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Talen: Power Producer With Strong FCF and Crown-Jewel Nuclear Asset

February 5, 2024 in Audio, Best Ideas 2024, Best Ideas 2024 Featured, Diary, Discover Great Ideas Podcast, Equities, Featured, Ideas, Member Podcasts, Transcripts

Alex Gates of Clayton Partners presented his investment thesis on Talen Energy (US: TLNE) at Best Ideas 2024.

Thesis summary:

Talen Energy is one of the largest independent power producers in the US, with a strong free-cash-flow profile and a crown jewel asset.

TLNE will benefit from strong growth tailwinds in AI computing and the energy transition, which are driving the need for zero-carbon electricity. Power generation is now a growth story, and the company’s assets will be in strong demand for years to come.

Talen emerged from bankruptcy last year with a new management team and upgraded balance sheet.

Alex expects TLNE to appreciate in the near term as they monetize non-core assets, return capital, and gain investor awareness. It is a pattern Alex has seen play out in Clayton’s other successful post re-org investments, such as Denbury (DEN) and California Resources (CRC). In fact, the previous CEO of CRC is now running Talen and executing on a very similar playbook.

Talen’s largest asset is the Susquehanna nuclear power plant, which is one of the most efficient and profitable plants in the US. Nuclear plants in the US have become highly valuable due to new federal incentives, which created a government-guaranteed floor price for their electricity generation. Susquehanna is a crown jewel asset for Talen and could be worth upwards of $5 billion alone.

Talen’s normalized FCF yield is around 10% and could be 20+% in strong pricing environments similar to early 2023. Near-term catalysts include uplisting to the Nasdaq, the potential sale of their ERCOT assets, and a possible JV announcement for their data center business. Ultimately, Alex sees fair value close to $80 per share, based on the current FCF yield, and could be upwards of $100 per share if the entire company is sold, which Alex views as the most likely outcome in the long term.

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About the instructor:

Alex Gates is a Partner, Co-Portfolio Manager of CPDS and Chief Compliance Officer at Clayton Partners LLC. Founded in 2003, Clayton Partners is an opportunistic value investment firm.

Clayton manages a private investment partnership and individual separate accounts. The firm takes a private equity approach to investing in the public markets and looks to align itself with shareholder friendly management teams that focus on long-term value creation.

Alex leads the firm’s effort to find compelling public and private investment opportunities in sustainable businesses that have a positive impact on climate change. The current focus is on investments in renewable energy, utilities, bio-fuels, and recycling.

Alex holds a Masters Degree in Business Economics from the University of California at Santa Barbara. Prior to his graduate education, he completed a dual major BS in Economics and Statistics from Cal Poly State University. At both institutions, Alex concentrated in finance and economic modeling. He earned the Chartered Financial Analyst designation in 2015.

Dino Polska: Owner-Operated Compounder With Long Runway

February 5, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Christopher Karlin of Aquitania Capital Management presented his investment thesis on Dino Polska (Poland: DNP) at Best Ideas 2024.

Thesis summary:

Dino Polska is an operator of medium-sized grocery markets in rural and small towns in Poland where 73% of Poles reside.

Dino’s strategy is designed around developing owned stores in a standardized format with a modest 400 sqm footprint selling fresh groceries, meat, and staples at competitive prices. The efficiency of their store model allows the stores to be supported by a population of just 2,500 people within a 2km radius. Dino has opened 2,340 stores since 1999 at a fast rate of 20+% per year and has not closed any stores. Chris estimates that the theoretical ceiling on stores is around 11,000, almost 5x the current footprint.

Dino is controlled 51% by its founding Chairman, and actions to date indicate the behavior of a highly aligned owner-operator.

Dino’s business model is driven by fully reinvesting all free cash flow into the development of new stores. Chris estimates that Dino achieves a ROCE of 40% at the store level and the firm generates ROIC of 20%.

Dino is reasonably priced, with a normalized FCF yield 50–100bps above 10-year treasuries after backing out growth capital expenditures. The investment opportunity lies not in a repricing, but in the continued execution of a successful business model by a competent and well-aligned management. It is entirely reasonable to project that Dino could compound intrinsic value by 15-20% per annum over the next decade.

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About the instructor:

Christopher Karlin has been in the investment business since 1991. Prior to founding Aquitania Capital Management in 2012, Christopher held positions as a Research Analyst and Portfolio Manager at First Pacific Advisors, Kestrel Investment Management and Fairview Capital Investment Management. Christopher interned with Farallon Capital Management while pursuing his MBA. He began his career with Wells Fargo Nikko Investment Advisors which later became a part of Blackrock. Christopher received his BBA from the University of Wisconsin in 1990 his MBA from Yale University in 1998 and has held the CFA designation since 1994.

Liverpool: Dynamic Player in Mexican Retail, With Major Logistics Asset

February 5, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Francisco Carrillo of Mexico Value Partners presented his investment thesis on El Puerto de Liverpool (Mexico: LIVEPOLC) at Best Ideas 2024.

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About the instructor:

Francisco Carrillo began his investment career some 25 years ago as an analyst at GBM Grupo Bursátil Mexicano. His tenure at GBM lasted close to ten years and he held various responsibilities during that time. After GBM, Carrillo co-founded Sabino Capital, a Mexico-based investment partnership. In 2012 he co-founded Mexico Value Partners, a Mexico-based investment partnership where he currently serves as Chief Investment Officer.

Conx: Charlie Ergen SPAC in Talks to Acquire DISH-Owned Boost Wireless

February 1, 2024 in Audio, Best Ideas 2024, Best Ideas 2024 Featured, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Nitin Sacheti of Papyrus Capital presented his investment thesis on Conx Corp. (US: CONX, CONXW) at Best Ideas 2024.

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About the instructor:

Nitin Sacheti runs Papyrus Capital GP LLC where is he the Portfolio Manager. He is also the author of Downside Protection: Process and Tenets for Short Selling in All Market Environments.

Prior to founding Papyrus Capital GP LLC, Nitin was a Senior Analyst/Principal at Charter Bridge Capital where he managed the firm’s investments in the technology, media and telecom sectors as well as select consumer investments.

Before Charter Bridge, Mr. Sacheti was a Senior Analyst at Cobalt Capital, managing the firm’s technology, media and telecom investments and a Senior Analyst at Tiger Europe Management. Mr. Sacheti began his investment career in 2006 at Ampere Capital Management, a consumer, media, telecom and technology focused investment firm, initially as a Junior Analyst, later becoming Assistant Portfolio Manager.

He graduated from the University of Chicago with a BA in Economics, was a visiting undergraduate student in Economics at Harvard University and attended the Loomis Chaffee School.

Hargreaves: Misunderstood Sum-of-the-Parts Bargain With Catalysts

February 1, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Simon Caufield of SIM Limited presented his investment thesis on Hargreaves Services (UK: HSP) at Best Ideas 2024.

Thesis summary:

Hargreaves Services is a UK small-cap on the AIM exchange. It consists of three divisions: industrial services, land development, and commodities trading.

Price to book is 0.7, EV/EBIT ratio 4, PE ratio 5 and forward dividend yield ~9%. But it’s even cheaper than it looks as the services business are high quality — capital light with inflation-linked pricing — and the land assets are materially undervalued on the balance sheet.

Simon estimates intrinsic value at £10, compared to the recent price of £4.

Management is well-aligned, with the CEO owning 8% and chairman 2% of the stock. An activist investor owns 28% and has a board seat.

Management intends to sell the commodities division and selected assets within the Land division over the next two years, returning £6 per share via a stock buyback (provided the share price remains below intrinsic value). That will leave the Services division and a slimmed-down Land division worth £4.

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About the instructor:

Simon Caufield is Managing Director at SIM Limited, a UK-based investment firm. Simon founded the firm in 2007 after selling his stake in Nomis Solutions, a B2B enterprise software company he founded in 2002. His circle of competence is deep value, cyclicals and deceptively cheap compounders amongst the industrial and consumer discretionary sectors.

Previously, Simon was a management consultant for more than a decade, including at Mercer Management Consulting. Simon has an MA in Engineering from Cambridge University and an MBA from London Business School.

DSGR: High-ROIC Specialty Distributor With Consolidation Opportunity

February 1, 2024 in Audio, Best Ideas 2024, Best Ideas 2024 Featured, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Charles Hoeveler of Norwood Capital Partners presented his investment thesis on Distribution Solutions Group (US: DSGR) at Best Ideas 2024.

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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.

LSB: Transformed, Competitively Advantaged Ammonia Producer

January 19, 2024 in Audio, Best Ideas 2024, Best Ideas 2024 Featured, Diary, Discover Great Ideas Podcast, Equities, Featured, Ideas, Member Podcasts, Transcripts

Bob Robotti of Robotti & Company Advisors discussed his investment thesis on LSB Industries (US: LXU) at Best Ideas 2024.

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About the instructor:

Bob Robotti is the Founder, President and CIO of Robotti & Company Advisors, a registered investment advisor based in New York City.

Guided by the classic tenets of value investing, VALUATION MATTERS. Robotti & Company Advisors uses a proprietary research approach to identify companies which trade for substantial discounts to their future free cash flows, yet are misunderstood, neglected, or just out-of-favor, so discounted by markets. Once identified, Robotti’s investment team focuses on deep primary industry and company research to select investment holdings through the lens of a long-term business owner.

In this capacity, Bob is currently on the boards of AMREP Corporation (NYSE:AXR), Pulse Seismic Data Inc. (TSX: PSD) for which he also serves as Chairman, and Tidewater, Inc. (NYSE:TDW). Bob previously was on the board BMC Building Materials Holding Corporation, now amalgamated into Builders FirstSource, the premier and differentiated distributor of building structural products to homebuilders.

Prior to founding Robotti & Company in 1983, he was the CFO of Gabelli & Company. Bob holds a BS in Accounting from Bucknell University and an MBA from Pace University.

CAB Payments: Bombed-Out Price Creates Asymmetrical Opportunity

January 19, 2024 in Audio, Best Ideas 2024, Best Ideas 2024 Featured, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Patrick Brennan of Brennan Asset Management presented his investment thesis on CAB Payments (UK: CABP) at Best Ideas 2024.

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About the instructor:

Patrick Brennan is the founder and portfolio manager of Brennan Asset Management, LLC (BAM), a Registered Investment Advisory firm based in Napa, CA, which utilizes a concentrated value investing strategy. Patrick has given presentations at multiple value investing conferences, including presentations to The New York Society of Security Analysts (NYSSA), The Nebraska Society of Securities Analysts and presentations on various names at the VALUEx Vail Conferences. Patrick co-authored an article on tracking stocks with Lawrence Cunningham for The Financial History Magazine and Patrick was featured in a write-up in The Private Investment Brief. Prior to founding Brennan Asset Management, Patrick managed portfolios and led research efforts at two value investing firms in California: Hutchinson Capital Management and RBO & Co.

Previously, Patrick worked at Mark Boyar & Company, where he led the firm’s research team and helped manage $800 million of assets across individual portfolios, institutional accounts and a mutual fund. Patrick also worked for six years in investment banking and equity research with Deutsche Bank, CIBC World Markets and William Blair & Company. Patrick graduated summa cum laude from the University of Notre Dame with a degree in economics and was inducted into Phi Beta Kappa. Patrick received the Chartered Financial Analyst (CFA) designation in 2002 and is a member of the CFA Institute (formerly AIMR). Patrick is originally from Omaha, Nebraska.

Cromwell Property: Real Estate Owner and Asset Manager at Deep Discount

January 19, 2024 in Audio, Best Ideas 2024, Best Ideas 2024 Featured, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Amit Wadhwaney of Moerus Capital Management presented his investment thesis on Cromwell Property Group (Australia: CMW) at Best Ideas 2024.

Thesis summary:

Cromwell is an Australian property company that owns high-quality office properties in Australia, has investments in real estate-related funds it controls, and manages a range of real estate assets, primarily in Europe. It also provides property asset and fund management for internal and external investors.

A lack of business and geographic focus, combined with an inflated cost structure, has led to a number of years of relatively indifferent financial and stock price performance, resulting in an undervalued stock.

Following multiple attempts, control of the company moved to ARA Asset Management (a large global real estate asset manager), which has since been bought by a larger real estate asset manager. The newly installed board and management are expected to narrow the focus of the business while crystallizing some of the latent value embedded in the shares, likely benefiting shareholders.

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About the instructor:

Amit Wadhwaney is a Portfolio Manager and Co-Founding Partner at Moerus Capital Management LLC, and the founding manager of the Moerus Worldwide Value Fund. Mr. Wadhwaney has over 30 years of experience researching and analyzing investment opportunities in developed, emerging, and frontier markets worldwide, and has managed global investment portfolios since 1996. Prior to founding Moerus, Mr. Wadhwaney was a Portfolio Manager and Partner at Third Avenue Management LLC. Mr. Wadhwaney founded the international business at Third Avenue and was the founding manager of the Third Avenue Global Value Fund, LP, the Third Avenue Emerging Markets Fund, LP, and the Third Avenue International Value Fund. Earlier in his career, Mr. Wadhwaney was first a securities analyst, and then Director of Research at M.J. Whitman LLC, a New York-based broker-dealer. Prior to joining M.J. Whitman, Mr. Wadhwaney was a paper and forest products analyst at Bunting Warburg, a Canadian brokerage firm. He began his career at Domtar, a Canadian forest products company. Mr. Wadhwaney holds an M.B.A. in Finance from The University of Chicago. He also holds a B.A. with honors and an M.A. in Economics from Concordia University; at Concordia, he was awarded the Sun Life Prize and the Concordia University Fellow in Economics, and he subsequently taught economics classes there. He also holds B.S. degrees in Chemical Engineering and Mathematics from the University of Minnesota.

Sartorius Stedim Biotech: Transitory Effects Overshadow Secular Growth

January 18, 2024 in Audio, Best Ideas 2024, Diary, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Frank Fischer of Shareholder Value Management presented his investment thesis on Sartorius Stedim Biotech (France: DIM) at Best Ideas 2024.

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About the instructor:

Frank Fischer, born in 1964, is the CEO of Shareholder Value Management AG, where he is Chief Investment Officer (CIO). Frank is also a board member of Shareholder Value Beteiligungen AG. Until the end of 2005, Frank was managing director of Standard & Poor’s Fund Services (formerly Micropal GmbH) and was responsible for investment fund information and ratings.

After completing his training as a banker (Bankkaufmann) at the Hessische Landesbank, he studied economics at the Goethe University of Frankfurt where he finished with his degree in business administration (Diplom Kaufman).

Frank is married and has two children. He and his wife Julia are the founders and directors of the non-profit foundation Stiftung Starke Lunge (www.starkelunge.de).

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