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Tetragon Financial: Well-Managed Investment Company at Deep Discount

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Deep Value, Equities, Europe, Financials, Ideas, Small Cap

Keith Rosenbloom of Cruiser Capital discussed his investment approach, reviewed and updated ideas presented at past online conferences hosted by MOI Global, and presented his summary thesis on Tetragon Financial (Amsterdam: TFG) at Best Ideas 2018.

Read Keith’s related article, “What Compels Us to Invest”.

Note: The slide presentation available for download below does not include slides on the Tetragon Financial. Keith discussed the idea toward the end of his remarks.

About the instructor:

Keith Rosenbloom has over 25 years of direct investing experience, with a focus on applying traditional private equity value oriented perspectives to both special situations and structured investments. Keith co-founded and managed the CARE Capital Group of Hedge Funds from 2002 to 2010. Since then he has managed discretionary capital and invests opportunistically in public and private entities. Previously he served as the Portfolio manager of the CAR Fund and co-managed Comvest Venture Partners. He served as the Director of Merchant Banking for Commonwealth Associates from 1996 to 2001 where he specialized in making primary investments in public and private companies (approximately 80 transactions representing approximately $800mm). Keith became a Partner at Commonwealth Associates in 1994. Previously Keith worked with Prudential Capital and Merrill Lynch Venture Partners. He has invested in or managed investments in over 100 hedge funds and private equity funds. Keith currently sits on the board of PAWSAFE, LLC, a private pet health insurance distribution company. In addition, he serves on several charitable boards including UJA -Federation of New York, Hillel International (Board of Governors), Hatzalah (Israel’s private EMT service) and serves on the investment committee for Hillel International. He also serves on the investment committees of two family offices. He graduated cum laude from Yale University.

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CPL Resources: Owner-Operator-Led Employment Services Provider

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Deep Value, Equities, Europe, GARP, Ideas, Jockey Stocks, Micro Cap, Small Cap

Jeff Stacey of Stacey Muirhead Capital Management presented his in-depth investment thesis on CPL Resources (Ireland: CPL) at Best Ideas 2018.

CPL is a leading employment services group headquartered in Dublin, Ireland. CPL’s activity spans the entire employment lifecycle and includes permanent, temporary and contract recruitment, workforce management, training, outsourcing and outplacement. CPL’s clients range from market-leading multinationals to small and medium enterprises. CPL has been particularly successful in providing staffing solutions to Ireland’s large IT and pharmaceutical industries having recruited staff on behalf of companies such as First Data, Pfizer, and many others. CPL currently has 41 offices in 11 countries, opening offices in Munich and Boston in the fiscal year ended in June. At the end of its last fiscal year, CPL had a headcount of 11,504 contract or temporary staff placed with clients and 547 recruiters active in the company. CPL competes with both large and niche specialist recruiting and staffing firms from Adecco and Manpower in temporary recruitment to Hays Group in permanent recruiting and specialist firms such as Impellam and HCL in Healthcare and Life Sciences. CPL’s stated business strategy includes developing a balanced mix of business and avoiding overdependence on any one service sector or geography. CPL has grown mainly through organic expansion but it has made selective acquisitions periodically particularly to build platforms in new sectors or markets with good long term potential. Anne Heraty is the founder and CEO of CPL and also the largest shareholder, owning about 30% of the shares outstanding. Her spouse, Paul Carroll, owns a further 5.9% of the shares.

CPL is an excellent business that has consistently grown revenue and earnings over its 27-year history. Revenues in the most recent year were €455 million and net income was €13.5 million. CPL has never had a losing year. It even made money during the financial crisis of 2008-2009 when the company’s business mix was more focused within Ireland and the unemployment rate in Ireland at that time rose above 25%. Jeff considers this impressive and evidence of both the excellent business economics and management skill. CPL generates strong returns on shareholders’ equity, with the most recent year showing a return on equity of ~15%. Excluding a sizeable yearend cash balance on which CPL earned very little, the adjusted return on equity is well above 20%. In June, CPL acquired RIG Healthcare Group for ~€10 million. RIG is a specialist healthcare recruiter in the UK, with a focus on Locum Doctors and Allied Health Professions such as radiography, occupational therapy, pharmacy, and physiotherapy. RIG has five UK offices.

Even after completing this acquisition, CPL ended its June fiscal year with €33+ million in cash. After strategically deciding it could not identify an appropriate use for the cash, CPL recently completed a tender offer purchasing 3.7 million shares at €6.75 per share for total consideration of ~€25 million. After the tender offer, the company has 27.2 million shares outstanding. From a valuation perspective, CPL recently traded at ~10x current earnings (excl. cash). It appears likely to continue growing revenue and earnings at an attractive rate for the foreseeable future. CPL maintains a debt-free balance sheet while raising dividends and buying back shares, as evidenced by the recent tender offer. With both the need for human talent and the difficulty of recruiting such talent continuing to increase, CPL appears well-positioned for success.

Listen to this session:

download the slide presentation download the audio recording

About the instructor:

Jeffrey Stacey is the founder of Stacey Muirhead Capital Management Ltd. Jeff has over 30 years of investment industry experience. Prior to starting Stacey Muirhead Capital Management Ltd., he was employed with a boutique Toronto investment firm where he was also a shareholder. Jeff has an Honours Bachelor of Business Administration degree from Wilfrid Laurier University and is a Chartered Financial Analyst. He is a member of the Finance and Investment Committee and an Advisory Board Member of the student managed School of Accounting and Finance Investment Fund at the University of Waterloo. He is also an Advisory Board Member of the student managed Ivey Value Fund at the University of Western Ontario. Additionally, he serves as a member of the Dean’s Advisory Council at the Wilfrid Laurier University School of Business and Economics and on the Board of Trustees at Parkminster United Church. He is a former director of Rainmaker Entertainment Inc. and previously served on the Board of Trustees and Investment Management Committee at the University of Guelph.

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Barclays: UK Banking Leader at Discount to Tangible Book Value

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Deep Value, Distressed, Equities, Europe, Financials, Ideas, Large Cap

Brian Pitkin of URI Capital Management presented his in-depth investment thesis on Barclays (NYSE: BCS) at Best Ideas 2018.

Barclays trades at roughly 60% of book value. Its recent annual earnings and returns have been frustratingly low. Legacy fines and costs, low interest rates, and a generally anemic banking environment have led to elevated costs and low returns, masking the earnings power of two enduring business: the UK consumer and business bank (Barclays UK) and the transatlantic corporate and investment bank (Barclays International). Meanwhile, Barclays ADRs trade around $10 while book value per ADR is over $17 and tangible book value per ADR exceeds $15. Based on these metrics alone, Brian believes he is investing with a wide margin of safety while allowing for the possibility of outsized returns. As for what is possible over the medium term, Barclays has targeted returns on tangible equity exceeding 10% in 2020 as headwinds abate. Brian considers a couple of paths to future value: Assuming book value and tangible book value increase by an average of 8% per year in the coming years, Brian sees book value per ADR exceeding $20 and tangible book value per ADR exceeding $17. Assuming 10% returns on tangible equity to $17 per share of tangible book value, Brian sees medium-term earnings of $1.70. Ascribing a 12x multiple to such earnings brings value above $20. Brian also looks to book value per ADR as a source of value, which will exceed $20.

About the instructor:

Brian E. Pitkin founded URI Capital Management to follow his long time passion for deep business analysis and long term value investing. Brian began his career in Investment Banking at Merrill Lynch in Chicago, and then joined The Edgewater Funds, a Chicago private equity firm. Brian ultimately returned to family-owned Ulrich Chemical, a Midwest chemical distributor where he helped accelerate both top and bottom line growth, including a near tripling of the company’s bottom line. He then helped negotiate and execute the sale of Ulrich to Brenntag, a global chemical distributor, before leaving to start his own ventures, now dominated by managing the fund URI Capital Partners. His background in both investing and managing businesses has contributed to his understanding of what makes for a successful business and thus a successful long term investment, while faith and family provide a strong foundation for the entirety of his life. URI Capital Partners is a long only investment fund focused on a highly concentrated portfolio of publicly traded companies. While our concentrated, long only strategy may present more volatility in the short term, we are not willing to sacrifice higher potential longer term returns for a more comfortable journey. Investing in enduring businesses at good valuations, avoiding leverage requiring margins of safety serves to solidify our foundation and protect investor dollars.

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Avaya: Underfollowed and Undervalued due to Bankruptcy Emergence Overhang

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Deep Value, Equities, GARP, Ideas, Information Technology, Mid Cap, North America, Small Cap

Chris Karlin of Aquitania Capital Management is presenting his in-depth investment thesis on Avaya Holdings (OTC: AVYA) at Best Ideas 2018.

Avaya provides unified communications and contact center products and services to a global customer base. The business is characterized by high software and services content provided over long-term contracts to a broad customer base. Avaya recently emerged from bankruptcy, shedding much of the debt it had incurred in a 2007 leveraged buyout. The company has sharply reduced operating costs and pension liabilities. Avaya appears well-positioned going forward as a strong cash generator. The equity appears underfollowed and undervalued due to the bankruptcy overhang. Several visible catalysts should help unlock value. Recently trading at an FCF yield of 11% on FY18 and 14% on FY19 and a cash P/E of 7.6x FY18 and 6.5x FY19, Avaya could re-rate to an FCF yield of 9% and a cash P/E of 10x, resulting in ~70% upside over the next two years. If the company is effective in investing to restart growth, additional upside potential exists.

About the instructor:

Christopher Karlin has been in the investment business since 1991. Prior to founding Aquitania Capital Management in 2012, Christopher held positions as a Research Analyst and Portfolio Manager at First Pacific Advisors, Kestrel Investment Management and Fairview Capital Investment Management. Christopher interned with Farallon Capital Management while pursuing his MBA. He began his career with Wells Fargo Nikko Investment Advisors which later became a part of Blackrock. Christopher received his BBA from the University of Wisconsin in 1990 his MBA from Yale University in 1998 and has held the CFA designation since 1994.

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McCarthy & Stone: Soundly Financed UK Retirement Homebuilder

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Consumer Discretionary, Deep Value, Equities, Europe, GARP, Ideas, Small Cap

Mark Walker of Seven Pillars Capital Management presented his in-depth investment thesis on McCarthy & Stone (London: MCS) at Best Ideas 2018.

McCarthy & Stone is a soundly financed UK retirement homebuilder whose business model is characterized by low operating leverage and conditional asset accumulation. In MCS’s 40 years of operation, it has enjoyed a dominant position within a largely uncontested niche. A niche with a long volume runway underpinned by an ageing population and housing undersupply. While poor historic capital allocation led to a capital restructuring during the financial crisis, the current management team’s focus on asset turns is fostering stronger capital discipline and better capital efficiency than in the past. The share price has declined 35% over the last two years, underperforming the FTSE 250 by 60%, thanks largely to a Brexit-induced de-rating. The quoted value of the enterprise is just 15% higher than the capital invested in the business, despite 25% incremental ROCE and a long runway of internal redeployment opportunities.

About the instructor:

Mark Walker is a global equity investor at Seven Pillars Capital Management, a long term value-oriented investment firm based in London. Mark has 13 years of investment research and financial analysis experience. He joined Seven Pillars from RWC Partners, where he was part of a two-person team managing a long term global equity fund. Prior to that Mark worked as an investment research analyst on the sell-side for Goldman Sachs and Redburn Partners.

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Bakkafrost: Best-in-Class, Vertically Integrated Salmon Farmer

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Consumer Staples, Equities, Europe, GARP, Ideas, Small Cap

Robert Leitz of iolite Partners presented his in-depth investment thesis on Bakkafrost (Oslo: BAKKA) at Best Ideas 2018.

Bakkafrost is a best-in-class, vertically integrated salmon farmer with operations in the Faroe Islands. The company owns permanent licenses in geographic locations suitable for salmon farming, boasts state-of-the-art production facilities, decades of technical know-how, and is run by a shareholder-friendly owner-manager. At NOK 320 per share, Bakkafrost recently traded at just 11x LTM P/E and 7.7x LTM EV/EBITDA. This is low for a high-quality company in an industry with strong tailwinds: demand is growing (demographics, global development, zeitgeist), but supply is struggling to keep up (suitable locations, politics, biological hazards). Bakkafrost is a prudently run company that has shown impressive organic growth over the last five years (ROE 30% annually, EBITDA 30%, harvest 6%) and is likely to grow production by another 30% (6% annually) until 2021 given current capex projects. Robert believes the market has failed to catch up with Bakkafrost’s growth profile and is overestimating the impact from short-term price swings (supply interruptions in Chile and Norway spiked salmon prices in 2016-2017; they recently came down from those highs).

About the instructor:

Robert Leitz is iolite’s sole owner and managing director. Before founding iolite in 2008, he held positions at various financial institutions, including TPG Credit (a hedge fund), Goldman Sachs’ European Special Situations Group, and KPMG Corporate Restructuring. Robert graduated from the University of St. Gallen (HSG), Switzerland, with a Master of Science in Business Administration and Economics, and wrote his master’s thesis under the guidance of Prof. Eli Noam at Columbia University, New York.

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Tucows: Niche Communications Provider with Strong Leadership

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Jockey Stocks, North America, Small Cap

Michael Lee of Hypotenuse Capital Management presented his in-depth investment thesis on Tucows (Nasdaq: TCX) at Best Ideas 2018.

Tucows provides simple, useful services that help people unlock the power of the internet. The company runs the second-largest internet domain registration platform in the world, a leading MVNO operator in the U.S., and is also building Fiber-to-the-Home networks in communities around the U.S. The company provides great customer service at bargain prices, maintains an excellent employee culture, and has a capable leadership team. With plenty of room to grow in the mobile and fiber businesses, Tucows’ recent ~$700 million market cap is attractive relative to the company’s future earnings growth potential.

For additional background on Tucows, access this conversation between Shai Dardashti and Tucows CEO Elliot Noss as well as this session at Latticework 2017, featuring Elliot Noss and John Lewis of Osmium Partners.

About the instructor:

Michael J. Lee is the founder of Hypotenuse Capital Management, an investment management firm based in Los Angeles, CA. Hypotenuse seeks to invest intelligently in exceptional leaders running extraordinary companies that deserve to win. Prior to founding Hypotenuse, Michael was a partner at Royal Capital Management in New York, a private equity associate at Parthenon Capital in Boston, and an investment banking analyst at Bear Stearns. He sits on the board of directors of the P.F. Bresee Foundation, a non-profit organization devoted to breaking the cycle of poverty and violence in Central Los Angeles. Outside of investing and philanthropy, Michael enjoys rock climbing, swimming and playing board games with his wife and two children.

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Continental Building Products: Strongly Cash-Generative Gypsum Wallboard Manufacturer

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, GARP, Ideas, Materials, North America, Small Cap

Stephen Dodson of Bretton Fund presented his in-depth investment thesis on Continental Building Products (NYSE: CBPX) at Best Ideas 2018.

Continental Building Products is a Virginia-based manufacturer of gypsum wallboard. Housing starts, wallboard, and building products in general are in the middle of a long recovery cycle, with many of years of above-average growth ahead. The wallboard industry has consolidated post-crisis, leaving a handful of competitors per market, and implemented pricing discipline, with much of the industry producing attractive margins and returns on capital. Due to a depreciation-capex mismatch, Continental Building Products produces more free cash flow than net income, and management has been on a pace of retiring 5-6% of shares per year. The company is trading at 13x free cash flow and 11x EBITDA-capex.

About the instructor:

Stephen Dodson founded the Bretton Fund in 2010 and serves as its president and portfolio manager. Prior to founding Bretton, Stephen was with Parnassus Investments, a San Francisco–based investment manager. Stephen was with Parnassus from 2002 to 2008 and served in a number of areas within the firm, including portfolio manager and president. In 2008, Institutional Investor News named him one of the 20 Rising Stars of Mutual Funds. Prior to Parnassus, he worked for the venture capital group of Advent International, a private equity firm, and was an investment banker for Morgan Stanley in New York and Menlo Park. He holds a BS in business administration from the University of California, Berkeley.

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Bridgepoint Education: To Benefit From Improved Regulatory Environment

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Deep Value, Equities, GARP, Ideas, Micro Cap, North America, Small Cap

Shawn Kravetz of Esplanade Capital presented his in-depth investment thesis on Bridgepoint Education (NYSE: BPI) at Best Ideas 2018.

Bridgepoint is priced for distress but poised for success thanks to a dramatically improved regulatory environment for its postsecondary education offerings and a fortress balance sheet that has enabled it to survive the regulatory scrutiny and eroding fundamentals of the Obama years. While most peers have seen their stocks soar 50%+ since the election, BPI has languished as they turn around their business – with some self-inflicted headwinds now easing – and continue to buy back shares aggressively. They have remained profitable and cash flow positive, yet trade at less than 2.5x Shawn’s pro forma 2018 EPS and less than 1.5x EV/EBITDA. With overhangs removed and catalysts in play, BPI presents 90+% upside potential with undemanding assumptions about 2018 operations.

About the instructor:

Shawn Kravetz is President and Chief Investment Officer of Esplanade Capital LLC, an investment management company he founded in 1999. Esplanade Capital LLC manages capital for a small number of like-minded families, private investors, and institutions. Esplanade’s value orientation, driven by patient capital and proprietary research/analysis, has generated substantial outperformance versus benchmarks since inception. The firm specializes in smaller companies, out of favor & below the radar companies, special situations, and turnarounds. Prior to founding Esplanade, Shawn was a corporate executive and strategic advisor, including: Principal at The Parthenon Group, a leading strategy consulting boutique, where he advised chief executives on corporate strategy; Director of Strategic Planning and Corporate Development at The CML Group (NYSE traded), where he oversaw activities at subsidiaries including NordicTrack, The Nature Company, and Smith & Hawken; Consultant with Monitor Company, a leading strategy consulting firm. Shawn received an MBA with High Distinction from Harvard Business School in 1995, where he was awarded: The Thomas M. and Edna E. Wolfe Award; The Henry Ford II Scholar Award; and a Baker Scholarship. Shawn received an A.B. in Economics from Harvard University, magna cum laude, in 1991. Shawn has also been active in his community, having served as: Steering Committee Vice Chairman of The Museum of Fine Arts Council at The Museum of Fine Arts Boston; Member of the Steering Committee of The Vilna Center for Jewish Heritage; and Treasurer of the PTO for the Frances Jacobsen Early Education Center. Shawn currently serves on the Finance Committee at Temple Israel, Boston. Shawn currently serves on the board of directors of Nevada Gold & Casinos, Inc. where he is Chairman of the Corporate Governance and Nominating Committee and a member of the Compensation Committee. As an investor, advisor, board member, and executive, Shawn has a demonstrated record of creating value for his investors, clients, and companies.

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Asset-Based Investing and BR Properties: Brazilian CRE Leader at NAV Discount

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Deep Value, Equities, Ideas, Mid Cap, Real Estate, South America

Amit Wadhwaney of Moerus Capital Management discussed asset-based investing and presented his in-depth investment thesis on BR Properties (Brazil: BRPR3) at Best Ideas 2018.

BR Properties is a leading commercial property company in Brazil, with a focus on prime, high-quality AAA office buildings in Brazil’s two largest cities, Sao Paulo and Rio de Janeiro. The investment opportunity stems from the downturn in the Brazilian economy, which exposed the overbuilding in the commercial property market, resulting in vacancy rates rising to multi-decade highs and rents falling roughly 25-40% in a variety of markets in real terms over the past four to five years. Piquing Amit’s interest was the transfer of control of BRP in 2016 from its then-distressed controlling shareholder to GP Investments, the original founder of BRP, which had brought it public in 2010, before totally divesting its holdings in 2012. This purchase of BRP was made in conjunction with a sovereign wealth fund at a per-share price of BRL 11, below the third-party appraised range of BRL 12.20-14.13 per share. BRP raised a further BRL 950 million in mid-2017 to fund its plan to acquire properties in the depressed market. The shares recently traded at 20+% and 30+% discounts to tangible and stated book values, respectively, with said book values reflecting assets written down to reflect depressed market conditions.

About the instructor:

Amit Wadhwaney is a Portfolio Manager and Co-Founding Partner at Moerus Capital Management LLC, and the founding manager of the Moerus Worldwide Value Fund. Mr. Wadhwaney has over 25 years of experience researching and analyzing investment opportunities in developed, emerging, and frontier markets worldwide, and has managed global investment portfolios since 1996. Prior to founding Moerus, Mr. Wadhwaney was a Portfolio Manager and Partner at Third Avenue Management LLC. Mr. Wadhwaney founded the international business at Third Avenue and was the founding manager of the Third Avenue Global Value Fund, LP, the Third Avenue Emerging Markets Fund, LP, and the Third Avenue International Value Fund, an open end mutual fund. Earlier in his career, Mr. Wadhwaney was first a securities analyst, and then Director of Research at M.J. Whitman LLC, a New York-based broker-dealer. Prior to joining M.J. Whitman, Mr. Wadhwaney was a paper and forest products analyst at Bunting Warburg, a Canadian brokerage firm. He began his career at Domtar, a Canadian forest products company. Mr. Wadhwaney holds an M.B.A. in Finance from The University of Chicago. He also holds a B.A. with honors and an M.A. in Economics from Concordia University; at Concordia, he was awarded the Sun Life Prize and the Concordia University Fellow in Economics, and he subsequently taught economics classes there. He also holds B.S. degrees in Chemical Engineering and Mathematics from the University of Minnesota.

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