to this plan.
SOMETIMES COMPANIES DO THINGS THAT JUST MAKE ME SHAKE MY HEAD.
— PETER HODSON