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Saigon Cargo Services: Vietnamese Air Cargo Terminal Operator with Growth “Runway”

January 12, 2018 in Asia, Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Micro Cap, Small Cap, Transportation, Wide Moat

Clement Loh of Lion Rock Partners presented his in-depth investment thesis on Saigon Cargo Services (Vietnam: SCS) at Best Ideas 2018.

Saigon Cargo Services is one of two air cargo terminal operators located in the Tan Son Nhat Airport, which serves Ho Chi Minh City and southern Vietnam. SCS benefits from a strong moat based on its privileged location and earns 40% return on equity as a result. The only competitor, Tan Son Nhat Cargo Services, is at capacity and has no available land for expansion. SCS is running at 70% of phase one capacity of 200,000 tons and can easily increase capacity to 350,000 tons. Revenue is expected to compound at 15% for at least the next six to seven years from cargo traffic growth and pricing power. Clement expects almost all of the incremental revenue to turn into free cash flow as the business has significant operating leverage and low maintenance capex needs. Management has adopted a transparent culture and intelligent capital allocation policy, with a majority of cash flow returned as dividends. The business also has potential options for further revenue streams by developing unused real estate at their prime site next to the airport. The major risk (and opportunity) for SCS lies in the development of a new airport expected to start operations in 2025. As the major shareholders in SCS are the military and the airport authority, it is likely SCS will play a major role in the new airport, but details will not emerge for another few years. SCS shares were recently valued at 17x 2018 earnings or 5x peak cash flow (when capacity is reached in 2023). Clement believes a business with such a strong moat and reinvestment opportunities should have a higher valuation and provides a good margin of safety for the long-term investor.

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About the instructor:

Clement Loh is the Investment Manager of Lion Rock Partners, a private family fund based in Hong Kong. The fund applies the principles of value investing to seek out companies with competitive advantages selling at a reasonable price with a focus on emerging Asian markets and smaller companies. Clement holds a master’s degree in business administration from the University of Toronto and a degree in pharmacy. Prior to entering the investment profession, Clement worked in the pharmaceutical industry and is a non-practicing pharmacist. His interests include economics, strategy, science, education and history.

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Diamond Hill Investment Group: Well-Run, Value-Oriented Asset Manager

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

Chris Crawford of Crawford Fund Management presented his in-depth investment thesis on Diamond Hill Investment Group (Nasdaq: DHIL) at Best Ideas 2018.

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About the instructor:

Chris Crawford is the Managing Partner and Chief Investment Officer of Crawford Fund Management, LLC, a Boston-based Registered Investment Advisor. The firm manages a long/short fund that invests in equities and options with an emphasis on underfollowed public companies. Prior to co-founding Crawford Fund Management in 2009, Chris was Managing Director, Portfolio Manager and head of the Boston office with Stark Investments, a $10B multi-strategy global hedge fund. At Stark, Chris built the firm’s equity long/short team and managed $1.5B in equity long/short assets as well as a $200M short-biased portfolio. From 2003-2006, Chris was Senior Vice President and Portfolio Manager with Putnam Investments, and co-Portfolio Manager of the $3B Putnam International Capital Opportunities Fund and related client accounts. From 2000 to 2003, Chris was a Partner and Senior Analyst with ABRY Partners on a team managing a $400M TMT-focused hedge fund. From 1996 to 2000, Chris was with Wellington Management Company, where he served as a Global Industry Analyst covering the media industry and as a Portfolio Manager for $600M in client sector-fund and institutional assets. Chris holds an MBA from The Wharton School of Business and graduated magna cum laude from University of Pennsylvania with a BA in Physics, BS in Economics, BAS in Systems Engineering and an MA in International Relations.

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Farmer Brothers: Corporate Restructuring to Drive EBITDA Improvement

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

Kaushal Majmudar and Sam Namiri of Ridgewood Investments presented their in-depth investment thesis on Farmer Brothers (Nasdaq: FARM) at Best Ideas 2018.

Farmer Brothers is a national coffee roaster and distributor of coffee, tea, and culinary products established more than a century ago. The company has a strong presence in the direct-store-delivery segment of the coffee market and sells to thousands of customers, from small independent restaurants to large customers such as McDonald’s and Target. The company has grown sales volumes over the last five years, in part due to the established trend of increased coffee consumption in the U.S., with specialty coffee segments growing faster than the overall coffee market. FARM is in the midst of a corporate restructuring that should help increase EBITDA by 50+% over the next eighteen months. One of the key near-term catalysts that will drive value is the company’s recent relocation of its main manufacturing facility and headquarters from higher-cost Torrance, California to its growing facility in Northlake, TX. Other positives include recent tuck-in acquisitions that are expected to be accretive to EBITDA, and other operational improvements. Ken and Sam’s thesis is that once the new plant in Texas is fully operational and running closer to capacity, FARM could reap cost synergies that will drive cash flow growth and price appreciation over the next 18-24 months.

About the instructors:

Kaushal “Ken” Majmudar, CFA founded Ridgewood Investments in 2002 and serves as its Chief Investment Officer focusing on managing long-term Value Investing based strategies. Ken’s high level experience and work with clients has been recognized and cited on multiple occasions. He is a noted value investor who has written and spoken extensively on the subject of value investing and intelligent investing. Prior to founding Ridgewood Investments in late 2002, Ken worked for seven years on Wall Street as an investment banker at Merrill Lynch and Lehman Brothers where he has extensive experience working on initial public offerings, mergers and acquisitions transactions and other corporate finance advisory work for Fortune 1000 companies. He has been a member of the Value Investors Club – an online members-only group for skilled value investors founded by Joel Greenblatt – where he posted a buy recommendation on Nvidia in 2002 – possibly one of the best long-term investment ideas ever posted on VIC. He has also been a member of SumZero – an online community for professional investors, and written for SeekingAlpha – among others. Ken graduated with honors from the Harvard Law School in 1994 after being an honors graduate of Columbia University in 1991 with a bachelor’s degree in Computer Science. He is admitted to the Bar in NY and NJ, though retired from the practice of law, as well as a member of the CFA Institute and EO (Entrepreneurs Organization).

Sam Namiri recently joined Ridgewood to help build its Small and Microcap investments and will be co-managing the Ridgewood Select Value Fund with Ken. Prior to Ridgewood, Sam spent five years as an associate at Grand Slam Asset Management, a small cap value based Hedge Fund. Sam graduated with a bachelor’s in Industrial Engineering and Operations Research from UC Berkeley in 2005 and an MBA from Columbia Business School in 2012.

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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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