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TMFDeej (99.46)

Time to Travel to TA?

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July 02, 2010 – Comments (6) | RELATED TICKERS: TA

  

The following is my preliminary notes on TravelCenters of America (TA).  I will likely look into this stock in greater detail in the future, but I have to hit the road for the holiday weekend.

TravelCenters could very well be a dead man walking.  Still at this point the company appears to be trading for less than its liquidation value.  Here's a peek at how I came to that conclusion:

+ $156 million in cash / equivalents (applied at 100% of value).

+ $179 million in inventory, receivables, and other current assets ($255 million assuming a 30% discount which is conservative considering this consists of things like fuel, parts, and other "new" items.  There certainly is some ambiguity here to it's best to be really conservative.

+ $293 million in property, plant, and equipment ($418 misted value discounted again by 30% to be conservative).  This includes nine fully-owned TravelCenter locations and 2 joint venture TA locations (source page 31 of 2009 annual report).

+ $0 for intangible and other assets ($59 million on balance sheet, completely written off).

- $571 million in liabilities.

= $57 million left for shareholders in the event of a liquidation.

Compare that to the company's current market cap of $39 million and TA looks fairly attractive at this level.

Another way to look at this is to divide the $57 million in approximate liquidation value by 17.27 million shares outstanding and it comes out to $3.30/share, 50% above the company's current price of $2.20/share.

Yes TravelCenter has a ton of debt and it was slightly cash flow negative last quarter.  Hey what do you want?  No stock that's this cheap is going to be perfect.  

According to ycharts, last quarter TA was barely cash flow negative, burning $360,000.  The Company was actually cash flow positive by $15 million in the disastrous year of 2009.  One could make a strong case that the economy is better today than it was at this point last year.

Now one could argue that an investment in TA would be dead money for a while, until Mr. Market realizes how cheap this stock is, but unless management does something incredibly stupid it doesn't appear to me as though there is much downside at this level.

I need to do further research on this company to see if there are any other issues with it.  Is anyone out there familiar with TA?  I'd love to hear your thoughts.  Bear cases are very welcome.

Appendix:

TA quarterly cash flow:

period free_cash_flow

Mar-07 -45

Jun-07 13.09

Sep-07 -65.21

Dec-07 -122.99

Mar-08 -34.93

Jun-08 -15.1

Sep-08 37.69

Dec-08 8.55

Mar-09 22.36

Jun-09 19.1

Sep-09 3.36

Dec-09 -29.8

Mar-10 -0.36

TA Balance Sheet

Deej

P.S. Have a great 4th of July everyone! 

6 Comments – Post Your Own

#1) On July 03, 2010 at 2:31 AM, Tastylunch (29.87) wrote:

Man this one has always scared me Deej. This has shown up on value screens for what nearly three years now?

I fear TA is going to be a perpetual value trap.

The thing I look for with these sub liquidation plays is a catalyst. And I still don't see a convincing one for TA.

There's nothing I can see in the near future to improve their operations significantly  and nothing to make it bad enough that they actually liquidate.

but it did run pretty good last fall, so who knows.

 

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#2) On July 03, 2010 at 1:52 PM, MegaEurope (22.55) wrote:

"It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price."

-Warren Buffett

And you have to stretch to even consider TA a fair company.  In fact I think it is probably the worst gas station chain, which is a poor industry to start with.

The business is capital intensive with low returns.  Capex can be shifted from one quarter to another, thus giving the impression of an FCF turnaround in '09.  Using earnings or a moving average FCF will tell a different story.

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#3) On July 03, 2010 at 2:58 PM, TMFDeej (99.46) wrote:

Excellent points Tasty and Mega.  Thanks for the comments. TA definitely is one dirty birdy.  That's what I have been looking at lately.  This one came up beneath even a value screen.  It was on a screen for potential liquidation candidates.  

Other than seeing their stations, I didn't know much about TA until I looked into them on Friday.  

I don't plan on putting real money in this idea, but I am fascinated to see how this story plays out.  I suspect that TA will do better than many think.  The company survived the complete implosion of its business.  While the improvement in the economy seems to have flatlined, I think that we will flounder around rather than falling significantly from here.  Plus, companies won't be caught off guard by the slowdown this time.

If anything, it was a fun exercise to play around with the balance sheet to see how much a company might bring in a liquidation situation.

If I can find the time over the next week or two I want to do another liquidation value write-up on a different company to get even more comfortable with it.

As always, thanks for the comments.  Have a great 4th of July.

Deej 

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#4) On July 06, 2010 at 10:01 AM, xyiten (27.13) wrote:

it is cheap... truckers will still be driving at the end of the day... but a big concern to TA is the management doesn't seem to be working in the interest of shareholders... TA appears to be a rent slave to its parent HPT... that is the biggest risk... the rental hasn't been negotiated even during the downturn... maybe it is not, but there are still a lot other cheap companies out.. i sold out my position... just to stay out from it...

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#5) On July 21, 2010 at 11:09 AM, TMFCanuck (97.20) wrote:

Deej,

 

I've looked at TA in depth (albeit a couple of years back).  I had it on the Pay Dirt Watch List.  Over time, I came to believe that outside shareholders here would only make money by accident.

 

Beware management.

 

Beware the scale of the lease deals with the controlling REIT.

 

 For your reading pleasure:  http://boards.fool.com/Message.asp?mid=28125340&sort=whole

 

Jim

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#6) On July 21, 2010 at 11:58 AM, TMFmd19 (93.41) wrote:

I've own HPT (which is the REIT that owns the travel centers).  TA currently defers $5mil in rent (a month I believe) and have done so for years.  That's a huge liablity that as an HPT shareholder, I'd like to see go back to HPT so they can boost the dividend.  Every conference call there is talk about TA and when they will be able to pay.  HPT is very patient (and they have to be, they created TA and own around 10% of the company). 

 I really want TA to succeed, but I dumped my TA shares shortly after the merger/spinoff.  The only catalyst for any future growth would be if the NAT GAS act ever got passed that would pay for Nat gas fueled 18-wheelers.  TA could link up with someone like clean energy fuels (or do it themselves) and put nat gas fuel at every TA/Petro.  But, that isn't very likely. 

 I don't think HPT lets it go to zero, but I see a dilutive equity offering in the future to pay off HPT (plus there is some other incentive there with the equity/deferals).  Looks too much like a value trap to me.

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