Jonathan Isaac of Quilt Investment Management presented his in-depth investment thesis on United States Lime & Minerals (Nasdaq: USLM) at Wide-Moat Investing Summit 2018.
Lime tends to have the quality of being much heavier than it is costly. This quality establishes a radius around each lime plant that generally defines the plant’s market. This dynamic existed even as the lime industry was a subpar business; it alone was not, seemingly, enough. But soon, the industry began to consolidate, and disadvantaged plants closed.
The combination of local advantages, along with environmental regulations, and zoning and permitting restrictions created, for some of the surviving lime plants, a form of moat, what Jonathan calls “protected proximity”. The latter is where local economic advantages exist and are reinforced by regulatory processes. When coupled with a large, growing population center, protected proximity can be powerful. A well-positioned plant can reap the advantages of its proximity while also enjoying a dearth of new entrants because of barriers to entry.
USLM eventually emerged from the industry-wide shakeout with impressive returns on tangible capital despite increased capital intensity.
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About the instructor:
Jonathan Isaac, CFA, CFP® is President and Portfolio Manager of Quilt Investment Management, LLC, a registered investment adviser based in Tucson, Arizona. In addition to financial analysis and valuation work, Jonathan enjoys reading contemporary philosophy, composing experimental music, and the animal kingdom. Before moving to Tucson and founding his firm, Jonathan worked as a financial adviser in the Greater Los Angeles area for over four years. Jonathan is a graduate of Grinnell College.