Supermedia Inc. (SPMD) Thesis

I have previously written a bit on SPMD and believe my opinions expressed a few months ago remain relatively valid. Below is what I have written on. I revisit some of my comments later in the month to update the thesis.

Based on committed capital, SuperMedia represents my best investment idea and my reasoning stands as I think 6-7 times EBITDA, a conservative approximation, along with EBITDA margins of 30% - 32% on whatever you would consider normalized sales should reflect a fair intrinsic value of the company from a quantitative standpoint. There have been plenty of comparable deals where you can go through the transactions made by private equity firms and get these numbers on an EV/REV basis or EV/EBITDA.. I have not used them in expectation of a deal consummating and believe it is fair to hold an expectation of such an event transpiring only after issues are resolved and enterprise value remains low relative to operating cash flow.

 A qualitative assessment of the company should also be considered as well to understand any estimation of the intrinsic value. I have read a few responses where it is understood that the company has no competitive advantage and my opinion is in the affirmative with this stance. Only I would go further in saying that finding companies with those advantages at a very fair price is more the exception than the rule and if any, it lies in the company's association with Verizon. At this point I am far more interested in top level management's, more so the new CEO's, thinking as to where in the competitive landscape the company believes it stands and how they intend to manage these forces to include vision and corporate strategy. I hope that this area in the upcoming earnings call is of primary concern by analysts who will be engaged in the Q&A and look forward to the questioning with high expectations. There is some evidence as to how they intend to navigate the environment which was executed by the previous CEO Scott Klein in the tail end of his tenure. 

 Debt is an issue but I would consider a study of a company, the company BBEP, as far as the effects of debt pay down especially given the company's ability to purchase debt at market rates, which doesn't mean free reins to buying it all up but capped to an extent. This doesn't take into account things that can be done to improve the balance sheet that range from nil to large negative effects on costs to current shareholders.

Comparable to Dex One Corporation(DEXO), We have a competitor who trades at a market capitalization of $300 million, larger debt load, less room for improvement in headcount, and not much better performance in operating cash flow. With SuperMedia accounted for on simply two variables relative to DEXO, there lies a company with a huge risk reward imbalance.

Variant view:
Sales never stabilizes
Small and Medium business are not satisfied with products and services
EBITDA margins lower than expected on average.
Debt pay down and/or balance sheet improvement concept proven wrong.

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