Westaim: A Canadian Investment Company Providing Capital and Strategic Expertise

Toby Shute presented his in-depth investment thesis on Westaim (Canada: WED) at Best Ideas 2015.

Westaim is a Canadian investment company that partners with management teams by providing capital and strategic expertise to businesses, primarily within the financial services industry. It currently holds a ~37.7% economic interest in privately held US specialty insurer Houston International Insurance Group (HIIG), which is the second act of an industry legend. Following a large equity raise in 2014, it also holds cash exceeding 40% of its market cap. The equity is mispriced for the following reasons: First off, this company is small and obscure, trading at a low share price, with low volumes, on a rather disreputable exchange. For the handful of folks who have heard of it and can buy it, they still may not want to, given both a runaway run-off book and some SEC settlement skeletons at HIIG. However, our thesis is that following significant reserve strengthening in 2013 and a large cash infusion in 2014, HIIG is moving from repair mode to growth mode, and will generate significant long-term compounding for its owners. For Westaim to grow its own book value at a similarly high rate, it will also need to deploy the large pile of cash on its balance sheet in an intelligent way. The track record to date is short but encouraging. This idea is all about long-term compounding, and at a modest premium to book value the price is quite attractive.

About the instructor:

A few years after graduating from Rice University with a degree in cultural relativism, Toby initially parlayed his budding passion for investing into a contractor role with The Motley Fool. He penned over 1,000 articles for fool.com over the course of several years. He also contributed investment ideas for a period of time to Motley Fool Special Ops, a special situations-focused newsletter helmed by Tom Jacobs, the Mentor of Marfa. Toby left the Fool in early 2011 to consult for Zeke Ashton at Centaur Capital Partners, the investment advisor to a long/short hedge fund as well as a total return-oriented mutual fund. He wrapped up his stint with Centaur in mid-2014, and has since performed contract research for a variety of funds and newsletters while seeking a new analyst/PM opportunity. He and his family currently reside in Washington, DC.

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