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Discovery: Warner Deal and Strong FCF Underappreciated by Market

January 12, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Nick Appelo of Capco Asset Management presented his investment thesis on Discovery Communications (US: DISCA/DISCK) at Best Ideas 2022.

Thesis summary:

Discovery Communications is the leading producer of unscripted video content distributed through Pay-TV bundles in the US and internationally. Discovery also reaches consumers directly through their streaming app Discovery+.

The company is in the midst of an acquisition of WarnerMedia from AT&T which will expand their business to the Turner cable networks, Warner Bros TV and Film Studio, Warner Bros theatrical films, and the crown jewel — HBO and HBO Max. Together the two companies will have a comprehensive content library and deep trove of IP, the 2nd-largest global content budget, global distribution, 100+ million DTC subscribers, the world’s most renowned production studio, and the 2nd-leading global film franchise.

Despite such a strong hand in the changing media industry, the stock has performed poorly since the merger announcement as investors wait on the sidelines for deal approval and the potential technical overhang of a spin-off. This “deal purgatory” has left the PF market cap ~$65 billion despite line-of-sight to generate $10+ billion in FCF when all of the deal synergies have been realized.

At recent prices – the PF company might be able to generate ~80% of its market cap in FCF in the first 5-6 years after the merger. Discovery CEO David Zaslav and CFO and Gunnar Wiedenfels have an excellent track record of M&A execution and synergy realization in past deals with Scripps and Eurosport. Legendary media investor John Malone serves on the board of directors, and Discovery is ~10% of his public portfolio, his 3rd-largest position. With ample FCF in the hands of capable managers and under the guidance of a hall of fame capital allocator, the prospects for creating significant shareholder value in Warner Bros. Discovery are excellent.

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About the instructor:

Nick Appelo has been a Partner and Research Analyst at Capco Asset Management since 2019. Nick has been in the Financial services industry since 2017, and previously worked in investment banking at Evercore (2017 – 2019) where he advised telecommunications and technology companies on mergers & acquisitions.

Nick is a dual graduate of the University of Florida College of Business Administration (BS in Finance 2016, cum laude, and MS in Finance in 2017). At U.F. Nick was involved with the Gator Student Investment Fund where Will serves as a board member. Nick is also a board member for the Southern Scholarship Foundation, which provides free student housing to college students from low income backgrounds.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Houghton Mifflin: Digital Transition Improves Cash Generation

January 12, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Mike Kruger of MPK Partners presented his investment thesis on Houghton Mifflin Harcourt (US: HMHC) at Best Ideas 2022.

Thesis summary:

Houghton Mifflin Harcourt is the largest publisher of K-12 instructional materials in the US. Covid-19 accelerated this sector’s shift to digital delivery, and business models are becoming more software-like. Houghton’s cost cutting program goes hand-in-hand with this transition and has radically improved cash generation.

Despite a very difficult 2020, the company still generated cash, and the recent EV is just 6x Mike’s estimated mid-cycle unlevered FCF.

Tailwinds abound:

Houghton has a net cash balance sheet in a sector with leveraged competitors.

It has the largest salesforce, making it an ideal acquirer of ed-tech startups.

It has the greatest product breadth, allowing it to digitally connect Core instructional materials with Extensions.

It is likely to call its expensive debt in February, slashing interest expense.

Finally, a tsunami of federal aid appears poised to hit the sector in 2022-2024.

The full session is available exclusively to members of MOI Global.

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About the instructor:

Mike Kruger’s first investment experience was watching his shares of Berkshire Hathaway get cut in half during the tech-mania of the late 1990’s. But he didn’t panic, and today manages a global focused value portfolio of equities and distressed debt in New York City. He previously worked as a former equity and credit analyst at Promethean Asset Management LLC in NYC, and prior to that as a high-yield credit analyst at Liberty Mutual in Boston. He holds a Bachelor’s degree from the College of Arts and Sciences at Cornell University.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

PG&E: Valuation Discount Unwarrated Under New Management

January 12, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Ian Clark of Dichotomy Capital presented his investment thesis on Pacific Gas & Electric (US: PCG) at Best Ideas 2022.

Thesis summary:

Pacific Gas & Electric (PG&E) trades at a steep discount to other utilities but has better growth characteristics with firmer capex requirements. The company has the advantage of being a decoupled utility.

EPS should compound in the low double-digits for at least the next five years due to a robust grid-hardening effort combined with massive renewable energy demand from California.

There are many reasons for the valuation discount. To name a few: wildfires, bankruptcy memories, no dividend, etc. However, these problems were largely due to a management team that failed to understand and appreciate a rapidly changing utility environment. Post-bankruptcy a new management team was brought in, and the focus has changed dramatically.

The company has a clearer framework for wildfire liabilities and the ability to contain them thanks to enhanced data management and proper investment in their rate base transmission and distribution assets. Should PG&E be successful in reducing its wildfire exposure, the draconian scenarios priced into the stock should go away, and the shares should re-rate to historical utility multiples.

The full session is available exclusively to members of MOI Global.

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About the instructor:

Ian Clark is the Managing Member of Dichotomy Capital, a power focused investment manager that looks for opportunistic returns in the public and private markets. Ian leads the public security selection process for Dichotomy Partners, a long/short hedge fund that primarily invests in utilities, power companies, and the power industry daisy chain.

He is also the CEO of Dichotomy Power LLC, an entity that owns and operates renewable energy assets that produce more than 47 GWh/ yr of power and has a dedicated retail energy arm. He is a regular contributor to State level energy policy and is active in numerous energy trade groups.

Prior to founding Dichotomy, Ian was an analyst for a NY-based hedge fund where he led research on private power investments and analysis of publicly traded independent power producers.

He received his M.S. in Chemistry from the University of Oregon.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

S2E17: Large-Cap vs. SMid-Cap Valuations | Peter Bernstein on Survival

January 11, 2022 in Audio, Podcast, This Week in Intelligent Investing

It’s a pleasure to share with you Season 2 Episode 17 of This Week in Intelligent Investing, co-hosted by

  • Phil Ordway of Anabatic Investment Partners in Chicago, Illinois;
  • Elliot Turner of RGA Investment Advisors in Stamford, Connecticut; and
  • John Mihaljevic of MOI Global in Zurich, Switzerland.

Enjoy the conversation!

download audio recording

In this episode, Elliot Turner, Phil Ordway, and John Mihaljevic discuss

  • the historically high disparity between large-cap vs. small-/mid-cap valuation; and
  • Peter Bernstein on survival and the avoidance of disaster, as well as managing through bubbles.

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This Week in Intelligent Investing is available on Amazon Podcasts, Apple Podcasts, Google Podcasts, Pandora, Podbean, Spotify, Stitcher, TuneIn, and YouTube.

If you missed any past episodes, you can listen to them here.

About the Podcast Co-Hosts

Philip Ordway is Managing Principal and Portfolio Manager of Anabatic Fund, L.P. Previously, Philip was a partner at Chicago Fundamental Investment Partners (CFIP). At CFIP, which he joined in 2007, Philip was responsible for investments across the capital structure in various industries. Prior to joining CFIP, Philip was an analyst in structured corporate finance with Citigroup Global Markets, Inc. from 2002 to 2005. Philip earned his B.S. in Education & Social Policy and Economics from Northwestern University in 2002 and his M.B.A. from the Kellogg School of Management at Northwestern University in 2007, where he now serves as an Adjunct Professor in the Finance Department.

Elliot Turner is a co-founder and Managing Partner, CIO at RGA Investment Advisors, LLC. RGA Investment Advisors runs a long-term, low turnover, growth at a reasonable price investment strategy seeking out global opportunities. Elliot focuses on discovering and analyzing long-term, high quality investment opportunities and strategic portfolio management. Prior to joining RGA, Elliot managed portfolios at at AustinWeston Asset Management LLC, Chimera Securities and T3 Capital. Elliot holds the Chartered Financial Analyst (CFA) designation as well as a Juris Doctor from Brooklyn Law School.. He also holds a Bachelor of Arts degree from Emory University where he double majored in Political Science and Philosophy.

John Mihaljevic leads MOI Global and serves as managing editor of The Manual of Ideas. He managed a private partnership, Mihaljevic Partners LP, from 2005-2016. John is a winner of the Value Investors Club’s prize for best investment idea. He is a trained capital allocator, having studied under Yale University Chief Investment Officer David Swensen and served as Research Assistant to Nobel Laureate James Tobin. John holds a BA in Economics, summa cum laude, from Yale and is a CFA charterholder.

The content of this podcast is not an offer to sell or the solicitation of an offer to buy any security in any jurisdiction. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this podcast. The podcast participants and their affiliates may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated on this podcast. [dkpdf-remove]
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Three NCAV Bargains: Kikukawa, GigaMedia, Sonocom

January 10, 2022 in Audio, Best Ideas 2022, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Juan Matienzo of Mercor Investment Group presented his investment theses on Kikukawa Enterprise (TSE: 6346), Sonocom (Japan: 7902), and GigaMedia (US: GIGM) at Best Ideas 2022.

Thesis summary:

Kikukawa is a Japanese company that makes wood sawing machines. It has a long history of profitability, and trades at a discount to cash minus all liabilities.

Sonocom is a Japanese company that makes screen printing plates. It is profitable and trades below a conservative estimate of liquidation value.

GigaMedia has a business that has long been insubstantial and unprofitable, but the company trades at a large discount to cash minus all liabilities.

Listen to this session:

slide presentation audio recording

About the instructor:

Juan F. Matienzo is the Managing Partner of Mercor Investment Group, where he is responsible for the portfolio. Juan follows deep value principles, and prefers companies that trade for less than liquidating value. He is also an amateur painter. He has a BBA and a Master of Clinical Psychology from UDLAP, and an MBA from the Harvard Business School.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Arcosa: Recent Spinoff, Undergoing Positive Business Transformation

January 10, 2022 in Audio, Best Ideas 2022, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Sam Sheldon of Punch & Associates Investment Management presented his investment thesis on Arcosa (US: ACA) at Best Ideas 2022.

Thesis summary:

Arcosa, a recent spinoff, is an infrastructure products business undergoing a business transformation that should result in a simpler, less cyclical operation.

Management is using cash flows and their underlevered balance sheet to acquire aggregates businesses in growing markets across the Southern United States while positioning its more cyclical business segments for eventual sales.

The shares trade at multiples below peer averages, and Sam believes the business is well-positioned to benefit from increased infrastructure spending and a recovery in several segments that are near the bottom of their cycles.

The full session is available exclusively to members of MOI Global.

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Thank you for your interest.  Please note that MOI Global is closed to new members at this time. If you would like to join the waiting list, complete the following form:

About the instructor:

Sam Sheldon joined Punch & Associates as an intern in June of 2016, while attending the University of St. Thomas where he also lead the University’s Investment Club. After graduating in May of 2018 with a BA in Financial Management, he joined the team full-time as an investment research analyst. In his free time, Sam enjoys boating on White Bear Lake, cheering for the Green Bay Packers and playing an occasional round of golf.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Kirkland’s: Impressive Transformation Under Respected Retail Veteran

January 10, 2022 in Audio, Best Ideas 2022, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Patrick Retzer of Retzer Capital Management presented his investment thesis on Kirkland’s (US: KIRK) at Best Ideas 2022.

Thesis summary:

Kirkland’s is a specialty retailer of home décor and furniture, with ~370 stores in 35 U.S. states. Over the past several years, Kirkland’s, led by highly respected retail veteran Steve “Woody” Woodward, has undergone an impressive transformation that included improving the merchandise mix, implementing direct sourcing, closing underperforming stores, emphasizing omnichannel capabilities, negotiating lower occupancy costs, and streamlining infrastructure to reduce operating expenses. Kirkland’s has seen a substantial improvement in operating margins, EBITDA and cash generation, enabling them to buy back more than 11% of shares outstanding in 2021.

A slight earnings miss in Q3 (reported 12/2/2021) and adjustment to Q4 guidance, due mostly to supply chain issues and dramatically higher freight costs, have caused the stock to fall below $15 per share, down from a 52-week high of $34+ per share. Despite the adjustments, KIRK still expects year-over-year earnings growth of ~50% for fiscal 2021 and to end the year with $50-60 million in cash.

From the Q3 conference call: “Adjusted earnings per share… was $0.51 (vs expected $0.58), compared to $0.66 in the prior year. If we normalize the year-over-year freight impact within the quarter, our adjusted EPS would have increased by $0.23 or 35%, compared to the prior year period.”

KIRK shares recently traded at 0.4x revenue and 5x EBITDA, while competitors sell at 2-4x those valuations.

Listen to this session:

investor relations slides audio recording

About the instructor:

Patrick Retzer spent the first several years of his career in public accounting and then developing tax planning software all while earning a Master’s in Taxation. He moved into investment management in 1987, joining Heartland Advisors, manager of the Heartland family of mutual funds in Milwaukee, Wisconsin. While at Heartland, he was portfolio manager of the Heartland US Government Securities Fund (#1 General US Government Fund for the 5 years ended 12/31/93 according to Lipper), he started and managed the Heartland Wisconsin Tax Free Fund (Wisconsin’s first double tax free fund) was co-manager of the Heartland Value Plus Fund, and managed private accounts. In 2000, Pat left Heartland Advisors to start Retzer Capital Management, LLC and the Retzer Fund I, LP. Pat believes his 35+ years of experience in both fixed income and equity management as well as his background as a CPA and tax specialist give him a unique perspective on the financial markets.

The content of this website is not an offer to sell or the solicitation of an offer to buy any security. The content is distributed for informational purposes only and should not be construed as investment advice or a recommendation to sell or buy any security or other investment, or undertake any investment strategy. There are no warranties, expressed or implied, as to the accuracy, completeness, or results obtained from any information set forth on this website. BeyondProxy’s officers, directors, employees, and/or contributing authors may have positions in and may, from time to time, make purchases or sales of the securities or other investments discussed or evaluated herein.

Anheuser-Busch InBev: Largest and Most Profitable Brewer Globally

January 10, 2022 in Audio, Best Ideas 2022, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Frank Fischer of Shareholder Value Management presented his investment thesis on Anheuser-Busch InBev (US: BUD) at Best Ideas 2022.

The full session is available exclusively to members of MOI Global.

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Thank you for your interest.  Please note that MOI Global is closed to new members at this time. If you would like to join the waiting list, complete the following form:

About the instructor:

Frank Fischer, born in 1964, is the CEO of Shareholder Value Management AG, where he is Chief Investment Officer (CIO). Frank Fischer is also a board member of Shareholder Value Beteiligungen AG. Until the end of 2005, Frank Fischer was managing director of Standard & Poor’s Fund Services (formerly Micropal GmbH) and was responsible for investment fund information and ratings. After completing his training as a banker at the Hessische Landesbank, he completed a degree in business administration at the University of Frankfurt with a degree in business administration. Mr. Fischer is married and has two children. He is the founder and director of the non-profit foundation Starke Lunge.

Equinox Gold: Fast-Growing Mid-Tier Producer at Steep Discount

January 10, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

William Thomson of Massif Capital presented his in-depth investment thesis on Equinox Gold (US: EQX) at Best Ideas 2022.

Thesis summary:

Equinox Gold is a mid-tier gold producer specializing in North and South American assets.

The firm has a top-tier management team that has successfully built numerous mines and a chairman/founder (single-largest shareholder) who built and ran the world’s largest publicly traded silver miner (Pan-American Silver).

The firm has a fully-funded growth pipeline that should double production by 2024, making Equinox one of the fastest-growing gold miners over that period.

The shares recently traded at 0.5x Will’s probability-weighted net asset value and at a steep discount relative to comparable peers.

audio recording

About the instructor:

Will Thomson is a Managing Partner at Massif Capital, a value-oriented investment partnership focused on global opportunities in energy, basic materials and industrials. We invest principally in businesses with long lived assets that generate predictable cash flows and require not only capital allocation acumen from management but also a keen focus on operational excellence. Our investment practice is primarily concerned with the nature of risk and value as it relates to protecting, enhancing and deploying the irreplaceable capital of our investors into a concentrated portfolio of economically productive assets.

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