market folly

At the Value Investing Congress today, Alexander Roepers of Atlantic Investment Management made the case for longs of Energizer Holdings (ENR), Ashland (ASH), Flowserve (FLS), MTU Aero Engines (MTX.GY), and Atos (ATO.FP) in a presentation entitled "Conducive Environment for Corporate Action, Activism & Takeovers".

Be sure to check out all of our notes from the Value Investing Congress.


Alexander Roepers (Atlantic Investment Management)

Embedded below is Roepers' full slideshow presentation:



His outlook is very positive for both stocks and especially takeovers/mergers.

1. Valuations attractive due to worst crash in 70 years. Record high equity risk premium

2. Balance sheets of corporations are strong

3. There are large cash pools for LBO out there

4. Low interest rates

5. Moderate organic growth in developed markets, so room for M&A

6. Cross border M&A activity heating up

7. If fear index falls below 25 (32 today) for 2-3 months, we will see increased M&A activity


What they look for: $1-10B, big enough to move the needle, small enough to get the deal done. Strategic franchises with high barriers to entry, <8x forward EBIT preferred, strong balance sheets, predictable & recurring cash flows, low insider ownership (<10% owned by management/family), noticeable activity in sector.


Investment Ideas:

Energizer Holdings (ENR): Batteries and personal care (razors). “A small Proctor and Gamble” good number two. Target is $102 in 12-18 months, based on 11x FY12E EBIT.

Ashland (ASH): Special chemical company. Trades at 5x EBIT, 7x P/E on FY2012 estimates. Target is $105 in 12-18 months at 10x EBIT.

Flowserve (FLS): Flow control products, pumps, valves, seals for pipeline and nuclear power industries. Trades at 5.7x EBIT on 2012 estimates, target is $135 in 12-18 months on 11x 2012E EBIT. Competitor just bought for 12x EBIT.

MTU Aero Engines (MTX.GY): German company. Military and commercial engines. Same thing, price target depends on multiple going from 7.8x EBIT to 11x EBIT

Atos (ATO.FP): French version of Accenture. IT and high tech consulting.



About Alexander Roepers: Manages $1.4 billion (part of which is long only). Has seen 19% compounded returns.


You can view our notes from the Value Investing Congress for the rest of the hedge fund manager presentations.