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FRP Holdings: Undervalued Real Estate Operating Business

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Deep Value, Equities, Ideas, North America, Real Estate, Small Cap

Curtis Jensen of Robotti & Company Advisors presented his in-depth investment thesis on FRP Holdings (Nasdaq: FRPH) at Best Ideas 2018.

FRP Holdings is a holding company that operates in three real estate-related businesses, including (i) the development, leasing and management of a portfolio of 3.9MM square feet of light industrial property; (ii) a mining royalties business that owns and leases nine active aggregates mines in the U.S. southeast; (iii) a land development business whose aim is to develop land and other real estate for its “highest and best use.”

About the instructor:

Curtis Jensen is the portfolio manager of the Ossia Partners Fund. Ossia Partners employs a fundamentals-based strategy, grounded in primary research, to identify securities whose public market prices diverge significantly from a conservative estimate of intrinsic or economic value. Prior to joining Robotti & Company Advisors in 2016, Curtis was employed by Third Avenue Management in various roles from 1995 to 2014. Curtis oversaw that firm’s Small-Cap strategy and, from 2003 until 2009, he also served as Co-Chief Investment Officer, along with the firm’s founder, Martin Whitman, until being named sole CIO in January of 2010. Curtis was a member of the firm’s management and risk committees and oversaw the recruiting and mentoring of the firm’s research team. During his tenure at Third Avenue Curtis was a member of the nominating committee of the Board of Directors at Investor AB, Sweden’s leading industrial holding company. Curtis holds a BA in Economics from Williams College and an MBA from Yale University School of Management.

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Oriental Watch, Vietnam Manufacturing, and Charle: Three Deep Value Ideas

January 12, 2018 in Asia, Audio, Best Ideas 2018, Best Ideas Conference, Consumer Discretionary, Deep Value, Equities, Ideas, Micro Cap, Quantitative

Juan Matienzo of Mercor Investment Group discussed deep value investing and presented his investment thesis on Oriental Watch (Hong Kong: 398), Vietnam Manufacturing and Export (Hong Kong: 422), and Charle Co. (Tokyo: 9885) at Best Ideas 2018.

Oriental Watch is an HK/China luxury watch retailer that trading for less than half of tangible book value and below liquidation value. It has a long history of profitability but has struggled in the past few years due to China’s crackdown on corruption and higher rental costs. Throughout this period of turmoil, the company has managed to maintain profitability in every year except one. Rental costs have been declining lately, and consumer sentiment might be improving.

Vietnam Manufacturing and Export is a motorcycle manufacturer that has lost money over the past few years of rapidly declining sales. The shares trade at a discount to cash minus all liabilities, which renders the valuation too low in Juan’s view. The company was profitable for many years in the past and has returned cash to shareholders.

Charle Co. is a Japanese seller of women’s underwear that trades for less than cash minus all liabilities. The company remains profitable, has a long history of profitability, and returns cash to shareholders via buybacks and dividends.

About the instructor:

Juan F. Matienzo is Managing Director of Mercor Investment Group, where he is responsible for the portfolio. Juan follows a deep value investing philosophy, and prefers companies that trade for less than liquidating value and at low multiples of normalized earnings. Juan has a BBA from UDLAP, and an MBA from Harvard Business School.

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Andina/Lazydays: RV Dealership Going Public via SPAC

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Consumer Discretionary, Equities, GARP, Ideas, North America, Small Cap, Special Situations

Eric Gomberg of Dane Capital Management presented his in-depth investment thesis on Andina/Lazydays (Nasdaq: ANDA) at Best Ideas 2018.

Andina/Lazydays is among the largest RV dealerships in the U.S. (~$600 million in 2017 revenue). The company is in the process of going public via a SPAC (fully backstopped with long-term investors). The valuation and economics of the deal are compelling. LazyDays is going public at 6.5x 2017 EBITDA, with a 10+% FCF yield, and has numerous companies under NDA to acquire at 2-3.5x EBITDA. LazyDays’ closest comp, Camping World (CWH) has seen multiple expansion from 7x to 12x EBITDA since an IPO in late 2016. Eric expects a combination of accretive M&A, geographic diversification, and multiple expansion to lead to meaningful share price appreciation. Given the fragmentation in the RV dealership industry (2,100+ dealers in the U.S.), there is a long runway for growth. Eric recently attended the National RV Convention, at which a panel discussed succession planning for RV dealers. There appear to be few viable exits, and LazyDays appears to be among the most attractive. LazyDays is an asset-light business, with capex at 1.1% of sales. The company should emerge from the going-public transaction with a clean balance sheet, with just 0.8x leverage, based on a $20 million term loan, which will likely be refinanced in the near term.

About the instructor:

Eric Gomberg founded Dane Capital Management in 2014. The firm is a private investment company that focuses on value and special situations investments.

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Restaurant Brands International and Charter Communications: Two Well-Managed Compounders

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Consumer Staples, Equities, GARP, Ideas, Jockey Stocks, Large Cap, Mid Cap, North America, Wide Moat

Francisco Olivera of Arevilo Capital Management presented his in-depth investment theses on Restaurant Brands International (NYSE: QSR) and Charter Communications (Nasdaq: CHTR) at Best Ideas 2018.

Restaurant Brands International owns three of the best quick-service restaurant brands in the world: Burger King, Tim Hortons, and Popeyes. As the franchisor of each brand, the company is essentially a royalty business with high returns on invested capital and low capex. Given the significant opportunity to expand global restaurant units, the company has a large runway to grow revenue and free cash flow over the long term. The company is essentially controlled by 3G Capital, which has implemented an ownership-oriented culture with strong leaders. The growth opportunity, free cash flow profile, and ownership culture make for an attractive business to own for the long term. The shares trade at ~23x LTM FCF and leverage is 5.6x EBITDA. Francisco estimates that the company could payout 38% of the recent market cap to shareholders over the next five years.

Charter Communications is the second-largest cable TV operator in the U.S., with 27 million customer relationships, 23 million broadband subscribers, and 17 million TV subscribers. Led by Tom Rutledge, Charter is unique in its operating strategy, which centralizes decision-making, simplifies products and services, and increases capital investment in order to maximize the potential of the cable network. By implementing the operating plan, Rutledge has improved customer growth, reduced costs per subscriber, and has accelerated EBITDA growth. Charter is an attractive investment because Rutledge is only beginning to implement his operating plan over a significantly enlarged Charter (following completion of the Time Warner Cable and Bright House Networks acquisitions in 2016). Charter trades at ~11x EBITDA and leverage is 4.3x EBITDA. Assuming constant leverage, Francisco estimates Charter could generate $35+ billion (~35% of the recent market cap) for deployment to repurchases or acquisitions over the next five years.

About the instructor:

Francisco M. Olivera is the Co-Founder and President of Arevilo Capital Management, an $11 million private investment fund. Arevilo was founded in 2014 with the goal of successfully investing in businesses by taking concentrated positions (10-25% of capital) with long-term holding periods (5-10+ years). From 2011 to 2013, Francisco worked as an analyst in J.P. Morgan’s Financial Sponsor Group within the investment banking division. Francisco received his BS from Bentley University in 2011.

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Autohome: Cash-Generative, Leading Online Automotive Portal in China

January 12, 2018 in Asia, Audio, Best Ideas 2018, Best Ideas Conference, Consumer Discretionary, Equities, GARP, Ideas, Information Technology, Mid Cap

James Fletcher of APG Asset Management presented his in-depth investment thesis on Autohome (NYSE: ATHM) at Best Ideas 2018.

Autohome is a business with a strong network effect, where the market underestimates pricing power, with improved corporate governance, strong cash generation, and an undervalued stock relative to history and global peers. The company is China’s leading online automotive portal, with 25+ million unique users per day and 28,000+ serviced dealers. Autohome is comparable to Autotrader.com in the UK, Cars.com or Autotrader.com in the U.S., and Carsales.com in Australia.

James’ investment thesis is based on four pillars:

(i) The company benefits from a network effect. It dominates the market with 80+% traffic share (based on unique users and time spent on websites), with most of the content in the form of user-generated content, forums, and reviews. A platform business is all about traffic and stickiness; Autohome dominates the market and continues to gain share, making the network effect more powerful.

(ii) The market may be underestimating the company’s pricing power. Autohome has been increasing APRU 25-40% per year to dealers and OEMs fairly easily in past years, recently at Rmb 46,000 per year, i.e., ~$10 per lead, much lower than global peers. Dealers are dependent on Autohome, and in James’ channel checks with Chinese car dealers, the ROIC of using Autohome’s platform is as high as 10x, as Autohome accounts for 30-40% of car leads but only 9% of marketing spend.

(iii) After a rocky eighteen months of changes in management and controlling shareholders, Ping An has taken control and seems to be refocusing the business on the core media platform business as well as looking for synergies in the auto financing business.

(iv) Autohome is an asset-light, cash-generative business. CFROI is 32%, the FCF yield is 4+%. The company has room for growth, with minimal investment required.

Peers in other countries trade at 7-15x EV to sales. Autohome traded as high as 17x but has recently been quoted at 6x EV to sales. The company has $1+ billion in cash on the balance sheet, equating to 10+% of market cap.

About the instructor:

James Fletcher is a portfolio manager with over 12 years of equity research experience. He is currently Director of small and midcap EM equities at APG Asset Management. James earned a B.S. in Finance from Brigham Young University, where he graduated summa cum laude and with University Honors. He is a CFA charterholder.

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Customers Bancorp: Regional Bank Holding Company with Spinoff Twist

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Financials, GARP, Ideas, North America, Small Cap, Special Situations

Tim Eriksen of Eriksen Capital Management presented his in-depth investment thesis on Customers Bancorp (NYSE: CUBI) at Best Ideas 2018.

Customers Bancorp is a regional bank holding company for Customers Bank that operates fifteen branches and offices from Boston to Philadelphia. The bank was founded in 1997 and has grown to nearly $10 billion in assets. Customers has a low efficiency ratio (operating expense divided by net interest income plus non-interest income), i.e., high operating margins. The bank trades at 13x trailing earnings and less than 1.2 times book value. Recent results have been negatively impacted by the BankMobile division, which Customers expects to spin off in 2018, and management’s decision to end 2017 below $10 billion in order to meet small issuer exemption rules. BankMobile has been losing ~$12 million annually, or $0.40 per share. The spinoff is projected to be worth about $3.50 per share, leaving the remaining bank trading at an attractive valuation. Post-spinoff, Tim estimates the bank stub at $22.50 to have an earnings run rate in excess of $3 per share, inclusive of the lower U.S. corporate tax rate. Based on an ability to grow assets and profits, Tim believes just over 7x earnings is attractive. His target price for the stock by the end of 2018 is $45 per share, or 13x his 2019 EPS estimate of $3.50 per share.

About the instructor:

Tim Eriksen is the President of Eriksen Capital Management, LLC. Since 2006, he has been the portfolio manager of Cedar Creek Partners LLC, a private fund focused primarily on micro-cap stocks. Since 2016 he has been the CEO of Solitron Devices Inc. (SODI), a small publicly traded company. Mr. Eriksen has a Master of Business Administration from Texas A&M University, and Bachelor of Arts degrees in History and in Political Studies from The Master’s University. From 2004 to 2005, Mr. Eriksen worked as an independent contractor, primarily for Walker’s Manual Inc., a publisher of investment books and newsletters that focuses on unlisted stocks, micro-cap stocks and community bank stocks. From 1999 to 2004 Mr. Eriksen was employed by Peter Kiewit & Sons, one of the country’s largest general contractors.

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Ontex Group: Disposable Personal Hygiene Products Maker at Discount

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Consumer Staples, Equities, Europe, GARP, Ideas, Small Cap

Scott Phillips of Templeton & Phillips Capital Management presented his in-depth investment thesis on Ontex Group (Brussels: ONTEX) at Best Ideas 2018.

About the instructor:

Scott Phillips is a principal and portfolio manager at Templeton and Phillips Capital Management, LLC. Prior to working with Templeton and Phillips Capital Management, LLC, Scott Phillips founded Cumberland Capital Corp, located in Chattanooga, TN. Founded in June 2004, Cumberland Capital provided equity research services to Green Cay Asset Management, a hedge fund management company located in Nassau, Bahamas. In this capacity with Cumberland Capital, Scott was the lead research analyst on the Siebels Hard Asset Fund a long/short equity fund managed by Green Cay Asset Management. In addition to consulting on this fund Scott also provided equity recommendations for the Green Cay Emerging Markets Fund. Prior to consulting Green Cay’s funds Scott was employed as a research analyst with Green Cay beginning in January of 2004. Before joining Green Cay, Scott was an equity research associate analyst with SunTrust Robinson Humphrey (including its predecessor companies) in Atlanta GA from January of 1999 to December of 2003. Scott co-authored with Lauren Templeton of the book “Investing the Templeton Way” released in 2008 by McGraw Hill. Scott is also the author of “Buying at the Point of Maximum Pessimism” a book on forward looking investment themes published by the FT Press in 2010. In addition to these books, Scott co-authored a revision of William Proctor’s 1983 biography of Sir John Templeton titled “The Templeton Touch” released in December 2012. Scott is a member of the John Templeton Foundation where he serves on the Finance Committee and Scott serves as chairman for the board trustees of the Templeton Foundation Inc, and as a member of the Audit Committee. Scott received his B.A. The University of the South.

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Micro Focus: UK Software Company That Thinks and Acts Like Private Equity Firm

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Europe, GARP, Ideas, Information Technology, Jockey Stocks, Mid Cap

Doug Ott of Andvari Associates presented his in-depth investment thesis on Micro Focus International (NYSE: MFGP, LSE: MCRO) at Best Ideas 2018.

Micro Focus is software company based in the UK that thinks and acts like a private equity shop tasked with the job of acquiring and managing a portfolio of mature infrastructure software assets. The strategy of acquiring mature assets, improving margins through operational efficiencies, and being keenly focused on cash flows and returns, has produced an annualized total return of 28% over the last decade, as compared to 8.3% for the S&P 500 Index. With Micro Focus having recently completed the acquisition of HPE’s software segment, the company has tripled in size, going from $1.4 billion to $4.4 billion in revenue. Over the next three years, Micro Focus should double EBITDA margins on 80% of HPE’s business, which will add a cumulative $600 million of EBITDA. Pro forma for the HPE acquisition, Micro Focus trades at 13x EBITDA and 19x FCF and remains undervalued, especially considering the high-caliber management team, proven strategy, and continuing opportunity to be the primary consolidator of its market.

About the instructor:

Doug Ott is the founder and Chief Investment Officer of Andvari Associates. Doug founded Andvari in 2013 after working for over three years as an analyst and portfolio manager at a value-oriented investment firm in Atlanta, Georgia. He has a BA in English Literature and History from Washington University in St. Louis and a JD from the Walter F. George School of Law.

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An Undervalued Portfolio Hedge for Value Investors

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Financials, Ideas, Macro, North America

Matthew Peterson of Peterson Capital Management presented his thesis on an undervalued portfolio hedge for value-oriented investors at Best Ideas 2018.

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About the instructor:

Matthew Peterson is the Managing Partner of Peterson Capital Management, LLC. Matthew has over a decade of experience with global financial services firms including Goldman Sachs, Morgan Stanley, Merrill Lynch, American Express, and Ameriprise Financial. Prior to forming Peterson Capital Management, LLC and launching Peterson Investment Fund I, LP, Matthew split time between Wall Street and London as Capital Markets Manager in the Financial Services Vertical at Diamond Management and Technology Consultants. Matthew worked as a member of both the U.S. and U.K. offices, with expertise spanning from risk management to derivative processing. During his tenure with Diamond, Matthew worked with top-tier investment banks, global payments firms, and international insurance companies to deliver high impact solutions to his clients’ most challenging business problems.

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