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Future Enterprises: Infrastructure Provider for India’s Leading Retailer

January 12, 2018 in Asia, Audio, Best Ideas 2018, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Jockey Stocks, Small Cap

Gautam Baid of Summit Global Investments presented his in-depth investment thesis on Future Enterprises (India NSE: FEL, BOM: 523574) at Best Ideas 2018.

Future Enterprises develops, owns and leases the retail infrastructure for the Future Group of companies, India’s leading retailing chain, led by Kishore Biyani, an astute dealmaker and the “father” of organized retail in India. As part of a merger between Bharti Retail and Future Retail in May 2016, the latter was spun out from Future Enterprises as an asset-light front-end retailing company and Future Enterprises became a debt-laden holding company with stakes in Future Group’s various subsidiaries and joint ventures outside retail, including general and life insurance, textile manufacturing, and supply chain and logistics, with a stated intention to sell those stakes over time to deleverage the balance sheet. In the next two to three years, the value of these stakes is expected to be more than the recent market cap of Future Enterprises. The shares trade at 7.8x EV/EBITDA based on current-year guidance. With listed comparable peers in India trading at 11-15x and one of them acquired in 2015 at 12x EV/EBITDA, limited scope exists for multiple compression at Future Enterprises with its sustainable contracted rental income. As a result, the aftertax sale proceeds from stake sales over time should flow to the equity side, implying upside of 100+% for Future Enterprises over the next three to four years.

About the instructor:

Gautam Baid, CFA, is Portfolio Manager, Global Equities at Summit Global Investments, an SEC-registered investment advisor based out of Utah, USA. Prior to his current role, he served at the Mumbai, London and Hong Kong offices of Citigroup and Deutsche Bank as Senior Analyst in their healthcare investment banking teams. Gautam is a CFA Charter holder from CFA Institute, an MBA in Finance from Nirma University, Ahmedabad, India and an MS in Finance from ICFAI University, Hyderabad, India. He is a strong believer in the virtues of lifelong learning and is an ardent student of the value investing philosophies of Benjamin Graham, Warren Buffett, Charlie Munger, William O’Neil and Joel Greenblatt.

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Randall Abramson on His Investment Process and Selected Ideas

January 12, 2018 in Audio, Best Ideas 2018, Best Ideas Conference, Equities, Ideas, Portfolio Management

Randall Abramson of Trapeze Asset Management discussed his investment process at Best Ideas 2018.

About the instructor:

Randall Abramson is President, CEO, and Portfolio Manager of Trapeze Asset Management Inc., a firm he co-founded in 1999 shortly after founding its affiliate broker dealer, Trapeze Capital Corp. Randall was named as one of Canada’s “Stock Market Superstars” in Bob Thompson’s book Stock Market Superstars: Secrets of Canada’s Top Stock Pickers: Insomniac Press, 2008. Trapeze’s separately managed accounts are long/short or long-only and mostly have an all-cap orientation as Trapeze selects securities which meet strict value criteria. Since 2009, Randall and his team have developed four proprietary methodologies: TVMTM, TRACTM, TECTM and TRIMTM which now provide Trapeze with a multi-pronged approach for stock selection, buy and sell signals, economic cycle changes and gauging extreme market sentiment respectively. Randall graduated with a Bachelor of Commerce from the University of Toronto in 1989 and began his career in investment banking with The Hathaway Corporation. From there, he specialized in Canadian and U.S. Equities as an analyst and portfolio manager at both Hodgson Roberton Laing Limited and Connor Clark & Co.

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KNR Constructions: Indian Road Construction Company with Strong Tailwinds

January 12, 2018 in Asia, Audio, Best Ideas 2018, Best Ideas 2018 Featured, Best Ideas Conference, Communication Services, Equities, GARP, Ideas, Small Cap

Anuj Didwania of Redart Capital Advisors presented his in-depth investment thesis on KNR Constructions (India: KNRCON) at Best Ideas 2018.

KNR Constructions engages in construction activities (EPC segment) focused on the road sector and collecting tolls and maintaining road projects. The road sector in India is one of the focus areas of the government to increase job growth and kick-start the investment cycle, which has been stuck for six to seven years. KNR has demonstrated an ability to deliver steady EBITDA margins of ~15% even through the downcycle. Management continues to follow strict financial discipline in bidding for road projects and has the lowest debt-to-equity of any road company in India (~0.1x). Three-fourths of the order book is from the road sector. The order book provides visibility for 15-18% sales growth for next two years. Strong capital allocation by management has led to steady and healthy ROEs of 15-20% consistently on the back of sales growth of 25+% for the last twelve years. Promoters hold 58% of shares outstanding. The company trades at 19x earnings for FYE March 2018, with the tailwind of being in the right sector and visibility of 17-20% earnings growth for the coming two years.

About the instructor:

Anuj Didwania is the fund manager of Redart Capital, a fundamental value oriented investment management firm based in India. Prior to Redart Capital, from 2004 to 2005, Anuj was a Vice President solely responsible for the India proprietary trading desk at Merrill Lynch in Hong Kong and also assisted with managing Merrill Lynch’s $2 billion P-note product. From 2000 to 2004 Anuj was a proprietary trader for HSBC in Mumbai and was also responsible for setting up the equity derivatives desk for the company in India. From 2005 to 2009 Anuj has been working in the capacity of an executive director in his family business that is focused on logistics. He introduced strong processes and systems which helped increase margins and deliver consistency whereby the profits of the company have increased 800% since his joining. Since 2009 Anuj has been focused on investing proprietary capital of his family and developing his investment and risk management processes. Anuj received his post graduate degree in Business Administration (MBA) from Manchester Business School (UK) in 2000 and received his undergraduate degree in Commerce (B. Com) from Sydenham college in Mumbai.

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Viad: Compounder with Strong Management and Spinoff Catalyst

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

Peter Rabover of Artko Capital presented his in-depth investment thesis on Viad (NYSE: VVI) at Best Ideas 2018.

Viad is a combination of two unrelated compounder business units, with an identifiable spinoff catalyst over the next 12 to 36 months. Excellent management, a decent balance sheet, and a valuation of less than 7x forward EBITDA and an FCF yield of ~10% provide a good margin of safety and create a compelling risk-reward tradeoff.

About the instructor:

Peter Rabover is the principal and portfolio manager of Artko Capital LP. His focus and expertise lies in value investing, small caps, special situations and M&A. Prior to founding Artko Capital, he was a Senior Analyst for a large San Francisco mid cap value fund and a Santa Cruz large cap value fund, as well as stints in the Peace Corps as an Economic Development Volunteer and various private equity/M&A consulting roles. Peter holds a B.S. in Finance from Duquesne University and an MBA from University of Virginia’s Darden Graduate School of Business. He has also attained the Chartered Financial Analyst designation.

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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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