Mallinckrodt: FCF-Rich Business with Attractive Risk-Reward

A.J. Noronha of Desai Capital Management presented his in-depth investment thesis on Mallinckrodt (US: MNK) at Best Ideas 2019.

Thesis summary:

Mallinckrodt meets the key criteria A.J. looks for in an investment: (i) significant discount to intrinsic value; (ii) strong margins, which demonstrate operational excellence; (iii) strong cash flow and a low price to cash flow multiple; and (iv) a significant price discount to book value. Risks include revenue concentration, pricing pressure, and political or legal pressure.

A.J. considers the overall risk-reward tradeoff as attractive at recent prices. The stock recently traded at ~$19 per share, roughly half of the 52-week high of ~$37 per share.

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About the instructor:

A.J. Noronha, CFA has over eight years of investment management experience, and has worked closely with Mr. Desai since Desai Capital Management’s inception with all aspects of the fund, with his primary responsibilities being equity research, due diligence, and developing investment theses for DCM’s portfolio. He has been ranked as highly as #1 (Value), #6 (Long), and #9 (both Overall and North America) in SumZero’s independent analyst rankings, and his independent research on Dow Chemical was selected as one of their top ideas of 2015.. He served as an instructor for MOI Global’s Best Ideas 2018 and Wide Moat Summit 2018, and was an invited participant (non finalist) in the 2017-2018 Sohn Conference Foundation Idea Contest and 2017 SumZero/Van Biema Value Partners Idea Challenge. Prior to DCM, Mr. Noronha gained investment experience working for a mid-market PE/VC fund, and also co-founded and served in a C-level role for a biomedical engineering startup. He earned a degree in Finance, magna cum laude, from the University of Notre Dame, where he was selected to be a member of the prestigious Applied Investment Management honors finance course where students manage a portion of the University endowment under the guidance of the Chief Investment Officer, and also holds a JD with Dean’s List honors & a concentration in business enterprise (selected coursework taken through the Kellogg School of Management) from Northwestern University. He is a proud CFA Charterholder, is an active Candidate Member of the CFA Society of Chicago & serves on its Professional Development Advisory Group Board, and is a member of Irish Entrepreneurs & Harvard Alumni Entrepreneurs.