tag:blogger.com,1999:blog-7294165939647321702.post9006930423277720463..comments2024-03-11T10:31:06.107-04:00Comments on <center><a href="http://www.barelkarsan.com">Barel Karsan - Value Investing</a></center>: Mailbag: Transat A.T.Saj Karsanhttp://www.blogger.com/profile/04493152766022812984noreply@blogger.comBlogger2125tag:blogger.com,1999:blog-7294165939647321702.post-57697630621257440702012-05-24T13:44:25.814-04:002012-05-24T13:44:25.814-04:00Hi Anon,
In principle I agree with most of what y...Hi Anon,<br /><br />In principle I agree with most of what you said. I would only caution that lead times are much longer in this industry than in grocery, which increases risk IMO. I also wouldn't put much stock in this company having a moat, just looking at its numbers and considering the industry, with low switching costs and price being the main factor for customers.Saj Karsanhttps://www.blogger.com/profile/04493152766022812984noreply@blogger.comtag:blogger.com,1999:blog-7294165939647321702.post-3835061041483575472012-05-23T10:52:02.995-04:002012-05-23T10:52:02.995-04:00Thnaks Saj for your extensive analysis of Transat....Thnaks Saj for your extensive analysis of Transat. You make a lot of the points that I also considered when I purchased Transat, but at a few of them I look slightly different. <br /><br />1. When I looked at the balance sheet, I eliminated both the asset and the liability associated with customer’s prepaid vacations. This shrinks the cash hoard to just the amount free to Transat. As it is still well in excess of the MV of TRZ I noted cash as a positive. <br />2. The risk you see emanating from TRZ’s fungible inventory of hotel rooms is not unlike the inventory of many other retailers: If clients don’t book the room that TRZ had prebooked for June 1-7 (for instance), it won’t be any good after that date. Similarly, clothing stores buy clothing items in the hope that it matches what will be in fashion next season. If not, or if sales are slower due to economic conditions or other factors, they can just as well gift their inventory to Goodwill at the end of the season. Grocery stores have fresh fruits and vegetables that have a very certain expiry. <br />3. I agree that operating leases are similar to debt. However, operating leases are paid out of Operating Cash Flow, whereas debt is paid out of the financing section of the cash flow statement. If we capitalize the leases we should also increase CF from Ops by the amount the lease payments represent principal reductions. This would add substantially to TRZ`s already positive FCF. <br />4. TRZ is cash flow positive at a time when its competition (Thomas Cook and Air Canada in particular) is struggling to stay out of bankruptcy. These two companies are also deeply indebted. I look upon TRZ as the lowest cost competitor and the only one with a strong balance sheet. Does this represent a structural advantage (moat)? I wish I knew.<br />5. Fuel has become a very major part of their cost structure. Can this be reversed? Will fuel stay as expensive as it is? If it does, can Transat (over time) increase prices enough to take care of this cost? If it doesn’t, or if price increases can ultimately take care of the fuel expense problem, Transat can be very profitable and even more cash flow positive than it is now.Anonymousnoreply@blogger.com