Notes From the Boston Investment Conference 2012 ~ market folly

Thursday, November 29, 2012

Notes From the Boston Investment Conference 2012

The first Boston Investment Conference took place earlier this month and today we're posting up some notes from it.  The event benefited the Boston Children's Hospital and featured an impressive list of speakers, moderators, and host committee chairs.

Out of respect for the event organizers, these notes are a little bit different than what we typically post in that the pitches won't be linked to a particular investor.  So unfortunately, you'll have to play a bit of a guessing game here, but we figured something is better than nothing given the quality of the speakers.

List of Speakers/Moderators

Seth Klarman, Baupost Group
Jon Jacobson, Highfields Capital
Richard Perry, Perry Corporation
Will Danoff, Fidelity Contrafund
David Abrams, Abrams Capital Management
Jeffrey Vinik, Vinik Asset Management
Max Stone, D.E. Shaw & Co
Edward Shapiro, PAR Capital Management
Jane Mendillo, Harvard Management Company
Nancy Zimmerman, Bracebridge Capital
Michael Trotsky, MA Pension Reserves Investment Management
David Zervos, Jefferies
Andrew Perold, HighVista Strategies
Lawrence Summers, Harvard University
Eric Doppstadt, The Ford Foundation
Jay Light, Harvard Business School
Andrew Bary, Barron's

Ideas Pitched (Listed in Random Order)

Yahoo! (YHOO)
JAL Japan Airlines (TYO:9201)
Google (GOOG)
Global Eagle Acquisition Corp (EAGL)
Fannie and Freddie preferreds
News Corp (NWSA)
Canadian Natural Resources (CNQ)
JZ Capital Partners (LON:JZCP)

Notes From the Boston Investment Conference

Some of the above stocks were discussed only with one or two comments, but we've posted up notes from some of the detailed pitches below.  Again, unfortunately we can't attribute the ideas to a particular speaker:

Japan Airlines (JAL)

- $8.5b IPO out of bankruptcy, Japanese government sold entire stake (IPO'd around 3,800 Yen and is now around 3,750 Yen)

- Revenues for JAL are about 1/2 of Delta (1/2 of JAL's revenues are from domestic market)

- Changes during bankruptcy: reduced headcount by 35%, decreased salaries by 50%, canceled all debt, eliminated some service on underperforming routes, reduced capacity by 40%, reduced non-fuel expenses by 1/3rd

- Valuation: lowest multiple of any global airline.  JAL around 3.1 EV/EBITDAR, P/E around 6.5

- Headwinds: Orders for 45 Dreamliners.  JAL has already started its non-stop Boston to Japan flight.  Overall market liberalization - competitors can now coordinate on prices and schedules (get the benefits of a merger without having to deal with the operational headaches or merging 2 airlines).  High barriers to entry in the Japanese market: JAL is 37% of market and ANA is 47%, little room for new players

- Largest risk: entry of a low cost carrier into Japanese market: currently low penetration of LCC in Japan.  Not seen as a huge threat because LCCs are typically used for short flights and Japanese tend to take trains for short trips.  Also, there are limited slots for new airlines at the airport closest to the city.  If a LCC flew into the airport farther outside the city, the cost of a taxi or train into the city would negate taking a low cost flight to Japan.

Yahoo! (YHOO)

- Cheap when looking at balance sheet.  Market value of 35% of Yahoo Japan = $7.7, market value of stake in Alibaba = $8.1, preferred shares = $0.8 (these three tax-adjusted equal $11.6b), cash = $9.4, shares out = 1.2 for a value of $17.5 (you are paying close to nothing for $4.3b in revenue or $700m in free cashflow).

- Investor thought Marissa Meyer will be a very good CEO   

- MarketFolly note: Our newly released issue of Hedge Fund Wisdom last week highlighted that David Einhorn's Greenlight Capital and Chase Coleman's Tiger Global both started new positions in YHOO during the third quarter.  Also, recall that Dan Loeb's Third Point has been an activist investor in the name.    

Google (GOOG)

- Cheap stock - trading around where it was in 2007 and EPS has increased from $15 then to $40 now 

- MarketFolly addendum: We previously posted Eminence Capital's thesis on GOOG as well. 

This concludes notes from the Boston Investment Conference.  We've covered a ton of events recently, so be sure to also check out:

- Notes from Sohn London Investment Conference (Hohn, Chanos & more)

- Notes from Invest For Kids Chicago (Mandel, Peltz & more) 

- Notes from Great Investors' Best Ideas (Einhorn, Bass & more)

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