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Transcontinental: Underappreciated Resiliency and FCF Generation

July 3, 2020 in Audio, Equities, Ideas, North America, Small Cap, Transcripts, Wide Moat, Wide-Moat Investing Summit 2020, Wide-Moat Investing Summit 2020 Featured

Jim Zimmerman of Lowell Capital Management presented his in-depth investment thesis on Transcontinental, Inc. (Canada: TCL-A) at Wide-Moat Investing Summit 2020. Jim’s daughter, Abby Zimmerman, also participated in and contributed to the presentation.

Thesis summary:

Transcontinental engages in the flexible packaging business in Canada, the U.S., Latin America, the U.K., Australia, and New Zealand. It operates through three segments: Packaging, Printing, and Other. The packaging segment engages in the extrusion, lamination, printing, and converting packaging solutions as well as manufacturing flexible plastic and paper products. The printing segment provides integrated services for retailers, such as pre-media services, flyer, and in-store marketing product printing.

TCL has ~87 million shares outstanding at a recent price of C$14 per share, for a market cap of C$1.2 billion, and a net debt position of C$950 million as of April 2020, for an enterprise value of C$2.1 billion. TCL recently traded close to 4x adjusted EBITDA.

Jim believes the company can sustainably generate FCF of C$250+ million, which would result in an unlevered FCF yield of 12%. TCL has an improving balance sheet, with net debt reduced from C$1.4 billion after the Coveris acquisition in mid-2018 to about C$950 million as of April 2020. TCL could achieve adjusted EBITDA of C$500 million by 2022 and trade for 6x adjusted EBITDA or C$3 billion less C$800 million of net debt for a market cap of about C$2.2 billion or C$25 per share, as compared to a recent stock price of C$14 per share. TCL pays C$0.87 per share in annual dividends (7% yield), which appears sustainable based on strong cash flow.

TCL-A achieved a strong quarter for April 2020, with both the packaging and printing segments showing resilient performance amid COVID. The packaging segment expects organic growth in H2 2020, and the printing segment is recovering with a reopening of Canada’s economy. The printing segment is a stronger business than the market is giving it credit for, as its flyers are an essential tool for major retailers to drive sales.

Jim believes TCL’s recent market valuation misprices the resiliency of both the packaging and the printing segments. Packaging companies trade at much higher multiples, and as TCL’s packaging segment grows, TCL’s multiple should move up accordingly.

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About the instructor:

Jim Zimmerman is founder and portfolio manager of Lowell Capital Value Partners, LP, successor fund to Lowell Capital Fund, L.P. Jim managed Lowell Capital Fund L.P. from 2003 to 2015 employing a proprietary strategy laser-focused on smaller and/or misunderstood companies with large, sustainable free cash flow yields and “Ft. Knox” balance sheets. He generated a compound annual return significantly exceeding the HFRI Equity Hedge Index and the S&P 500 Total Return Index over this period, despite holding a significant net cash position (~30%) for most of this period.

Jim has over 25 years of investment banking and investment management experience in a variety of industries and has been involved with several billion dollars of investments.

Jim graduated with a BA with high honors in economics from Princeton University in 1980 and an MBA from Stanford Business School in 1984. He worked at Drexel Burnham Lambert, Inc., 1984 to 1990, serving in the Corporate Finance Department and multiple other investment banks from 1990 to 2003.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Unilever: Consistent, Predictable, Growing Business at Fair Price

July 2, 2020 in Audio, Consumer Staples, Equities, Ideas, Large Cap, North America, Transcripts, Wide Moat, Wide-Moat Investing Summit 2020, Wide-Moat Investing Summit 2020 Featured

Dave Sather of Sather Financial Group presented his in-depth investment thesis on Unilever (US: UL, UN) at Wide-Moat Investing Summit 2020.

Thesis summary:

Unilever is a 150 year-old food, beauty, and home care business that sells products to 2.5 billion people daily across 190+ countries. Despite its long history, interesting changes and catalysts have allowed this highly consistent and predictable business to grow EPS by 9-11% annually over the past decade. Despite Unilever’s stability and above-average cash flow, the shares have recently been available at a fair price.

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About the instructor:

Dave Sather is a CFP and President of Sather Financial Group, a $800 million firm managing individual accounts, in Victoria, Texas. Dave has degrees in business from Texas Lutheran University and Texas A&M University. Dave is also Chairman of the Board of Business Bank of Texas and serves on the Investment Committee and Board of Regents at Texas Lutheran University. He developed and teaches the Bulldog Investment Company internship at Texas Lutheran University (www.BulldogInvestmentCo.com).

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Covetrus: Spinoff With Fast-Growing, Underappreciated SaaS Business

July 2, 2020 in Audio, Equities, Health Care, Ideas, Mid Cap, North America, Transcripts, Wide Moat, Wide-Moat Investing Summit 2020, Wide-Moat Investing Summit 2020 Featured

Gary Mishuris of Silver Ring Value Partners presented his in-depth investment thesis on Covetrus (US: CVET) at Wide-Moat Investing Summit 2020.

Thesis summary:

Covetrus is a spinoff that combines two animal health-related businesses whose economics are still not fully understood and whose financials do not adequately reflect the earnings power of the company. The company’s legacy animal health distribution business operates in an oligopoly and is in the process of being turned around by a new CEO, with initial evidence of progress. The second business is the leading software-as-a-service (SaaS) platform for vet practices to fulfill orders online. It is growing 40+%, has a meaningful ramp for future growth, and has much higher incremental margins than the distribution business.

The historical financials are misleading due to spinoff accounting and because the SaaS business is not yet contributing significantly to earnings. The balance sheet has been strengthened with a recent preferred offering and, given the low cyclicality of both businesses, is in little danger regardless of the way that COVID or economic crises unfolds.

The shares recently traded at ~60% of Gary’s base-case value estimate, despite the meaningful recent run-up in the stock price. Catalysts include (1) continued turnaround progress at the distribution business, and (2) the high growth of the SaaS business starting to meaningfully flow through to net income.

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About the instructor:

Gary Mishuris, CFA is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm with a concentrated long-term intrinsic value strategy. He also teaches the Value Investing Seminar at the F.W. Olin Graduate School of Business. Prior to founding the firm in 2016, Mr. Mishuris was a Managing Director at Manulife Asset Management since 2011, where he was the Lead Portfolio Manager of the US Focused Value strategy. From 2004 through 2010, Mr. Mishuris was a Vice President at Evergreen Investments (later part of Wells Capital Management) where he started as an Equity Analyst and assumed roles with increasing responsibilities, including serving as the co-PM of the Large Cap Value strategy between 2007 and 2010. He began his career in 2001 at Fidelity as an Equity Research Associate. Mr. Mishuris received a S.B. in Computer Science and a S.B. in Economics from the Massachusetts Institute of Technology (MIT).

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Rimini: Well-Suited to Gain Share in Application Management Services

July 2, 2020 in Audio, Equities, Ideas, North America, Small Cap, Transcripts, Wide Moat, Wide-Moat Investing Summit 2020, Wide-Moat Investing Summit 2020 Featured

Charles Hoeveler of Norwood Capital Partners presented his investment thesis on Rimini Street (Nasdaq: RMNI) at Wide-Moat Investing Summit 2020.

Thesis summary:

Rimini Street is the leading independent support provider for enterprise software systems, a ~$16 billion industry. RMNI features a “coder culture” of software engineering expertise combined with a service orientation to deliver a compelling value proposition to customers. The industry is expected to triple over the next four years as global enterprises become aware that there is an alternative to the abusive pricing and poor service of SAP and Oracle.

RMNI has a long runway for growth, is ~10x larger than its next-largest independent competitor, ~99% recurring revenue, and valued at a fraction of business service and software peers.

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About the instructor:

Norwood Capital Partners, LP is a concentrated, fundamental value-based long/short investment fund. Norwood relies on primary research to build a portfolio of dominant businesses trading at a discount to intrinsic value. Norwood is managed by Charles Hoeveler, with 20+ years of experience in institutional asset management.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

ViacomCBS: Streaming Success Could Change Negative Perception

July 2, 2020 in Audio, Equities, Ideas, Large Cap, North America, Transcripts, Wide Moat, Wide-Moat Investing Summit 2020, Wide-Moat Investing Summit 2020 Featured

Arvind Mallik of KMF Investments presented his in-depth investment thesis on ViacomCBS (Nasdaq: VIAC) at Wide-Moat Investing Summit 2020.

Thesis summary:

ViacomCBS is a “new” company resulting from the December 2019 an all-stock merger of Viacom and CBS. The company is controlled by the family of billionaire media mogul Sumner Redstone and has a dual-share structure: VIAC and VIACA. The stock has sold off post-merger and Covid-19 pandemic, trading at $25 per share recently, or an equity market cap of ~$15 billion. At a P/E multiple of only 5x, ViacomCBS is one of the most undervalued media giants. Merger savings of ~$750 million could add more than $1 to EPS.

The post-merger ViacomCBS has improved its scale and customer captivity moats in both the streaming and traditional businesses. The company plans to divest non-core assets (real estate, book publisher Simon and Schuster) where there is no significant moat or synergy. ViacomCBS’s vast content library surpasses even those of powerhouses like Netflix, Amazon, and Disney, allowing opportunistic “arms dealer” monetization. The global reach of the company provides a platform for growth and monetization of content.

While the company’s debt is significant, ViacomCBS maintains a manageable leverage ratio and healthy interest coverage. Even during Covid-19, the company successfully refinanced its near-term maturities and retained access to a $3.5 billion revolver, which remains undrawn.

Chairwoman Shari Redstone stated at the May 2020 annual meeting, “We totally believe the stock is dramatically undervalued. The market is looking for us to prove we can execute our strategy.” Redstone purchased $2 million of VIAC non-voting stock in February and March. Potential success in streaming could change investor perceptions of the company’s value.

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About the instructor:

Arvind Mallik is a Managing Partner of KMF Investments, a pure Pay-for-Performance Private Investment Partnership based in Denton, Texas. KMF seeks long-term capital appreciation by investing in companies whose intrinsic value is significantly higher than the market price. Over its ten years of operations, KMF has found opportunities in world dominating franchises, hard assets below replacement costs, businesses at large discounts to liquidation value, and firms with beneficial exposure to rising interest rates. Prior to founding KMF Investments, Mr. Mallik was a Senior Manager in the Strategy practice of Accenture. At Accenture, he helped global companies formulate and execute strategies to enter new markets, develop innovative new services and solutions, and reduce their operating costs to improve shareholder returns. Mr. Mallik obtained a BS in Chemical Engineering and BS in Bioengineering from UC Berkeley, and an MS in Chemical Engineering from MIT. He graduated with highest honors from both institutions.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Exponent: Leveraging Historic Relationships to Drive Organic Growth

July 2, 2020 in Audio, Equities, Ideas, Mid Cap, North America, Transcripts, Wide Moat, Wide-Moat Investing Summit 2020, Wide-Moat Investing Summit 2020 Featured

Jonathan Isaac of Quilt Investment Management presented his investment thesis on Exponent, Inc. (US: EXPO) at Wide-Moat Investing Summit 2020.

In doing so, Jonathan posed the question, “Are Buffett’s economic goodwill and ‘share of mind’ the same concept?” He compared the historical example of The Coca-Cola Company with the contemporary example of Exponent.

Thesis summary:

Exponent, Inc. is a multidisciplinary consulting firm providing scientific and technical services to organizations to address and prevent failures. Like Coca-Cola in the mid-to-late 1980s, Exponent has a dominant position in its core market—reacting to failures—while being able to grow organically within that market, and in new markets.

Coke from that period and Exponent both exhibit how a highly profitable, relatively non-cyclical business with a sticky customer base can accelerate organic growth through boosting its instances of use throughout the average day of the customer. For Coke, this meant expanding the Coke Megabrand of soft drinks in order to take market share from water, and moving towards the adoption of fountain and vending channels internationally. For Exponent, this means flipping the script from helping firms react to failures, to helping them prevent potentially costly failures.

In an increasingly complex technological world, Exponent’s expertise in battery consulting and the interactivity between humans and machines (what Exponent calls “Human Factors”), positions Exponent to further leverage its historic customer relationships to drive organic growth.

Disclaimer/Disclosure: Accounts managed by Quilt Investment Management, LLC currently own shares of Exponent, Inc. (EXPO), and may transact in the shares, or in any other security mentioned, without future updates. Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of specific securities, investments, or investment strategies. Additionally, the information should not be construed as Quilt Investment Management, LLC’s solicitation to effect the rendering of personalized investment advice for compensation, over the internet or otherwise. This is not a research report and/or a recommendation. The mention of any security does not constitute a recommendation. Investments involve risk and, unless stated otherwise, are not guaranteed. Always be sure to first consult with a qualified financial adviser and/or a tax professional before investing, and to verify any information deemed to be accurate. Past performance is not indicative of future performance.

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About the instructor:

Jonathan Isaac is President and Portfolio Manager of Quilt Investment Management, LLC, a registered investment adviser in Portland, Oregon. Jonathan’s recent writings incorporate the work of Warren Buffett, alongside philosophers such as Michel Foucault and Gilles Deleuze, in order to analyze the shifting delineations of competitive advantage throughout time. Jonathan is a graduate of Grinnell College.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Herman-Miller: US Office Furniture Leader at Discount to Fair Value

July 1, 2020 in Audio, Consumer Discretionary, Equities, Ideas, North America, Small Cap, Wide Moat, Wide-Moat Investing Summit 2020, Wide-Moat Investing Summit 2020 Featured

Danilo Santiago of Rational Investment Methodology presented his investment theses on Herman-Miller (US: MLHR) and Steelcase (US: SCS) at Wide-Moat Investing Summit 2020.

Thesis summary:

Herman-Miller and Steelcase, the two most significant manufacturers of office furniture in the US (and worldwide), recently traded below Danilo’s base-case fair-value estimate. The more undervalued of the two companies, MLHR, offers an estimated IRR of ~14% to the buy-and-hold investor. An investor achieving such a return would double her capital in less than six-and-a-half years.

Mr. Market appears to have focused on short-term EPS expectations variabilities. As it became clear that the COVID-19 crisis would bring normal life to a halt, the purchase of office furniture was put into pause. The occasional sale to a quick upgrade to home-offices was not sufficient to bring revenue expectations back from shallow levels. Manufacturers face inevitable operational deleveraging. Hence the short-term impact on EPS.

What should matter to the long-term investor are overall sales of office furniture to MLHR’s core customer groups, along with the company’s market share and ability to deliver margins not far from historical averages. Assuming no permanent modus operandi change by office workers, Herman-Miller should generate substantial cash flow to owners in the long run.

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About the instructor:

Danilo Santiago is the founder of Rational Investment Methodology (RIM), that focuses on a quasi-static group of approximately 60 publicly traded, liquid US stocks – most of these companies, defined as RIM’s Circle of Competence, have been followed for more than a decade. RIM employs extensive industry research and analysis, building highly detailed proprietary discounted-dividend models, which are used to determine “fair values” of companies based on different scenarios. Lastly, RIM constructs “rules-based” model portfolios (long-short, long-only or long- aggressive) with a company-specific margin of safety relative to “fair value”, using its proprietary Odysseus Portfolio Construction Tool. Selected model portfolios are replicated into clients’ accounts, using Interactive Brokers’ platform, adjusting the number of shares in each client’s portfolio in a pari-passu manner. Mr. Santiago is a MBA from Columbia University and has a B.S. in Electrical Engineering from the University of São Paulo.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

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June 29, 2020 in Twitter

Stanley Druckenmiller on the Investment Landscape Amid COVID

June 28, 2020 in Audio, Commentary, Curated, Equities, Fixed income, Interviews, Macro, North America, Transcripts

We are pleased to share the following conversation with Stanley Druckenmiller, chairman and CEO of Duquesne Family Office.

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About:

Stanley Druckenmiller is Chairman and Chief Executive Officer of Duquesne Family Office LLC. Stan founded Duquesne Capital Management in 1981, which he ran until he closed the firm at the end of 2010. From 1988 to 2000, he was a Managing Director at Soros Fund Management, where he served as Lead Portfolio Manager of the Quantum Fund and Chief Investment Officer of Soros (1989-2000) and had overall responsibility for funds with a peak asset value of $22 billion. Early on in his career, Stan worked at Pittsburgh National Bank and The Dreyfus Corporation. Stan is Chairman of the Board of the Harlem Children’s Zone, Chairman of Blue Meridian Partners, a Board member for Memorial Sloan Kettering and the Environmental Defense Fund, a member of the Investment Committee of Bowdoin College, and is Co-founder and Board member of Kasparov Chess Foundation. He graduated Magna Cum Laude from Bowdoin College with degrees in Economics and English and thereafter earned graduate degree credits in Economics from the University of Michigan.

Jeff Bezos on Amazon, Blue Origin, and The Washington Post

June 28, 2020 in Curated, Equities, Full Video, Interviews, Jockey Stocks, Large Cap, North America, Transcripts, Wide Moat

We are pleased to share the following conversation between David Rubenstein, co-founder and co-executive chairman of The Carlyle Group, and Jeff Bezos, founder and CEO of Amazon. The interview took place in September 2018.

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About:

David M. Rubenstein is cofounder and co–executive chairman of the Carlyle Group, one of the world’s largest private equity firms (founded in 1987). David is an original signer of the Giving Pledge and a recipient of the Carnegie Medal of Philanthropy, among other philanthropic awards. He is the host of The David Rubenstein Show: Peer-to-Peer Conversations on Bloomberg TV and PBS, and the author of The American Story: Conversations with Master Historians, a book published by Simon & Schuster in October 2019. David graduated from Duke University and received his JD from the University of Chicago Law School.

Jeff Bezos is the founder and CEO of the e-commerce company Amazon and founder of the space exploration company Blue Origin. Born in 1964 in New Mexico, Jeff had an early love of computers and studied computer science and electrical engineering at Princeton University. After graduation, he worked on Wall Street, and in 1990 he became the youngest senior vice president at the investment firm D.E. Shaw. Four years later, Jeff quit his lucrative job to open Amazon.com, an online bookstore that became one of the Internet’s biggest success stories. In 2013, Bezos purchased The Washington Post, and in 2017 Amazon acquired Whole Foods.

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