Aaron Cowen Long QSR & Adobe: Capitalize For Kids Conference ~ market folly

Monday, October 31, 2016

Aaron Cowen Long QSR & Adobe: Capitalize For Kids Conference

We're posting up notes from the Capitalize For Kids conference 2016.  Next up is Aaron Cowen of Suvretta Capital who pitched two long ideas: Restaurant Brands (QSR) and Adobe (ADBE)

Aaron Cowen's Presentation at Capitalize For Kids 2016

•    LONG Restaurant Brands (QSR). Franchiser of Burger King and Tim Hortons

•    Believes it can be a $75 stock (currently price of $44). Business model is a franchiser business model, it doesn’t own any stores.

•    3G is the management team behind this and has one of the best track records. Tim Hortons integration has been going very strong.

•    Believes it can do $3.00/sh in FCF going forward. Believes people are missing this because of all the merger accounting.

•    No real e-commerce threat at this point and believes e-commerce is a positive for the business.

•    Almost all of 3G’s platforms have compounded capital at very high rates.

•    They have dropped operating expenses by a significant amount at Tim Hortons (lowered costs by 60%).

•    Believes the company ramps up acquisition machine every 2-3 years and is likely due for one now. Targets could potentially be YUM, Dairy Queen, Popeyes, among others. Believes this is a free call option on management doing something smart.

•    LONG Adobe (ADBE). Largest SaaS business in the world. $50 billion market cap.

•    Adobe services two functions: Creative Cloud – used by 13 million users to create webpages and is growing 15-20% per year and essentially have a monopoly in this product. Second, Adobe does digital marketing. This helps companies place adds on website and measure ROI on marketing effects.

•    It went through a transformation to switch to SaaS from one-time sales in 2013 and believes the street still misunderstands this. Margins were impacted as all the upfront costs associated with SaaS business model. Believes margins will be mid-40s (base case assumption) in 2018 after the company completes its transition.

•    Assuming revenue grows at 20% plus margin expansion deserves a high multiple. Expecting EPS of $7/sh in 2018. Target price between $170-180 in base case scenario.

Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference

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