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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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Haw Par: Undervalued Singapore-Based Family-Controlled Conglomerate

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

William Thomson of Massif Capital presented his in-depth investment thesis on Haw Par (Singapore: H02) at Best Ideas 2018.

Haw Par is a deeply undervalued, Singapore-based family-controlled conglomerate with interests in consumer healthcare, real estate, and a substantial equity portfolio. The primary operating business of the company is the century-old Tiger Balm brand, which is both capital-light and FCF-positive. The company has a fortress-like balance sheet, with a portfolio of investments, real estate, and net cash, collectively valued at more than the recent market capitalization of the entire company. The shares recently traded at a ~40% discount to intrinsic value of S$18-20 per share, presenting investors a potential opportunity to generate an annualized return of 11-14% over an assumed four-year investment period.

Read Will’s article on hunting for value in Singapore.

About the instructor:

Will Thomson is currently a Managing Partner at Massif Capital, a value-oriented investor partnership focused on global opportunities in the small and mid cap space, with special attention given to industrial and commodity-related businesses. He has previous energy and mining related work experience in private equity, credit analysis, insurance and government policy. Massif Capital combines a fundamentals based approach to individual company assessment with in-depth capital cycle analysis to find compelling investment opportunities.

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Sinclair: Large U.S. Broadcast TV Player Acquiring Tribune Media

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

Keith Weissman of Sibilla Capital Management presented his in-depth investment thesis on Sinclair Broadcast Group (Nasdaq: SBGI) at Best Ideas 2018.

Sinclair Broadcast Group (Nasdaq: SBGI) is one of the largest broadcast TV operators in the U.S.

The company is in the process of acquiring Tribune Media, which will bring total station count to 233 stations covering 108 markets, not accounting for possible divestitures. The acquisition will diversify the company and add stations in major markets in which the company lacks a presence. The increased scale will provide additional leverage with advertisers and cable companies in addition to cost efficiency in producing content.

The regulatory environment under Donald Trump made the pending acquisition of Tribune possible and provides the company with a fertile environment for growth over the next few years. The FCC has relaxed several rules, which favors Sinclair. Keith believes the benefits of the Tribune acquisition and beyond are not captured in the recent stock price.

About the instructor:

Keith Weissman is a Senior Analyst and Director of Research at Sibilla Capital. Keith is also the co-Founder of Quadrant 1, an advanced finance training company. He has more than 15 years of experience in equity research and principle investment. His approach to fundamental analysis has been developed over his career having looked at investment opportunities across a variety of sectors from both the perspective of a market-oriented and private equity investor. Prior to joining Sibilla, Mr. Weissman served as a research analyst at CLSA Asia-Pacific Markets covering companies in the aerospace sector. During his time at CLSA, he developed a comprehensive framework for analyzing investment opportunities which serves as the basis for fundamental research performed at Sibilla. Before transitioning to CLSA, he closed over $1 billion in principle investments. In doing so, Mr. Weissman developed deep due diligence and valuation skills that formed the foundation of his approach to investment research.Mr. Weissman holds a Master’s in Business Administration from Columbia Business School and a Bachelor of Science degree in Economics from the Wharton School of the University of Pennsylvania. In addition, he is a CFA charter holder, a CPA license holder and is an adjunct professor in the Gabelli School of Business at Fordham University, the Zicklin School of Business at Baruch College, and the Lubin School of Business at Pace University. He has lectured on topics such as corporate valuation, investment analysis, portfolio management, banking and central bank policy, the securities industry, and risk management.

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IES Holdings: Well-Managed, Owner-Operated Rollup in Electrical Wiring Services

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Equities, Ideas, Jockey Stocks, North America, Small Cap, Special Situations

Mike Kruger of MPK Partners presented his in-depth investment thesis on IES Holdings (Nasdaq: IESC) at Best Ideas 2018.

IES Holdings installs electrical wiring for nearly the entire spectrum of real estate and also makes or repairs equipment for electric motors. A high-flying roll-up in the late 1990s, the company blew up around 2004 and has flown under-the-radar ever since. IES is 58%-owned by chairman and former hedge fund manager Jeffrey Gendell. In May 2015, Gendell began executing the same playbook he used to turn Patrick Industries (PATK) into a home-run for investors. Gendell is rolling up asset-light electrical businesses that are too small to attract bids from private equity. Multiples have averaged ~6.6x EBITDA less capex. With $378 million in NOLs, the deals are highly accretive to FCF. Combined with some secular and cyclical growth, FCF has grown strongly since Gendell took the reins, but FY17 (ended September) results were depressed by two issues that have been solved recently. IES has roughly zero net debt and trades at ~10x Mike’s low-end and 8.5x his base-case FCF for FY18.

About the instructor:

Mike Kruger’s first investment experience was watching his shares of Berkshire Hathaway get cut in half during the tech-mania of the late 1990’s. But he didn’t panic, and today manages a global focused value portfolio of equities and distressed debt in New York City. He previously worked as a former equity and credit analyst at Promethean Asset Management LLC in NYC, and prior to that as a high-yield credit analyst at Liberty Mutual in Boston. He holds a Bachelor’s degree from the College of Arts and Sciences at Cornell University.

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Discovery Communications: Acquisition of Scripps Creates Attractive Entry Point

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Jockey Stocks, Mid Cap, North America, Special Situations, Wide Moat

Robert King of Baskerville Capital Management presented his in-depth investment thesis on Discovery Communications (Nasdaq: DISCA) at Best Ideas 2018.

Discovery is a media and entertainment company whose channels include the eponymous Discovery Channel, The Learning Channel, Animal Planet, Investigation Discovery, OWN, Science, Velocity, and Eurosport. Discovery is one of few media companies with a truly global presence; it derives roughly half of revenue from domestic subscribers and a little less than half of revenue from international subscribers. The recently announced acquisition of Scripps Networks has created an interesting situation that causes the company to trade at a pro forma FCF yield of 16% despite pro forma run-rate ROIC of ~26%. Domestically, Discovery should benefit defensively from the acquisition of Scripps as it gives the company more scale when it puts itself in front of distributors and advertisers. Internationally, the Scripps acquisition provides a way for Discovery to continue international revenue growth as the company grows the Scripps channels’ miniscule international revenue. Rob believes that, in a few years, the company will be worth multiples of the recent price, benefiting from earnings growth and multiple expansion.

About the instructor:

Robert King is the founder and chief investment officer of Baskerville Capital Management, a private investment manager that focuses on a concentrated portfolio of investments. Baskerville relies on fundamental analysis to find mispriced companies within misunderstood industries that are currently undergoing a structural change. This approach gives Baskerville the best chance of finding wonderful companies selling at a reasonable price. Prior to founding Baskerville Capital Management, Robert was a lawyer at a law firm working on corporate and restructuring matters. Robert holds a BA in Mathematics and a BS in Neurobiology from The University of Texas at Austin, a JD from Georgetown University, and an MBA from Yale University.

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BlueLinx: Price-Indiscriminate Selling by Legacy Owner Offers Entry Opportunity

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Micro Cap, North America

Eric DeLamarter of Half Moon Capital presented his in-depth investment thesis on BlueLinx (NYSE: BXC) at Best Ideas 2018.

BlueLinx is a home-building products distributor with a footprint in the Eastern and Central U.S. October’s price-indiscriminate selling of 53% of the company’s shares by legacy private equity owner Cerberus Capital (insignificant last position in its 2004 vintage fund) pushed BXC’s share price down 30+% and created a timely and unique opportunity to buy a sound business with a solid management team at a discount to intrinsic and asset value. The removal of this overhang opens up the float, improves liquidity, expands the potential shareholder base, and enables the company to use stock as a currency for acquisitions. As the selling pressure from the recent offering dissipates, and now that event-driven traders have likely moved on, the stock price appears poised to move higher. Several catalysts could create material upside, with downside protection derived from the company’s large asset base.

About the instructor:

Eric DeLamarter is the PM of Half Moon Capital— a research intensive, deep value-oriented, long/ short partnership which invests across various sectors and markets with a focus on small-mid cap companies and special situations. Prior to founding Half Moon, Eric was at Stelliam Investment Management, a value-oriented hedge fund in New York, an associate at Lineage Capital, LLC, a middle-market private equity fund and an investment banking analyst at RBC Capital Markets. Eric holds an MBA from The Heilbrunn Center for Graham & Dodd Investing at Columbia Business School, with a concentration in applied value investing and a BA from the University of Michigan.

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