market folly

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Clifton Robbins from Blue Harbour Group.  He pitched a long of AGCO.

Clifton Robbins' Capitalize For Kids Presentation

-    Friendly activist and target $2-10Bn companies
-    Long AGCO, own 7.5%
-    3rd largest equipment manufacturer
-    $4Bn market cap, $5Bn EV
-    Concentrated industry, lots of price increase opportunities
-    Strong network of dealers, 55% of sales in Europe
-    20% market share in Europe, 6% in North America
-    98% of profits from Europe
-    See Europe as a different agriculture industry, more focused on small tractors versus larger
-    Stock has come down on concerns in US market
-    Short term issues in Brazil, only small part of business anyway
-    Attractive valuation, improving margins, 24% ownership of TAFE which is a hidden balance sheet
-    9% FCF yield with trough earnings
-    TAFE (India) worth $7/share
-    AGCO has high earnings power
-    Management targeting 10% operating margins (10 year average of 7.4%), $10Bn revenue or $7.82 EPS
-    They can support more debt, closer to 2x debt/EBITDA
-    Therefore can buy back 17% of stock with the proceeds
-    Interest coverage will remain above 5x
-    Buybacks of 13% of stock over last 6 quarters
-    M&A opportunity being < $5Bn
-    $75-$95/share at historic multiples, from $45 today


Be sure to check out the rest of the presentations from the Capitalize For Kids Conference.