To the youth of today, Ferris Bueller's Day Off is a movie from a bygone age. But the '80s hit came back to me when I saw three teams of MBA students advising investors to "skip" a little-known company with a name reminiscent of the movie's main character.
Buhler Industries (BUI-T) is a Winnipeg-based manufacturer of agricultural equipment that was recently put under the microscope in the final round of the Ben Graham Centre's International Stock Picking Competition. The annual event is organized by Dr. George Athanassakos from the University of Western Ontario in an effort to instill the virtues of value investing in the next generation.
The contest started months ago with 25 teams of MBA students from schools in Asia, Australia, Europe, and North America. In the first round, they competed against each other by submitting a report on a company and their efforts were judged by a panel of experts. Only three groups made to the finals in Toronto to vie for $17,500 in cash prizes, thanks to the support of Burgundy Asset Management and Empire Life Investments.
This year's finalists hailed from the Haas School of Business, the Ivey Business School and the Kellogg School of Management. Each group was given a few days to research Buhler Industries as a prospective investment before defending their findings on April 14 in front of a small crowd of value investors. Their work was judged by a panel of international money managers including Wayne Peters (Peters MacGregor Capital Management), Robert Robotti (Robotti & Company Advisors), Ken Broekaert (Burgundy Asset Management) and Kim Shannon (Sionna Investment Managers).
Buhler was put on the hot seat due to its small size, lack of analyst coverage and low price-to-tangible-book-value ratio. Because it's a relatively unknown firm so the students had to do their own research and couldn't rely on the opinions of others.
As it happens, I looked into Buhler years ago when it featured a number of attractive qualities. At the time, I was charmed by the firm's simple annual report that was jam-packed full of financial statistics rarely provided by other firms. It's a laudable feature that can still be found in their reports to this day.
But I stopped following the company when 80 per cent of its shares were acquired by Russian-based Combine Factory Rostselmash Ltd. The Russian connection loomed large in the minds of the judges and I think it could have been handled better by the students.
Problem is, the conflict in Ukraine has increased tensions between Russia and Canada. The two countries have been lobbing volleys of financial sanctions back and forth for some time now. As a result, it's easy to envision less than salutary scenarios for Buhler shareholders.
But the students got top marks when it came to analyzing financial data, examining the industry as a whole and doing "scuttlebutt" research. While they all rated Buhler – at its current price – a "no buy", they were impressed by industry-leader Deere & Co. (DE-N). They noted Deere's advantages in distribution and technological innovation.
As it happens, Deere is currently a better value than Buhler when you look beyond book value. For instance, it trades at only 11.5 times trailing 12 month earnings, whereas Buhler changes hands at 14.0 times earnings.
In addition, Deere has a habit of returning money to shareholders. It sports an above average dividend yield of 2.7 per cent and it has reduced its share count by 8 per cent over the last year. In contrast, Buhler hasn't paid dividends since 2007 and its share count has been stable. Overall, Deere wins the relative value race in my opinion.
The contest demonstrated that the next generation of value investors are no slouches. A particularity hearty congratulations go to the winners Alex Acosta, Will Mandersheid and Anish Pasari from the Kellogg School of Management. They're richer for having not taken the day off.