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Tuesday Morning: Post-Bankruptcy Equity With Positive Outlook

January 14, 2022 in Audio, Best Ideas 2022, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Christopher Karlin of Aquitania Capital Management presented his investment thesis on Tuesday Morning (US: TUEM) at Best Ideas 2022.

Thesis summary:

Tuesday Morning is an off-price home goods retailer that has been operating since 1974. In 2020, the company filed for bankruptcy during the COVID pandemic to shrink its store base from 687 to 490 stores and negotiate more favorable rental terms on the remaining stores.

It emerged from bankruptcy at the end of 2020 with a significantly reduced cost structure and brought in a highly regarded and well-incentivized management team in mid-2021. The stock has been under pressure as the savings achieved during bankruptcy have been obscured by increased supply chain costs – which should abate in 2022.

Normalized EBIT is estimated at $50 million, and TUEM shares recently traded below 5x this figure, creating an attractive reward-to-risk opportunity for the patient investor, with upside to ~$6 per share and downside to $1.60 per share, as compared to the recent quote of $2.05 per share.

slide presentation audio recording

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.

P10: Premier Private Markets Asset Manager Focused on Middle Market

January 14, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Rimmy Malhotra of Nicoya Capital presented his in-depth investment thesis on P10 Inc (US: PX) at Best Ideas 2022.

Thesis summary:

P10 has a complex history but is a rather simple business to understand, and that is by design. PX operates as a premier private markets platform for the middle market. The PX team has fused together a handful of distinct asset classes within the middle market to give investors efficient access to this market. PX’s distinct strategies each boast a twenty-year track record.

The earnings stream is made up almost exclusively of recurring, high-margin management fees. This affords high visibility and low earnings volatility for almost fifteen years into the future. PX also has several hundred million dollars of NOLs that ensure effective conversion of earnings to cash flow.

The company has a large organic and inorganic growth opportunity, which should result in mid-teens EPS growth for many years. As P10 is a recently public company, Rimmy believes that the market has yet to appreciate this high-quality middle-market asset management franchise.

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About the instructor:

Rimmy Malhotra is Portfolio Manager at Nicoya Capital. The Nicoya Fund is an investment partnership with limited investing constraints. Coupled with a stable of very long-term oriented partners we invest in a concentrated and deliberate fashion across a wide variety of industries, and company sizes. Currently, Rimmy serves on the board of HireQuest (ticker: HQI) & Optex Systems (ticker: OPXS), and previously served on the board of Peerless Systems. Rimmy served for three years as a United States Peace Corps Volunteer in Central America. He earned an MBA in Finance from The Wharton School and a master’s degree in International Affairs from The School of Arts & Sciences at the University of Pennsylvania where he is a Lauder Fellow. Mr. Malhotra holds undergraduate degrees in Computer Science and Economics from Johns Hopkins 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.

Silicon Motion: Highly Profitable, Gaining Share, Yet Lowly Valued

January 14, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Mordechai Yavneh of Focus Capital Management presented his investment thesis on Silicon Motion Technology (US: SIMO) at Best Ideas 2022.

Thesis summary:

Silicon Motion is the leading merchant supplier of NAND flash controllers. It is a highly profitable, fast-growing company, with a fortress balance sheet and a P/E of 17x (ex-cash P/E of under 15x), while growing share in a growing market.

In 2021 and continuing in 2022, the business is experiencing a permanent step-up in revenue and margins. In 2021, revenue jumped ~70% and operating margin expanded from 20% to 27%. In 2022, Mordechai expects revenue growth of at least 30-40% and continued margin expansion, and there is further room to grow for years to come.

The growth is not temporary and not pandemic-demand based, but rather permanent market share gains from sticky long-term customers. Crucially, much of Silicon Motion’s main competition is exiting the controller market, ceding the field to the company. Across all three of the major product lines (eMMC, UFS, and Client SSD = ~90% of their business), they are gaining market share, gaining sticky long-term customers, and losing competition.

Mordechai believes that investors would be hard-pressed to find a similar combination of high growth, high profitability, low risk, and a cheap valuation elsewhere in the equity markets.

Listen to this session:

slide presentation audio recording

About the instructor:

Mordechai Yavneh is the founder and manager of New York-based Focus Capital Management, LLC, a boutique long-only hedge fund launched in 2013. Focus Capital Management is a fund with a fairly unique approach to investing. Our unique advantage comes from implementing and capitalizing on the value that concentration brings to an investor’s portfolio. We believe that focusing our time, energy, research, analysis, and resources on our best ideas generates superior long-term returns with a reduced level of risk built into each investment. We aim to invest in 4-5 positions at a time, and we believe this concentration and the deep research we invest in each of our positions is the driver behind our long-term success.

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.

Algoma: Net Cash Position Building Quickly Amid Elevated Steel Prices

January 14, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Francisco Carrillo of Mexico Value Partners presented his investment thesis on Algoma Steel (US: ASTL) at Best Ideas 2022.

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About the instructor:

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

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.

Kennedy Wilson: Well-Positioned to Return to Consistent NOI Growth

January 13, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Ari Lazar of RGA Investment Advisors presented his in-depth investment thesis on Kennedy Wilson (US: KW) at Best Ideas 2022.

Thesis summary:

Kennedy Wilson is a high-quality, founder-led, real estate investment firm that benefits from the continued population expansion of the Mountain States of the United States (Colorado, Utah, Nevada, Idaho, etc).

KW trades at a discount to NAV, despite a clear path to double-digit annual NOI growth, because NOI growth has stagnated for the last three years.

The strategic transition of the portfolio away from expensive hotel, retail, and California multifamily properties largely towards attractive Mountain State multifamily properties has obstructed core NOI growth during this time.
Going forward, KW is well positioned to return to consistent NOI growth.

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About the instructor:

Ari Lazar has been an Analyst with RGA Investment Advisors since March 2019 where he is a generalist across the equity universe. Ari has a deep rooted intellectual curiosity and a passion for investing. Prior to RGA, Ari worked at Lincoln International in Chicago as an Analyst in the firm’s Valuation and Opinions Group. He graduated from the University of Illinois at Urbana-Champaign with a Bachelor of Science in Finance.

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.

Dream Finders Homes: Rapidly Growing, Acquisitive, Asset-Light

January 13, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Stephen Dodson of Bretton Fund presented his investment thesis on Dream Finders Homes (US: DFH) at Best Ideas 2022.

Thesis summary:

Dream Finders Homes is a relatively young and rapidly growing homebuilder pursuing an asset-light strategy, similar to NVR. Founded in 2009, Dream Finders is growing fast off a low base. Given the structural housing shortage in the US, there’s a long runway of secular growth for new homes, particularly in its core markets in the southern US.

DFH has been relatively aggressive in its acquisition strategy, recently acquiring a company that will increase its size by 50%, yet has been able to maintain a modest debt level of ~2x 2022 EBITDA. As it has grown, it has been able to expand margins and has room for even more.

Unlike traditional homebuilders who purchase and hold land for years, Dream Finders uses option agreements, leading to inventory turns double the industry average and higher free cash flow.

As a small, newer issue, DFH trades at a deep discount, at only 5x 2023 EPS.

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About the instructor:

Stephen Dodson is the president and founder of Bretton Capital Management and serves as the portfolio manager to the Bretton Fund, a mutual fund with a long-term, concentrated, value strategy. Stephen serves on the San Francisco advisory board for YIMBY Action, a housing advocacy group.

Prior to founding Bretton in 2010, he served as president, portfolio manager, and chief operating officer of Parnassus Investments, a family of mutual funds. He previously 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.

Acme United: Steadily Growing Supplier of Niche Consumer Products

January 13, 2022 in Audio, Best Ideas 2022, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Ken Majmudar and Sam Namiri of Ridgewood Investments presented their investment thesis on Acme United Corporation (US: ACU) at Best Ideas 2022.

Thesis summary:

Acme United manufactures and supplies cutting, measuring, first aid, sharpening, and safety products to customers globally. Some of its well-known niche brands include Westcott scissors; Clauss cutting tools; Camillus knives; Cuda fishing nets; and first aid and safety brands such as First Aid Only, PhysiciansCare, Spill Magic, and Med-Nap.

Under the current management team led by CEO Walter Johnsen, the company has enjoyed eleven consecutive years of sales growth through 2020 from both organic growth and bolt-on acquisitions, producing corresponding growth in earnings and dividends per share.

The share price is off just over 30% from recent highs, giving new long-term investors an attractive entry point of under 10x earnings and EBITDA, with a long growth runway still ahead.

Over the past ten and twenty years, the stock has generated compounded annual returns, including dividends reinvested, of 15.2% and 13.2% respectively. Ken and Sam believe the company can continue generating similarly attractive absolute returns by extending its astute capital allocation record.

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About the instructors:

Kaushal “Ken” Majmudar, CFA founded Ridgewood Investments in 2002 and serves as its Chief Investment Officer focusing on managing long-term Value Investing based strategies. Ken’s high level experience and work with clients has been recognized and cited on multiple occasions. He is a noted value investor who has written and spoken extensively on the subject of value investing and intelligent investing. Prior to founding Ridgewood Investments in late 2002, Ken worked for seven years on Wall Street as an investment banker at Merrill Lynch and Lehman Brothers where he has extensive experience working on initial public offerings, mergers and acquisitions transactions and other corporate finance advisory work for Fortune 1000 companies. He has been a member of the Value Investors Club – an online members-only group for skilled value investors founded by Joel Greenblatt – where he posted a buy recommendation on Nvidia in 2002 – possibly one of the best long-term investment ideas ever posted on VIC. He has also been a member of SumZero – an online community for professional investors, and written for SeekingAlpha – among others. Ken graduated with honors from the Harvard Law School in 1994 after being an honors graduate of Columbia University in 1991 with a bachelor’s degree in Computer Science. He is admitted to the Bar in NY and NJ, though retired from the practice of law, as well as a member of the CFA Institute and EO (Entrepreneurs Organization).

Sam Namiri is a Portfolio Manager and Analyst at Ridgewood Investments, where he concentrates on managing the Ridgewood Select Value Fund, our fund focused on investing in small and micro-cap companies. Prior to Ridgewood, Sam was an associate at Grand Slam Asset Management, a Small Cap Hedge Fund and also the Founder and President of Shop Network, a jewelry company involved in television, media, manufacturing, distribution and e-commerce. He led the company in producing a reverse-auction television show selling jewelry which aired on DirectTV, started a plant overseas to manufacture semi-precious gemstone jewelry, and developed a global supply chain. Mr. Namiri has a BS in Industrial Engineering and Operations Research from the University of California, Berkeley and an MBA from Columbia Business School.

AIG: Improving Operations, Cutting Costs, Returning Capital to Owners

January 13, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Jeff Auxier of Auxier Asset Management presented his investment thesis on American International Group (US: AIG) at Best Ideas 2022.

Thesis summary:

American International Group is one of the largest insurance companies in the world, with over a century of experience. AIG has a renewed focus on improving operations; CEO Peter Zaffino has been a key proponent of this focus since joining the company in 2017. Management expects to cut $1 billion in costs by the end 2022, with a combined ratio under 90%.

AIG continues to return capital to shareholders, and they plan to buy back $6 billion of shares or 10+% of their market cap by the end of 2022. They also pay a consistent dividend, with a yield of 2%. Debt repayment has been a top priority, with long-term debt declining by 80% since the financial crisis. The company’s TTM adjusted earnings are $4.48 per share, and consensus earnings estimates are $4.75 for 2021 and $5.39 for 2022.

According to Insurance Journal, global insurance premiums are expected to surpass $7 trillion for the first time by mid-2022, and the property and casualty industry is seeing the strongest pricing in two decades.

The recent estimated P/E for 2021 of 13x represents a ~50% discount to the overall market. In March 1999, AIG was trading at ~4x revenues and ~33x earnings. Today, the shares trade at ~1x revenue and below book value, suggesting a deep value opportunity.

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

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About the instructor:

Jeff Auxier began lessons in finance early–at age 11, mowing the lawn of Robert Pamplin Senior the former long-time CEO of Georgia Pacific and recipient of the “World’s Top CEO Award”. Mr. Pamplin tutored Jeff on living a life of ethics. As Jeff puts it, “Mr. Pamplin always put his shareholders first and believed business should be transparent. He said the language of business is accounting, and that if you can’t speak the language, you can’t make money.” In 1981, Jeff graduated with honors from the University of Oregon with a degree in Finance and an emphasis on accounting.

Immediately, Jeff began calling or personally meeting with some of his investment heroes, long before they became today’s financial rock stars. Names like Warren Buffett. Not yet known as the Oracle of Omaha, Mr. Buffett graciously took several of Jeff’s calls and offered advice, most notably, “Number one don’t lose your principal and number two, never violate the first rule.” To this day, the cornerstone of the Auxier Focus Fund is respect for the power of compounding.

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.

Applus: Growing, Top Ten Player in Testing, Inspection, and Certification

January 13, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts

Javier Echevarria of Invexcel Patrimonio presented his in-depth investment thesis on Applus Services (Spain: APPS) at Best Ideas 2022.

Thesis summary:

Applus, founded 25 years ago, is a globally leader in testing, inspection and certification (TIC). The company has leadership positions in sectors such as aerospace, automotive, oil and gas, power, and telco, and is a trusted partner for leading industrial companies worldwide.

The company and the TIC sector have good prospects to outgrow global GDP in the coming years by taking advantage of megatrends such as increasing regulation, outsourcing to independent servicers, energy transition, electrification, and connectivity.

Playing in a fragmented sector, Applus is among the top ten companies by revenue, yet it has only 2% global market share. The company is growing organically as well as by acquiring smaller players at attractive valuations.

The share price has declined by 44% since the IPO in 2014, as the company has been associated with the oil and gas sector and the Spanish concessions market – both declining steadily since then.

Applus trades at 8x P/FCF and 4.3x EV/EBITDA, based on our Javier’s conservative estimates for 2024. This represents a steep discount to the peers, which recently traded at 23x P/FCF and 15x EV/EBITDA, on average.

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About the instructor:

Javier Echevarria serves as Chief Investment Officer of Invexcel Patrimonio. He has specialized in Equity Investments and Wealth Management since 2007. He worked in Bestinver’s sales team from 2007-2009. He coordinated the Anatha charity project in Cambodia in 2009. He joined Excel Corporación as Markets Analyst in 2009 and Invexcel Patrimonio in 2010. He holds a Degree in Law from the Universidad Complutense de Madrid and a Master’s Degree in Stocks and Financial Markets from Instituto de Estudios Bursátiles.

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.

Nielsen: Well-Positioned After Sale of Consumer Products Business

January 13, 2022 in Audio, Best Ideas 2022, Best Ideas 2022 Featured, Discover Great Ideas Podcast, Equities, Ideas, Member Podcasts, Transcripts

Steve Gorelik of Firebird Management presented his in-depth investment thesis on Nielsen Holdings (US: NLSN) at Best Ideas 2022.

Thesis summary:

Nielsen is the global leader in media audience measurement. The company’s “points” rating system is used as the de-facto currency for advertising pricing by brands looking to build long-term recognition with consumers.

The recent divestiture of the struggling consumer products business transformed Nielsen from a company with declining revenue to a mid-single-digit grower with improving profitability. The sale proceeds were used to delever the balance sheet, allowing Nielsen to deploy future cash flows into strengthening core business and shareholder returns.

The company is launching a new rating system in 2022 that will combine data from 100+ million digital devices and proprietary panels to offer advertisers a holistic view on digital transition and media consumption across devices.

Trading at a 7% FCF yield and below 8x EV/EBITDA, Nielsen is valued at one-third of the comparable companies whose products are used as third-party verification of data (FICO, Moody’s), providing an attractive medium-term investment opportunity.

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About the instructor:

In addition to being Head of Research at Firebird Management, Steve Gorelik is the Lead Fund Manager of Firebird U.S. Value Fund as well as portfolio manager of Firebird’s Eastern Europe and Russia Funds. He joined Firebird in 2005 from Columbia University Graduate School of Business while completing education from a highly selective Value Investing Program. Prior to business school, Steve was an operational strategy consultant at Deloitte working with companies in various industries including banking, healthcare, and retail. He holds a BS degree from Carnegie Mellon University as well as a CFA (chartered financial analyst) charter and a membership in Beta Gamma Sigma honor society. Steve serves on the boards of Georgia Beverage Holdings (Georgia), Arco Vara (Estonia), and Pharmsynthez (Russia). He speaks Russian, English and his native Belarussian.

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.
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