December 3, 2017
December 3, 2017


I’m going to go back to posting these Ask Kuppy questions about once a month, assuming there are enough good questions

And I thought you were being harse on Canadians in last night’s post. Not.
http://www.bnn.ca/video/benj-gallander-discusses-aimia~1187202 The thing about all these stock shows is that if people know nothing to practically nothing, they still, the vast majority of the time, talk like they know something.

Apparently BNN is the CNN of Canada. They just make it up as they go and sound confident while doing it. This Benj Gallander fellow sure knows nothing about AIM except that AC is leaving. I always ask myself why something is cheap. If people think like this, we know why the opportunity exists.

Finally something really useful, that everyone can agree on.


always useful to know…

Great job on your prediction on DRYS! I was wondering which brokerage firm(s) you used for your DRYS short? The ones I use with borrows on the stock had hefty overnight fees that greatly added up.

Also, I read in your interview that you got your start by reviewing the best trades made by investing legends. I didn’t see any sort of collection like that in your book list. Can you give me a recommendation of good places to start if I want to do the same and follow in your footsteps?

On DRYS, I used Interactive Brokers. The borrow fee was quite high, but the decay rate on the shares was even higher. It all worked out well.

Read the market wizards books. Lots of info there too. Find investors who’s styles you like, then research those investors. All the greats are there. There is no one book to read. You have to always be reading and learning.

Thanks for sharing your ideas and thoughts. If you don’t mind sharing, I would like to learn how you find opportunities like SNAP and AIM.
What do you read/look at?
Thank you

I read everything and often l find ideas in funny places. I like looking at the new lows lists on various exchanges. I talk to lots of other funds. There are a few dozen newsletters (often written by close friends of mine) that have real great content about macro trends. I also read a lot of articles on Valueinvestorsclub.com and Seeking Alpha. If you read hundreds of thesis each week, every once in a while one will grab your attention. In terms of SNAP, a successful friend who runs a fund sent me that one. AIM was on the new low list that I follow.

Obama- Zero eclipses

Trump- Greatest eclipse of the century

Once again, the media is ignoring the real news here… haha


I get it, AIM is cheap and at 1.5x cash flow. What makes it go up? Everyone keeps talking about it imploding. Since earnings, it has had downgrades by the rating agencies and Canadian brokers. What makes it go up?


I often invest in Cheap + Catalyst = Upside situations. I do not know the catalyst, but in an overvalued world, a stock cannot stay at under 2x cash flow for long. I don’t know if it is a few more good quarters, resumption of the dividend, insider buying, LBO rumors or an activist. Someone or something will force the value to get realized here. My hunch is that it is an LBO or activist situation. Too much dry powder looking for opportunities and you can easily sell PLM and the international business and get Aeroplan for a few hundred million negative value. Even better, to the best of my knowlege, the preferreds do not have a “change of control” provision, meaning that you NEVER have to pay them back.

Love the work you do!
How do you think about the $2.2 bln liability related to the unbroken loyalty units [AIM CN]? That’s a large detractor to my equity valuation. Second, what kind of value are you ascribing to PLM Mexico? It’s carried on the balance sheet for no more than $85 mln… but an edge on this variable could move the needle…

I should have mentioned this earlier, but my fund at one point owned a very large stake in the JV that managed the Carnival Cruise Line loyalty program. Based on my 3 years of involvement, I feel like I understand this industry better than most equity analysts. I don’t look at the $2.2b liability as a real liability. I think of it more like “float” that an insurance company gets. Roughly $1b of this liability will rotate every 24 months based on when new points are issued and old points are redeemed. The other $1.2b of liability should be thought of as point breakage that hasn’t been fully charged off yet due to accounting and tax deferral purposes (why report a taxable profit if you don’t legally have to). If customers stop using Aeroplan, it is unlikely that they will immediately redeem, rather, the liability will just get pushed out into the future as they slowly earn points as they are saving up for travel in most cases. In summary, I think the real liability at any point is effectively zero–as redemptions will be covered by new point issuance. If there was ever a quarter to test that thesis, it was Q2 and the net result was a $9m increase in redemptions (effectively zero).

If you zero this liability out, or even use $100m as a stub entry, you see a balance sheet overflowing with excess liquidity and capital and an additional ~$200m of annual cash flow for 3 years (assuming any decline in spending is more than offset by cost cutting initiatives and lower interest expense through debt reduction). In 3 years, you have at least $600m in excess cash flow and you still have many valuable assets.

As for PLM, if you annualize the first half, you get CAD $100m in EBITDA. 10x EBITDA seems to be the lower bound of likely valuations given how fast and cash generative it is during the growth phase. That would value PLM at $1b and AIM’s stake at $490m.

I’ve now made this an unusually large position. I just don’t see much downside and can see tremendous upside. Before Q2 was reported, I was thinking that this was an oversold situation that was due for a large bounce. I now think there’s a pretty logical shot of this being worth teens or better if it keeps growing as AC leaves.


Do you ever see any trends in the number of emails you get about something you write and the performance of that thesis afterwards?

Very interesting question. I don’t really see trends in that, but I do see trends in what people write about. I’ve had dozens of emails about AIM and not one on JYNT. Which will perform better, I don’t know. But it is odd to see the big divergences in reader interest.