market folly

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Mark Asquith of Somerset Capital Management who pitched three longs: Pacific Textiles (HKG:1382), Sunny Friend (TPE:8341), and Cia Hering (BVMF:HGTX3).


Mark Asquith's London Value Investor Conference Presentation

Mark Asquith is the lead manager of the Global Emerging Market Small Cap and EM Small Cap Strategies.

Long: Pacific Textiles (HKG: 1382):  It’s been a savage environment for textile companies. Competition between brands and from Amazon has depressed prices.  Environmental regulations create barriers to entry as few can afford to meet the benchmarks for water, air and heat treatment. Also, there are barriers to entry that are driven by customer expectations: lead time 7-45 days, quality, ESG. Few can meet these. The number of textile enterprises has reduced dramatically in the last 10 years.The market is concerned about growth, tariffs and a stronger Renminbi.  Pacific Textiles is trading at PE 10x, ROE 30%, FCF 10%.

Long: Sunny Friend (TPE: 8341):  Sunny Friend is a waste management company in Taiwan. They have incineration and liquidation waste disposal facilities. It’s a compounder rather than a deep value stock.  In Taiwan, they have 35% market share in medical and 16% in industrial waste.  They have barriers to entry because no one wants a waste management plant in their back yard (NIMBYism). There are also customer switching cost and permits. These protect their Taiwanese business but make it difficult for them to break into the Chinese market. China is a potential growth market (currently <20% of sales).  Sunny friend is not classically cheap, but it does have good free cash flow yield and generation.

Long Cia Hering (BVMF: HGTX3):  Cia Hering is a Brazilian clothing brands company. It has been having a hard time including losing control of its point of sale. The shares fell 80% from 2012-2015.  Somerset bought their stake in 2015/16 when new management replaced the old. The new management have rebranded the product range and invested in point of sale.  Many of their competitors have gone under. Consumer confidence is picking back up.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.