Friday, June 23, 2017

Sohn India Conference Notes 2017: Agarwal, Singh, Prakash & More

We couldn't make it to the Sohn India Conference but luckily Alpha Ideas has allowed us to share their notes from the event as a guest post. 


Sohn India Conference Notes 2017


Raamdeo Agarwal (Motilal Oswal):  Pick was PNB Housing Finance. He termed it a ‘Lakh Crore Ki Kahani’In India, there are only 27 Companies which have a market cap of more than 1L Crores.  For a company to break into this elite club, there must be strong tailwinds and a long runway in place.  Some such megatrends that he has seen in his career are IT Services, Private Banks, Pharma etc.  He analyzed the Company using his QGLP model.  Its a business with secular growth drivers.  India’s Mortgage to GDP is very low (9%) and level of urbanization is only 33%.  Both these figures can only go up.  The Gross NPAs in this business is only 0.8%For all practical purposes, it is Carlyle which owns 38% of the company is running the business.  They have put in top class processes and practices.  Agarwal quipped –‘I own a housing finance business myself and hence can judge the high quality and scalability of PNB’s processes.’  The management plans to double assets by 2020.  Modi’s ‘Housing For All’ can create a 50L Crores Mortgage Market.  The Company has grown at 52% CAGR in the last 4 years and increased its market share.  He expects the stock to break into the 1 Lakh Crore Club by 2024…a CAGR of 24%.


Sunil Singhania (Reliance Mutual Fund):  Being from Mutual Fund Industry, compliance demands he can’t give stock picks but can speak on sectors.  His pick was the Cement Sector.  Felt while the current demand is low, the sector will benefit from the Govt’s infrastructure and housing boost.  The problem is that cement stocks have significantly increased in price.  He presented an interesting way to play this sector.  Said the most significant wealth creation in Shree Cements happened when capacity when from 15 Million Tonnes to 25 Million Tonnes–stock price went up by 3x/4x.  He suggested to buy two companies - one North/Central India and the other South India - which have around 15 Million Tonnes each and are ramping up capacity.  Enjoyed the clear thinking and analysis of Sunil Singhania.


Shankar Sharma (First Global):   Explained that he liked companies with high leverage because when debt gets paid off, correspondingly market value increases.  Recommended MEP Infrastructure Developers Ltd.  Basically, a toll operator with 19 Toll Plazas including Mumbai entry points, Bandra sea link etc.  For the first time since inception it has made a profit now.  Expects debt leveraging to happen.


Saurabh Mukherjea (Ambit):  Recommended Garware Wall Ropes.  Top manufacturer of nets and ropes in the world.  Exports 3000 SKUs to 80 countries.  Its expertise in blending high end polymer chemistry with high labor intensity is unmatched.  His Primary checks tell him customers are very satisfied with the Company products.  Growth will come from Defense, Agri, Infra etc.  Management is prudent in their capital allocation, had bought back their own shares in the past.


Navneet Munot (SBI Mutual Fund):  Being from Mutual Fund Industry,compliance demands he can’t give stock picks but can speak on sectors.  His sector pick was Telcos.  There will be a bloodbath in the sector for next 2-3 quarters.  The Telcos which survive will make a lot of money as Data addiction now is a bigger addiction than alcohol, tobacco etc.  Push by the Govt - show a Modi video clip.  Consolidation–>Pricing Power—>ROCE.


Aanand Chouhan (Stockpicking Competition Winner):  Aanand had won a stock picking competition organized by Sohn and hence was given opportunity to present his idea.  His stock pick was Infoedge.  Felt the company’s core business (Naukri), Internet Portfolio (99acres, Jeevansathi, etc) and VC Investments (Zomato, PolicyBazaar etc) were valuable and could grow well.  Gave a target price of 1570 Rs/share over the next 3 years.


Jeff Gundlach (DoubleLine Capital):  Via video: He said there is no such thing as passive investing as the index constituents are decided by a committee.  Said to go long emerging markets and short S&P 500.


Kenneth Andrade (Old Bridge Capital Management):  His top pick was ENI.  Its the market leader in the Radio space with 30% market share and recognizable brand (Radio Mirchi).  It will have second frequency in 11 Metros.  National footprint with 60 cities.  Radio is an attractive space with 4% of Media spend and growing at a CAGR of 16.9%.  ENI has already done significant capex and its time to reap the benefits.


Shashank Singh (Apax Partners):  His top pick was DCB Bank.  His investment thesis was Retail private banks with clear product/customer strategy will do well.  DCB Bank reinvented itself after 2010 under current leadership.  Suppressed earnings due to network rollout and hence attractive valuations.  Felt the Bank has a conservative credit culture with the CEO himself doing surprise audits.  Earnings will improve with time as the branch network gets more ‘seasoned.’


Hiren Ved (Alchemy Capital):  His top pick was Varun Beverages.  Said the Company is a good proxy for Pepsi in India.  Not just a bottler but also a manufacturer, marketer and distributor.  Felt one unanticipated impact of 24*7 electricity is more people consuming more beverages.  Coming to valuations, he said Varun is cheap compared to other consumer plays like Jubilant Food/Page Industries.  Found the comparison very funny.


Ashwini Agarwal (Ashmore):  His top pick was Persistent Systems.  Said the company was not a typical IT services provider as it is into outsourced product management.  Three investment reasons IBM-Watson tie up begins to pay off.  Growth in Digital business -40% CAGR is possible.  Core IT services revenue shows 6-8% CAGR.  Two investment risks:  Rupee Strengthening, Curbs/high fees on H1B Visas.


Akash Prakash (Amansa):  His top pick was Infoedge.Second time the stock was discussed today.  He felt it was the ultimate India Internet play.  He also felt due to network effects the value of Naukri, 99 acres, Zomato etc will keep growing.  He feels the real estate classifieds space is 5x bigger than the recruitment space and the restaurant space is bigger than the real estate classifieds space.  The company's VC fund also lets the investor bet on interesting Internet opportunities which otherwise one could not.  He felt the downside risk was minimal while upside could be 3x/4x.


The conference ended by a video clip of Social Capital's Chamath Palihapitiya who discussed Tesla and made a case for buying its convertibles.  (MF note: he pitched this idea at a previous conference as well).


Thanks again to Alpha Ideas for the guest post.


For coverage of other Sohn Conferences, head to our notes from Sohn Hong Kong 2017 as well as notes from Sohn New York 2017.


Thursday, June 22, 2017

What We're Reading ~ 6/22/17


Payments industry overview: Analysis of Visa, Mastercard, American Express [Value Seeker]

Brexit in reverse? [George Soros]

If you can't explain something in simple terms, you don't understand it [Kottke]

On the popular 'FANG' stocks [AQR]

How to survive the retail crisis: a master class from T.J. Maxx [WSJ]

Starbucks' Howard Schultz has something left to prove [Fortune]

Blockchain 101 [CFA Institute]

How a 36-year old Wall Street prodigy saved Burger King [Business Insider]

Why grocery retail is the 'holy grail' [Bloomberg]

A look at subprime auto debt [NYTimes]

Profile of Citron's Andrew Left [NYTimes]

Mary Meeker's 2017 internet trends report [KPCB]

Essilor's CEO on an eyewear megamerger with Luxottica [FT]

Why is Trump causing chaos in Washington but not in the stock market? [Five Thirty Eight]


Tuesday, June 20, 2017

Sohn Conference Hong Kong Notes 2017: Block, Krishnan, Shah & More

The 2017 Sohn Conference in Hong Kong recently took place and featured managers sharing investment ideas to benefit the Karen Leung Foundation for gynecological cancer.  Here's quick summaries of each speaker's stock idea and pitch from the Asia Society Hong Kong Center.


Sohn Conference Hong Kong Notes 2017

Carson Block (Muddy Waters): Short Man Wah Holdings (1999.HK).  Pitch highlighted taxes and concerns over debt and free cashflow.  Also questioned sales from export.  He thinks they generate 50% of net income from Macau but has a 0% tax rate?  "Our opinion is this is tax evasion at best, but we think more likely a major component of financial fraud."  Says company has undisclosed debt off books and total debt is around 48% greater than reported.  "MWH has inconsistencies in its taxes, a strong indicator of fraud.  MWH has an entity in Macau that books over half of consolidated net profits.  Fieldwork casts doubt on China sales growth story."


Eashwar Krishnan (Tybourne Capital): Long Rolls Royce (RR.LN).  Argued that its position as a UK manufacturer with currency weakness makes the company stronger.  "Rolls Royce's 3-year expected return of 85% including dividends, thanks to around a 10% free cashflow yield."  Likes the new management team and CEO Warren East, thinks they can improve margins.  Highlighted disparity between RR at 5.3% margin and main competition GE/Safran at ~20%.  Says capex and research/development will be source of operating leverage and RR can double its market share over the next decade, highlighting company's large order book growing.  Aerospace engine makers are an attractive business model as it's a razor/razor blade model with pricing power on the aftermarket service portion of the business.  High barriers to entry, sizeable investment costs, strong regulatory hurdles.  Duopoly (one of 2 engine makers in widebody and 3 engine makers overall).  Points to secular growth in miles flown.  Accelerating global travel is the key driver for RR.  Prior to founding Tybourne, Krishnan was the Asia head at Lone Pine Capital.


Shashin Shah (Think Investments): Long Indiabulls Real Estate (IBREL).  Play on Indian real estate restructuring.  Bull market there created by increasing affordability and government regulations that are favorable (Real Estate Regulatory Act: RERA).  Thinks it can double over the next 3 years, says co has excellent track record of execution.


James Tu (Nine Masts Capital): Long Sina convertible bonds/Weibo (WB).  Play Weibo via Sina convertible bond.  SINA 1% 12/1/2018 Convertible Bond.  CB Price 106, Matures with accrued 101, conversion price 115.88.  Thinks Sina's CEO may do everything to "push up WB valuation through spinning off."  Sees 50% margin of safety here, argues it is a much smaller Facebook.  Has MAU of 340 million, 154 million DAU, $16b market cap.


Seth Fischer (Oasis Management): Long Sony (SNE / 6758.JP).  Valuation is not demanding (just under 17x forward earnings and 5.7x EV/EBITDA), high potential to grow, sees 39% upside as management completes turnaround.  Thinks they should start diversifying financial risk better, bring in partners, and utilize tax farming for movie production better.  Entertainment is a strength for the company as it grows its TV programming biz.  Argues it's one of the best players in virtual reality (VR).  PlayStation players spend a lot of time with the device and have attractive demographics.  Company has solid corporate governance.  Notes company's revenue from third party gaming software is growing 11-30% annually. 


Dan David (FG Alpha Management): Short Dali Foods Group.  Company's operating costs are too low he argues (a third of peers' costs).  His concerns include: advertising expenses, cash advances, capex spending, low operating expenses, SAT and SAIC inconsistencies. "We consulted an industry expert to estimate Dali's capex spend in 2013-2014.  Their cumulative estimate for both years is about $1 billion RMB less than Dali reported.  Based on our research, the company's operating expenses and salary are unbelievably lower than publicly traded peers."  Compared Dali's costs to WantWant.  David said he's also still short Fullshare 607.HK


Ethan Devine (Indus Capital): Long Yahoo Japan (4689.JP).  Sees shares doubling as it's one of the biggest value creators in Japan and dominant digital advertising play there.  Thinks EPS can see CAGR of 26% through 2020 and co can reduce share count by 36%.  Also posited that it's possible for Alibaba to sell its stake in Yahoo JP.


Yuet Wei Wan (Wei Capital): Long Great Wall Motor (2333.HK).  Chinese automaker, local brands gaining market share.  Largest SUV maker has product upgrade this year.  Sees 48% upside in base case and 100% upside in best case.  Targeting 5-8x 2018 PE with a price range of HKD 7-17.  "The Street already thinks it's going to fail."  Sell side estimates have EPS growth from (5%) in 2017 up to 6% in 2018 while she thinks it will head from (9%) this year to 45% in 2018 with a 7% jump in ROE year over year.  Says they're following the Hyundai playbook of selling affordable premium cars.


Brandon Lin (SPQ Asia Capital): Long Momo.  Long the Chinese dating world, livestreaming, social platform.  Thinks recent price drop is an attractive entry point.  "Momo can continuously grow thanks to its short video business and strong campaign."  Highlighted time spent per daily active user per day.  Momo beats YY, Weibo, Kuaishou, and Inka.  Momo has over 200 million registered users and 85 million MAU.


Rajesh Sachdeva (Flowering Tree Investement Management): Long Shankara Building Products.  Notes how home improvement stores have done well around the world (i.e. Home Depot).  Thinks can do well in India as GDP and middle class grows in the country.  Shankara is the largest organized retailer in India for home improvement.  Sees revenue growing 18-20% and margins expanding by 40-50 basis points per year for 3-5 years, so earnings grow around 25% with ROCE of around 27%


Michael Lowy (SC Lowy): Long Peabody Energy (BTU).  Been a career debt investor but pitched common stock here as an equity reorg play, sees around 60% upside as company ramps cash flow and is reintroduced to the capital markets.  Used a blend of 5.5x !*E EBITDA and a 9% FCF yield to get to $37.5 per share.  It's historically traded at a premium (1-2x) of Arch Coal, which would yield $29-36 per share.  He expects dividend and buyback program.  "Conversion of cash-backed LC's into bank guaranteed LC's will release ~$4/share in cash.  Net cash position by the first half of 2018. 


Arjun Menon (Highbridge Capital): Long KEPCO (Korean Electric Power ~ 015760.KR).  Likes it due to low valuation, stable dividend.  Forward ROE goes up while forward P/B stays low.


For more coverage of recent investment conferences, head to our notes from Sohn New York Conference, as well as notes from the London Value Investor Conference.


Corvex Management Ups CenturyLink Stake

Keith Meister's activist firm Corvex Management has filed an amended 13D with the SEC regarding its position in CenturyLink (CTL).  Per the filing, Corvex now owns 5.6% of CTL with over 30.99 million shares.  This is made up of 18.99 million shares and 12 million shares underlying call options.

This is an increase of around 1 million shares from the beginning of May when Corvex first revealed its stake in CTL.  The latest filing was made due to activity on June 16th and it notes they bought CTL at $25.91.

We previously highlighted Meister's presentation on CenturyLink at the Sohn Conference New York.  CenturyLink is merging with Level 3, which Meister thinks is a game changer.

Per Google Finance, CenturyLink is "an integrated communications company. The Company is engaged in providing an array of communications services to its residential and business customers. Its segments include business, which provides strategic, legacy and data integration products and services to small, medium and enterprise business, wholesale and governmental customers, including other communication providers, and consumer, which provides strategic and legacy products and services to residential customers. Its communications services include local and long-distance voice, broadband, Multi-Protocol Label Switching (MPLS), private line (including special access), Ethernet, colocation, hosting (including cloud hosting and managed hosting), data integration, video, network, public access, Voice over Internet Protocol (VoIP), information technology and other ancillary services. As of December 31, 2016, it served approximately 5.9 million broadband subscribers and 325,000 Prism TV subscribers."


NYU Stern eValuation Newsletter: Spring 2017

The spring 2017 edition of NYU Stern's Investment Management and Research Society's latest newsletter eValuation has been released.  This issue focuses on investing in a changing world.

It features interviews with J. Daniel Plants of Voce Capital, Blu Putnam of CME Group, Roderick Wong of RTW Investments, Professor Paul Wachtel of NYU Stern, and Professor Vasant Dhar of NYU Stern.

The issue also includes investment pitches from students, including: long American Railcar (ARII) and long Lending Club (LC).

Embedded below is the latest issue of NYU Stern's eValuation newsletter:



For other MBA student investment newsletters, we've also posted up the recent newsletter from Columbia Business School as well.


Corvex Management Adds To Energen Stake

Keith Meister's activist firm Corvex Management has filed an amended 13D with the SEC regarding its stake in Energy (EGN).  Per the filing, Corvex now owns 6.6% of EGN with over 6.39 million shares.

This is up from the 5.37 million shares Corvex owned at the end of May when they previously filed a 13D. 

The latest filing was made due to activity on June 14th and it notes that Covex acquired over the counter American style call options and sold over the counter European style put options.  You can view all their transactions here.

You can view other recent portfolio activity from Corvex Management here.

Per Google Finance, Energen is "an oil and natural gas exploration and production company. The Company is engaged in the exploration, development and production of oil and natural gas properties and natural gas. Its operations are conducted through subsidiary, Energen Resources Corporation and occur within the Midland Basin, the Delaware Basin and the Central Basin Platform areas of the Permian Basin in west Texas and New Mexico. The Company is focused on increasing its oil, natural gas liquids and natural gas production and proved reserves through active development and/or exploratory programs in the Permian Basin. As of December 31, 2016, oil, natural gas liquids and natural gas represented approximately 60%, 20% and 20% of its reserves. As of December 31, 2016, its development activities added approximately 327 million barrels of oil equivalent (MMBOE) of reserves from the drilling of 623 gross development, exploratory and service wells and 73 well recompletions and pay-adds."


Wednesday, June 14, 2017

Market Folly's Summer Reading List

If you've got a vacation / holiday coming up and need some reading material, here are some recommended books on investing, hedge funds, business, decision making, and life in general.  Some are newer books, others are classics you might have missed and should catch up on.

Have any other suggestions?  Hit the comments below.  Enjoy!

2017 Summer Reading List


  Black Edge: Inside Information, Dirty Money, and the Quest to Bring Down the Most Wanted Man on Wall Street by Sheelah Kolhatkar.  If you're looking for a financial thriller centered around the hedge fund world, this is it.


  Competition Demystified: A Radically Simplified Approach to Business Strategy by Bruce Greenwald and Judd Kahn.  Classic text on important concepts. 


  Narrative and Numbers: The Value of Stories in Business by Aswath Damodaran.  New book from the NYU Stern Professor. 


  The Master Switch: The Rise and Fall of Information Empires by Tim Wu.  Relevant read in this day and age. 


  Shoe Dog: A Memoir by the Creator of Nike by Phil Knight.  Recommended by Warren Buffett recently.  


  The House of Morgan: An American Banking Dynasty and the Rise of Modern Finance by Ron Chernow. Biography that's been recommended by many.   


  Option B: Facing Adversity, Building Resilience, and Finding Joy by Sheryl Sandberg and Adam Grant.  New book from the Facebook COO and the Wharton professor.  


  Essentialism: The Disciplined Pursuit of Less by Greg McKeown.  Learn how to stop being busy and start being productive.


Tuesday, June 13, 2017

Senator Investment Group Shows Spirit Realty Capital Stake

Alex Klabin and Doug Silverman's hedge fund firm Senator Investment Group has filed a 13G with the SEC regarding shares of Spirit Realty Capital (SRC). 

Per the filing, Senator now owns a 7.23% ownership stake in SRC with 35 million shares.  This is a newly disclosed equity position and the filing was made due to activity on June 1st, 2017.  In late April, shares traded from $10.44 down to a low of $6.71 in May and now trade around $7.70.

Per the company's website, Spirit Realty Capital is "one of the largest publicly traded triple net-lease real estate investment trusts (REITs) in the United States."


Carl Icahn Enters Forward Purchase Contracts on Herc Holdings, Adds to Freeport McMoRan Stake

Activist investor Carl Icahn has submitted a couple SEC filings recently.

Icahn Enters Forward Purchase Contracts on Herc Holdings

First, Icahn has filed a Form 4 with the SEC regarding shares of Herc Holdings (HRI), a spin-off from Hertz (HTZ).

Per the filing, Icahn has entered into forward purchase contracts on June 8th, 2017.  These contracts have a forward purchase price of $35.00 per share, plus a financing charge.  The contracts have expiration dates of June 7th, 2019.  Multiple contracts were entered via various investment vehicles Icahn controls and in total they represent 23,607 shares.

Per the company's website, Herc Holdings "previously were known as Hertz Equipment Rental Corporation or “HERC.”  We now operate in the U.S. under our new brand, Herc Rentals.  We generated revenue of $1.6 billion in 2016 and offer customers a diversified fleet of equipment valued at $3.6 billion1. We serve customers through 270 company-owned locations, primarily in North America, and have approximately 4,800 employees.  Through the years, we have been widely recognized as a pioneer and leader in the equipment rental industry, setting the standard for service and creating the performance metrics that are now commonplace for rental equipment companies."


Icahn Adds To Freeport McMoRan Stake

Second, Icahn has also filed an amended 13D with the SEC regarding his position in Freeport McMoRan (FCX).  Per the filing, Icahn now owns 6.33% of the company with over 91.58 million shares.

The filing notes that on June 6th, Icahn acquired 351,644 shares in total at $11.41 per share.

Per Google Finance, Freeport McMoRan is "a mining company. The Company operates through geographical assets with proven and probable reserves of copper, gold and molybdenum, and traded copper producer. The Company's segments include refined copper products, copper in concentrate, gold, molybdenum, oil and other. The Company's segments include the Morenci, Cerro Verde, Grasberg copper mines, the Rod & Refining operations and the United States (U.S.) Oil and Gas Operations. The Company has organized its operations into five divisions, which include North America copper mines, South America mining, Indonesia mining and Molybdenum mines. The Company's portfolio of assets includes the Grasberg minerals district in Indonesia, copper and gold deposits, and mining operations in the Americas, including the large-scale Morenci minerals district in North America and the Cerro Verde operation in South America."


Farallon Capital Shows Savara Stake

Andrew Spokes' hedge fund firm Farallon Capital has filed a 13G with the SEC regarding shares of Savara (SVRA).  Per the filing, Farallon now owns 9.5% of the company with over 2.22 million shares.

This is a newly disclosed equity stake and the filing was made due to activity on June 2nd.  It's worth noting that Savara recently closed on a merger with Mast Therapeutics in April of this year.  In conjunction with the merger, Master effected a 1 for 70 reverse stock split. 

Also, Savara this month completed an underwritten public offering of over 9 million shares of common stock at $4.75 per share.

Per Google Finance, Savara is "formerly Mast Therapeutics, Inc., is a clinical-stage pharmaceutical company. The Company is focused on the development and commercialization of novel therapies for the treatment of patients with rare respiratory diseases. Its pipeline includes AeroVanc, Molgradex and AIR001. AeroVanc is an inhaled formulation of vancomycin, which the Company is developing for the treatment of persistent methicillin-resistant Staphylococcus aureus, lung infection in cystic fibrosis patients. Molgradex is an inhaled formulation of recombinant human granulocyte-macrophage colony-stimulating factor. It is developing Molgradex for the treatment of autoimmune pulmonary alveolar proteinosis, a rare lung disease. AIR001 is a sodium nitrite solution for inhalation via nebulization. AIR001 is in Phase II clinical development for the treatment of heart failure with preserved ejection fraction, also known as diastolic heart failure or heart failure with preserved systolic function."


Monday, June 12, 2017

Jim Chanos Interview on Bloomberg

Jim Chanos, founder of hedge fund Kynikos Associates recently sat down with Bloomberg to share his thoughts on markets.

He talks about the macro landscape, how the recent political shift has changed things, and other topics.

Chanos is worried about China because it's a debt driven model.  He thinks they've added trillions to the system.

Turning to US healthcare, Chanos says it's a system designed to be gamed:  "It's a hybrid of socialized and free market healthcare."

He thinks the kidney dialysis business is "headed for difficulties."  DaVita (DVA) seems to be one play that Chanos is short.

Telsa (TSLA) is another company Chanos has been short.  He would cover the short if the company actually began to make money.  They were also short Solar City before it got folded into Tesla.  The company burns a lot of cash (he thinks up to as much as $1 billion a quarter).  The upcoming Model 3 is the big test.

Embedded below is the video of Jim Chanos' Bloomberg interview:



For more recent interviews with prominent investors, be sure to also check out Paul Singer's chat with David Rubenstein.


Paul Singer Chats With David Rubenstein

Paul Singer of hedge fund Elliott Management sat down with Carlye Group co-founder David Rubenstein to chat at Bloomberg Invest New York.

They talk about how Singer founded Elliott, investing, and more.

Elliott manages $34 billion now and started in 1977 with $1.3 million.  Singer was a practicing lawyer at the time but started with friends and family money as he found investing much more enjoyable.

Convertible bond hedging was the first strategy Elliott used for around ten years. (Elliott, by the way, is Singer's middle name).  Over 40 years, Elliott has compounded at 13.5% net.

Embedded below is the video of Singer's chat with Rubenstein:



For more profiles of prominent investors, check out Howard Marks' recent interview with Bruce Karsh.


Howard Marks Interviews Bruce Karsh at Wharton School

University of Pennsylvania's Wharton School has started a Howard Marks investor series where the founder of Oaktree Capital interviews outstanding investors and this time around he's interviewed Bruce Karsh, his co-founder at Oaktree.

They talk about the founding of Oaktree, distressed investing, and a myriad of other topics. 

Embedded below is the video of Howard Marks' interview with Bruce Karsh:



For more from Marks, check out his most recent memo: Lines in the Sand.


Friday, June 9, 2017

Hedge Fund Links ~ 6/9/17


Seth Klarman says investors are missing huge risks [Business Insider]

As Point72 returns flatline, Steve Cohen eyes $20 billion for fund [Bloomberg]

John Paulson is struggling to hold onto client money [Bloomberg]

Hedge funds go to war over US defense contractor TransDigm [FT]

Elliott Management on 5 lessons that have shaped how it invests [Business Insider]

Machine learning set to shake up equity hedge funds [FT]

The quants run Wall Street now [WSJ]

Paul Tudor Jones said to back AI hedge funds [Bloomberg]


Thursday, June 8, 2017

20% Off Scuttleblurb For Our Readers: Investment Analysis and Commentary. Sample Posts Available


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Sample Blurbs available on the site, including:


[SNI] Flip or flop?

[SHW] Valuation looks stretched

Quick Blurbs [ADS, AXP, BAC, IBKR, KMX, SVU]

[BRO] Compounder in a fragmented sector


Wednesday, June 7, 2017

What We're Reading ~ 6/7/17


Investing between the lines: how to make smarter decisions decoding CEO communication [Rittenhouse]

Honored to be included in list of 50 of the best investing blogs [Acquirers Multiple]

Interview with Blackstone's Steve Schwarzman [Bloomberg]

What do you know with a high degree of confidence about investing? [Abnormal Returns]

Why it's so hard to admit you're wrong [NYTimes]

Inversion: the crucial thinking skill nobody ever taught you [James Clear]

Is Sephora killing the department store beauty counter? [Consumerist]

Estee Lauder vs L'Oreal: who's winning beauty's arms race? [Business of Fashion]

The economics of eSports [Digits to Dollars]

Profile of the founders of Atlassian (TEAM): The Wizards From Oz [Forbes]

Profile of SoulCycle's CEO [Fortune]

How the QR code has forever changed China's social habits [SCMP]

An introduction to LIDAR: the key self-driving car sensor [Voyage Auto]

Ten myths about machine learning [Medium]

Why Amazon is eating the world [Techcrunch]

On retail carnage: perception vs reality [Peridot Capitalist]

US unemployment hits lowest level since 2001 [CNN Money]

US home prices rising 2 times faster than wages [KSL]


Tuesday, June 6, 2017

Tiger Management Increaes T2 Biosystems Position

Julian Robertson's hedge fund firm Tiger Management has filed a 13G with the SEC regarding its position in T2 Biosystems (TTOO). Per the filing, Tiger now owns 5.68% of the company with over 1.73 million shares.

This is an increase of around 373,000 shares since the end of the first quarter. The filing was made due to activity on May 25th.

Per Google Finance, T2 Biosystems is "an in vitro diagnostics company engaged in developing a technology platform offering an alternative to diagnostic methodologies. The Company's T2 Magnetic Resonance platform (T2MR) enables detection of pathogens, biomarkers and other abnormalities in a range of unpurified patient sample types, including whole blood, plasma, serum, saliva, sputum and urine, and can detect cellular targets at limits of detection as one colony forming unit per milliliter (CFU/mL). The Company's initial development efforts target sepsis, hemostasis and Lyme disease. T2MR is a miniaturized, magnetic resonance-based approach that measures how water molecules react in the presence of magnetic fields. Its platform detects a range of targets, including molecular targets, such as deoxyribonucleic acid (DNA), immunodiagnostics, such as proteins, and a range of hemostasis measurements. The Company offers T2Dx Instrument (T2Dx) and the T2Candida Panel. "


Third Point Trims Baxter Stake

Dan Loeb's hedge fund firm Third Point has filed a 13D and Form 4 with the SEC regarding its stake in Baxter International (BAX). Per the 13D, Third Point now owns 7.5% of BAX with 41 million shares.

The Form 4 indicates Third Point sold 5 million shares on June 1st at $59.5. After this sale, they still own over 41 million shares.

For more from this fund, check out Third Point's Q1 letter.

Per Google Finance, Baxter "provides renal and hospital products. The Company operates through two segments: Hospital Products and Renal. Its Hospital Products business manufactures sterile intravenous (IV) solutions and administration sets, premixed drugs and drug-reconstitution systems, pre-filled vials and syringes for injectable drugs, IV nutrition products, parenteral nutrition therapies, infusion pumps, inhalation anesthetics and biosurgery products. The Renal business offers a portfolio to meet the needs of patients with end-stage renal disease, or irreversible kidney disease and acute kidney injuries, including technologies and therapies for peritoneal dialysis (PD), hemodialysis (HD), continuous renal replacement therapy (CRRT) and additional dialysis services. Its products are used by hospitals, kidney dialysis centers, nursing homes, rehabilitation centers, doctors' offices and by patients at home under physician supervision. ."


Berkshire Hathaway Acquires More Liberty SiriusXM Shares Again

We've highlighted recently that Warren Buffett's Berkshire Hathaway has been buying Liberty Sirius XM (LSXMA / LSXMK). Well, they're at it again.

Per Form 4's filed with the SEC, Berkshire acquired 377,656 shares of LSXMA across May 26th, 30th, and 31st at weighted average prices around $41.xx. After these buys, they own over 14.86 million LSXMA shares.

The second Form 4 indicates they also bought 644,172 LSXMK shares on May 26th, 30th, and 31st at weighted average prices ranging from $40.9877 to $41.7432. After these buys, they own over 31 million LSXMK shares.

We've also previously noted that it seems likely that Berkshire's portfolio manager Ted Weschler is the one buying here.

For more on Berkshire Hathaway, check out a recent interview with Warren Buffett here.

Per Google Finance, Liberty SiriusXM is "Liberty Media Corporation owns interests in subsidiaries and other companies, which are engaged in the media and entertainment industries. The Company's principal businesses and assets include its consolidated subsidiaries Sirius XM Holdings Inc. (SIRIUS XM) and Braves Holdings, LLC (Braves Holdings), and its equity affiliate Live Nation Entertainment, Inc. (Live Nation). The Company's segments are SIRIUS XM, and Corporate and other. SIRIUS XM provides a subscription-based satellite radio service. Through its subsidiaries and affiliates, the Company principally operates in North America. The Company also owns a portfolio of minority equity investments in publicly traded media companies, including Time Warner, Inc. and Viacom, Inc. SIRIUS XM transmits music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis through two satellite radio systems."


Corvex Management Boosts Energen Position

Keith Meister's activist hedge fund Corvex Management has filed a 13D with the SEC regarding its stake in Energen (EGN). Per the filing, Corvex now owns 5.5% of EGN with over 5.37 million shares. This is up from the previous 1.34 million shares they owned at the end of the first quarter. 

The filing was made due to activity on May 22nd.  The 13D notes that they've been quite active buying call options and selling put options and you can view the full list of transactions here.

They've had discussions with management and Corvex feels that:

"(Energen) has some of the most attractive leaseholds for oil and gas development in the Permian Basin. However, despite this leading asset position, the Issuer’s operational performance has fallen short of its peer companies, leading to underperformance both in terms of financial results and shareholder returns. As a result, the Reporting Persons’ believe the Issuer needs to strongly consider what actions can be taken to enhance and maximize shareholder value – including a review of the potential value delivered to shareholders through a change of control transaction given the recent wave of acquisitions in the Permian Basin at per acre values well in excess of the Issuer’s current implied value."

For more on this fund, Keith Meister also recently presented at the Sohn Conference New York and you can catch up on his presentation here.

Per Google Finance, Energen is "an oil and natural gas exploration and production company. The Company is engaged in the exploration, development and production of oil and natural gas properties and natural gas. Its operations are conducted through subsidiary, Energen Resources Corporation and occur within the Midland Basin, the Delaware Basin and the Central Basin Platform areas of the Permian Basin in west Texas and New Mexico. The Company is focused on increasing its oil, natural gas liquids and natural gas production and proved reserves through active development and/or exploratory programs in the Permian Basin. As of December 31, 2016, oil, natural gas liquids and natural gas represented approximately 60%, 20% and 20% of its reserves. As of December 31, 2016, its development activities added approximately 327 million barrels of oil equivalent (MMBOE) of reserves from the drilling of 623 gross development, exploratory and service wells and 73 well recompletions and pay-adds."


ValueAct Capital Trims Willis Towers Watson Stake Again

Jeff Ubben's activist investment firm ValueAct Capital has been trimming more of its holdings.  Per a 13D filed with the SEC, ValueAct now owns 4.9% of Willis Towers Watson (WLTW) with 6.66 million shares.

Per Form 4's filed with the SEC, ValueAct sold 500,000 WLTW shares in total across May 25th, 26th, 30th, and 31st at around $145.xx.

This is the second time they've sold WLTW shares in recent months.

Per Google Finance, Willis Towers Watson is "a holding company. The Company operates as a global advisory, broking and solutions company. It is engaged in offering risk management, insurance broking, consulting, technology and solutions, and private exchanges. The Company operates through eight segments: Willis International; Willis North America; Willis Capital, Wholesale & Reinsurance (CWR); Willis GB; Towers Watson Benefits; Towers Watson Exchange Solutions; Towers Watson Risk and Financial Services; and Towers Watson Talent and Rewards. The Willis GB segment comprises four business units: Property and Casualty, Transport, Financial Lines and Retail Networks. The Willis Capital Wholesale and Reinsurance segment includes Willis Re; Willis Capital Markets & Advisory; Willis' wholesale business, and Willis Portfolio Underwriting Services. The Willis North America segment provides risk management, insurance brokerage and related risk services."


Tuesday, May 30, 2017

London Value Investor Conference Notes 2017: Parames, Roden, Channon & More

Below are notes from the recent 2017 London Value Investor Conference.  Each link takes you to that speaker's presentation.  Enjoy!


London Value Investor Conference Notes 2017

Francisco Garcia Parames (Cobas Asset Management): Long Teekay Corp and Teekay LNG

Stuart Roden (Lansdowne Partners): His talk on investing

Gary Channon (Phoenix Asset Management): Long Easyjet

Steve Romick (FPA Funds): Loan to Sears Canada

Nick Train (Lindsell Train): Long Diageo

Django Davidson (Hosking Partners): Talk on the consumer

Kevin Murphy (Schroders): Long Standard Chartered

Alex Wright (Fidelity Special Situations Fund): Two long ideas

Michael Keller (Brown Brothers Harriman): Long Wendel SE

Jonathan Boyar (Boyar Value Group): 4 long ideas

Ben Preston (Orbis): Long Samsung SDI

Charles Heenan (Kennox Asset Management): Long Texwinca

Joe Bauernfreund (Asset Value Investors): Long Wendel

Ronald Chan (Chartwell Capital): Long Far East Consortium

Rhys Summerton (Milkwood Capital): Long John Menzies

Filip Weintraub (Skagen Funds):  Long Taiheiyo Cement



Francisco Garcia Parames Long Teekay: London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Francisco Garcia Parames of Cobas Asset Management.  He pitched long Teekay Corp (TK) and long Teekay LNG Partners (TGP).


Francisco Garcia Parames London Value Investor Conference Presentation

Whilst at Bestinver 1993-2014, Parames’s returned 15.7% per annum in his Spanish equity fund, equivalent to 2,279% compounded compared to 410% for the Spanish index. In 1997 he also began to manage an international portfolio, which returned an average 10.6% per annum versus 2.9% for the MSCI World Index. He left Bestinver due to a difference of opinion over whether to take on more capital. He felt that at $10bn euros the fund had become too big.

Temperament is more important than IQ for success in investment management. He qualified this by saying that you manage risk by knowing what you are doing. Studying companies in depth is important – if you don’t it will lead to mistakes. You can reduce risk by buying assets that have gone down a lot in price.

His approach to valuation is to buy good businesses trading on less than 10x earnings. He looks for companies with high returns on capital. He said that one of the things he wished he had learnt earlier in his career was to invest in better quality companies. Joel Greenblatt’s Little Book That Beats the Market helped him to develop this side of his game and to avoid value traps.

A distinctive feature of Parames’s style is that he actively changes the size of his positions in companies. The names in his portfolio do not change that often but under the surface there is a high turnover of money. All things being equal, if one stock in his portfolio goes up by 20% and another goes down by 20% he moves money from the winner to the loser.

In terms of sell discipline, he only sells when there is something better to buy. “We almost never go to cash.” The current market is on the expensive side but it is not in a bubble.


Long Teekay Corporation (NYSE: TK) and Teekay LNG Partners (NYSE: TGP)  

Teekay is his first shipping investment in 27 years of investing. It is the main investment in the new Corbas fund – about 9% of the portfolio. Teekay is a family owned company. He trusts family owed companies to keep watch on management and over his career about 80% of the investments have been in family owned businesses. Shipping is cyclical, leveraged, tends to have low returns and can be a lousy business.

Teekay Corporation currently receives $40m in payments per annum from its subsidiaries but before the collapse in the oil and gas price it received much more. The largest subsidiary, Teekay LNG Partners, is expected to return to paying the parent company $100m a year as it did in 2014 and 2015. Given these cash flows Parames’s thinks that Teekay Corporation is worth $19.5 per share (it is trading around $6.40).

Teekay LNG is the key to the valuation. It is trading at 5-6x FCF. It is leveraged 50-60% of assets - lower than most other shipping companies that are in the 70-90% range. Compared to most other shipping businesses LNG companies work on very long-term contracts with companies like Shell and Total. Free cash flows will increase every year for the next 10 years and are predictable. He expects an IRR of 18% per annum.

Parames noted that it was the first time in his career that he had seen a stock’s price fall 75% with no change in the earnings estimates.


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Stuart Roden's Presentation at London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Stuart Roden of Lansdowne Partners.


Stuart Roden's Presentation at London Value Investor Conference

Stuart Roden and Peter Davis managed Lansdowne’s flagship long/ short equity fund, The Developed Markets Strategy, until the end of 2014. Since then he has taken on the role of Chairman.

He does not regard himself as a value investor or a growth investor - he is eclectic.  He likes to focus on situations that involve change typically at an industry level rather than a company level.

Investment managers need to have an appetite for risk and be able to cope with loss. Most of Lansdowne’s employees have First Class degrees but he said that sometimes very academic people particularly from a science and maths background cannot deal with uncertainty.  It’s partly due to not being used to things ‘not working out’ but also because they may not have experienced enough set-backs in life. “The stock market can make a fool of you for quite a long time.” Fund managers need common sense as well as brains and managers need to understand that they may be wrong. You can’t control events and things are going to happen that you are not ready for – you will be shocked at times.  If you can’t deal with that level of uncertainty it can make you emotionally unstable.

At Lansdowne, they encourage their portfolio managers to get four things right. Firstly, you need a creative idea. Secondly, strong analysis. Thirdly, risk management and correlation control to make sure that you are not missing a risk that runs throughout the portfolio. Fourthly, monitoring. He likes Barton Biggs’s advice on portfolio management: ask yourself is this the portfolio you would build today? His role was often to be ‘questioner in chief’. He watched out for thesis creep. Do the reasons why you wanted to buy a stock in the first place still hold true? Do you need to change your view? If you can’t change your view you won’t make it as a fund manager.

He values imagination pointing out that they made a very successful investment in Amazon by thinking creatively about the way Amazon would look in 3-5 years. This was not a momentum trade but instead required long-term thinking. They were only able to make the investment because they did not hold a static view of Amazon’s valuation.

If you can find two people who complement each other partnerships work very well in investment management. He said three people was too many. He was very lucky to have worked with his partner, Peter Davis. There was something about their partnership that worked, they were very different people, their emotions were different, Davis was optimistic whereas he was looking over his shoulder the whole time to see what might go wrong – a combination of confidence and humility. There was also an age gap that avoided them becoming competitive. Good partnerships require respect and mutual admiration.

Given the state of the markets, if he was opening a fund today it would be a long/ short fund and not a long-only fund. In the past 16 years when a lot of Lansdowne’s shorts have been in indices rather than single stocks the markets have tended to go up. Today all their shorts are in single names. Shorts are easy to find because there are so many businesses being hurt by disruption. When he first started he was often confident that they could hold equity investments for at least 5 years but today he feels that has shrunk to 3 years. There is so much uncertainty – not just in interest rates and valuations.


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Gary Channon Long Easyjet: London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Gary Channon of Phoenix Asset Management who pitched a long of Easyjet (LON: EZJ).


Gary Channon's Presentation at London Value Investor Conference

Phoenix is a UK focused fund that since inception in 1998 has returned 12% annualised vs the 4.9% for the UK benchmark.

Long: Easyjet (LON: EZJ) 

There is an intrinsic human desire to travel. GDP per capita and the cost of travel drive the overall market. Air travel has been doubling about every 12 years. Yet airlines have been terrible businesses except for Southwest Airlines in the US. The Southwest model has been copied by both Ryanair’s and Easyjet’s founders.

It is often assumed that Ryanair and Easyjet are competing. Ryanair is thought of as the low-cost producer and to be more effective than Easyjet. Channon argued that the two airlines have different strategies and are not competing. They do not fly the same routes – there is only 4% overlap. This is not an accident but a deliberate strategy. Easyjet takes customers from convenient airport to convenient airport. Ryanair is low cost - inconvenient airport to inconvenient airport. Both companies produce a similar return on capital.

Easyjet has a moat which is underappreciated by the market. The moat is derived from the slots it owns. The slot is the right to take off and land at a certain time on a certain day. The slots are regulated by quasi-legal international conventions referred to as Grandfather Rights. The slots belong to the airlines not the airports. A slot can provide pricing power if it is at a sought-after airport where demand outstrips supply. The lack of runways in the UK and Europe and the failure to build new ones guarantees a shortage of supply. Because of the value of slots airlines tend to be against the expansion of runways while the owners of airports tend to be supporters.

The slots provide a barrier to entry as people’s propensity to switch airports is limited. Only 20% of passengers are prepared to add an extra hour to their travel if they are on a short-haul European flight. Easyjet’s real competitors are those who fly the same routes from busy airports - mainly British Airways and Air France but certainly not Ryanair. British Airways and Air France are not strong competitors to Easyjet because they have structurally higher costs due to pension schemes, staffing costs and culture. This creates an environment in which Easyjet will keep expanding, gradually taking the flag-carriers business.

Channon estimates that three-quarters of Easyjet’s business is protected by a slot-constrained moat. This provides pricing power and high returns.

The opportunity for Phoenix to invest in Easyjet came about because of Brexit. Channon said he thought Brexit was a non-event for Easyjet. It does not change the competitive landscape and Easyjet will get a European license. Phoenix bought their Easyjet stock 9 months ago. Channon said he would not buy today but would wait for the price to fall below £10 per share (the stock is trading at around £13.80).


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Nick Train's Presentation at London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Nick Train of Lindsell Train.


Nick Train's Presentation at London Value Investor Conference

Even though Train regards himself as a value investor he has changed his investment style considerably in the last 20 years. He quoted Michael Lewis:

“Graham and Dodd investors are people who place a very high price on having the last laugh… “     

“….in exchange for that privilege they have missed out on a lot of laughs in between.”  

Train missed the TMT boom in the 1990s, not owning any technology stocks.  He missed both the boom and the bust but the experience left him feeling dissatisfied. As a traditional value investor, he felt that he had been ill equipped to analyse and deal with an historic, world changing and enormously value creating technology shift. He felt his traditional value investor’s mindset had blinkered him and revealed some limitations. The value discipline had led him to spend too much time looking at cycles and not enough time looking out for trajectories. He had been waiting for years for reversions to the mean that did not happen and not enough time looking for self-reinforcing trends. He felt he had missed the whole point of what creates long-term equity value.

Today he believes the single most important thing that they can do is to extrapolate long term trends. Cycles are irrelevant. Today he likes to invert Howard Marks’s well-known quote:

“Ignoring cycles and extrapolating trends is one of the most dangerous things an investor can do.” 

He gave global whisky shipments as an example of a re-enforcing trend that has continued to grow over the last 100 years. There is no sign of cyclicality or reversion to the mean and he says he expects the trend to continue for the next 30 years. Similarly, he noted that £1 invested in the UK Engineering Industry in 1900 would have grown to £2283 today while £1 invested in the UK alcohol Industry would have grown to £243,152. Again, he expects this trend to continue and it is a reason why Lindsell Train have a large investment in Diageo.

It’s far better to lock into the value creating trajectories and leave the tricky cyclical-type trades alone. The stock market is better viewed as a trajectory rather than a series of potentially ruinous ups-and-downs.

Value investing with its focus on cyclicality can make us too prone to cynicism and pessimism. Optimism is hard but if you hold on to those investment trajectories you will benefit from looking on the bright side.

Everyone has their favourite Buffett quote. Train said that the one that resonates most for him is that the best holding time is forever. “My starting point is that I’ve made a permanent/ semi-permanent commitment to a franchise and I am prepared to ride through the fluctuations.” If the trajectory that we are trying to capture turns out to be misplaced or the company cannot deliver on what we are hoping for that’s a reason to sell. The other reason he would sell is if the balance sheet is deteriorating to such an extent it is threatening the survival of the company.


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Django Davidson's Presentation at London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Django Davidson of Hosking Partners.


Django Davidson's Presentation at London Value Investor Conference

Django Davidson is a portfolio manager and founding partner of Hosking Partners where he works with Ex-Marathon Asset Management investor, Jeremy Hosking. Before that Davidson worked at Algebris.

Hosking Partners refer to themselves behavioural investors. He noted that once people form an opinion they do not like to give it up. We get a rush of dopamine when people agree with us. Having people agree with you is the crack-cocaine of the middle-aged dinner party circuit.  Sticking to your guns is a widely perceived social good. Humans attach a huge premium to ideas they already have.

Davidson warned that the belief in Buffett style quality compounders/ franchise stocks in the investment world has taken on something close to religious dogma. The huge outperformance of quality compounders particularly since the financial crisis has led Davidson to take an outsiders view. Shareholder returns for many quality compounders have been very good over the last 5 years while their revenues have gone down - Kellogg’s, Coca-Cola, Pepsi, Colgate Palmolive.  The margins of quality compounders have been on a continuous three-decade rise but if the underlying moat premise works the revenues should be rising and they are not.

The danger is that the customer is not coming back as often as they used to. Jeff Bezos says that power is shifting from the company to the consumer. Technology is empowering the customer challenging companies to change. According to Bezos the best way for companies to respond is to put all their energies into creating a great product and put less effort into shouting about it through marketing. The old model is shareholder centric whilst the new model is customer centred.

The old shareholder focused companies used to be the only ones that could afford TV advertising. Now two-thirds of the screen times of under 25 year olds is spent on hand-held devices. When they do watch TV, they self-select their own channels. Linear TV is being propped up by an aging demographic. Today new businesses can reach their customers through social media and YouTube at a fraction of the cost. Often, they have better products to sell.

Why are customers leaving the old brands? Are the brands staying relevant in a multi-channel world? How will these brands react to people ordering their shopping through Amazon Alexa? What will the industry have to spend to retain customers? Are companies gouging their customers by providing low quality, high priced goods? Franchise investing appears to be a warm and cosy place, but is it?

Investment ideas: Long AIG Tarp Warrants (expiry 2021); Long: Michelmersh Brick (LON: MBH)


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Steve Romick's Presentation at London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Steve Romick of FPA Funds.


Steve Romick's Presentation at London Value Investor Conference

Since inception in June 1993, Steve Romick’s FPA Crescent Fund has returned 10.4% annualised Vs 7.0% for the MSCI World Index.

A few stocks drive the index at any one time. Contrary to popular belief you don’t need to hold the golden stocks of each era to win at investing. You can win by avoiding the losers. His fund typically underperforms in bull markets but outperforms by more in bear markets. Stocks are expensive today and he is finding it hard to find good investments. He outlined an example of how he has been putting some of the fund’s money to work outside of the equity market.

The fund has provided a loan to Sears Canada. The company is facing the same pressures as many other retailers and may go bankrupt at some point. Given their tenuous finances the loan has been secured against inventory, receivables, and real estate. He estimates that the liquidation value is about 1.7X the loan value. Romick expects the loan to produce an IRR of 11% no matter what happens to Sears.


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Kevin Murphy Long Standard Chartered: London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Kevin Murphy of Schroders who pitched a long of Standard Chartered (LONG: STAN).


Kevin Murphy's Presentation at London Value Investor Conference

Long Standard Chartered (LON: STAN) 

Standard Chartered are exposed to emerging markets and the shares are down two-thirds from their peak. As usual as the price has gone down more analysts have given sell ratings. As a deep value investor, he is not interested in consensus profit or what profit a company generated last year. He tries to think about profit through the cycle. Murphy likes to use deposits as a measure of value for banks as they are highly cyclical. With interest rates so low you could consider deposits as float and not a liability. Standard Chartered has extreme liquidity.

Compared to other banks that focus on emerging markets Standard Chartered looks cheap if measured in terms of deposits but not so cheap measure by profit. Why has it failed to produce better profits? The main reason is low interest rates.

Standard Chartered came through the Asia Crisis and the credit crunch well. Murphy thinks its balance sheet could withstand another crisis if one arose. If interest rates go up Standard Chartered will do well.


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Alex Wright Long Ladbrokes Coral & Ultra Electronics: London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Alex Wright of Fidelity Special Situations Fund who pitched two longs: Ladbrokes Coral Group (LON: LCL) and Ultra Electronics (LON: ULE).


Alex Wright's Presentation at London Value Investor Conference

Long Ladbrokes Coral Group (LON: LCL)

Ladbrokes has been underperforming. It botched the introduction of a new IT system a few years ago. The merger with Coral that was announced about a year ago has created a bigger player and significant cost savings should be achieved. It will also strengthen Ladbrokes’s online presence. At present 70% of revenues come from offline, from the retail estate – 3000 bookmaker shops. Expect margins to improve. Coral delivered 36% CAGR between 2008-2015.

The stock is cheap due to the potential regulation of online gambling. The government is investigating Fixed Odds Betting Terminals (FOBTs).  His worst-case scenario is that the government could ban B2 games completely.  B2 games have the highest stakes and are very profitable. If banned they could lead to a 12% loss in the company’s value. In this scenario in the longer term, he believes the betting shops would remain profitable and that online would restructure and come back over time. If government regulation is less draconian Ladbrokes Coral could see anything between 50-70% upside.

Over time expect the online share of Ladbrokes’s business to grow to about 50%.


Long Ultra Electronics (LON: ULE)

Defence spending has been falling as a percentage of GDP since the withdrawals from Afghanistan and Iraq – it is at post-war low in the US and UK. Going forward there are long-term proposals put forward by governments to increase spending. It is possible that the Trump administration will bring about much higher spending.

Wright thinks that future spending will be focused on more sophisticated foes in the areas of cyber, communication & surveillance and underwater. These are key areas for Ultra.

Ultra had a setback in 2014 when its largest contract in Oman fell through. Today, free cash flow is beginning to recover. Ultra’s business had been built via M&A resulting in duplication of cost centres. Their S3 programme will better integrate the units and achieve cost savings.

The company is not particularly cheap trading on a P/E 15 but it is cheaper than most of the market.


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Jonathan Boyar's Presentation at London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Jonathan Boyar of Boyar Value Group.


Jonathan Boyar's Presentation at London Value Investor Conference

Boyar is a value focused research company and asset manager. Jonathan Boyer favours 5 approaches to identifying value:

-    Look for hidden assets. This is his favourite approach as it cannot be replicated by computers

-    Business value – look for businesses hated by Wall Street. They tend to throw the ‘baby out with the bathwater’.

-    Spin offs (and their parents). Both do well

-    Consumer franchises

-    Fallen angels On top of this he looks for catalysts.

Long QVC (QVCA); Long Discovery Communications (DISCA/DISCK); Long Hanes Brands (HBI); Long Legg Mason (LM)


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Michael Keller's Presentation at London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Michael Keller of Brown Brothers Harriman who pitched a long of Wendel SE (EPA:MF).


Michael Keller's Presentation at London Value Investor Conference

Long: Wendel SE (EPA: MF) 

Wendel is a holding company based in France that invests in a variety of industries. It usually takes control positions and at the very least it has significant influence. The Wendel Family has overall control but professional managers run the day to day operations. They are drawn to Wendel by:

-  Attractive combination of assets
-  Most of their companies sell products that are vital to other companies
-  The stable and long-term capital structure
-  The overlap of the businesses philosophy with their own
-  A double-digit discount to NAV


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Ben Preston Long Samsung SDI: London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Ben Preston of Orbis who pitched long Samsung SDI (KRX: 006400).


Ben Preston's Presentation at London Value Investor Conference

Long Samsung SDI (KRX: 006400) 

Samsung SDI is one of the few companies globally that can make good quality electric car batteries. The stock is trading at close to book value.

He expects the electric car market to grow quickly. In Norway where they are subsidised, electric vehicles already have 29% market share. Electric vehicles only have 1% market share globally. As technology allows electric vehicles to come down in price to compete with the internal combustion engine expect sales to rise.

Competitors in the market include: Panasonic, LG Chem, Tesla Gigafactory, BYD

Will there be enough batteries to go around? He thinks demand could outstrip supply.

Sum of the parts valuation: net cash and financial investments + chemical business + Samsung Display (which makes screens for smart phones) = $8-14bn  + battery business – if he is right about the growth of electric vehicles it could be worth a lot.

Samsung SDI’s market cap today = $8bn. If they are wrong they don’t lose much and if they are right it could be a big winner.

Ben Preston also pitched Long MercadoLibre (MELI).


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Charles Heenan Long Texwinca: London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Charles Heenan of Kennox Asset Management who pitched a long of Texwinca (HKG: 0321).


Charles Heenan's Presentation at London Value Investor Conference

Long Texwinca (HKG: 0321) 

Charles Heenan does not buy companies that are trading for more than 12x earnings. He looks for quality sustainable franchises that are suffering temporary headwinds. He tries to take advantage of market over-reactions by focusing on the underlying health of a company, not a narrow view of short-term growth.

Texwinca’s share price has fallen over 50% in the last 5 years. It is Kennox’s fourth largest position. It supplies the leading clothes retailers with textiles. It is the market leader and a quality company. It has the capacity to deliver materials to retailers to the tightest schedules.

Texwinca’s environment and labour standards are good and need to be because of increased regulation. The management is conservative and competent. The company has minimal debt and net cash is 50% of market cap. It is cheap at 6x sustainable earnings. The dividend is 10%.


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Joe Bauernfreund's Presentation at London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Joe Bauernfreund of Asset Value Investors who pitched Wendel SE (EPA:MF) and mentioned a few other investment ideas.


Joe Bauernfreund's Presentation at London Value Investor Conference

Asset Value Investors specialise in investing in companies trading at below realisable book value. They do not look at recorded book values or NAVs but instead do the work themselves. They can only achieve accurate valuations in companies that are open, transparent with managements that are prepared to talk to them.

Long: Wendel SE (EPA: MF)


Wendel is listed in France and is primarily engaged in owning assets or securities of other companies. It’s a family run business (36.4%) with a long-term focus. The management have proved themselves to be good capital allocators but they did buy St Gobain in 2007 which turned out to be awful timing. They are now reducing the stake in St Gobain and paying down debt. Despite the St Gobain purchase Wendel has handily beaten the MSCI Europe return since 2005: 9.1% Vs 5.5%

Wendel owns 12 businesses. The unlisted part of the portfolio has the most potential to act as a catalyst. It has 4 assets all of which have been identified for IPO by the end of 2018. The IPOs could add 8% to NAV. Bauernfreund estimates that Wendel is already trading at a 29% discount to NAV.
AVI own 1.3% of Wendel’s outstanding shares.

He also mentioned 3 other investment ideas. Long Hudson Bay (TSE: HBC), Long Symphony International (LON: SIHL) and Long Toshiba Plant (TYO: 1983).


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Ronald Chan Long Far East Consortium: London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Ronald Chan of Chartwell Capital who pitched long Far East Consortium (HKG: 0035).


Ronald Chan's Presentation at London Value Investor Conference

Long: Far East Consortium (HKG: 0035) 

Ronald Chan pitched Hong Kong listed property company Far East Consortium. Run by David Chiu the company is involved in property development, car parks and hospitality. Chan made the case that Far East Consortium was cheap compared to the other large property companies in Hong Kong such as Sun Hung Kai, Henderson Land, Chinese Estates and Lai Sun Development. Far East Consortium trades at a 54% discount to NAV.   P/E 6.6.   P/B 0.7.   Net Debt to Equity = 68.8%.


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Rhys Summerton Long John Menzies: London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Rhys Summerton of Milkwood Capital who pitched a long of John Menzies (LON: MNZS).


Rhys Summerton's Presentation at London Value Investor Conference

Rhys Summerton set up Milkwood Capital in 2013. Around 30% of Milkwood’s capital is Rhys’s own money.

Milkwood is highly concentrated, holding 8-10 companies. Milkwood has a mandate to invest anywhere in the world but currently the fund is 70% invested in the UK. Summerton has two areas of idea generation at the moment: 1. unloved winners 2. companies that operate in the US but are listed elsewhere.

Long John Menzies (LON: MNZS) 

In 1998 John Menzies sold its shops to WH Smith, leaving them with a distribution business. Menzies then tried their hand at a number of businesses including The Early Learning Centre. They also moved into airport services. Today John Menzies has three businesses: distribution, airport services and fuel distribution to aircraft. Menzies has recently announced that it is going to sell off the distribution business by merging it with DX Logistics.

Menzies is the second largest aviation services group in the world. Menzies operates in 209 airports. Its biggest competitor is Swissport. Seven or eight players control the market. Valuing it against other M&A deals in the industry Menzies Aviation is trading at a 50% discount. The business generates a lot of cash and does not need to borrow capital to grow. It is trading on a pre-tax P/E 8x. The company could be a beneficiary of Trump administration tax cuts.


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Filip Weintraub Long Taiheiyo Cement: London Value Investor Conference

We're posting up notes from the 2017 London Value Investor Conference.  Next up is Filip Weintraub of Skagen Funds who pitched a long of Taiheiyo Cement (TYO: 5233).


Filip Weintraub's Presentation at London Value Investor Conference

As lead portfolio manager of Skagen Global Sept 2001-March 2010 Weintraub returned 20.6% annualised vs 4.6% for the index.

He looks for companies with restructurings, spinoffs and new products and requires 50% upside potential to invest. He calls himself a contrarian and looks for companies that are ignored rather than hated. He believes that 99% of the time the market is approximately right.

Long Taiheiyo Cement (TYO: 5233) 

There are only 3 large players in the Japanese cement market. The company is trading at 5x cash flow and 1x P/B with a 22% return on equity. The cement market is depressed but the Japanese Olympics in 2020 will create demand. The company is not vulnerable to imported cement because Japan’s geographical position makes imports uneconomic.


Be sure to check out the rest of the presentations from the London Value Investor Conference.


Tuesday, May 23, 2017

Tiger Global Increases TransDigm Group Position

Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding its position in TransDigm Group (TDG).  Per the filing, Tiger Global now owns 7.7% of TDG with 4 million shares.

This is a noticeable increase from the 2.45 million shares the hedge fund owned at the end of the first quarter.  The filing was made due to activity on May 18th.

While this second quarter activity is notable, it's also worth pointing out that Tiger Global boosted its TDG position back in the first quarter by 492% as they previously owned a small position.  Simply put, they've been acquiring a lot of TDG shares over the past five months. 

TDG shares were hit in Q1 by a short seller report questioning the company's pricing practices.  As detailed in the brand new issue of our Hedge Fund Wisdom newsletter, numerous hedge funds bought TDG shares in Q1.

Per Google Finance, TransDigm Group is "a designer, producer and supplier of engineered aircraft components for use on commercial and military aircraft in service. The Company operates through three segments: Power & Control, Airframe and Non-aviation. The Power & Control segment includes operations that primarily develop, produce and market systems and components that provide power to or control power of the aircraft utilizing electronic, fluid, power and mechanical motion control technologies. The Airframe segment includes operations that primarily develop and market systems and components that are used in non-power airframe applications utilizing airframe and cabin structure technologies. The Non-aviation segment includes operations that primarily develop, produce and market products for non-aviation markets. Its product offerings include mechanical/electro-mechanical actuators and controls, engineered latching and locking devices, and seat belts and safety restraints."

To view the rest of Tiger Global's portfolio, check out the just released issue of our premium newsletter.


Berkshire Hathaway Adds To Liberty SiriusXM Again

Warren Buffett's Berkshire Hathaway has filed two separate Form 4's with the SEC regarding its position in two share classes of Liberty SiriusXM (LSXMA / LSXMK). 

Per the filing, Berkshire was buying shares of both on May 18th, 19th, and 22nd.  They acquired 492,156 shares of LSXMA at weighted average prices ranging from $37.1826 to $38.8041.  After these buys, they owned over 14.15 million LSXMA shares.

They also bought 679,930 shares of LSXMK at weighted average prices ranging from $36.8074 to $38.5003.  After these purchases, they now own over 29.77 million LSXMK shares.

This is the second month in a row that Berkshire has bought LSXMA / LSXMK shares.  We highlighted then how Ted Weschler (one of Berkshire's portfolio managers) seems to be the lead investor here.

For more from Berkshire, be sure to check out a recent interview with Warren Buffett and Charlie Munger.

Per Google Finance, Liberty SiriusXM is "Liberty Media Corporation owns interests in subsidiaries and other companies, which are engaged in the media and entertainment industries. The Company's principal businesses and assets include its consolidated subsidiaries Sirius XM Holdings Inc. (SIRIUS XM) and Braves Holdings, LLC (Braves Holdings), and its equity affiliate Live Nation Entertainment, Inc. (Live Nation). The Company's segments are SIRIUS XM, and Corporate and other. SIRIUS XM provides a subscription-based satellite radio service. Through its subsidiaries and affiliates, the Company principally operates in North America. The Company also owns a portfolio of minority equity investments in publicly traded media companies, including Time Warner, Inc. and Viacom, Inc. SIRIUS XM transmits music, sports, entertainment, comedy, talk, news, traffic and weather channels, as well as infotainment services, in the United States on a subscription fee basis through two satellite radio systems."