Jason Subotky and Stephen Yacktman presented their in-depth investment thesis on Samsung Electronics Preferred Shares (Korea: 005935) at Asian Investing Summit 2016.
Samsung Electronics Preferred Shares: Price drives the investment thesis, with the shares trading at less than 5x earnings, net of cash and investments; less than 3x EV to operating income; less than 2x EV to EBITDA; and below tangible book value. Stephen and Jason estimate that at the end of Q1, ~50% of the recent market value was in net cash and investments. Since Stephen and Jason’s presentation on Samsung at Best Ideas 2015 in January 2015, the company has (i) announced a transformational share repurchase and capital return plan in October 2015; (ii) stabilized the phone business in the mid-to- low end (recent launch of Galaxy S7 shows promise); and (iii) faced near-term challenges in the memory market. Meanwhile, the preferred shares trade modestly lower in USD terms. The preferred shares are similar to common shares, except there is no voting right. The preferred receives an additional mandated dividend of 50 won per year. Samsung’s share repurchase is more heavily weighted toward preferred shares because management thinks the discount is too wide. As a business, Samsung is a world-class technology company that invests for the long term. Management is willing to make significant commitments and out-invest, out-wait, and out-innovate competitors (investments in memory market took decades to pay off). Samsung is making significant investments in foundry and display today. It is also focusing on automotive component and healthcare markets, which utilize manufacturing expertise for future growth. Investments in foundry and display offer major optionality.
About the instructor:
Stephen is Chief Investment Officer, Partner, and Portfolio Manager of Yacktman Asset Management. He joined Yacktman Asset Management in 1993 as an analyst and has been co-manager for AMG Yacktman Focused Fund and AMG Yacktman Fund since 2002. In 2006 he was named Co-Chief Investment Officer and Senior Vice President of Yacktman Asset Management. Stephen was a finalist for Morningstar’s Domestic-Stock Manager of the Year award in 2011. He graduated from Brigham Young University with an economics degree and MBA. He is a member of the Management Committee of the firm.
Jason is Partner and Portfolio Manager of Yacktman Asset Management. He joined the firm in 2001, having previously worked as a General Partner at Peterschmidt Ventures and as a Vice President at Goldman Sachs. Jason received a BMusic from the University of Southern California and an MBA from Brigham Young University. Jason is a co-manager for AMG Yacktman Focused Fund and AMG Yacktman Fund and is a member of the Management Committee.
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