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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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Guess: In-Depth Idea Presentation

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

Mathew Klody of MCN Capital Management presented his in-depth investment thesis on Guess (NYSE: GES) at Best Ideas 2018.

Guess is a branded licensor, wholesaler, and retailer of apparel and accessories. Guess operates globally, generating $2+ billion in annual sales. Retailers as a group have been under tremendous pressure over the past year as anything seen going up against Amazon is presumed to face imminent demise. Long Amazon/short traditional retail has been a big winner and is now a popular, crowded theme. In a momentum, ETF-driven world, individual opportunities arise from crowded macro trades. Guess is a great example of that. The balance sheet is pristine, and Guess owns a high-margin licensing business. Two years ago, Guess hired a new CEO, Victor Herrero, who built a $2 billion business in Asia Pacific for Inditex, one the world’s largest and most successful fashion retailers. He quickly and aggressively put in place some key strategic initiatives. These include (i) consolidating a saturated American store base, (ii) investment and expansion in international markets, and (iii) internal initiatives aimed at more effective branding. He also incorporated some of the best-of-breed design, sourcing, and distribution methods of Inditex. Growth in Europe and Asia is accelerating as this investment period comes to an end. Mathew sees a path to $2+ EPS, and with the cash on the balance sheet, Mathew sees fair value of $30+ per share.

About the instructor:

Mathew T. Klody, CFA is the Founder and Managing Partner of MCN Capital Management LLC, a fundamental, intrinsic value oriented long/short investment partnership based in Oak Brook, IL. Prior to founding MCN, Mathew was the Senior Vice President and Analyst at Chicago-based Sheffield Asset Management, a long/short equity hedge fund from 2007-2012. From 2003-2007, Mathew was an investment analyst at the holding company of Alleghany Corporation (ticker “Y”) covering the equity portfolio, corporate development and the reinsurance portfolio. Mr. Klody began his career as a credit analyst at the Global Corporate and Investment Bank at Bank of America. Mr. Klody is a Chartered Financial Analyst. Mathew graduated summa cum laude from the University of Notre Dame with a degree in finance and business economics and has served as a guest lecturer to the Notre Dame Institute for Global Investing, the Behavioral Finance class and the Applied Investment Management program at the Mendoza College of Business at the University of Notre Dame. Mathew was chosen to speak at the March 2017 Grant’s Interest Rate Observer conference and has been frequently interviewed for and quoted in the publication. He was selected as an emerging manager speaker at Invest For Kids in Chicago in November of 2017. He serves as a member of the Parish Council at St. Joan of Arc Church in Lisle, IL.

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Afterpay Touch: In-Depth Idea Presentation

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

Joe Magyer of Lakehouse Capital presented his in-depth investment thesis on Afterpay Touch (Australia: APT) at Best Ideas 2018.

Afterpay Touch is a little-followed, fast-growing company based in Melbourne, Australia. The company’s core offering, Afterpay, is a “buy now, pay later” consumer payment platform that in just over three years has reached acceptance at more than 10,000 online retailers. Afterpay, which is now used by 1.3+ million Australians, is also expanding into new adjacent verticals, including travel, in-store retail, and new countries, which have high ceilings.

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About the instructor:

Joe Magyer is the Chief Investment Officer of Lakehouse Capital. He’s also the Portfolio Manager of the Lakehouse Small Companies Fund, and the Lakehouse Global Growth Fund. He has held senior investing roles in both the USA and Australia and has been with the company for 10 years. He previously served as Director of Research at The Motley Fool Australia as well as the Portfolio Manager of Australia’s Motley Fool Pro, a real-money portfolio with a long-only, ASX-spanning mandate. During Joe’s tenure at Motley Fool Pro, from inception at the end of March 2014 through mid-August 2016, the portfolio returned a cumulative total return of 81.8% vs. 14.9% for its benchmark, the ASX All Ordinaries Accumulation Index. Before making the leap to Australia, Joe served as the Lead Advisor of Motley Fool Inside Value, which was recognised by The Wall Street Journal and Hulbert Financial Digest for outstanding performance. Joe is also known for his columns for the Australian Financial Review and regular appearances on the likes of CNBC and Sky News Business. Joe holds a Bachelor of Business Administration from the University of Georgia and a Master of Science in Finance from Georgia State University. He is a CFA charterholder.

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Cemex: In-Depth Idea Presentation

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

Danilo Santiago of Rational Investment Methodology presented his in-depth investment thesis on Cemex (NYSE: CX) at Best Ideas 2018.

Danilo estimates that the shares offer an internal rate of return of ~14%, i.e., investment value, in real terms, would double in about six years. Cemex earnings have been recovering for a few years. However, discussions about NAFTA appear to have pressured the market quotation. If negotiations do not lead to a disastrous deal for Mexico, the recent share price may provide a classic “entry point” opportunity. The real long-term threat to Cemex may be an adverse impact of “the great economic experiment”, with the Fed and other central banks still maintaining real interest rates at negative levels. Not surprisingly, housing prices in the U.S. have been forming an “echo bubble”, which might be preventing housing starts from normalizing. Another U.S. housing crisis would impact Cemex margins, although probably not to the extent observed in the 2009-2011 period. The company’s financials are on the mend. Ill-timed acquisitions from the mid-2000s still affect the balance sheet, but leverage ratios are lower than a few years ago. Cemex is in a much better position to weather another crisis (or pause) in the U.S. housing sector.

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.

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Two Large-Cap Compounders in Asia: Taiwan Semiconductor Manufacturing and Tencent Holdings

January 13, 2018 in Asia, Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Information Technology, Jockey Stocks, Large Cap, Wide Moat

Stanley Lim of Slimhawk Partners presented his in-depth investment theses on Taiwan Semiconductor Manufacturing (Taiwan: 2330) and Tencent Holdings (Hong Kong: 0700) at Best Ideas 2018.

TSM is a large-cap stock with a high degree of pricing power. It is the largest semiconductor manufacturing foundry in the world and holds 50+% global market share. TSMC has compounded net income by ~30% annually since 1991, with net income margin consistently above 30%. The company retains growth potential as the foundry business continues to consolidate and technology sectors such as the “internet of things”, cloud computing, and artificial intelligences are emerging. TSMC is an example of what Buffett terms a “wonderful company at a fair price”.

Tencent is the largest technology company in China. It has two key platforms with close to one billion monthly active users each: QQ and WeChat. Tencent is also a key platform in China for services such as mobile news, video streaming, music, online publishing, and mobile app store. Tencent has seen strong growth, with revenue and net income up 71% and 74%, respectively, annually from 2001-2016. The company continues to find ways to grow as it becomes the dominant platform in China. It also pursues international expansion, both organically via WeChat and through acquisitions.

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Two Ideas with Compelling Risk-Reward Tradeoffs: Telecom Italia and TripAdvisor

January 13, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Consumer Discretionary, Deep Value, Equities, Europe, GARP, Ideas, Information Technology, Mid Cap, North America, Special Situations, Wide Moat

Steven Wood of GreenWood Investors presented his in-depth investment theses on Telecom Italia (Italy: TIT) and TripAdvisor (TRIP) at Best Ideas 2018.

About the instructor:

Steven Wood, CFA founded GreenWood Investors in late 2010 based on core beliefs that great returns are generated through a concentrated global portfolio of special situations and deep value opportunities, and cannot be generated by being overly concerned with month-to-month returns. We believe investors should have full transparency and liquidity and we share our research with our sophisticated investors, who in turn provide invaluable insights that help us hone our portfolio. Prior to founding GreenWood Investors, Steven worked with notable investors at Carr Securities, Kellogg Capital Group, and Aslan Capital in distressed, deep value, and special situations strategies. Through frequent marathons and by being the sole US-focused analyst in Leveraged Finance at RBC Capital Markets during the peak of the LBO boom, Steven has developed a high pain tolerance, a pre-requisite for value investing. Dissatisfied with just one view of the world, Steven received a bachelor of arts from Tulane University in Economics, Political Economy, and International Relations.

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