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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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Tiffany & Co.: Iconic Luxury Brand at Discount to Private Market Value

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Consumer Discretionary, Equities, GARP, Ideas, Large Cap, Mid Cap, North America, Wide Moat

Chris Swasbrook of Elevation Capital Management presented his in-depth investment thesis on Tiffany & Co. (NYSE: TIF) at Best Ideas 2018.

Tiffany is an American heritage luxury brand, operating 315 stores in 30 countries. The Tiffany brand is one of the most iconic luxury brands, with a storied history that started in New York City when Charles Tiffany founded it in 1837. Based on Interbrand’s ranking, Tiffany is one of the most valuable global luxury brands, ranked fifth among global luxury players. Tiffany is the #1 American luxury brand. Tiffany was immortalized by the 1961 movie “Breakfast at Tiffany’s”. Tiffany is one of few jewelers that has established a vertically integrated business model that provides a perception of quality and luxury. Even though the stock has recovered from recent lows to ~$95, it trades at a discount to global peers and a discount to Chris’s estimate of private market value.

About the instructor:

Christopher Swasbrook is the Founder and Managing Director of Elevation Capital Management Limited a global investment manager based in Auckland, New Zealand. He was previously a Partner of Goldman Sachs JBWere Pty Limited and Co-Head of Institutional Equities at Goldman Sachs JBWere (NZ) Limited. Christopher is a member of the NZX Listing Sub-Committee (since 2008) and a member of the NZ Markets Disciplinary Tribunal (since 2013). He is also Chairman of Bethunes Investments Limited (BIL). Christopher graduated from The University of Auckland with a BCom (Economics) in 1996, having started his career in financial markets as an analyst in November 1995.

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Allison Transmission: Technological Leadership and High Switching Costs

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Capital Goods, Equities, GARP, Ideas, Mid Cap, North America, Transportation, Wide Moat

John Heldman and David Hutchison of Triad Investment Management presented their in-depth investment thesis on Allison Transmission (NYSE: ALSN) at Best Ideas 2018.

Allison is the world’s largest manufacturer of fully-automatic transmissions for medium and heavy-duty commercial vehicles (primarily Class 6,7 & 8) including on-highway, off-highway, buses, motorhomes, and defense vehicles. Allison has 60% global market share of the on-highway (~2/3 of revenue) fully-automatic transmission market. Founded in 1915, bought by General Motors in 1929, sold by GM in 2007 to Carlyle Group to shore up a weak balance sheet, ALSN went public in 2012. Fully-automatics are most cost-effective and primarily used in metro markets where many stops and starts are performed. Benefits of fully-automatics include fuel savings, higher vehicle productivity, lower lifecycle costs, easier driving training and retention, and driver comfort. With current and anticipated driver shortages and rising driver pay, ALSN customers will have incentives to retain drivers however possible. ALSN enjoys favorable characteristics such as brand name recognition, technological leadership, high switching costs, a large installed base, diversified end markets by truck type and geography, longstanding OEM customer relationships, strong profitability and FCF, and capable management with excellent capital allocation. Allison possesses good long-term organic growth opportunities, including hybrid, electric, alternative fuels and emission-reducing technologies. In addition, a large opportunity exists in international markets, particularly emerging economies where fully-automatic transmissions have low market share. ALSN recently traded at ~10x John and Dave’s 2018 EBITDA estimate. They believe the company can grow revenue and EBITDA at a high single-digit rate over the next three to five years, which combined with smart deployment of FCF could lead to the share price doubling over that time frame.

About the instructors:

John Heldman brings over 30 years of experience to the management of investment portfolios. Prior to founding Triad, he was a Senior Vice President and Portfolio Manager with Neuberger Berman. John has also managed institutional and individual investment portfolios for Deutsche Bank, Scudder Investments and Bank of America, including managing equity funds and serving on the Equity Strategy Committee. He obtained his Bachelor of Science degree in Finance and Master of Business Administration from California State University, Long Beach. John is a CFA charterholder, and a member of CFA Institute and CFA Society Orange County.

Dave Hutchison has 23 years of experience in investment management. Prior to joining Triad, he served as Investment Strategist for Chamberlain Group, directing investment manager research. Dave also founded and managed Hutchison Capital, a registered investment advisor. He holds a Bachelor’s degree in Political Science from Macalester College and a Master of Business Administration from the University of Southern California’s Marshall School of Business. Dave is a CFA charterholder, and a member of CFA Institute and CFA Society Orange County.

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Disney: Attractive Entry Point into Long-Term Compounder via FOX

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Large Cap, North America, Special Situations, Wide Moat

Niraj Gupta of GCI Partners presented his in-depth investment theses on Walt Disney (NYSE: DIS) and Twenty-First Century Fox (Nasdaq: FOXA) at Best Ideas 2018. Niraj outlined a compelling opportunity to become a long-term shareholder in Disney at an attractive implied valuation through FOX shares.

About the instructor:

Niraj Gupta has over 25 years of experience analyzing and investing in publicly traded companies as a buy-side analyst/portfolio manager and a sell-side research analyst, with particular expertise in the technology, media and telecom industries. Prior to starting GCI Partners in 2008, Niraj was associated with Pequot Capital, Citigroup, Schroders and Goldman Sachs.

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TripAdvisor: Myopic Investor Focus on Hotel Business Provides Opportunity

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Information Technology, Mid Cap, North America, Wide Moat

Artem Fokin of Caro-Kann Capital presented his in-depth investment thesis on TripAdvisor (Nasdaq: TRIP) at Best Ideas 2018.

Both the sell-side and buy-side are myopically focused on challenges facing TRIP’s hotel business in areas such as cost-per-click, “instant booking” rollout, and Priceline’s marketing budget re-allocation. Over the past three-and-a-half years TripAdvisor has successfully built two platform businesses with winner-take-all dynamics – “attractions” and “restaurants” – and TripAdvisor is the winner. These two businesses make TRIP an attractive company regardless of how TRIP’s hotel business evolves. The non-hotel business alone would soon justify the recent market valuation of the entire TripAdvisor. Artem believes Mr. Market is “missing an elephant in the room and is throwing us a fat pitch”. While Artem views TripAdvisor shares as a double in four to five years, he notes open-ended upside optionality. Artem sees 15+% IRR well beyond five years.

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About the instructor:

Artem Fokin is the founder and portfolio manager of Caro-Kann Capital LLC, a hedge fund based in San Francisco. Prior to founding Caro-Kann, he was a principal at Outrider Management LLC. Before entering the investing industry, Artem was an attorney with Greenberg Traurig LLP in New York City. Artem earned an MBA from the Stanford GSB (Arjay Miller Scholar), a Master of Laws degree from NYU School of Law (Newman Scholar) and a bachelor of law from the Higher School of Economics (Presidential Scholar) in Russia. Artem is admitted to the practice of law in the State of New York and is a dual citizen of the United States and Russia. Caro-Kann Capital LLC is the general partner of an investment partnership based on the principles of value investing that focuses primarily on special situations and compounders. Caro-Kann Capital is named after a chess defense that emphasizes building safety and defensible position before contemplating an offensive strategy. The Founder’s substantial legal experience brings a greater ability to analyze complex corporate documentation accompanying extraordinary corporate events. The Fund’s core investment principles include: (1) concentration when properly compensated, (2) risk is not equivalent to volatility, (3) non-economic selling can lead to attractive opportunities; (4) capital allocation is often underappreciated by the market, and (5) incentives and insider ownership are paramount.

Sears Hometown and Outlet: Deeply Undervalued Retailer on Verge of Inflection Point

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Consumer Discretionary, Deep Value, Distressed, Equities, Ideas, Jockey Stocks, Micro Cap, North America

Ryan O’Connor of Crossroads Capital presented his in-depth investment thesis on Sears Hometown and Outlet (Nasdaq: SHOS) at Best Ideas 2018.

About the instructor:

Ryan O’Connor is the President and Portfolio Manager of Crossroads Capital, LLC. Prior to founding Crossroads, Ryan was a portfolio manager at Three Arch Opportunity Fund, a value-centric investment partnership based in San Francisco. Prior to that, Ryan co-managed portfolios at Whetstone Capital and CUSH Capital, two Kansas City based investment partnerships focused on public equities investing. Before life as a securities analyst, Mr. O’Connor studied Economics at Indiana University (Bloomington), spent time as a top producing financial advisor for AG Edwards & Sons (now Wells Fargo) and an options trader on the Chicago Mercantile Exchange. Ryan’s proven history of generating compelling risk-adjusted returns has led to his membership in several elite investing associations, including Joel Greenblatt’s Value Investors Club, a highly selective idea-sharing site where global membership is capped at 500 buy-side analysts. He has also been recognized by SumZero, the world’s largest community of professional investors, as being in the top 1% of the approximately 12,000 buy-side analysts active on the site.

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O’Reilly Auto Parts: Leading Retailer of Automotive Parts with Distribution Advantage

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Consumer Discretionary, Equities, GARP, Ideas, Large Cap, Mid Cap, North America, Wide Moat

Abhay Deshpande of Centerstone Investors presented his in-depth investment thesis on O’Reilly Auto Parts (Nasdaq: ORLY) at Best Ideas 2018.

O’Reilly is a leading retailer of automotive aftermarket parts in the U.S. Its stock price has recently languished due to cyclical headwinds and concerns over the competitive threat from e-commerce players. O’Reilly operates a dual market strategy that enables it to efficiently serve both do-it-for-me and do-it-yourself customers. The dual market strategy enables it to leverage its retail distribution and distribution infrastructure. The company has a best-in-class distribution infrastructure that provides it with industry leading parts availability and store in-stock levels. While growth has recently slowed due to cyclical headwinds, Abhay believes O’Reilly can continue to take market share in a fragmented industry and generate strong same store sales growth. As O’Reilly has increased its scale, profitability and returns on invested capital have increased. O’Reilly has a distribution advantage and can grow intrinsic value over time.

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About the instructor:

Abhay Deshpande founded Centerstone Investors and serves as the Chief Investment Officer. He has more than 25 years of experience researching and investing in businesses globally. Prior to establishing Centerstone, Mr. Deshpande was a Portfolio Manager at First Eagle Investment Management, advisor to the Global and Overseas strategies that comprised the vast majority of the firm’s approximately $100 billion in assets under management. During his 15-year tenure, his responsibilities included hiring and training analysts along with leading the research team during times of market turbulence. He spearheaded the research efforts during both the 2001 technology and 2008 credit crises, and in both cases his direct efforts helped clients minimize losses, and ultimately thrive, during his career at First Eagle. Previously, Mr. Deshpande was a Research Analyst with Harris Associates, advisor to Oakmark International Fund and other International and Global products. He also was an Analyst for Morningstar responsible for following a variety of International mutual funds. He began his career at a boutique investment advisor in Louisville, KY. Mr. Deshpande holds a BS in Finance from the University of Louisville. He is a CFA Charterholder and a member of the New York Society of Security Analysts.

Discovery: Undervalued Media Assets With Strong International Business

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

Gary Mishuris of Silver Ring Value Partners presented his in-depth investment thesis on Discovery Communications (Nasdaq: DISCA) at Best Ideas 2018.

Discovery is undervalued because (i) the company has a meaningful competitive advantage based on its brands, distribution, and content library; (ii) the market is correct about the presence of secular challenges in the U.S. media market, but is wrong about their magnitude; (iii) the market is underestimating the long-term resilience and growth potential of Discovery’s international business; and (iv) the announced Scripps Networks (SNI) acquisition does pose meaningful risks, but at the same time if it is successful, it is likely to meaningfully improve the company’s competitive position, earnings power, and value per share. On a standalone basis, Discovery trades at under 45% of Gary’s base case value estimate, but with 55+% downside to his worst-case estimate (which includes an unfavorable outcome of the SNI acquisition).

Because of this, Gary has structured the investment in combination with a $15 January 2020 put option. This gives up some expected return, increasing the base case price to value relationship from 42% to 48%, while at the same time substantially reducing the downside to the worst-case to a more manageable 28%. Given that the next two years are likely to resolve the success or failure of the SNI acquisition, and somewhat likely to provide material information on whether Gary is right on the magnitude of the structural issues facing the industry and the company, the put option makes sense, as it is one-time insurance against a specific adverse outcome rather than an ongoing cost of the position. As a sanity check, the stock plus the put option combination recently traded at under 7x Gary’s estimate of 2020 post-integration EPS, a point in time during which the company should be at a sustainable level of financial leverage.

About the instructor:

Gary Mishuris is the Managing Partner and Chief Investment Officer of Silver Ring Value Partners, an investment firm with a concentrated long-term intrinsic value strategy. Prior to founding the firm in 2016, Mr. Mishuris was a Managing Director at Manulife Asset Management since 2011, where he was the Lead Portfolio Manager of the US Focused Value strategy. From 2004 through 2010, Mr. Mishuris was a Vice President at Evergreen Investments (later part of Wells Capital Management) where he started as an Equity Analyst and assumed roles with increasing responsibilities, including serving as the co-PM of the Large Cap Value strategy between 2007 and 2010. He began his career in 2001 at Fidelity as an Equity Research Associate. Mr. Mishuris received a S.B. in Computer Science and a S.B. in Economics from the Massachusetts Institute of Technology (MIT).

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Atlantic Power: Underappreciated Independent Power Producer With Quality Assets

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Deep Value, Distressed, Energy, Equities, Ideas, Micro Cap, North America, Small Cap

Ian Clark of Dichotomy Capital presented his in-depth investment thesis on Atlantic Power (NYSE: AT) at Best Ideas 2018.

Electrical grids are becoming increasingly complex and shifting from the old model. Through this, valuations for many independent power producers have taken a hit, as many market participants do not understand the grid of tomorrow. Atlantic Power has the ability to be a profitable and dependable independent power producer for years to come, thanks to their high-quality assets. Investors seems to be looking at Atlantic Power with a rear-view mirror when the focus should be on where the company will be in five years. Ian believes Atlantic Power will be close to debt-free, with high-quality assets and a robust pipeline.

About the instructor:

Ian Clark is the Managing Partner of Dichotomy Capital, a broad mandate investment manager that looks for uncorrelated returns in the public and private markets. He began his career in chemistry designing organometallic catalysts and novel synthetic routes. He received his M.S. in Chemistry from the University of Oregon. The dislocation of 2009 led him to research a better way to invest. Applying the same approach utilized in his science background, Mr. Clark began publishing his investing ideas to receive feedback and criticism. Applying his science background to investing, Dichotomy Capital focuses on sectors where technical expertise can lead to better investment returns.

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Hanesbrands: Low-Cost Apparel Leader With Global Supply Chain

January 11, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Consumer Discretionary, Equities, GARP, Ideas, Mid Cap, North America

Barry Pasikov of Hazelton Capital Partners presented his in-depth investment thesis on Hanesbrands (NYSE: HBI) at Best Ideas 2018.

About the instructor:

Barry Pasikov is the founder and Managing Member of Hazelton Capital Partners, a value-oriented investment fund. The Fund is a distillation of Mr. Pasikov’s 20-plus years of experience in equities, currencies, commodities, options, portfolio and risk management. Launched in 2009, Hazelton Capital Partners employs two investing strategies: The Core Strategy constructs a concentrated portfolio of equity holdings that are selected based on a number of metrics, including sustainable revenue growth, margin expansion, the company’s balance sheet, and its management. The Overlay Strategy, through its use of options, commodities, currencies and risk arbitrage, complements the Core Strategy by providing a hedge as well as short-term cash flows. Barry holds a Bachelor of Arts in Economics from the University of Michigan.

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