John Mirshekari's Presentation on Aecom & URS: Value Investing Congress ~ market folly

Tuesday, September 17, 2013

John Mirshekari's Presentation on Aecom & URS: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is John Mirshekari of Fidelity Investments.  His presentation was entitled "Inflections in Incentives" and he also pitched Aecom (ACM) and URS (URS).

John Mirshekari's Value Investing Congress Presentation


Key is CEOs need skin in the game. Beneficial interest as % of annual cash compensation. Pinnacle Air was 2x and Sky West was 39x. 

Insider ownership is one thing he looks at.  Capital allocation is one of the few inefficiencies left in the market.  Management incentives affect capital allocations. 

1. Watch the cannibals. (Share repurchases) Should pay more for a business in hands of a manager with pro shareholder leanings. 

2. Incentives drive decisions. Why don't managements buy back stock? Because their compensation schemes encourage size, not stock return. Revenue, EBITDA, income are the usual, not ROIC, three year relative stock return. 

Example: AutoZone (AZO). Perfectly aligned with shareholders. Share count down 75% over last ten years. AZO compounds at 21% vs. SPX 3%. Inflections in incentives. Huge opportunities to make money.

Bullish on Aecom (ACM)

Engineering company that has had this happen. Say on pay is pressuring CEOs compensation plans. They were hit by this in 2011. So they tried to change. They replaced EBITDA growth with EPS, CFO per share, FCF per share. Key is "per share" so no incentive to grow without actual performance. Include goodwill impairments in comp calculation. Focus on share count means better use of capital. 

They stopped M&A and shifted to share repurchases. They bought back 1/3 of the shares 18 months after the say on pay change in compensation. Stock still attractive and up 42% even in bear case. Bull case is 90%. 


Comp with ACM. Civil engineering company. Bridges, roads on a cost plus basis. $7 EPS by 2015 could lead to 100% upside.

Could begin repurchasing stock over next two years.  FCF is $5.38 per share last four years. Adjusted for a non-recurring WC charge, we get $7.16 per year. In the past they have done 11 years, at $6B in cash, more than the value of the company today. 

Worst ROE in the industry. But could double it.

In the past compensation plan was only net income. This year they added relative total share return.  They had low say on pay this year. 

Amended proxy says they may use ROE, EPS, and including a future goodwill impairment charge.  Management says they will not do any acquisitions this year. 
Could actually do FCF of $16 on $7 EPS.  14x gets $98 stock price which is 100% upside.
Says there is no shortcut, you have to read proxies.

Be sure to check out the other presentations from the New York VIC here.

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