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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.

Teekay Offshore: Abandoned Public Stub of Mission-Critical Marine Infrastructure Business

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Deep Value, Equities, Ideas, North America, Small Cap, Special Situations, Transportation

Jeremy Deal and Seth Lowry of JDP Capital Management presented their in-depth investment thesis on Teekay Offshore LP (NYSE: TOO) at Best Ideas 2018.

Teekay Offshore is an abandoned public stub of a mission-critical marine infrastructure business, re-capitalized by Brookfield Business Partners, trading at a ~25% cash flow yield. TOO is the largest independent owner/operator of mission-critical offshore pipeline infrastructure assets used by the largest E&Ps in deepwater drilling. The company is misunderstood to be dependent on rising oil prices, but instead operates in a niche duopoly insulated by long-term contracts with large oil companies. The recent enterprise value of $5 billion makes TOO a high-capacity idea to invest alongside one of the most successful real asset managers globally, at roughly the same valuation. Assuming mean reversion to historical multiples implies ~300% upside from the recent market quotation of $2.50 per share.

About the instructor:

Jeremy Deal is the Founder and Managing Partner of JDP Capital Management LLC, a San Diego-based hedge fund manager launched in 2011. The firm’s research process and culture utilizes a private equity-like approach to public company investing focused on deep value, distressed, and special situations within North American mid cap and micro cap equities. Prior to launching JDP Capital, Jeremy was a fundless private equity sponsor and co-founder of Secure Wireless Inc., a designer and manufacturer of intrusion security electronics sold to Nortek (NASDAQ: NTK) in 2006. Jeremy graduated from U.S. International University with a B.S. in Business and a minor in International Relations.

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Cousins Properties and Scheid Vineyards: Two Undervalued Companies, with Catalysts

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

Aaron Edelheit of Mindset Capital presented his in-depth investment theses on Cousins Properties (NYSE: CUZ) and Scheid Vineyards (OTC: SVIN) at Best Ideas 2018.

Cousins has quietly transformed into a high-quality office REIT focused on Sunbelt markets such as Atlanta, Austin, Charlotte, Phoenix, and Tampa. Investors are not giving the company credit for this transformation taken in the last six years. NAV is $11-12 per share. The company could see a boost if Amazon picks Atlanta or Austin for its new headquarters, as Cousins generates nearly 40% of NOI from Atlanta and 20% from Austin. There are few ways to publicly play Amazon’s announcement, upon which Cousins could be worth up to $17 per share.

Scheid Vineyards is an unknown, illiquid microcap that trades at an estimated 65+% discount to NAV per share. The company owns and leases ~4,000 acres of prime Monterey County, California vineyards and also owns a state-of-the-art winery worth $75 million. The company, after years of not filing with the SEC and not reporting to investors, has started to send out quarterly financial statements. NAV could be as high as $244 per share, compared to the recent share price of ~$75 per share. The illiquidity notwithstanding, investors receive a sizable discount to quality assets.

About the instructor:

Aaron M. Edelheit is the CEO and Founder of Mindset Capital, a private investment firm. In his previous role as CEO of The American Home, Aaron founded and managed a company that owned 2,500 single family rental homes and was sold in April 2015 to a publicly traded REIT. Prior to The American Home, Aaron founded and ran Sabre Value Management, a money management firm from 1998-2011, averaging 11% annualized returns over that time period. Aaron has been featured and quoted in the Wall Street Journal, New York Times, Bloomberg, and CNBC among others. Aaron currently serves on the board of the Moishe House Foundation and is a member of Social Venture Partners in Santa Barbara working on homelessness. Previously he served on the board of the Global Village Project, a non-profit school for refugee girls in Atlanta, Georgia. Past volunteer work also includes being a Big Brother a Mentor and volunteering at Children’s Healthcare of Atlanta.

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Grupo Mexico: Undervalued, Family-Run Controlling Holder of Southern Copper

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Deep Value, Equities, Ideas, Industrial Conglomerates, Jockey Stocks, Large Cap, Materials, North America, Special Situations

Francisco Carrillo of Mexico Value Partners presented his in-depth investment thesis on Grupo Mexico (Mexico: GMEXICOB) at Best Ideas 2018.

Grupo Mexico not only has the largest copper reserves in the world but through its subsidiary, Southern Copper (NYSE: SCCO), is also the lowest-cost producer in the world. Grupo Mexico is owned by family operators, the Larrea family, which has done a superb job of capital allocation, as evidenced by the projects in which the company has invested over the years. Investors have an opportunity to buy Grupo Mexico essentially at “negative value” of ~12 pesos per share, because the company’s 89% ownership of SCCO is worth 120% of Gropo Mexico’s market capitalization. Investors essentially pay nothing for the non-SCCO assets, including the largest railroad operation in Mexico (a duopoly, with Kansas City Southern the main competitor) with close to $1 billion in EBITDA, and other assets, including toll roads, cogeneration plants, and oil platforms in lease to Pemex, which together account for close to an additional $1 billion in value. At the recent share price, the valuation remains undemanding at ~6x this year’s EBITDA and an FCF yield of close to 10%. As new projects materialize, the company should grow cash flow in the low-teens through 2019. Francisco sees upside of nearly 40%, assuming copper prices of $2.90 per pound. The sum-of-the-parts valuation discount provides downside protection.

About the instructor:

Francisco Carrillo began his investment career some 20 years ago as an analyst at GBM Grupo Bursátil Mexicano. His tenure at GBM lasted close to 10 years and he held various responsibilities during that time, culminating with his participation in the firm’s investment committee. After GBM, Carrillo co-founded Sabino Capital, a Mexico-based investment partnership. Later, he briefly worked at Bestinver, a renowned Spanish investment advisor. In 2012 he and two other partners founded Mexico Value Partners, a Mexico-based investment partnership where he currently serves as Chief Investment Officer.

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GTT Communications: Mispriced, Cash-Generative Growth Compounder

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

Zack Buckley of Buckley Capital Partners presented his in-depth investment thesis on GTT Communications (NYSE: GTT) at Best Ideas 2018.

About the instructor:

Zack Buckley worked as an analyst for Baker Street Capital in 2011 while launching Buckley Capital. Zack has been featured in The Wall Street Journal, Barron’s, Reuters, CNBC, Market Watch, Value Walk, Business Insider, and the Financial Post, and has also been a speaker at several Value Investing Congresses. Zack holds a Bachelor of Arts in Economics and a Bachelor of Business Administration in Accounting from the University of Miami.

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Cambria Automobiles: UK Auto Dealer Run by Capable Owner-Operator

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Consumer Discretionary, Equities, Europe, GARP, Ideas, Jockey Stocks, Micro Cap

Alex Bossert of Bossert Capital presented his in-depth investment thesis on Cambria Automobiles (London: CAMB) at Best Ideas 2018.

Cambria Automobiles is a UK-based auto dealership group founded by CEO Mark Lavery in 2006 to pursue a dealership roll-up strategy. Lavery owns 40% of the outstanding shares and from a starting capital base of only £11 million has built Cambria into a business with a market cap of £64 million, with operating earnings of £12 million in 2017. This impressive performance over the past eleven years has been achieved during a period that has included two recessions in the UK. Auto dealers are good businesses, and Cambria has averaged ROE in the high-teens over time. In 2017, Cambria earned ROE of 20%. Cambria shares recently traded at just 6.9x LTM earnings. This despite two temporary factors negatively affecting earnings in 2017. The construction at the Barnet dealership has had a significant impact on profitability at this dealership. Additionally, a fire that took place in October 2016 at the Jaguar and Aston Martin dealership in Welwyn significantly hurt the profitability of that site. The Barnet project was finished in July 2017 and the Welwyn site was back in operation in June 2017.

Read Alex Bossert’s write-up on Cambria.

About the instructor:

Alex started Bossert Capital in February of 2017 to invest money on behalf of a select group of long term oriented, business minded, wealthy families and individuals. He began investing his own money at 10 years old. Alex has studied and modeled his investing strategy after investors such as Warren Buffett, Charlie Munger, Benjamin Graham, Joel Greenblatt, Seth Klarman, Mohnish Pabrai and Guy Spier among others. Prior to starting Bossert Capital, Alex held analyst roles at multiple investment firms. From 2010 – 2013 he was an analyst at Milestone Capital, a value focused investment firm based in Minneapolis, Minnesota. And from 2014 – 2016, he was an analyst at Granite House Capital Management in Boston Massachusetts. In 2014, he was accepted as a member of the Value Investors Club. He is also the youngest ever admitted member of the SumZero buyside network and was one of 14 buyside analysts in the nation to be named to the 2012 SumZero Buyside Analyst Honors which was published in the Wall Street Journal and CNBC. Over 8,000 analysts were considered. He is also featured in a chapter in the biography of investor Warren Buffett called “Of Permanent Value: The Story Of Warren Buffett.” He maintains a blog “Alex Bossert‘s Thoughts On Value Investing” with over 450 subscribers and over 250,000 site views.

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School Specialty: Well-Managed Education Business with Hidden Growth Drivers

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Deep Value, Equities, GARP, Ideas, Micro Cap, North America, Small Cap, Special Situations

Daniel Baldini of Oberon Asset Management presented his in-depth investment thesis on School Specialty (OTC: SCOO) at Best Ideas 2018.

School Specialty is a well-managed, attractively valued business (5x EBITDA, 8.5x earnings, 17% FCF yield), with an improving return on tangible capital, hidden growth drivers, and restive shareholder base.

About the instructor:

Daniel Baldini is the founder and Managing Partner of Oberon Asset Management LLC, a New York based registered investment advisor managing separate accounts for individuals, partnerships, trusts and pension plans. Prior to founding Oberon in 2001 Mr. Baldini worked for the International Finance Corporation, the private sector arm of the World Bank, as an Investment Officer in the Asia and Eastern Europe Departments. Following graduation from the Stanford University Graduate School of Business and prior to joining the IFC Mr. Baldini lived in London for three years and worked for Electra Investment Trust PLC, a UK investment firm specializing in small public company and private equity investments.

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