Per Johansson Short ProSiebensat 1, Long Black Knight: Sohn London Conference ~ market folly

Monday, December 4, 2017

Per Johansson Short ProSiebensat 1, Long Black Knight: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Per Johansson of Bodenholm Capital who pitched a short of ProSiebensat 1 (ETR:PSM) and a long of Black Knight.

Per Johansson's Sohn London Presentation

Bodenholm has been live for two years. They spend 50% of their time and resources on short selling. When looking for shorts they start with the accounts and utilise the support of forensic accountants.

Short: ProSiebensat 1. (ETR:PSM)

ProSieben is a German TV company. There are 3 legs to the short thesis.

1.    It’s a structurally challenged business that is going to deteriorate. ProSieben has unfavourable channel demographics. A lot of its viewers are in the 40-49-year-old demographic that watch TV the least. They have the wrong content focus. They have been buying US content, but they can’t compete with Amazon and Netflix. They bought Maxdome but it has been a monetary and strategic failure. They took a bit of a write-down in the last quarter but there may be more to come. Advertising revenue has turned down.

2.    Their accounting is less than conservative. The company defines its leverage as 1.5x net debt to EBITDA but that does not include pensions and leasing. If you add that in you reach 2.5x. They have not budgeted for future content which would take the leverage to 5x.

3.    Several senior managers are leaving - the CEO, CFO have left.

Long: Black Knight

In the Nordics they look for quality compounders. In the global space they like conglomerates that are ‘deconglomerizing’ and spin-offs. Black Knight is a spin-off.

Why is Black Knight a good quality company?

-    It’s monopoly type company with 62% market share

-    their moat is growing due to regulation

-    Customer retention is over 90%

-    Switching costs are high

-    High margins and free cash flow

-    They have pricing power – they raise their prices every year.

-    It’s not a cyclical business

-    The balance sheet is strong. Currently the leverage is 2.8x but they will de-lever over the next 3 years to 0.7x net debt to EBITDA.

Be sure to check out the rest of the presentations from Sohn London 2017.

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