Thursday, October 1, 2015

Sohn Canada Investment Conference Notes 2015: Capitalize For Kids

The Sohn Canada / Capitalize For Kids 2015 investment conference just ended and was another great success benefiting children's brain health.  Below are links to notes from each speaker's presentation.  Enjoy!


Sohn Canada / Capitalize For Kids Conference Notes 2015


- Howard Marks' Talk (Oaktree Capital)

- Mick McGuire (Marcato Capital): 2 long ideas

- David Zorub (BlueMountain): Short Mattel (MAT)

- Dinakar Singh (TPG Axon): 2 long ideas

- Clifton Robbins (Blue Harbour Group): Long AGCO

- Jeff Smith (Starboard Value): Long Advance Auto Parts (AAP)

- Daniel Dreyfus (3G Capital): Long Reliance Steel & Aluminum (RS) 

- Daniel Lewis (Orange Capital): Long Amaya

- Philip Hilal (Clearfield Capital): Long SS&C Technologies (SSNC)

- John Khoury (Long Pond Capital): long Forest City Enterprises (FCE/A)

- Jacob Doft (Highline Capital): Long cruise lines

- Jody LaNasa (Serengeti Asset Management): Long IRSA

- Reno Giancola (Alignvest): Long Great Canadian Gaming

- Dan Zwirn (Arena Investors) Presentation

- Ted Goldthorpe (Apollo Investment) Presentation

- Anna Nikolayevsky (Axel Capital) Bearish Presentation

David Lorber (FrontFour Capital): Long Ubisoft

- Blair Levinsky (Waratah Capital): Short High Liner Foods

- Paul Sabourin (Polar Securities) and Greg Mills (RBC Capital) Presentation
 


Howard Marks' Capitalize For Kids Presentation (Sohn Canada 2015)

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Howard Marks from Oaktree Capital.

Howard Marks' Sohn Canada/Capitalize For Kids Presentation 2015

-    China changing from an export economy to a consumption engine. They are not invested in China due to their lack of knowledge surrounding debtor rights and landscape. Have some small investments to gain experience in the area. China’s threat to the US is not direct as < 10%, maybe 5% of GDP are directly from China. It will hurt through second order effects through trade partners such as Australia and Canada.  Worry about the countries dependent on China.

-    They focus on distressed in non-commoditized markets such as real estate, shipping, power and European MPL’s. See opportunities in Oil but prefer to invest in financially distressed rather than operationally distressed.

-    Wants rates to go up as low rates reward borrowers and penalize investors and creditors.

-     It "absolutely is not" a great time to be a distressed investor.

-     One of the worst things you can do as an investor is to invest in something you just don't understand.


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


Mick McGuire's Sohn Canada Presentation: Long Sotheby's & Virtus Investment Partners

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Mick McGuire from Marcato Capital.  He presented two long ideas: Sotheby's (BID) and Virtus Investment Partners (VRTS).

Mick McGuire's Sohn Canada Presentation

-    LONG Sotheby’s (BID) 
-    Agent in the art collection industry primarily hosting auctions and private sales
-    Trading at 8x EBITDA, 31% EBITDA margin, 47% share of a $12.9Bn market
-    Business is split into two divisions: agency and financial services
-    Agency performs the auction and private sale process

  •     Not capital intensive, provides consistent return with a fairly amount of inherent leverage as larger purchases provide additional commissions. 
-    Financial services business is where they lend on the purchase of art
  •     Interest at 7%, < 50% LTV, guaranteed by collector 
  •     Funds this business with a low cost $1Bn revolver 
  •     Run rate $50MM 

-    Frothy art market may be a negative catalyst but Mick sees growth in the private sales market as this has little penetration to date from Sotheby’s.
-    Opportunity to grow financing division to add additional net interest income
-    Reasons for undervaluation
  •     $450MM excess cash on books 
  •     $250MM in inventory a.k.a. art and jewelry, sell side appoints no value to this but there is definitely value in these items 
  •     Real estate owned by the company, approximated value of $175MM for the NYC location and $250MM for the London location 
  •     Additional value in the loan book 
  •     Currently $774MM in loans, $594MM in debt against these loans, currently 77% LTV with a target of 85% providing additional interest margin. 

-    Catalysts
  •     Refinancing of the NYC location should close in Q3 
  •     $250MM share repurchase  
  •     Approximately $1.1Bn in non-operating assets a.k.a. redundant assets that could be sold which is 40% of the market cap 
  •     A new CEO was brought in and personally invested $2MM and has a compensation package oriented to long term stock price appreciation. 
  •     With the redundant assets removed, the stock is trading at 4.1x EBITDA 
  •     Mick sees the position at ~$50/share or 60% upside from today’s prices.      

-    LONG Virtus Investment Partners Inc (VRTS) 
-    Asset management with a distribution platform that primarily uses sub advisors to manage funds.
-    The balance sheet is misunderstood providing upside for the stock if value can be released.
-    It has a market cap of approximately $1Bn and an enterprise value of $480MM
-    Trading at 6x earnings
-    Has a 15% AUM CAGR (which is evenly distributed between net inflows and performance)
-    VRTS seeds most of its own capital to begin with, due to accounting these are seen as cash outflows which skews the cash flows from operations
-    This is called their accelerate seed program and it is funded by a $100MM issuance and FCF -    They have $115MM in FCF when adjusted for this
-    EV/LTM EBITDA is 3.7x
-    Have a reputational concern due to a fund “AlphaSector Fund” using backtested returns for marketing. Outflows from this fund have skewed the net inflows/outflows figure to the worse causing the trend to look poorly. When adjusted the AUM has had consistent inflows. Once the AlphaSector is behind them in Q1 2016, the figures will market properly.
-    Industry EV/EBITDA is closer to 8x
-    Cash and investments are approximately 50% of the net assets, most sell side analysts are putting discounts on this figure for unjustified reasons.
-    Currently trading at $98, sees the stock at $224/share in 2-3 years through the combination of value activation activities such as returning cash to shareholders.


Be sure to check out the rest of the presentations from the Sohn Canada Conference.


David Zorub Short Mattel: Sohn Canada Presentation

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is David Zorub from BlueMountain Capital who pitched short Mattel (MAT).

David Zorub's Sohn Canada Presentation

-    SHORT Mattel (MAT) 
-    Toy company with 12% global market share
-    Sales declined 7% in 2014 along with margins contracting
-    Brands make up a huge portion of this business at it is catered to retail
-    They are seeing weakness in several brands such as Barbie, Monster High (as seen in brand ranking)
-    Recent power brand Disney, specifically Frozen, has kept Mattel’s sales from cratering
-    Starting in 2016, Hasbro will hold the licensing for Disney creating a huge gap in sales targets by many sell side analysts projections and little is there to fill the gap
-    2016 consensus sales is $5.6Bn, BM projects $5.1Bn. Consensus EBIT of $710MM is much higher than the BM projection of $400MM
-    Bulls will think: new management team, legacy brands will fill hole
-    Not true for 4 reasons:
o    Difficult industry dynamics: children are fickle, it is a seasonal business (Q4 focus), low growth due to changing interests such as more digital options
o    Monster High is fading: Brand ranked #1 in 2012, #3 in 2013, and #6 in 2014, trend is assumed to continue. Analysis was done on the industry and it was found that often these trends continue at a rate of 25%+ declines per year.
o    Legacy brands are falling: Barbie is seeing lower sales as consumers are becoming more sensitive to what the toys stand for namely, thin body and dumb (blonde) etc. Barbie POS is on a 3 year decline.
o    Licenses & content strategy: Hasbro has been dominating all the movie names (Spider man, iron man, etc.) and is adding Disney. These are generally long-term contracts so Mattel will have a tough time catching up in short order.

-    Management is not new! The “new” CEO has been on the board since 1996.
-    Mattel is on its 4th restructuring since 2008, not sure how many more cost cutting initiatives are needed before they give up.

-    Risks: key product launch, if another “Frozen” were to happen – seen as unlikely. M&A activity is an option but will not likely be used as it is a bad signal to the market that they have no organic growth left. Activist or LBO – do not see a take private or activist due to the lack of growth potential or FCF generation.


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


Dinakar Singh's Sohn Canada Presentation: Long Hitachi & India Private Banks

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Dinakar Singh from TPG Axon.  He pitched two long ideas: Hitachi and India private banks (Yes Bank and Axis Bank).

Dinakar Singh's Sohn Canada Presentation

-    Currently seeing problem markets rather than problem world
-    Services are doing well and manufacturing is doing poorly
-    Zero capex growth in 1990’s, may see this happen again
-    See opportunities in Japan (through restructurings) and India (earnings growth)
-    Long Hitachi: see operating margins improving from 6.5% to 10%, 8x PE, see going to 14x in line with industry
-    Long India private banks (Yes Bank and Axis Bank): bank sector restructuring, consumer growth, cyclical recovery, dramatic growth for private banks


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


Philip Hilal's Sohn Canada Presentation: Long SS&C Technologies

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Philip Hilal from Clearfield Capital.  He pitched SS&C Technologies (SSNC) as a long.

Philip Hilal's Capitalize For Kids Presentation

-    Special situations such as companies undergoing transformation.  Previously worked at Kingdon and Bill Ackman is reportedly an investor
-    LONG SS&C Technologies (SSNC)
-    Market Cap $7Bn, sees 40% upside
-    Serves the financial services industry with administration for hedge funds among other services
-    Sell side doesn’t follow closely, under appreciates the synergies in the 3 most recent acquisitions
-    They have mission critical software – regulation will drive more business going forward
-    Highly recurring revenue with 90% retention
-    High margins over 40% EBITDA margin and high FCF
-    Bill Stone is CEO, has completed 40 acquisitions and owns 12MM shares
-    Has a history of improving acquired businesses
-    Still small in industry and has room to expand
-    These 3 transformative acquisitions stand to double EBITDA
-    Advent acquisition should be 25% accretive and Citi Fund services should be 18% accretive
-    $5 earnings forecast for 2017 and a 20x multiple applied puts stock at $100, compared to current levels ~$70
-    Catalyst: Nov 4 2015, investor day, may refresh guidance on synergies in acquisitions
-    Risks: Integration (mitigant: long history of integrating businesses), Organic growth decline (mitigant: possible but most likely temporary), and leverage (successful history of deleveraging)


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


John Khoury's Sohn Canada Presentation: Long Forest City Enterprises

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is John Khoury from Long Pond Capital.  He pitched a long of Forest City Enterprises (FCE/A).

John Khoury's Capitalize For Kids Presentation

-    Questions to ask:
o    Is it cheap?
o    Why is it cheap/misunderstood?
o    Why will it cease to be cheap?
o    What is the downside protection?

-    Long Forest City Enterprises (FCE/A): 40% discount to NAV, 70% upside potential
-    Was over levered in 2008 and it dropped 90%.
-    In 2011, FCE/A brought in a non-family member CEO (family owns 500million in stock)
-    They own office, retail and multifamily properties
-    Office: 8.3million leasable area, 38 properties, focused in NYC, Boston and Washington -    Retail: > $500 spsf
-    Multifamily: 95% occupancy
-    Large development pipelines, often a place for undervaluation as sell side does not attempt to value these projects
-    Reasons for discount: not a REIT, has non-core assets (complicated BS), lower operating margins and high leverage
-    Catalysts: becoming a REIT in 2016, selling non-core assets and deleveraging.
-    The stock is up 7% since 2011, underperformance of 35% behind REITs in the US.
-    With the value of margin expansion and development properties included the NAV will be approximately $35/share. Trading at $20 currently.
-    Only real estate company over $5Bn that’s not a REIT, should cause appreciation upon conversion as indexes and ETFs will need to include it
-    Non-core assets such as Brooklyn Nets and Barclays center will be sold
-    Have ~$600MM of assets left to sell
-    Cost cutting should add $35-45MM savings per year, adds 5% to NAV
-    They see apartments adding margin as low hanging fruit
-    Are currently deleveraging from 10x currently to 7.5x in net debt/EBITDA
-    Projected asset sales, conversion of convertible debt and NOI growth will help to bring down leverage
-    Downside protection: high quality real estate, non-recourse debt, incentivized board and management team


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


Clifton Robbins' Sohn Canada Presentation: Long AGCO

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.


Jacob Doft's Sohn Canada Presentation: Long Cruise Lines

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Jacob Doft from Highline Capital.  He pitched going long the cruise lines, including Royal, Carnival, and Norwegian.

Jacob Doft's Capitalize For Kids Presentation

-    Long Cruise Lines including: Royal (RCL), Carnival (CCL), Norwegian (NCLH)
-    For 4 reasons:
o    Low End consumer – sentiment rising (Retailer CEO’s change tune on customers a.k.a. more optimism such as Walmart), oil prices falling and unemployment falling. Cruise ships offer travel for $200/day versus fly and hotel trips around $450/day.
o    China – government through the Ministry of transportation is endorsing cruise ship travel. Chinese can visit Japan, Korea and Taiwan via cruise ships. Port infrastructure is built and can accommodate 7 million people. Relaxed visa restrictions will drive future demand. Carnival and Royal have 9 ships in China. 2015 new ship capacity of 4,150 people.
o    Rest of world improvement – 4 ship builders build ~5 ships/year. 2010-2015, ½ average goes to China per year. 2015-2020, 3/5 ships will go to China. Cause demand outside of China for cruises and price appreciation.
o    Cuba: cruise ships already go around Cuba. Cruise ships are a good way for Americans to go to Cuba.
-    Projects approximately 50% upside from current prices.


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


Daniel Dreyfus Long Reliance Steel & Aluminum: Sohn Canada Presentation

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Daniel Dreyfus from 3G Capital who pitched a long of Reliance Steel & Aluminum (RS).

Daniel Dreyfus' Capitalize For Kids Presentation

-    Finds opportunities where profit margins are low and average valuation is applied
-    Wants something levered to US economy to shield global worries
-    Long Reliance Steel & Aluminum  (RS)
-    FCF yield 9.2% 2014
-    $6Bn EV, $53 stock price
-    Distribution business, levered to US
-    Largest buyer of steel, cut it to fit for client and deliver
-    Basically activity increases and falls with US economy
-    Size is their moat
-    Volume game, low margins
-    1 quarter since 1994 IPO with lost money so it’s a cash machine
-    Serves non-residential construction
-    Sees oil recovery as a free option in stock as it will see huge upside if the oil producers start building again


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


Dan Zwirn's Sohn Canada Presentation

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Dan Zwirn from Arena Investors.

Dan Zwirn's Capitalize For Kids Presentation

-    Dan Zwirn – Westaim Corporation and Arena Investors LP
-    Provide liquidity when needed (almost like a pawn broker)
-    Credit investments and legal agreements provide downside protection
-    6 areas: corporate private credit, real estate credit, commercial and industrial, structured credit, consumer assets, corporate securities
-    Create partnerships with specialists
-    Spreads very tight, invest in idiosyncratic credits with wide diversity to prevent concentration risk and be long put index spreads to capitalize on irrationality in the pricing


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


Ted Goldthorpe's Sohn Canada Presentation

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Ted Goldthorpe from  Apollo Investment Corporation.

Ted Goldthorpe's Capitalize For Kids Presentation

-    Yield is difficult to find, there is $7 trillion of negative yielding bonds
-    Only 15% of bonds yield > 4%
-    Issuances are currently covenant light
-    Dealer inventories are shrinking, hedge funds stepping in as liquidity providers
-    Energy and Industrials widest spreads
-    Cablevision → 95 to 75 in bonds
-    PetroBras → 100 to 75 -    Big effect by Basel 3 and Dodd-Frank
-    Finding opportunities in complicated and illiquid credits. Found and structured a mid teens yield loan secured by aircrafts which is much than unsecured 4% bonds in public markets


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


Anna Nikolayevsky's Bearish Sohn Canada Presentation

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Anna Nikolayevsky from Axel Capital Management.

Anna Nikolayevsky's Capitalize For Kids Presentation

-    Fixed capex of 45% of GDP in China compared to 12% in USA
-    Set records on commodity imports, debts have skyrocketed, and there has been overinvestment
-    Causing ghost cities, real estate losses have caused input prices to crater
-    Led to capital flight out of China, fraud discovery, government subsidiary intervention, low prices and overcapacity.
-    All countries will be affected.
-    China contagion risk will hurt resource heavy countries and industries.
-    Overlevered energy companies will be hurt by oil collapse and this will continue.
-    Charge-off rates at lows (a.k.a. bank bad loans likely to rise)
-    Canada and Australia have high consumer debts
-    USD appreciation causing international corporate defaults due to currency differences
-    Short Banks, Australia, and Canada
-    Trade to capitalize on devaluation in the USD.


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


Jeff Smith's Sohn Canada Presentation: Long Advance Auto Parts

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Jeff Smith from Starboard Value.  The activist investor revealed a new long of Advance Auto Parts (AAP).

Jeff Smith's Capitalize For Kids Presentation

-    Long Advance Auto Parts (AAP)
-    They look for value, plan, path
-    See stock going from $171.40 to >$350
-    Specialty retailer of aftermarket automotive parts
-    Have two divisions retail stores to buy parts and commercial distribution business for garages to buy parts
-    They are seeing consolidation in the industry
-    Cars are getting older and more complicated, seeing consumers taking cars to auto shops to fix their cars versus self-fix due to this.
-    SSS growth in all markets over last few years, yet AAP has underperformed by 295% vs peers
-    Peers have more retail which is known as higher margin business but this may be misunderstood
-    AAP does have a margin problem but not a revenue problem
-    There is a 800bp gap between margins in EBITDA to competitors (or as he put it best in class margins)
-    It is trading at 10x, 6.3x proforma, peers at 12x
-    Thesis: 600-740bp margin improvement, fix NWC. Grow SKU count to provide better service and get first calls from customers. Increase leverage from 1.1x to 2.5x. Consolidation and returning cash for further returns.

We already posted up Smith's slideshow presentation on AAP as well.


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


Jody LaNasa's Sohn Canada Presentation: Long IRSA

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Jody LaNasa from  Serengeti Asset Management.  LaNasa pitched long IRSA.

Jody LaNasa's Capitalize For Kids Presentation

-    Argentina credit re-rating after politician change in coming months
-    Highly educated and young people
-    Underlevered due to limits of leverage after past bankruptcies which has slowed growth
-    Have been subsidizing power and limited cattle exports which has led to 25% inflation since 2007
-    Long IRSA 
-    One of the largest mall operators in Argentina, they are packed, 98.4% occupancy
-    Highest rent and sales psf in North and South America
-    Rent adjusted for inflation as rent is calculated based on sales of stores
-    20% implied cap rate
-    5-7% average market cap rates
-    60% upside or 2.5x MOIC
-    Hidden value in IDB, sum of parts worth >2x book value
-    Land Bank – properties bought in early 90’s
-    Including these assets: 4.0x MOIC potential

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


Daniel Lewis' Sohn Canada Presentation: Long Amaya

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Daniel Lewis from Orange Capital who pitched a long of Amaya.

Daniel Lewis' Capitalize For Kids Presentation

-    Global event-driven, top 10 positions make up 60% of fund
-    Long Amaya 
-    40% EBITDA margin
-    Reverse merger
-    8.4Bn EV
-    70% global market share of poker market
-    Most revenue is regulated
-    High barriers to entry
-    Different possible verticals such as casino or sports betting online
-    C$1Bn EBITDA in FY2018
-    $575MM in 2014, almost double in 4 years
-    Catalyst: US regulation approval, deleveraging through FCF
-    Risks: AMF investigation, Russia, currency, and leverage


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


Blair Levinsky Short High Liner Foods: Sohn Canada Presentation

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Blair Levinsky from Waratah Capital Advisors who pitched a short of High Liner Foods.

Blair Levinsky's Capitalize For Kids Presentation


-    Questions:
o    What is the situation?
o    Why does it exist?
o    How is it going to change?

-    Crowding in non-resource equities
-    Hot IPO market, expensive food companies
-    Short High Liner Foods (TSE:HLF)
-    Customers such as Walmart, McDonalds for seafood
-    Have seen growth in sales and EBITDA yet volumes have declined 13 quarters in a row, margins have compressed.
-    Attempting to bail themselves out of the mess through acquiring companies with debt.
-    Now they are overlevered and have bad businesses to run
-    Through analysis of the cash flow statement it looks like realized incremental EBITDA/Capex+acqusitions+NWC inv. Between 2011 and 2014 imply average acquisition price of 13.3x multiple which is very high for industry
-    High Liner claims to have a 30% pay out ratio but have averaged -$40MM in FCF for the last 5 years but have been increasing the dividend payout for the large family shareholder who likes dividends
-    Current earnings are $71MM (without adjustments), have told the street they will see $150MM in EBITDA in 2016, difficult to manage given lack of balance sheet flexibility and inability to drive cost cuts


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


Reno Giancola's Sohn Canada Presentation: Long Great Canadian Gaming

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is Reno Giancola from Alignvest who pitched a long of Great Canadian Gaming.

Reno Giancola's Capitalize For Kids Presentation

-    Long Great Canadian Gaming
-    50% upside
-    Rod Baker – CEO since 2009
-    Reasons for upside: underlevered, strong ROIC, Unique assets
-    Vancouver BC location with many VIP gamblers, have 50% market share in BC
-    River rock is a unique assets with revenue per table of 2x the market average
-    Relaunched Hard Rock Casino Vancouver due to construction in the area and should reach previous revenue levels in 2016
-    Ontario gaming is an area for growth as bundles are sold, they have purchased 1 for $50MM and expect 20% ROIC on the purchase
-    Buybacks will drive further shareholder value
-    Can grow earnings 45% if they releverage
-    Own the real estate, trend to spin off assets into REITs, could unlock additional value
-    $31-32 price target excluding buybacks and M&A
-    Cheap compared to Australian gaming industry, comparable due to Asian consumers


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


David Lorber's Sohn Canada Presentation: Long Ubisoft

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is David Lorber from FrontFour Capital who pitched long Ubisoft.

David Lorber's Capitalize For Kids Presentation

-    Value event-driven fund
-    Long – Ubisoft (French listed video game country) 
-    Levered to game development industry (XBOX one and PS4 coming out)
-    Higher margin point of sale, and upgrades add additional margin
-    Shift from physical to digital sales has increased margins
-    Strong North American footprint and have prices pegged to USD
-    3/10 of the top 10 best sellers in 2014
-    Strong pipeline of games to come
-    Valuation is cheaper than EA & Blizzard
-    77% upside to 32 euros/share
-    “For Honour” (new game to come out) looks to be a possible home run with very high quality multi-player play modes
-    Brand extensions will provide additional opportunity through licensing and royalties
-    Secular tailwinds, cheapness of company compared to comps and industry consolidation provide opportunity to get into a great business with lots of upside.


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


Paul Sabourin & Greg Mills Talk at Sohn Canada Conference

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is a chat between Paul Sabourin (Polar Securities) and Greg Mills (RBC Capital).

-    Toxic trades are no longer tolerated by banks as capital becomes expensive to fund these for hedge funds
-    Positive from hedge funds is they are seeing the bank work more as a team than ever before
-    Prime brokers no longer want hedge funds to hold cash with them for capital charge reasons
-    (Talk cut short due to timing)

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


Wednesday, September 30, 2015

Third Point Gets Board Seat at Baxter

Dan Loeb's hedge fund firm Third Point has filed an amended 13D with the SEC regarding its activist position in Baxter (BAX).  Per the filing, Third Point now owns 9.9% of the company with over 53.85 million shares.

This is up slightly from the 52.5 million shares Third Point owned previously, though the filing shows their most recent buying activity as August 7th for 1.35 million shares at $41.80. 

The filing was made due to activity on September 29th as the firm entered into a support agreement with the company.  Additionally, Third Point's Munib Islam will join Baxter's board of directors.

Third Point also agreed to a standstill whereby they won't acquire more than 13% of the company's shares.

Third Point has already increased its Baxter stake in August.  For more from this hedge fund, you can view Third Point's Q2 letter here.


Starboard Value's Presentation on Advance Auto Parts

Jeff Smith's activist investment firm Starboard Value today released a presentation on their newest holding, Advance Auto Parts (AAP).  They now own 3.7% of the company.

AAP currently trades around $190 and Starboard thinks shares could be worth over $350 with some of their changes implemented.  They like the favorable industry dynamics and think that AAP has underperformed peers long-term. 

Starboard seeks to increase shareholder value via four ways:

- Improve margins through operational efficencies
- Unlock value for Worldpac (underappreciated asset)
- Return capital to shareholders (dividend and/or buyback)
- Pursue industry consolidation

Embedded below is Starboard's presentation on AAP:



You can download a .pdf copy here.

For more from this investor, head to Jeff Smith's recent interview on activist investing.


ValueAct Capital Gets Board Nomination at 21st Century Fox, Increases Stake

Jeff Ubben's ValueAct Capital has filed an amended 13D regarding their stake in 21st Century Fox (FOX / FOXA).  Per the filing, ValueAct now owns 5.9% of the company with over 47.3 million FOX shares.

Increases FOX Stake

This is up from the 44.5 million shares they owned at the end of the second quarter.  ValueAct owns voting shares (FOX) and has utilized this to help earn themselves a seat at the table.  Their shares are held in a vehicle called Volpe Velox, which is Latin for swift fox.

Ubben Gets Board Nomination

The filing notes that Jeff Ubben has been nominated to Fox's board.  In exchange for the nomination, Ubben has agreed with the company to enter a standstill agreement.  His firm has agreed to not solicit any proxies and won't acquire 7% or more of the company's stock.

ValueAct seemingly acquired the majority of their position around $32 per share and FOX currently trades under $27.

For more on ValueAct, we also highlighted their recent investment in Rolls Royce.

Per Google Finance, 21st Century Fox is "a global media and entertainment company. The Company’s Cable Network Programming segment consists of the production and licensing of programming distributed primarily through cable television systems, direct broadcast satellite operators, telecommunication companies and online video distributors. The Television segment consists of the broadcasting of network programming in the United States and the operation of 28 full power broadcast television stations, including 10 duopolies, in the United States. The Filmed Entertainment segment consists of the production and acquisition of live-action and animated motion pictures for distribution and licensing in all formats in all entertainment media worldwide, and the production and licensing of television programming worldwide. The Direct Broadcast Satellite Television consists of the distribution of programming services via satellite, cable, and broadband directly to subscribers in Italy, Germany and Austria."

Be sure to also check out Mason Morfit on ValueAct's approach.


Lone Pine Capital Boosts Cheniere Energy Position

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding its stake in Cheniere Energy (LNG). Per the filing, Lone Pine now owns 5.2% of the company with over 12.24 million shares.

This is up markedly from the 7.9 million shares they owned at the end of the second quarter.  The filing was made due to activity on September 18th.  LNG shares are down almost 30% since the end of Q2.

As we've highlighted recently, Cheniere Energy has attracted some big names on both the long and short sides.  Carl Icahn has been buying LNG shares recently and Seth Klarman's Baupost Group has also been an owner of shares for a bit.  On the other side of the trade, Jim Chanos is short LNG.

For more on Mandel's fund, we've detailed previous Lone Pine portfolio activity here.

Per Google Finance, Cheniere Energy is "an energy company engaged in Liquefied natural gas (LNG) businesses. The Company operates through two segments: LNG terminal business, and LNG and natural gas marketing business The Company owns and operates the Sabine Pass LNG terminal in Louisiana through its ownership interest in and management agreements with Cheniere Energy Partners, L.P. (Cheniere Partners), which is a publicly traded limited partnership. The Company owns 100% of the general partner interest in Cheniere Partners and 80.1% of Cheniere Energy Partners LP Holdings, LLC (Cheniere Holdings), which is a publicly traded limited liability company that owns a 55.9% limited partner interest in Cheniere Partners. The Company is engaged in the development of two LNG terminal projects: the Sabine Pass LNG terminal in western Cameron Parish, Louisiana, and the Corpus Christi LNG terminal near Corpus Christi, Texas." 


Carl Icahn Releases Video Warning: "Danger Ahead"

Activist investor Carl Icahn has released a video entitled "Danger Ahead" on his website.  In it, he warns of impending problems in high yield bonds, dysfunction in Washington and various board rooms of corporate America, among other things.

You can watch Icahn's video here.


Tuesday, September 29, 2015

Charlie Munger: The Complete Investor By Tren Griffin ~ Book Review

Tren Griffin recently released a new book entitled Charlie Munger: The Complete Investor.  In it, he outlines Munger's investing strategy and timeless lessons by extracting pearls of wisdom from speeches, interviews, writings, and shareholder letters.

If you're unfamiliar with Munger, he is the vice chairman of Berkshire Hathaway.  While Warren Buffett undoubtedly is the face of the organization, Munger has been an integral part of Berkshire's success.

After all, Buffett said that, "I have been shaped tremendously by Charlie" and Munger is largely credited with tweaking Buffett's value investing approach to focus more on quality by buying great businesses at a good price rather than merely good businesses at a great price.

While Munger is already studied and to an extent idolized by a fervent subsection of investors, the argument can be made that he actually is not as widely known or as reviewed as he should be, thanks in part to Buffett's blinding spotlight. Griffin helps to rectify that with a definitive book on Charlie Munger.

Griffin, who works for Microsoft, is the author of the blog 25iq (which we've linked to in our "What We're Reading" posts numerous times.)  There, he seeks to extract wisdom from top investors, business leaders, and entrepreneurs with his signature series of "A Dozen Things I've Learned From XYZ Investor."

Munger is well known for his 'mental models' and this book superbly focuses on this critical portion of Munger's approach.  By combining aspects of business with psychology, economics, ethics and more, Munger seeks to keep his emotions in check.  For Munger, being a successful investor is in part achieved simply by avoiding "the common pitfalls of bad judgment."


This book will undoubtedly and rightly be compared to Poor Charlie's Almanack, the compilation by Peter Kaufman as well as another book, Damn Right: Behind the Scenes with Berkshire Hathaway Billionaire Charlie Munger by Janet Lowe. 

All three books cover similar topics and content.  Each book is a reflection of its curator and this is where Griffin excels by focusing on the most important concepts related to Munger, with chapters on Munger's "Worldly Wisdom" as well as "The Psychology of Human Misjudgment."  The book also contains 23 pages on the important concept of 'moats' in investing.

Knowledge carnivores and avid readers will also find the bibliography at the end of the book a savory treat.  After all, the 17-page bibliography highlights sources Griffin used to amass this collection of wisdom. 

The main difference between the three major books on Munger is price.  Poor Charlie seems to retail for over $45 these days, and Damn Right typically goes for around $22.  True value investors might seek out Griffin's version, which seems to be the cheapest at $18 for hardcover and only $13.49 for the Kindle version.

Griffin's book will be most beneficial for investors who are always looking to improve their craft, especially in the realm of psychology, behavior, and other qualitative aspects of investing.  Investors new to Munger entirely will also find this book extremely useful, allowing them to play catch up on decades of wisdom in an easy 182-page read.  

Investors who have already scoured every word ever written or spoken by Munger will find this book to be redundant, as it doesn't contain much new information.  The book also isn't really a biography on Munger's life if that's what you're looking for.

However, one of the book's main advantages is the way the information is presented and organized.  Instead of having to scour hundreds of resources on Munger to find specific wisdom, this book concisely aggregates everything into distinct chapters to easily reference in the future.

Currently ranked as the #1 Best Seller in Amazon's "Stock Market Investing" category, be sure to check out Tren Griffin's new book, Charlie Munger: The Complete Investor.