TFS Corp.: Global Monopoly On Indian Sandalwood

Kyle Mowery and Greg Fujii presented their in-depth investment thesis on TFS Corp. (Australia: TFC) at Best Ideas 2017.

TFS Corp. has an effective monopoly on the world’s supply of Indian sandalwood, used in cosmetic, religious, furniture, and pharmaceutical products. Based on Kyle’s sum-of-the-parts analysis, he believes the shares of TFS have the potential to appreciate more than 100% over the next three years. TFS recently became FCF positive with visibility for FCF production for decades to come, which should catalyze the stock price higher in 2017 and beyond. TFS’s internally owned Indian sandalwood plantations are worth more than the recent enterprise value of the company. Thus, an investor today is getting paid to own: 1) a profitable forestry business generating $60 million of annual EBITDA; 2) future performance fees worth $210 million fully taxed and discounted, and; 3) a pharmaceutical subsidiary in the U.S. with four candidates in FDA Phase II trials. TFS’ marquee forestry customers include Harvard Endowment, GMO, and The Church of England, while its harvests are forward sold at pre-determined prices to international customers including Nestle and Young Living. This idea is timely given that Indian sandalwood takes 15 years to mature and TFS’s first meaningful harvest represents a step-change in FCF beginning in fiscal 2017.

About the instructor:

Kyle Mowery is the founder and managing partner of GrizzlyRock Capital, which is a long / short investor in corporate debt and equity. Prior to founding GrizzlyRock, Kyle held leveraged finance positions on both the buy-side and sell side. Kyle holds an MBA from the University of Chicago Booth School of Business and a BA in Economics from UCLA. Kyle is a long-form thinker and value investor with a credit focus.

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