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PAR - The question of dividends and a story

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    https://hotcopper.com.au/data/attachments/2335/2335037-17b2ef0914a52e69e044ea49b92727a8.jpgack on 8th of July our friend PharmD asked the question about dividends and when I thought it might happen for us? Let's tackle this one tonight.Grab a coffee..it's Mozz story time.



    INTRO

    You know I always was a firm proponent of dividends...they are a great tax friendly vehicle. In fact if you are on a low tax bracket it can actually give you some tax credits...and if you are fortunate enough to be in a higher bracket then it can provide some relief. But you know what? My thinking has changed fractionally in just the last year or so.

    Yes there are incentives and I do love getting those dividend cheques in the mail, yes some of them are small, I sometimes receive cheques or bank transfers of like $6 and $2.34 and the like.


    https://hotcopper.com.au/data/attachments/2335/2335049-b65bd5dc769c38fa8e1e47e4669397b7.jpg
    Mozz, we want more, not less of these....or do we?


    Why would my thinking have changed? Well it's not so much my thinking has changed all up, it's more about dividends specially from PAR....Ok So why should PAR be any different to any company and why shouldn't we long for dividends? Well I'm not saying they shouldn't pay them ever...I'm not saying that I, like most shareholders, don't long for the day we get that first cheque in the mail...what I am saying is that to a point, it might be better in THEIR hands!

    What the devil is Mozz on about?


    STORY TIME

    Ok best way to explain my point is an example...let me introduce Berkshire Hathaway...yes I am a proud owner though a very, very small one...no it's not A class shares that I hold...If I did...even just a handful, I wouldn't be here today writing this piece..I would be in Nassau lost under a cabana and Mozz would be a distant memory..some old past poster that soap boxed a little too often! Sorry, I was day dreaming of those warm balmy nights sipping Pino's and Rum...(PoolSire, please one more round mate..tell AbsentFriend to get off that laptop and stop giff'ing and meme'ing his life away...).



    https://hotcopper.com.au/data/attachments/2335/2335288-b89849cda99114eeb7b21fee610465f3.jpg
    Mozz no more? Relaxing for life? Don't know if that's possible ...think I would still have a tropical drink in one hand and a super duper lap top in the other to post on the other 1993 indications I haven't already typed about in terms of da majic juice (Yes that was a bit of a Barbados accent mon).



    Back to the story... Berkshire under Warren started back in the 60's, a humble company....they slowly built up over a lifetime..slowly acquiring good companies...they didn't necessarily pay bottom dollar, they didn't pay top dollar either....The numero uno Warren himself and his equally mighty buddy Charlie Munger were diligent and looked for bargains...when the stadium was emptying, they were moving the opposite way to the crowd to get the best seat for the next once in a decade show. Now these guys, a bit like our own management at PAR, KNOW how to run a company....let me indulge in one more sub - story...


    THE NEBRASKA FURNITURE MART.

    Rose Blumkin (Mrs B for short) was a super giant retailer. She is the model manager that Warren Buffet still uses as an example even today.She was born in 1893 in a Russian village and immigrated to American in her 20's. SHE COULDN'T SPEAK A WORD OF ENGLISH. This lady took a simple investment (by borrowing $500 from her brother, mind you) and turned it over years into THE LARGEST HOME FURNISHING STORE IN ALL OF AMERICA.


    https://hotcopper.com.au/data/attachments/2335/2335310-4a2b0f8bc6ecab58b7f633e4d25177ef.jpg
    How large can a furniture store be? The store in Omaha, Nebraska is no less than 42,000 m2 That's a nutty 204 metres by 204 metres sitting on some 78 acres of land and houses amongst many many items, 1 million square yards of carpet!




    Buffet has called this out by reporting that people travel more than 100 miles to visit this store. The management style and company motto?
    Sell cheap and tell the truth.Warren approached her and made an offer to good to refuse...she was happy to accept but he said the deal would only proceed if she and her management would still agree to manage just like she had been doing in all the past years. Buffet asked her in the buyout interview "Do you owe any money?", she said "No" and the $60 million dollar deal at the time was done with a mere handshake. Warren said he felt HE was being interviewed by the Bank Of England. For both of these retail and business giants, their word was their bond..



    https://hotcopper.com.au/data/attachments/2335/2335324-846ab15e721524ebf3c5d9493b79c547.jpg
    Mrs B and Warren Buffet....unbeatable combo.


    Hard working? Who Mrs B? She worked till she was 103! Most of the weeks she did, at least earlier on were 70 hours a week. Mate, that
    is hard work and resolve. I complain that I spend day and night researching for PAR...nah it's a labour of love...bring it on...I wish I had half of her work ethos.

    In a letter to Berkshire shareholders in 2013, Buffett wrote, “Aspiring business managers should look hard at the plain, but rare, attributes that produced Mrs. B.‘s incredible success. Students from 40 universities visit me every year, and I have them start the day with a visit to NFM. If they absorb Mrs. B.’s lessons, they need none from me.” 1

    Blumkin “never went to school a day in her life,” Buffett said with awe on CNBC’s “Squawk Box” this week. ”[And] when the family sat down for dinner, they sang ‘God Bless America’ before eating. It’s an incredible story.”

    This is want I want for us. I want our company to be legendary...what we have...how we treat our patients...the sheer numbers and how far people will come and what good reviews [and videos?!] they will post. You know what...don't look at me and think I'm dreaming and I'm in some fairy tale and story world far removed from reality...it has happened already...WHAT?

    We know for a fact that some SAS patients have already travelled for MILES for our iPPS drug...they have boarded trains and made the journey to their clinics...they have done this weekly for 6 weeks straight to feel the relief...they have queued...they have waited...for months at times..we have heard it in the Lysosomes Conference in Orlando where a patient came up to PAR and FiftyOne Capital and her face lit up when she heard there was a solution on the horizon for her suffering MPS child's joint pain........this story is real my friends and it is coming.. it will expand ...we will hear of some amazing stories soon perhaps next week...but even more to come in the future...MPS patients will give their account in greater and greater numbers in the near future..perhaps early next year.....then there is OA...


    RELEVANCE?

    Mozz Bravo...great stories...but mate...couple of points:

    1) What has this to do with us? Berkshire is a very a different company to us?

    2) What has this got to do with dividends anyway?


    Yes of course, thanks for reminding me, addressing both of these points now, Berkshire went from a few odd hundred thousand dollars of capital to now having a market cap of no less than $471.55 Billion USD. How many times have they paid a dividend in all the years?

    Mozz quiz? ...such a perfect time for one....only because you love them and I get constant requests for these...


    HOW MANY TIMES HAVE BERKSHIRE PAID DIVIDENDS IN THE ENTIRE HISTORY?

    A) 100 times

    B) Nahh it's never answer A) let's do this scientifically...56 years x 4 quarterly dividends per year = 224 times...?

    C) Super extra huge company like Berkshire, ? Are you kidding me...science schmience, 500 times normal dividend plus 100 extra times as a bonus special dividend! My answer is 600 times!!!


    Well I don't need to say much here..it's a Mozz © quiz remember? OK ....the answer?


    Once.... they just paid them once in all that time.


    What? I don't get it. That just isn't right. Ripped off...what a dumb company...you won't find me investing in such a poor company....wait...don't judge too quickly.

    Warren is a firm believer of reinvesting the dividends as he can find much much better opportunities and use for that capital than YOU as a shareholder ever could...Otherwise he says, if you want a dividend, take your shares and sell some of them, there is your dividend. And I reckon he is right. If I get a dividend from Berkshire what can I do with it that will beat him? (Except perhaps I could invest it in PAR *wink*).

    For most shareholders he is 100% right..much better with him than with us...so basically no dividends paid...but look at the upside...the share price...it's gone up a lazy 700,000 % since 1964....they were $19 a share in 1964....each share is now worth $290,940 USD... No dividends, but seriously, what more can you ever want?

    Now apply this to us.


    RETAINED EARNINGS -V- DIVIDENDS PAYOUT


    When is it good for a company to pay out higher dividends, when they don't think they can do any better things with the money! We need to take that attitude too.IF PAR can grow at a clip greater than 10%...why would you want a dividend? What would you do with it? Can YOU achieve a better than 10% rate?We want a company to grow..specially in the first few years, they will need cash to do this. The exception could be an massive influx of excess cash. How? Distribution deal. Again, I still think some dividends into the future would be wonderful..You gotta stop and think though at least for the first X years there is going to be eye watering growth....specially when you layer all the indications and afflictions we are talking and researching about...officially and unofficially....there are many and layering will happen soon..it already is happening...want a little taste?


    1) MPS....1 and 6 we are going for it...Orphan disease so we will be on an accelerated pathway...not for just US...Europe simultaneously too!

    2) OA...not just in one country...3...and 2 of them are large.

    3) RRV/CHIK indications in the background



    WHAT DO I WANT?

    So what do I want? I want at least 5 years of solid uninterrupted raw growth...in this time pay us a little dividend if you must...but reinvest the revenue and grow us even stronger and bigger...beat the normal market growth by Multiples of X....

    In actuality what MIGHT happen, and it's only highly speculative Mozz thoughts here, we may attract a great distribution deal...too good to refuse...get a nice wonderfully large upfront payment and a lucrative distribution partnership and the revenues ramp from day 1....(might not be till 2022 or something) but this will bring in enough funds to pay a dividend, at least a small one...the rest we can reinvest into expanding the business...getting more staff and running a whole heap of simultaneous clinical trials.

    I think given a choice, the path of increased retained earnings and little to no dividends is the prudent one at least in the 'formative' years. I understand that for pensioners and retirees a dividend can be valued income...but selling a small amount of shares can aptly suffice too. Yes dividends are great...but let's not rush into it.

    Fun times ahead...with an ace management leading us not unlike Mrs B and Mr B.(Buffet)? I reckon we are in good hands.

    Exciting times...more to come - just my views.

    DYOR




    PS: PharmD - Thanks for asking the question!



    References
    1) https://www.cnbc.com/2019/03/01/warren-buffett-and-his-relationship-with-retail-legend-rose-blumkin.html
    Last edited by Mozzarc: 29/07/20
 
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