Value Investing Congress Notes: New York 2013

Below are notes from the 2013 Value Investing Congress in New York from both days.  Click the links below for each speaker's presentation:


Value Investing Congress Notes: Both Days


Jeff Ubben (ValueAct): Long Willis Group (WSH)

Jeffrey Smith (Starboard Value): Long Wausau Paper (WPP)

Mick McGuire (Marcato): Long United Rentals (URI)

Cameron & Tyler Winklevoss (Winklevoss Capital): On Bitcoin

Donald Yacktman (Yacktman Funds):  Process & market thoughts 

Alex Roepers (Atlantic Investment Management): His 5 new ideas 

Guy Gottfried (Rational Investment Group): 2 Canadian longs

Michael Castor (Sio Capital): Various healthcare plays

John Mirshekari (Fidelity Investments): 2 investment ideas

Chris Mittleman (Mittleman Brothers): Azteca, CMIC Holdings

Clifton Robbins (Blue Harbour Group): Chico's (CHS)

Mark Boyar (Boyar Value Group):  Long Madison Square Garden (MSG)

Joe Altman & Chris Kyriopoulos (COMPOUND): Long Ascent & Covanta

Harvey Sawikin (Firebird Management): Long Gazprom Neft

Rahul Saraogi (Atyant Capital): On India

Charles de Vaulx (IVA): Market thoughts

Whitney Tilson (Kase Capital): Short K12 (LRN)

Daniel Miller (Gabelli Focus Five): 3 ideas 

Evan Vanderveer & David Shapiro (Vanshap Capital): 2 investment ideas

Carl Chen & Tom Lu (Temple Honor Asia): 2 stock picks

Chris Mayer (Capital & Crisis): Various bank picks

Value Investing Challenge Winner: Long Ashland (ASH)

Value Investing Challenge Runner-Up: Short Life Lock (LOCK)

Jeff Smith's Presentation on Wausau Paper: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Jeffrey Smith of Starboard Value.  He's an activist investor and talked about Wausau Paper (WPP).


Jeffrey Smith's Value Investing Congress Presentation

Wausau Paper (WPP)

Maker of toilet paper and paper towels.  He says everyone needs toilet paper.  Significant opportunity to dramatically increase cash flow through better execution.  Wants the company to change its name and return cash to shareholders.

He likes that it generates strong cashflow and almost acts like an oligopoly in local areas.  They focus on office toilet paper & towels.  Starboard owns a 15% position and wants the company to cost-cut and grow in order to then do a big buyback and dividend.

He said he can't talk Smithfield.  Starboard is seeking to vote down the buyout of the pork company.


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

Whitney Tilson Short K12: Value Investing Congress Presentation

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Whitney Tilson of Kase Capital.  He presented a short of K12 (LRN).


Whitney Tilson's Value Investing Congress Presentation

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Short K12 (LRN)

His largest short position.

Near its all-time high.

Says shorts have cost him and his investors "a fortune" over the past 4 1/2 years. 

Online learning in 33 states. 

Bull case:  32% revenue growth over last decade, expected to grow another 16% revenue and 32% eps over next year.  Ave rev/student rising.  High parental and student satisfaction.  He admits online education can be an excellent option for some students.  Product is fine, not a fraud. 

 

Valuation short, basically.  Trades at 50x earnings, but growth is now slowing, and EBITDA margins are under pressure. (Looks seasonal though?).  Asks why they don't use a big accounting firm.   

Aggressive accounting to capitalize its software and curriculum development costs.  Says shift is to a growth at any cost mentality.  Says their pass rates are getting worst, because they are taking more at-risk kids.  

Embedded below is the .pdf of Tilson's slideshow on K12 (LRN): 

 
 

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

Charles de Vaulx's Value Investing Congress Presentation

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Charles de Vaulx of International Value Advisers.


Charles de Valux's Value Investing Congress Presentation

They're very cautious right now: "never been as cautiously positioned."  He feels US stocks are fully priced right now.

They've reduced their gold position as well.  He's worried a lot about China and says it's a big question mark.   However, he thinks Japan is cheap mainly due to corporate governance.

He emphasized minimizing losses as a key to compounding wealth.

His idea was Millenium & Copthorne Hotel which he says has been disregarded since it's not a pure play on Asia, Europe or Americas.  


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

Rahul Saraogi's Presentation on India & NMDC: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Rahul Saraogi of Atyant Capital (India).  He presented "They Came. They Saw.  They Hesitated.  Making Sense of the India Opportunity."

Rahul Saraogi's Value Investing Congress Presentation

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Five years ago, a man coined the term BRICs. Since then, 5 year BRICs performance. SPX did the best!

Why is India doing poorly?

Poor sentiment. Capital investment has collapsed. It's easier to raise funds for his India fund when the person hasn't visited. He says it's a terrible place to visit. CAPEX has plummeted.  Policy paralysis. Nonexistent government.

India positives: democracy, depth of markets, demographics.  India negatives: government and policy.

No hope for improvement now.  Retail got wiped out in 2008 and insurance regulations hurt annuities.

Long NMDC

Traded on the Indian exchange.  Iron producer in India, majority owned by Indian govt.

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

Mark Boyar's Presentation on Madison Square Garden (MSG): Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Mark Boyar of Boyar Value Group.  He pitched Madison Square Garden (MSG) as a long.


Mark Boyar's Value Investing Congress Presentation

Long Madison Square Garden (MSG)  

He sees MSG worth $84 and they won't be forced to move the Garden since they own the building and have little incentive to move.  He feels the real estate around the area will eventually increase in value.

Also, he wants the board to repurchase shares and issue a dividend since it generates around $300mm in cash every year.  Boyar also noted that MSG shareholders could benefit if the Dolan family were to take MSG private.


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

Value Investing Challenge Winner: Long Ashland (ASH)

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is the Value Investing Challenge winner.  Daniel Lawrence of Elmrox Investment Group pitched Ashland (ASH) as a long.


Daniel Lawrence's Value Investing Congress Presentation

Long Ashland (ASH)

Specialty chemical company.

"Misunderstood transformation with significant upside and catalysts."

Used to be commodity chemicals company, and is now a specialty chemical company.  Street is not valuing it for that yet.  Says stock doubles from here.

Owns Valvoline- he says high barrier to entry, but low maintenance CAPEX, less than 2% of sales.

Product portfolio is differentiated, high loyalty rates by consumers.  Market giving no credit for Valvoline, effectively getting it "for free."

Says multiple expansion as market recognizes the transformation.

Why it's cheap?  Street thinks they will make more big acquisitions.  Oil exposure, weak cash flow, underfunded pension. 

Be sure to check out the rest of the presentations from the Value Investing Congress here.

Value Investing Challenge Runner-Up: Short LifeLock (LOCK)

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is the runner-up in the Value Investing Challenge competition.  David Swartz of Pacific West Land pitched a short: Life Lock (LOCK).


David Swartz's Value Investing Congress Presentation

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Short Life Lock (LOCK)

Claims to protect against identity theft.  He says they are misrepresenting their ability to protect against identity theft.  Weak product, not useful, basic product, 73% of members, doesn't even do credit report checks.  $10/month basic service has no credit monitor.

 

One of the founders had his identity stolen several times.  Own father accused him of using his AMEX to run up $150k in charges.  Name does not even appear in Life Lock’s prospectus.  Bankruptcies, lawsuits, failed businesses, etc.

 

The very origin of the company is a fiction.  CEO: Todd Davis, co-founder.  Put his own SSN in ads, his identity has been used in 13 separate incidents.  He's been selling stock every month. 

LOCK just bought ID Analytics, paid $186M in cash, for 7x revenue.  Business is unprofitable. 

LOCK has $1.3B market cap, 22x BV, 38x P/E forward eps.  Spending $170M on sales and marketing.  Has a public comp, INTX.  Its TEV/sub is only $39 vs. LOCK of $393. 

Price target: $5.

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

Mick McGuire's Presentation on United Rentals: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Mick McGuire of Marcato Capital Management and his presentation was entitled "Don't Buy This Recovery."  He pitched United Rentals (URI).

Mick McGuire's Value Investing Congress Presentation

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United Rentals (URI)

$5.9M market cap, $13B EV

5.6x EBITDA

12.2x P/E

Largest rental co in the world, built as a roll-up.

Fragmented market, they are biggest player but still only 15% of market.  400k unit fleet, original cost is $8B.  Just bought RSC that was 5% of the market, which added to their 10% share.

Pure play on North American Construction and Industrial markets.  NOT exposed to residential construction- that is only 4% of their revenue.  39% is Industrial, 47% is commercial construction.  Have yet to see a robust recovery in commercial construction.

Thesis: cyclical trends are positive, secular trends help, strategic merger creates the industry's only scale player.  Good capital structure, attractive valuation.  6.8% FCF yield, 12.2x P/E.  Says synergies, rides the cycle.  PT implies 72% appreciation.

Risks:  cycle.  How robust the recovery is.  Also, company could lose capital discipline and overspends on growth CAPEX.  They own 4.7% of the company and wield influence on CAPEX.  

MarketFolly note: URI was featured in the equity analysis section of our Hedge Fund Wisdom newsletter last year and is up 39% since then.

Q&A: 

On Sotheby's (BID):  How is the board reacting to their proposals?

"We've had a good dialogue so far."  

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

Jeff Ubben's Presentation on Willis Group at Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Jeff Ubben of ValueAct Capital and he presented "Attracted to Global Risk" and the case for Willis Group (WSH).

Jeff Ubben's Value Investing Congress Presentation

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Willis Group (WSH)

Reinsurance company (Comps with AON, MMC)

No advantage to float now, reinvesting at 1-2%.

Pricing firming, but not exploding.

International is 1/3 emerging markets, goes to 45% of business by 2017. 

Opportunity for cross-selling into retail client base as well.

Says FCF is "exploding."  Flat CAPEX and pension payments.

They are on the board of this company.  Lower P/E than peers.

Q&A:  On Apple: likes MSFT better than GOOG or AAPL or Samsung.  Says they deserve to trade at 6-8x P/E because every year they need to sell more "boxes." 

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

Carl Chen & Tom Lu's Presentation on China Wireless Technologies & MediaTek: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up are Carl Chen and Tom Lu of Temple Honor Asia (Taiwan).  Their presentation was entitled "The World According to GARP Taiwan: Growth at a Reasonable Price."  They pitched 2 ideas.

Carl Chen & Tom Lu's Value Investing Congress Presentation


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China Wireless Technologies (2369.HK)  

Market cap $850M USD.  Second largest vendor by sales of its own brand smartphones. "Coolpad"  90% of sales through China's three mobile carriers.  Dual SIM.  Sole listed pure-play smartphone maker in China. One third of share price is cash on balance sheet.  He says, "not too many people in China knows who Steve Jobs is."

 

MediaTek (2454.TW)  

Fabless IC design house that makes SoCs for mobile devices.  Enables the "white box" mobile device sector in China.  Main competitor for QCOM.  Lots of IP, major clients. 

Says strong corporate DNA.  Growing market in China.  Low debt.  Upside of 23-28%.

Risks are competition by QCOM and SPRD.  Also clients like Huawei develop in-house.  He says lowcost iPhone 5C is not a risk.

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

Daniel Miller's Presentation on Real D, Internap & Guidance Software: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Daniel Miller of the Gabelli Focus Five Fund.  His presentation was entitled "Investing With Conviction" and he pitched 3 ideas: Real D, Internap, and Guidance Software.

Daniel Miller's Value Investing Congress Presentation


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PMV: Private Market Value- value for the entire company.  Runs the Gabelli Focus Five Fund.

Real D (RLD)

363M EV.  49.5M shares.  3-D movie stock.  They are working on "glasses-free" 3-D.  Trades at 5.5x EBITDA.  IMAX trades at 12x.  (Not a good comp?)  Says Dolby (DLB) could buy RLD, save a ton of OPEX.  CEO founder owns 10% of RLD.  Think he'll cut OPEX 10-15% based on weak summer box offices.  Percentage of 3-D tickets dropped to only 40% of the big 3-D movies.  They are buying back a lot of stock.  

Internap (INAP)

$490M EV.  Colocation, managed hosting company.  65% data centers, 35% legacy IP services. Says they deserve 10x EBITDA multiple, gives you $10.50 per share stock price.  Has large NOL.  Says large cable companies would buy them.

Guidance Software (GUID)

$8.50/share, $200M EV.  Digital forensics, e-discovery software to analyze threats on networks and defend against lawsuits, incident response, sell to 65% of the Fortune 100.

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

Winklevoss Twins' Bitcoin Presentation at the Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up are Tyler and Cameron Winklevoss of Winklevoss Capital.  They gave a presentation entitled "Bitcoin: The Internet of Money."

The Winklevii Value Investing Congress Presentation

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Harvard undergrad, Oxford Masters.  Opened saying they were not here to talk about FB.

Bitcoin 

Basic explanation of it.  Creator: Satoshi Nakamoto: a 36 year old Japanese man, left 80k pages of post, 39k lines of code.  No trace of who he was as a person. Could be a group of people, British style or English.  Did not identify with any group, or political thought.  Engineer type frustrated with an economic system that crashes often.  Could be arrested for creating a currency in the US.

Current cap is $1.5B. 

"Root problem is all the trust that is required to make the system work."

Fixed supply of Bitcoins, mined until 2040.  21M coins, each about $140, can divide it.  It's never been counterfeited.  Bitcoin does not have widespread use.  Compares to Cyprus banking issues - bitcoin doesn't have this issue.  

You can save bitcoins in your brain with a multi-word password.  Countries with more inflation have higher bitcoin premium.  China is the most active on the Bitcoin network.

They are trying to do an exchange-traded fund.

Every transaction from the beginning of Bitcoin is traceable, on the public ledger.  Can't shut it down because it's decentralized.  Even in US regulates it, it's still a protocol. 

 

They say Bitcoin is volatile because it's a new currency, not due to the idea - over time the price will stabilize. 

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

Evan Vanderveer & David Shapiro's Pitch on EGI Financial & Eurobank Properties: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up are Evan Vanderveer and David Shapiro of Vanshap Capital.  Their presentation was entitled "Global Below Book Value Investing" and pitched EGI Financial Eurobank Properties.

Evan Vanderveer & David Shapiro's Value Investing Congress Presentation

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Run $37M, have 13% of their fund in two ideas.

EGI Financial 

(8% of their fund)  Based in Ontario, Canada.  Trades on TSX, stock is EFH, $145M market cap.  P&C company.  Lost 50% of income in diversified operations.  Kind of a mess, but they say value investors are working with them.

Eurobank Properties

(5% of their fund). Trades in Europe, symbol EURO. Largest Greek REIC, trading at 63% of book value, 12% implied rental yield.  

Catalyst is company can use excess balance sheet capacity to buy Greek real estate assets at a discount.  Reason for opportunity: Uncertainty surrounding Greek economy.

Mainly office buildings, fairly blue chip tenant base.  Eurobank is 37% of their tenant base, however.  Long leases, average is over 10 years, and linked to CPI.  Greek economy mirrors the US in the Great Depression. Hard on office market; vacancy rates have doubled, rents flat to down.  Good news is no new construction for 5 years.

Based on replacement value, stock could double.  Clean balance sheet, strong management, high quality properties with blue chip tenants, and trades at a discount. 

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

Chris Mayer's Presentation on Charter Financial & Pulse Seismic: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Chris Mayer of Capital & Crisis.  He presented "People Not Personnel - The Case For Owner Operators" and pitched .

Chris Mayer's Value Investing Congress Presentation

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Newsletter writer.  16.7% annual return since 2004.  12.3% annual on Special Situations (small cap names) since 2006. 

3000 public companies, ahead of the tax increase, only 225 paid special dividends.  They had an average of 25% insider ownership!

Likes small banks:

PEOP, FXCB, VPFG, RCKB, IROQ, MCBK, MLVF, HTBI, BNCL, NFBK, FCNCA.  (A lot of recent thrift conversions).  Typical process: Mutual company goes public, with lots of cash, buybacks, pays dividends, sell to acquirer at a premium.

Charter Financial (CHFN) 

Small, 22.7M shares out, $10.29 per share.  $12.05 TBV.  P/TBV is 85%, reasonable.  Based in Georgia - weak market.  They've bought 4 failed banks.  Similar plays: NFBK, BNCL.

Pulse Seismic (PSD)

Traded in Toronto. Based in Calgary, owns seismic data which is essential for oil and gas E&P companies.  Canadian maps.  

Says earnings understated because the amortize the survey costs.  Trades for 10x FCF, during low natural gas prices.  Shareholder friendly ownership.  Main downside is lumpy/unpredictable data sales.

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

Joe Altman & Chris Kyriopoulos' Pitch on Ascent Capital & Covanta: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up are Joe Altman & Chris Kyriopoulos of COMPOUND Capital.  They gave a presentation entitled "To Infinity and Beyond" and pitched Ascent Capital Group (ASCMA) and Covanta (CVA)

Joe Altman & Chris Kyriopoulos' Value Investing Congress Presentation

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Based in Nashville, $42M in assets.

Ascent Capital Group (ASCMA)

Horizontal acquisition machine of alarm contracts. John Malone owns a bunch. This was a spinoff of Liberty Media. 

$2.5B EV. Sounds like an ADT (ADT) comp. Could be a consolidator.  1/5 the size of ADT, cheaper, less followed.

PT $125: 60% upside in two years. Maybe a cable company will buy them.

Covanta Holdings (CVA)

Garbage incinerators mainly in the northeast. Long term contracts. Has NOLs. Maybe Waste Management buys them?  Cities want to outsource this always in demand business.

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

Donald Yacktman's Value Investing Congress Presentation: Viewing Stocks as Bonds

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Donald Yacktman of Yacktman Funds.  He gave a presentation entitled "Viewing Stocks as Bonds."


Donald Yacktman's Value Investing Congress Presentation

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His elements:  Good business, shareholder oriented management, low purchase price.

Says stocks with steady dividends are like bonds.

Used Coca Cola (KO) as case study. Stuck at $44 for 15 years.

His turnover is only 20% per year, he says less than an index fund.

Isn't this laziness? What about idea velocity? Why sit on KO for a decade while it did nothing?

Says Michael Dell was not going to give up control of his company. "His reputation is tarnished by this, to some degree"

Says Apple (AAPL) is not that cheap because margins are too high and leaves them open to competition like Samsung. Yet he holds Cisco (CSCO) and Microsoft (MSFT) which have higher margins. Says no big new products at Apple now.

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

Harvey Sawikin's Pitch on Gazprom Neft: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Harvey Sawikin of Firebird Management.  He presented "A Russian, State-Owned Energy Company, and It's a Buy!"  His pitch was on Gazprom Neft.

Harvey Sawikin's Value Investing Congress Presentation

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22% net annual returns over last 19 years.

Gazprom Neft

SIBN.RM only $1.5M ave daily shares traded.  Illiquid.   

Also risk of high oil taxes by govt. one of the most efficient of Russian oil and gas companies.

50% of CAPEX in Russia is lost or stolen. One pipeline they estimated could have been paved with caviar, it was so expensive.

Other Ideas

Tallink: Estonian ferry operator

Kazkommertsbank (KKB): Trades in London. Bank in Kazakhstan. 

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

Chris Mittleman's Presentation on Azteca & CMIC Holdings: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Chris Mittleman of Mittleman Brothers.  He presented "Severely Undervalued Stocks in an Unappealing Market" and pitched Azteca and CMIC Holdings.

Chris Mittleman's Value Investing Congress Presentation

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Private equity mentality.  Last year he pitched REV and CKEC, went up about 20%

Azteca

 

Trades only in Mexico.  Second largest TV channel in Mexico, 30% share.  High barriers to entry.

In 2009, Mexico GDP dropped 6.5%. Sales up 1.6%. CBS down 6.7% during same period.

Stock is cheap because of bad programming. So there is a cycle, not based on the economy, but rather on the programming cycle. Losing share. 

CAPEX burden near term on digital conversion.  CEO has a checkered past, including sec lawsuit.

40% up from here, 10 peso, 8x EBITDA.

Japanese Company: CMIC Holdings 

They are the first CRO in Japan (contract research organization). CEO owns 42% of stock.

2309.jp on Bloomberg. 

Negatives are western CROs are gaining share from them and the other smaller players. They also missed last quarter.

Says 86% upside. May need takeover to work.

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

Clifton Robbins' Presentation on Chico's: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Clifton Robbins of Blue Harbour Group.  He presented "Think Like An Owner - Finding Companies Poised To Unlock Value" and pitched Chico's FAS (CHS).

Clifton Robbins' Value Investing Congress Presentation

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KKR guy. Says leverage wasn't the key to PE, it was the good management.

Bullish on Chico's (CHS)

$2.3B EV. 5.8x EBITDA of $400m they filed a 13d, own 6% of stock.

1427 stores, they think they could have 2200 stores.

4 brands. Chico’s is 720 stores. White House is 465 stores. Soma 235 stores. Boston proper only 2 stores.

Soma lingerie business for older women, run by former Victoria Secret people.

"Growth stock trading as a value stock"

Claims Chico’s is gaining share.

Missy's space is loyal customers.

New CEO with strong retail experience.

Debt free. Could do a buy back with cash over time.

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

Alex Roepers' 5 New Ideas: Value Investing Congress Presentation

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Alex Roepers of Atlantic Investment Management and his presentation was called: "Insights from 25 Years of Constructive Shareholder Activism."  He also pitched 5 new ideas.

Alex Roepers' Value Investing Congress Presentation

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19.2% compounded net of fees return over last 25 years.

Tips:  Define your universe. Stay in your area of competence. Build conviction by doing your homework. Wait for opportunity to arise, stalk stock until then. Don't be greedy: scale out as you reach your valuation. Don't use leverage. Concentrate funds on your highest conviction ideas. (They do best 6 or 7 ideas). Be honest and transparent with your investors.

Last year’s ideas:

Energizer (ENR): Sold with 29% profit

Rockwood (ROC): Still own up 39%

Clariant (CLN.VX): Still own, sold some, up 42%

FL Smidth (FLS.DC): Sold. Lost 5%

Joy Global (JOY): Sold. Only up 8%

Roepers' Five New Ideas

Baker Hughes (BHI): 43% upside. Third largest energy services. BJ services acquisition with zero margins. Activist to improve margins. $71 PT on 12x 2014 EBIT. 

Faurecia (EO.FP): Auto parts. Trading at 20c on the dollar. Deleveraging story. 50% owned by troubled Fiat. 41% upside to pt.

Itochu Techno Solutions (4739.JP): IT services.  Domestic company benefiting from Japanese financial firms recovery. 

Lanxess (LXS.GY) German polymer company. Rubber used in tires. Benefits from replacement cycle that has been delayed. 

Harman (HAR): Speakers. Mainly in cars. Jbl. Professional segment is arenas, concerts, etc. Infotainment 9 of top 15 car companies in the world. 

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

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

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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%. 

URS (URS)

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.

Michael Castor's Bearish Presentation on Genomma Labs: Value Investing Congress

We're posting up notes from the 2013 Value Investing Congress in New York.  Next up is Michael Castor of Sio Capital.  He gave a presentation called "The Accounting Game" and touched on a number of stocks and then recommended shares of Genomma Labs (LABB) traded in Mexico.

Michael Castor's Value Investing Congress Presentation

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11% CAGR net of fees over last 7 years.

Worst year down 6%

Doctor. Healthcare fund. 

Stretched valuations: MWI Veterinary Supply (MWIV), Stericycle (SRCL)

Attractive: Cardinal Health (CAH), Select Medical Holdings (SEM)

Unknown substance: Intrexon (XON)

Hidden gem:  Aratana Therapeutics (PETX) ~ "The income statement is an estimate...made by management."  Over the counter pharmaceutical.

Bearish on Genomma Labs (LABB)

Trades in Mexico (LABB) or OTC (GNMLF)

$2.3B USD market cap.

Cash flow less than reported income. $1.3B cash flow vs. $5.2B net income. Where is the money going?

If you believe their accounting on their nail fungus product, 1 in 15 adults would have to be buying a unit to believe it.

Very erratic sales by brand. When asked about it by investors, they quit disclosing sales by line.

AR and WC increasing. Cogs increasing. Cash decreasing. Questionable penetration of products. Erratic sales numbers.

Usually resolved through either acquisitions or restatements. They did try to do an acquisition. If you adjust the accounting, you get much lower EPS.

No cash generation. Limited disclosure.

Valuation? Use 70cents eps, with 10 P/E, $7 peso pt.

Q&A: Herbalife (HLF) opinion? Leans on Ackman view that MLM is not a great business model.

 

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