Adam Crocker of Logbook Investments presented his investment thesis on Dr. Martens (UK: DOCS) at European Investing Summit 2024.

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About the instructor:

Adam Crocker, CFA is Founder and Chief Investment Officer of Logbook Investments, a value fund with core positions based on insights from books. Logbook launched in 2016 and is seeded by his former employer. Prior to Logbook, Adam was a co-manager at Metropolitan Capital Advisors, a long/short equity fund founded in 1992. Before joining Metropolitan, he was an analyst at Morgan Stanley Investment Management conducting research on behalf of growth and value investment teams. He began his career in Leveraged Finance investment banking at JPMorgan. Adam is a 2005 graduate of the Value Investing Program at Columbia Business School and has an undergraduate degree in Economics from Columbia University.

Daniel Gladiš discussed Vltava Fund’s approach to investing in the banking sector and presented his investment thesis on OSB Group (UK: OSB) at European Investing Summit 2024.

Thesis summary:

OSB Group is a leading specialist mortgage lender that focuses primarily on carefully selected sub-segments of the UK mortgage market.

The bank specializes in the buy-to-let segment, in which it has 9% UK market share. The big banks consider this market too labor-intensive and have exited it. Buy-to-let lending is less risky than mortgages to homeowners. LTVs of 65% and cost of risk of 0.25% prove this.

OSB is fully funded with deposits, has a cost-to-income ratio in the 30s and is completely focused on its niche market.

Since its IPO in 2014, book value has grown 18% per annum.

With ROEs in the mid-teens, the shares deserve a higher market valuation than a P/E of 4.5x and P/B of 0.7x, especially as shareholders enjoy regular large dividends and the benefits of below-book value share repurchases.

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Daniel Gladiš, based in the Czech Republic, has amassed a market-beating track record since starting VLTAVA Fund in 2004. VLTAVA Fund is a value-oriented, research-driven investment fund focused on investing in good companies run by quality management. Previously, Daniel was Director and Chairman of the Board of Directors of ABN AMRO Asset Management (Czech) from 1999–2004. He was also Director and founder of Atlantik finanční trhy, a.s., a member of the Prague Stock Exchange. Daniel is a graduate of VUT Brno and has authored the best-selling books Naučte se investovat (Learn to Invest) and Akciové investice (Stock Investments).

José Antonio Larraz of Equam Capital presented his investment thesis on Macfarlane Group (UK: MACF) at European Investing Summit 2024.

Thesis summary:

Macfarlane is the UK’s leading designer, manufacturer, and distributor of protective packaging products for business. The company was founded in 1949 and floated on the stock exchange in 1974. It has 1,000+ employees, 65,000 SKUs, and 20,000+ customers.

Macfarlane has been growing through a combination of organic growth and acquisitions. It has annual sales of £281 million and EBITDA of £28+ million.

The industry is quite attractive, with steady mid-single digit growth. Management keeps working capital reasonably low, while the business has low capex needs (~1% of sales).

While the business focuses primarily on the UK, Macfarlane entered the European market in 2022 following the acquisition of German company PackMann. Macfarlane holds strong share in the UK packaging distribution market and has an excellent opportunity to grow in other European markets.

Due to a strong balance sheet, with no debt and an available bank facility, the company is in a position to continue financing attractive acquisitions.

While recent financial performance has been challenging due to UK economic weakness, post-covid ecommerce sales normalization, and logistics standardization, the higher-margin manufacturing business is becoming a greater piece of sales and operating expenses are well-controlled.

According to José, the recent market quotation of Macfarlane shares does not reflect the underlying value of the business, with the shares trading at an FCF yield above 10%. José believes that the company should recover from recent challenges and return to the historical growth demonstrated over many years.

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About the instructor:

José Antonio Larraz is a founding partner of Equam Capital. Jose has 15 years of experience as a partner in Capital Alianza Private Equity, investing in Spanish private companies in the middle market. He has investment experience in chemical, food, retail, outsourcing and telecommunications sectors, having participated in the board of directors of six different companies. Jose has 4 years of experience in financial advisory, corporate finance and M&A at Lehman Brothers in London and New York and He is a Professor at Instituto de Empresa since 2008. Jose holds a degree in Law and Business Administration from ICADE University and MBA from Insead.

Alejandro Estebaranz of True Value presented his investment thesis on Newlat Food (Italy: NWL) at European Investing Summit 2024.

Thesis summary:

Newlat is a consumer goods company with a strong track record of value creation through acquisitions. It is a 60+% family-controlled business. Over the past five years, it has grown EBITDA and FCF at a rate of over 25%. After the acquisition of Princes UK, the shares trade at 5x FCF, with debt below 2.5x EBITDA. Alejandro expects the integration of the Princes business to be an important catalyst for the business. Similar food companies trade at higher valuations.

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Alejandro Estebaranz has served as the CIO True Value fund (ISIN: ES0180792006) since its inception. True Value, based in Spain, is a long-only equity fund founded in 2014. It focuses on underfollowed small- and mid-cap public companies, seeking good businesses with good management teams. He holds a degree in mechanical engineering and a degree in industrial engineering.

Henrik Andersson of FW Invest presented his in-depth investment thesis on Spirax Group (UK: SPX) at European Investing Summit 2024.

Thesis summary:

Spirax is a multi-national, high-quality engineering group with three world-leading niche businesses. They provide knowledge, service, and products for the control and efficient use of steam and other industrial fluids worldwide.

Product areas:

• Steam Thermal Solutions (STS, 54% of revenue / 59% of EBIT). Leader in the design, manufacture, and maintenance of commercial steam solutions.
• Electrical Thermal Solutions (ETS, 22% / 16%). Critical heating applications for industrial processes and ultra-critical heating for industrial equipment.
• Watson-Marlow (WM, 23% / 25%). Designs and manufactures peristaltic pumps, niche pumps and fluid path technologies for a range of end markets.

Investment highlights:

• Moat durability. Spirax is a very resilient high-quality company with attractive long-term fundamentals.
• Net zero opportunity. Spirax is perfectly positioned to play a critical role in enabling the industrial transition to net zero.
• TAM expansion. Spirax aims to expand its addressable market through innovation, application engineering, and M&A.

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Henrik Andersson has worked within a framework of investing in quality franchises in a concentrated portfolio setting since the early 2000s. After five years as an assistant fund manager and analyst at Handelsbanken Asset Management, in 2003 he launched a discretionary portfolio named European Quality with 15 holdings, inspired by Peter Cundill’s approach of “never shoot into the broom”. That later branched out to a family of funds named the Selective Funds. After three years at Brummer & Partners, he joined Didner & Gerge in 2011, an employee-owned asset management boutique, to launch a Global Equity Fund together with a colleague. Starting in 2024, Henrik is now diverting his full attention to wholly owned FW Invest, founded in 2012, which is applying those same principles in trying to identify operations with superior capital returns over long stretches, run by admirable leaders with an appealing valuation starting point.

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.

Santiago Domingo Cebrián of Magallanes Value Investors presented his thesis on Anglo American (UK: AAL) at European Investing Summit 2024.

Thesis summary:

Anglo American is a global diversified mining company with South African roots. It is active in copper, PGMs, iron ore, met coal, diamonds, nickel and manganese, and crop nutrients projects, with best-in-class assets.

Anglo’s copper assets are located in the best jurisdictions, have some of the lowest cash costs, and long mine lives. In iron ore, Anglo owns 70% of South Africa-listed Kumba, which operates two open-pit mines and is a low-cost producer; and 100% of Minas-Rio, a tier-one open-pit mine and one of the largest iron ore mines in Brazil. Anglo is tranforming the portfolio toward three assets–copper, iron ore, and crop nutrients.

The company has a reasonable net debt position of 1x EBITDA. BHP’s proposal to acquire Anglo, while rejected by the company, hints at potential value realization from M&A or via other strategic options.

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Santiago Domingo is an investment analyst at Magallanes Value Investors. Magallanes is an independent equity-only asset management firm, following value investment philosophy and controlled by its founders. Magallanes’ aim is to preserve and increase its clients’ capital by outperforming the market in the long term. Prior to Magallanes, Santiago worked as an equity portfolio manager for Solventis Asset Management, as an analyst for a start-up called OralSurgeryTube and in Endesa’s finance department. Santiago holds a Bachelor’s degree in Finance and Accounting from University of Zaragoza and a Master’s degree in Institutions and Financial Markets from CUNEF. He is a CFA charterholder.

Jean-Pascal Rolandez of The L.T. Funds presented his investment thesis on Hugo Boss (Germany: BOSS) at European Investing Summit 2024.

Thesis summary:

Hugo Ferdinand Boss was born in 1885. His parents jointly owned a lingerie and linen shop in Metzingen where Hugo opened his clothing factory in 1924, starting producing uniforms for the National Socialist Party in 1931 which helped the company grow significantly. After World War II production was focused on uniforms for the French army, the French Red Cross, post office, railroads, and police. In 1969, his great-nephews took over and gradually began its international development. Importantly, in the early 1970s the first BOSS-branded high-quality men’s collection suits were produced, seeding the group’s future, with womenswear introduced in 1998.

Today Hugo Boss (HB) is a leading global fashion and lifestyle company in the premium segment, offering a comprehensive range of high-quality women’s and men’s apparel, shoes, and accessories (Coty is the perfume licensee). The Company pursues a portfolio strategy, with now two globally renowned brands, BOSS and HUGO having two clearly distinguished marketing strategies, with a strong focus on social media. By doing so, HB aims to appeal primarily to a younger audience, above all millennials with BOSS and the Gen Z with HUGO. In addition, HB also offers capsule collections and collaborations with well-known brands (Aston Martin, Porsche, etc.) and personalities (David Beckham, Gigi Hadid, Naomi Campbell, at al).

With more than 20,000 employees, HB generated record sales of EUR 4.2 billion in 2023 distributed across 131 countries, mainly in EMEA (63%, 13% in Germany), 23% in the Americas (15% in the US), and 14% in Asia-Pacific (7% only in China). Moreover, HB has an omnichannel presence divided between retail (54% of sales), wholesale (25%), digital (19%), and licensees sales (2%). HB produces 17% of its garments in its five production sites, located in Europe, but for the largest site in Izmir (Turkey). The remaining 83% are mainly sourced from long-term independent partners located in EMEA (52% of total production, 26% in Turkey) and Asia (46%, of which 13% in Vietnam and 10% in China).

The global luxury fashion market is expected to grow at a 5% CAGR by 2031 (source: Straits Research). This market is driven by increasing demand in APAC countries (7% CAGR by 2031), tourism, and the influence of social media, even though the offline segment is still larger than the online segment. Luxury fashion products are gaining momentum among Millennials and Gen Z. Millennials are the fastest-growing consumers of luxury fashion goods.

Since 2019, an emphasis on the separation of the two brands BOSS and HUGO has been carried out by new management, as well as massive investment in digitalization, have allowed HB sales to grow by 10% annually despite the Covid pandemic (29% CAGR for the last three years).

Jean-Pascal expects a 5% sales and a 7% EBITDA CAGR by 2028, driven by an improved gross margin near pre-Covid level and an increasingly successful women’s range. Over the next five years, HB should generate a cumulated EUR 2.6 billion of free cash flow after capex of EUR 1.5 billion, mainly focused on store network, logistics expansion and digitalisation. Its 16.6% 2023 ROCE is well above its 4.7% WACC.

The shares recently traded at 0.9x 2024-25E sales and 4.6x EV/EBITDA, a 42% discount to peers (PVH and Ralph Lauren). The Marzotto family (Zignago Holding) and Michael Ashley own ~15% each, Deutsche Bank 6%, and Capital Group 5%.

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Jean-Pascal Rolandez is the manager of The L.T. Funds, a Geneva-based investment firm focused on a buy and hold strategy based on a limited number of European stocks with a 5+ year investment horizon. Jean-Pascal has more than 25 years of equity investment experience and has founded the first investment club at the leading French business school ESSEC. Prior to establishing The L.T. Funds, Jean-Pascal held various executive positions at BNP Paribas for 22 years, including as Paribas’ French equity strategist.

Stuart Mitchell of S. W. Mitchell Capital presented his investment thesis on Lanxess (Germany: LXS) at European Investing Summit 2024.

Thesis summary:

Lanxess was created in 2004, following the strategic decision by Bayer to spin off a significant portion of its chemical and polymer businesses into a separate group. Since then, Lanxess has made a number of acquisitions and divestments in an effort to reduce its sensitive to the business cycle, and to the car industry in particular (now just 10% of revenues).

Major transactions include the purchase, in 2016, of the flame-retardant company Chemtura, followed two years later by the sale of its performance rubber business Arlanxeo to Saudi Aramco. In 2022 Lanxess purchased the microbial control unit of International Flavors and Fragrances. And last year, the private equity group Advent created a new company, Envalior, by merging DSM’s Engineering Materials unit with Lanxess’s High Performance Materials division; Lanxess owns 41% of Envalior.

The group comprises three main business areas:

• Consumer Protection (37% of sales): chemicals for material protection, flavours, fragrances, liquid purification; fine chemicals producer Saltigo
• Specialty Additives (36%) for polymers and lubricants; speciality rubber company Rhein Chemie
• Advanced Intermediates (27%) for industrial use; inorganic pigments

Sales by region, 2023: Americas 35%, Germany 16%, Other EMEA 30%, Asia 19%

2023 was a challenging year for Lanxess. Sales and EBITDA declined by 17% and 44%, respectively. The company was nevertheless still able to generate €275 million operational FCF and release €577 million of cash by reducing working capital to sales from 25% to 21%. In addition, Lanxess received a €1.27 billion payment from Advent following the creation of Envalior. Management also immediately cut costs by €50 million through hiring freezes and expect to save a further €150 million through operational efficiencies.

Crucially, management has significantly reduced the debt profile. Net debt was down by 35% at the close of 2023 at just shy of €2.5 billion. Its nearest bond repayment, €502 million, is not until May 2025. There is a further €499 million to refinance in October 2026 and the next repayment, a €497 million bond, is not until September 2027. The company held €496 million cash at the end of 2023 and has €1.8 billion of undrawn credit lines. Thus, even if the expected recovery in the industry takes longer than expected to materialise, Lanxess should be able easily to cope with the upcoming bond repayments.

Furthermore, the group may well be able to reduce debt more quickly than anticipated: Urethane Systems is for sale, and may be worth €500 million. The group should also be able to generate some €200 million FCF in 2024. Lanxess also have an option to sell its 41% stake in Envalior to Advent in 2026.

After a difficult year, the chemical industry is now at last beginning to stabilise and may indeed be starting to recover. Lanxess’s business should in the medium term be able to grow at along with GDP, while the Speciality Additives business may be able to grow faster, boosted by strong flame-retardant growth.

According to Stuart, the recent market quotation of the shares implies a compelling 3.5x EV to EBITDA in a more normal economic environment.

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About the instructor:

Stuart Mitchell is the Managing Partner and CIO of S. W. Mitchell Capital and the Investment Manager of the SWMC European Fund, as well as a number of managed accounts.

Prior to founding SWMC in 2005 Stuart was a Principal, Director and Head of Specialist Equities at JO Hambro Investment Management (JOHIM, now Waverton Investment Management). At JOHIM he set up and managed the Charlemagne Fund, a long/short European fund, and the JOHIM European Fund, a long only European fund. The JOHIM European Fund rose by 133% since inception in December 1998 until March 2005 compared with 8% for the benchmark index and was number 1 rated by Micropal within its sector and three star ranked by S&P.

Upon leaving university in 1987 Stuart joined Morgan Grenfell Asset Management (MGAM) and soon afterwards assumed responsibility for managing the continental European equity assets for MGAM’s British pension fund clients. Stuart was appointed a director of MGAM in 1996. He was then made Head of European Equities and was responsible for $27 billion of equity assets. Whilst at MGAM he managed the Morgan Grenfell European Fund which rose by 123% from January 1990 to June 1996 compared with 85% for the benchmark index and was awarded 1st place by Micropal (5 year awards) in 1996.

Stuart was born in Scotland and educated at Fettes College and St. Andrews University where he read Medieval History. He is also a graduate of the Owner/President Management programme from the Harvard Business School. Stuart speaks English and French.

Alirio Sendrea of Invexcel presented his investment thesis on Sonae SGPS (Portugal: SON) at European Investing Summit 2024.

Thesis summary:

Sonae, a family-controlled Portuguese holding company, is mainly exposed to retail businesses and, to a lesser extent, telecommunications and real estate. As a small cap that operates in unfashionable geographies and businesses, however with strong competitive dynamics, the market has turned its back on Sonae, causing the shares to trade at a large discount to NAV. Meanwhile, the company has been improving returns on capital, strengthening the market position of its core operations, and remunerating shareholders with an attractive dividend.

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Alirio Sendrea, CFA is Head of Research at Invexcel, a multi‐family office based in Spain. He is a generalist investor in European Equities with two decades of experience in Financial Services, Shipping, Information Services, Alcoholic Beverages and Business Services, working with entrepreneurial families and leading global companies.