BUY: SUPERVALUE INC (NYSE:SVU)

BUY: SUPERVALUE INC (NYSE:SVU)

JUNE 5, 2018, BUY 500 SHARES OF SVU @ USD$19.09 (1% of the portfolio)

Today I purchased 500 shares of Supervalu Inc.  Supervalu is a grocery wholesaler, supplying major grocery chains such as IGA.  My investment in SVU continues my interest in the battered retail sector.  I see value in the retail sector since many investors have sold down shares in retail companies due to the real-threat that various on-line retailers, namely Amazon, pose to the status-quo of the retailing industry.  While I believe the threat posed by the on-line retailers is real, I also know that management at many retailers have time to adjust to the threat.  SVU’s business is somewhat protected by immediate attack from on-line retailers.  SVU operates in the wholesale space, with a limited exposure to direct consumer sales.  The business offers very low margins (3% on USD$16 billion in sales), however, the margin is stable and the business generates reliable free cash flow.

I am purchasing SVU at a market capitalization of USD$650 million; the business carries a large debt-load of USD$1.8 billion, however, I expect this to come down about USD$100 million per year from generated free cash flow.  I expect SVU to earn about USD$2.75 per share in 2018, and a bit higher in 2019.  They have very rarely ever lost money in any economic cycle and I feel good at buying in at these levels.  We will see how it goes…the investment is just slightly more than 1% of the portfolio.