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S&U: Family-Controlled UK Subprime Auto Lender with Underappreciated Intrinsic Value

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Deep Value, Equities, Europe, Financials, GARP, Ideas, Jockey Stocks, Small Cap

Matthias Teig of Rothorn Partners presented his in-depth investment thesis on S&U (London: SUS) at Best Ideas 2018.

S&U is a family controlled British specialty finance company. After the sale of its home loan business in 2015, its main source of revenues is Advantage, a fast-growing non-prime motor finance business.

Car finance, especially to non-prime clients seems to be out of favor at the moment. An objective analysis, however, shows that Advantage takes only limited residual value risk and its business has been relatively resilient during the financial crisis and the 2009 recession.

With a recent market cap of GBP 280 million and a free float of ~26%, S&U shares are not very liquid. The company is below the radar of most institutions and the sell side. A recent PE of 12x and a dividend yield of 4% seem attractive given the strong market position and growth potential.

H1 revenues were up 33% and EPS increased 21%. The balance sheet is healthy, with gearing at 56% at the end of July 2017. ROE of 16% in H1 can be improved as the business continues to grow and the balance sheet is levered up a bit more.

About the instructor:

Matthias Teig is co-founder and partner at Rothorn Partners. With 15 years of experience in asset management, investment and private banking he has a broad knowledge of capital markets and investments. After starting his professional career with Allianz Global Investors in 2001, he moved into a structured products sales role with Barclays Capital in 2005. Later, he had a position in the Key Clients team of Barclays Wealth, where his role was to originate investment banking business from the largest and most sophisticated private banking clients. The breadth of his work experience covers equities, fixed income, commodities, derivatives, private equity, hedge funds, real estate, risk management and financing. His professional career took him from Munich to London and Geneva with secondments in New York and San Diego. In the summer of 2014, Matthias founded Rothorn Partners with Emanuel von Spee and since January 2015, they are advising Festina Lente Opportunities Strategy. Already during his teenage years, he started an interest in the stock market and by investing for more than 20 years, through several bull and bear markets, he has refined his personal investment approach, which is bottom up and always with a focus on value and margin of safety. His passion is to hunt for opportunities with an asymmetric return profile. When analyzing complex situations, he draws on his experience and his network, but is not afraid to think independently and form his own opinion. He reads widely and is always interested to learn. With his international work experience and a year in China during university, Matthias has developed respect and understanding for foreign cultures. He speaks several languages, has a Diploma in Economics, Languages and Cultural Area Studies from Passau University and is a CFA charterholder. In his freetime, Matthias enjoys skiing, rock climbing and mountaineering.

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Murray Stahl of Horizon Kinetics on Cryptocurrencies and Equity Markets

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Financials, Ideas, Macro, North America

Murray Stahl of Horizon Kinetics discussed cryptocurrencies and equity markets at Best Ideas 2018.

About the instructor:

Murray Stahl is Chief Executive Officer, Chairman of the Board of Horizon Kinetics and is a co-founder of the Firm. He has over thirty years of investing experience and is responsible for overseeing the Firm’s proprietary research. Murray serves as the Firm’s Chief Investment Officer, and chairs the Firm’s Investment Committee, which is responsible for portfolio management decisions across the entire Firm. He is also the Co-Portfolio Manager for a number of registered investment companies, private funds, and institutional separate accounts. Additionally, Murray is the Chairman and Chief Executive Officer of FRMO Corp. He is also a member of the Board of Directors of the Bermuda Stock Exchange, the Minneapolis Grain Exchange, Winland Electronics, Inc., and IL&FS Securities Services Limited. Prior to co-founding the Firm, Murray spent 16 years at Bankers Trust Company (1978-1994) as a senior portfolio manager and research analyst. As a senior fund manager, he was responsible for investing the Utility Mutual Fund, along with three of the bank’s Common Trust Funds: The Special Opportunity Fund, The Utility Fund, and The Tangible Assets Fund. He was also a member of the Equity Strategy Group and the Investment Strategy Group, which established asset allocation guidelines for the Private Bank. Murray received a Bachelor of Arts in 1976, a Masters of Arts in 1980 from Brooklyn College, and an MBA from Pace University in 1985.

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Madalena Energy: Micro-Cap Oil and Gas Company with Active Shareholder

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Energy, Equities, Ideas, Micro Cap, South America

David Tawil of Maglan Capital presented his in-depth investment thesis on Madalena Energy (Canada: MVN) at Best Ideas 2018.

Madalena Energy is the only independent, publicly-traded, Argentina-exclusive oil and gas exploration and production company.

In May 2017, David hand-picked new management for the company, led by Jose Penafiel (CEO) and Alejandro Penafiel (board member). David’s firm, the company’s largest shareholder, has spent the past few years restructuring the company’s asset portfolio, balance sheet, operations, and management.

Madalena generates positive FCF of ~$5 million annually, with David estimating annualized FCF of $9 million as early as 1H18. The business appears fully financed for the next few years. The equity market cap is ~$115 million, and David sees upside to $2 per share vs. a recent quotation of $0.20 per share.

About the instructor:

David D. Tawil is Co-founder of Maglan Capital and serves as President. Maglan is an event-driven, corporate turnaround-focused fund, with a concentration on U.S.- and Argentina-centric, small-cap, activist positions. The fund has been operating for over 6 years and the principals have very deep experience in bankruptcy, turnaround and restructuring. Prior to founding Maglan Capital in 2011, David was an investment banker with Credit Suisse, where he served as Director of Leveraged Finance and co-managed the fixed-income alternative asset trading business, focusing on sourcing and trading illiquid high-yield and distressed debt. Before joining Credit Suisse, David was an attorney with Davis Polk & Wardwell, specializing in workouts and bankruptcies. He began his legal career as an associate at Skadden, Arps. David earned a BS degree in Business Management, graduating magna cum laude, from Yeshiva University, and he earned a JD degree from the University of Michigan Law School.

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Unipar Carbocloro: In-Depth Idea Presentation

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Ideas

Tito Avila of LIS Capital presented his in-depth investment thesis on Unipar Carbocloro (Brazil: UNIP3)at Best Ideas 2018.

Unipar Carbocloro is a chemical holding company. When Tito and Mathias first came across the company, the “scenery” was not favorable. The company had a historically poor relationship with the market. It was involved in a process to take the company private, creating a misalignment of interests between the controlling shareholder and the minority shareholders. The company was largely ignored and discredited. A less obvious element was the decent business model – a cash-cow producer of chlorine and caustic soda with a quasi-monopolistic position in the southeastern Brazilian market. Add to that an accretive bargain-priced acquisition of a PVC producer in a verticalization movement. While the stock has appreciated considerably since the delisting attempt failed, it recently continued to trade at a comfortable margin of safety, as several sources of additional cash flows are beginning to be unlocked.

About the instructor:

Tito Avila is one of the founding partners at LIS Capital, a value investment firm based in Brazil that seeks investments in companies with a strong risk/return proposition. Previously, Tito worked at Orbe Investimentos. Tito graduated in Economics at FEA-USP.

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Telesites : In-Depth Idea Presentation

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Ideas

Chris McIntyre of McIntyre Partnerships presented his in-depth investment thesis on Telesites (Mexico: SITES) at Best Ideas 2018.

Telesites is a regulatory-forced spin of a high-quality, non-cyclical asset with strong growth opportunities and catalysts in the next 12-24 months. Telesites is a Mexican tower company spun out of America Movil (AMX) due to regulatory pressure given AMX’s dominant mobile market share (70%), with the regulatory goal of giving AMX’s competitors access to the towers. Telesites owns the largest portfolio of towers in Mexico with ~50% market share, with many of the best urban locations and an even stronger share of rural markets. Towers are a particularly resilient area of telco as they are mission-critical to cellular networks, which are mission-critical to their customers. Chris views the shares as cheap on an absolute and comparable basis.

About the instructor:

Chris McIntyre is the founder of McIntyre Partnerships, a concentrated value fund located in New York City. He employees a selective-contrarian strategy focused on event driven, GARP, and distressed investments. Prior to founding McIntyre Partnerships, he was a Managing Director at MAK Capital, a value focused equity and credit fund, where he managed investments in consumer, telecom, and special situations. Prior to that, he was an analyst at several funds including Cobalt Capital and MDR Capital. Chris is a CFA charterholder. He is a University of Virginia graduate with degrees in Economics and Government.

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Treehouse Foods: In-Depth Idea Presentation

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Ideas

Jeff Sutton of ValueTree Investments presented his in-depth investment thesis on Treehouse Foods (NYSE: THS) at Best Ideas 2018.

Treehouse Foods is the largest provider of private label food and beverage products in the U.S. The company’s product lines span a variety of categories, including snack nuts, frozen baked goods, cookies, crackers, pretzels, cereals, dry pasta, and macaroni and cheese dinners, powdered drink mixes, salad dressings, Mexican sauces, jams and jellies, and pickles. TreeHouse’s stock price has declined by ~50% from highs in April 2017, following a series of earnings misses, lowered guidance, and management transitions. The company’s underlying fundamentals remain strong. THS recently traded at a trailing P/E of ~15x, EV/EBITDA of ~8x, and merely 8.6x free cash flow, an FCF yield of ~12%. THS is valued at 20-50% below comparable multiples. With the recent drop in the stock price following the 3Q17 earnings announcement, TreeHouse is valued near its lowest historic level based on price to free cash flow. If THS returned to the historic average P/FCF multiple of 16x, based on recent fundamentals, the stock price would be valued at ~$83 per share. Combining the potential results from TreeHouse 2020 (a recently announced restructuring plan) with the average P/FCF multiple for the industry, THS could be worth $170 per share. Jeff believes a company’s underlying long-term intrinsic value is driven by a stream of sustainable and growing FCF. In the case of THS, a 7% FCF yield (~14x FCF) implies a valuation of ~$98 per share, roughly double the recent stock price.

About the instructor:

Jeff Sutton has over 18 years of investment experience, and has been a Chartered Financial Analyst (CFA) charterholder for over 14 years. Prior to founding ValueTree, he worked as an equity analyst for a long-short hedge fund, as a project manager at a $1 billion family office, and as an associate at a Southeastern private equity firm. Academically, Mr. Sutton graduated summa cum laude and Phi Beta Kappa from Rhodes College with two B.A. degrees, with majors in International Business and French. He has served as a member of the Rhodes College Alumni Executive Board. He has also earned a Master of Business Administration (MBA) degree from the Darden Graduate School of Business Administration at the University of Virginia, where he was the Senior Portfolio Manager of the Darden Fund.

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Transnational Corporation of Nigeria: In-Depth Investment Thesis

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Ideas

Taslim Ahmed of Eximus Partners presented his in-depth investment thesis on Transnational Corporation of Nigeria (Lagos: TRANSCORP) at Best Ideas 2018.

Transnational Corporation of Nigeria, established in 2004, has two core businesses: (i) a hotel business with consistent earning power and a wide moat due to its position as the only hotel of its kind in the country’s capital, and (ii) a power generating company with installed capacity of 972 MW and operating capacity of 595 MW at yearend 2017. The hospitality company has two hotels under construction, with a completion date in 2019 for the more important hotel, which should more than double the company’s revenue. The power company is expected to reach full capacity by 2018 and to expand installed capacity to 2,500 MW in the coming years. The power company represents the more significant opportunity, with tariffs expected to increase by 65+% due to changing macro conditions. The share price has yet to reflect this change. Increased capacity and tariffs will lead to increased profitability for the 40% operating margin utility company. Transcorp recently traded at a market cap of 58 billion naira ($190 million) vs. a 46 billion naira ($150 million) market cap for the listed hospitality company alone. Meanwhile, the power company had 2016 revenue of $126 million and operating profit of $52 million. As a result, Taslim sees potential for 140+% share price upside.

About the instructor:

Taslim Ahmed is the founder and managing partner of Eximus Partners. He is currently a final year undergraduate at Bocconi University, Milan, Italy. He started Eximus Partners in 2013, after a short stint at Sigma Securities (Stock Brokerage) as an intern. He invests in the U.S and Nigerian markets with focus on the latter using an opportunistic approach to investing.

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Time Technoplast: In-Depth Idea Presentation

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Ideas

Gaurav Aggarwal of Metis Capital Management presented his in-depth investment thesis on Time Technoplast (ISIN: INE508G01029) at Best Ideas 2018.

About the instructor:

Gaurav Aggarwal, CFA, CPA, CIPM is the co-founder and co-portfolio manager of Metis Opportunity Fund (MOF). Prior to starting Metis in 2011, he was a senior analyst with portfolio management duties over $50 million in fund of fund assets at a leading regional investment bank (Global Investment House) in the Middle East. Prior to this, he was with Bay Harbour Management, a $1.2 billion distressed debt and equity hedge fund in New York City. He has also served as an analyst with Polen Capital Management, a $8 billion+ long-only firm with a very successful long-term track record. He received an M.S. in Accounting (specializing in Finance) and B.S. in Business Administration from the University of North Carolina at Chapel Hill. He has publicly committed to create a charity corpus by initially allocating 10% of his annual share of earnings (management and incentive fees) from fund management. He will in the future then deploy this corpus to charity/cause of his choice.

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Nelnet: In-Depth Idea Presentation

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Ideas

Rimmy Malhotra of Nicoya Capital presented his in-depth investment thesis on Nelnet (NYSE: NNI) at Best Ideas 2018.

Nelnet may appear to be a leveraged company whose core student loan business is in decline, and its second-largest business line, government student loan servicing, is exposed to near-term renewal risk by the U.S. government. Actually, while the core student loan business is in decline, the market misunderstands the other underlying businesses. The core student loan book is federally guaranteed, match-funded with non-recourse debt, and is in rapid run-off. The federally guaranteed cash flows from this business represent roughly 75% of the company’s recent market capitalization. Over the past decade, Nelnet has diversified into multiple other businesses that are thriving and growing. Rimmy believes that over the next three years Nelnet may become worth more than double the recent stock price, coupled with strong downside protection. Founder Mike Dunlap started the company with a $50,000 equity investment in 1996, which he grew to $109 million by the IPO in 2003. In the IPO, he raised another $168 million of equity capital and has growing equity to $2+ billion in tangible book value and, according to Rimmy, even more in intrinsic value.

About the instructor:

Mr. Rimmy Malhotra is Portfolio Manager at Nicoya Capital. The Nicoya Fund is an investment partnership with limited investing constraints. Coupled with a stable of very long-term oriented partners we invest in a concentrated and deliberate fashion across a wide variety of industries, and company sizes. Currently, Rimmy serves on the board of Command Center International (ticker: CCNI), and previously served on the board of Peerless Systems.

Rimmy served for three years as a United States Peace Corps Volunteer in Central America. He earned an MBA in Finance from The Wharton School and a master’s degree in International Affairs from The School of Arts & Sciences at the University of Pennsylvania where he is a Lauder Fellow. Mr. Malhotra holds undergraduate degrees in Computer Science and Economics from Johns Hopkins University.

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Thomas Cook India: In-Depth Idea Presentation

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Ideas

Ashish Kila of Perfect Group presented his in-depth investment thesis on Thomas Cook India (India: TC) at Best Ideas 2018.

Thomas Cook India offers an opportunity to “go back in time” and buy an investment vehicle like Berkshire Hathaway when it was still in its infancy, run by a competent investment manager like Prem Watsa who has grown book value at Fairfax by 19% annually over three decades. Ashish expects Watsa’s influence to benefit the rate of long-term compounding at Thomas Cook. As Richard Zeckhauser writes on investing in the unknown and unknowable, when an opportunity to do “side car” investing presents itself, one should not miss it. Ashish also quotes Munger: “To find wonderful businesses, one needs to find them small and get them when they’re little.”

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About the instructor:

Ashish Kila is a rank holder CA and MBA from MDI Gurgaon. He has worked with leading investment banks like Goldman Sachs & Morgan Stanley in their equity research division and now is the CIO of the group’s investment management division . Ashish regularly speaks at various business schools like MDI Gurgaon & investor forums like October Quest, IIF, NIRC (ICAI), Flame Investment Lab-Alumni Meets, Perfect Research.

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