Thursday, May 31, 2018

Notes From Sohn Hong Kong Investment Conference 2018

The 2018 Sohn Hong Kong Investment Conference recently took place benefiting the Karen Leung Foundation for gynecological cancer education, prevention, and support.  Fund managers presented investment ideas in a gathering that benefited charity.  Here's a quick summary with notes from the event.

Notes From Sohn Hong Kong Conference 2018

Eashwar Krishnan (Tybourne Capital):  Long: Line (LN).  Dominant messaging platform in Japan and several other countries.  Based on enterprise value (EV) to monthly active users (MAU), Line is the cheapest and most undervalued messaging app in the world.  On this metric, LN trades at $39 while Tencent trades at $207, Naver at $199, Facebook at $180, and Yahoo Japan at $101.  Median number (including others like Kakao, Weibo, Twitter etc) is $67. Sees potential to double your money in three years.  Company can try to take more 'time spent' from other apps and rollout revenue from more advertising, games, financial services and food delivery. Prior to founding Tybourne, he worked at Lone Pine Capital.

Rajesh Sachdeva (Flowering Tree Investment Management): Long: VP Bank (Vietnam Prosperity JSC Bank).  The country has a solid base for an economy and VP Bank is the cheapest bank in Asia yet has the highest returns on equity (ROE).  Largest consumer bank in Vietnam.  5 million customers, around 10% of the labor force of the country.  Has strong underwriting standards.  Thinks the stock can go up 4-5x over the next 3 years as long as there aren't huge economic hiccups.

Avinash Abraham (Torq Capital Management):  Long: Pacific Basin (2343.HK).  Dry shipping company in Hong Kong.  Minor bulks shipping and is "very undervalued."  Company recently became profitable again last year.  Thinks the 10 year bear market in dry bulk shipping is coming to a close.  Company has diversified exposure to products.

Kok Hoi Wong (APS Asset Management):  Short: (JD).  This has been a consensus long among many managers but argues that it's already priced for perfection.  Thinks impairment losses coming.  Company made bad investments (PaiPai and QQ Wanggou, Bitauto, Tuniu, Yihaodian).  Thinks a big impairment is possible from Yihaodian.  Management is "investing recklessly."  Says to be weary as company can't make a profit in highly competitive Chinese e-commerce market.  Business model is misunderstood. 

Benjamin Fuchs (BFAM Partners):  Long Tencent (700.HK) & Tencent Put Options.  Hedged trade that bets on one of the dominant companies in Asia but allows you to profit from a swing in the stock either direction.  Buy Spring 2019 puts to complement the long equity position. Profitable if shares go more than 15% in either direction

Soren Aandahl (Blue Orca Capital):  Short: Samsonite (1910.HK).  Has previously attacked the company with a recent short report and did so again at the event.  Shares have been halted.  CEO Ramesh Tainwala has been lying about resume & misrepresenting himself as a doctor, calls for his firing.  Company has audit red flags: third auditor in three years.  Pointed out accounting practices and corporate governance.  If you recognize the investor's name he was previously running Glaucus Research which put out a lot of short reports and recently launched an activist fund.

Seth Fischer (Oasis Management): Long Don Quijote Holdings Subsidiary Japan Asset Marketing (8922.JP).  Don Quijote is a retail chain based in Japan that's open 24 hours and sells all kinds of various goods from food to personal care to you name it.  Subsidiary JAM is its real estate segment.  Thinks the company is able to survive "Amazonification of the world" but has been mismanaged.  They've launched an activist campaign, have owned stock since 2017.  Proposed corporate restructuring   Sees 50% upside. Details on their proposal here.

Wesley Wong (Oxbow Capital Management): Long Guangzhou Baiyun Airport (SHA:600004).  Third largest airport in China and 14th largest in the world.  Sees 50% upside in the next year to year-and-a-half.  New terminal coming online will lead to increased number of passenger and rent from retail tenants.  Sees EBTIDA coming in around 20% higher than consensus.

Carl Huttenlocher (Myriad Asset Management): Long MSCI China 2025 Index.  Simple trade, thinks China will be the best global equity market for the next few years.  Chinese A-Shares being included in indexes now will be a catalyst.

Hermes Li (Aspex Management):  Long SJM Holdings (0880.HK).  Likes the casino company as it's poised to benefit from opening the new Lisboa Palace in the back-end of 2019.

Ben Melkman (Light Sky Macro): Thinks inflation in Japan is coming faster than people realize and will yield higher rates.  To bet on this there's two plays: spread trade for bearish exposure on 10-year Japan Commodity Clear House rate or buy banks that will benefit from increased interest rates.

For more investment conference coverage, we've previously posted notes from the Sohn New York Conference and also this week we just posted up notes from the London Value Investor Conference.

ValueAct Capital Takes Olympus Stake

Jeff Ubben's activist investment firm ValueAct Capital has disclosed a 5% ownership stake in Japanese camera and medical device company Olympus (TYO:7733).  Their stake is valued at around $600 million and is a brand new position.  Their core position size seems to be around $1 billion these days, so this is a bit below that.

As far as we're aware, this is firm's first activist bet in Asia.  ValueAct issued a statement, saying, "Olympus has an exceptional business model, market share, technology leadership and emerging markets presence in the global medical device industry.  We think it's an ideal company for our first investment in Japan."

Activism in Japan seems to slowly becoming more acceptable.  Changes in corporate governance in the country have helped that progress.  A few years ago we highlighted Third Point's activist position in Sony and they had also previously invested in Seven & i.

You can view more ValueAct portfolio activity here.

Wednesday, May 30, 2018

Tiger Global Increases Sunrun Position

Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding its stake in Sunrun (RUN).  Per the filing, Tiger Global now owns 10.7% of the company with over 11.67 million shares.  This is up significantly from the 5.74 million shares they disclosed back at the end of the first quarter.

An additional Form 4 filed with the SEC shows Tiger was buying RUN shares on May 25th, 29th, and 30th.  In total, they bought 776,138 shares at weighted average prices from $10.71 to $11.50.  The filing also notes the securities are held by advisory clients of Tiger Global.

Per Yahoo Finance, Sunrun "engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. It also sells solar leads. The company markets and sells its products through direct channels, partner channels, mass media, digital media, canvassing, referral, retail, and field marketing. Sunrun Inc. was founded in 2007 and is headquartered in San Francisco, California."

Lone Pine Capital Boosts IQVIA Stake

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding its stake in IQVIA (IQV).  Per the filing, Lone Pine now owns 5% of the company with over 10.45 million shares.

This is an increase over the 9.89 million shares they owned at the end of the first quarter, per their most recent 13F filing.  The most recent trading activity was on May 16th.  To see the rest of Lone Pine's portfolio, check out the brand new issue of our quarterly newsletter.

Per Yahoo Finance, IQVia is "IQVIA Holdings Inc. provides integrated information and technology-enabled healthcare services in the Americas, Europe, Africa, and the Asia-Pacific. It operates through three segments: Commercial Solutions, Research & Development Solutions, and Integrated Engagement Services."

Whale Rock Capital Adds To MongoDB Stake

Alex Sacerdote's hedge fund firm Whale Rock Capital has filed a 13G with the SEC regarding its stake in MongoDB (MDB).  Per the filing, Whale Rock now owns 16.05% of the company with over 3.83 million shares. 

This is way up from the 556,862 shares they owned at the end of the first quarter. 

They originally disclosed the increased position in a separate 13G filing due to activity in late April, showing a 5.83% ownership stake. The most recent filing was made due to activity on May 24th, showing they've further upped their stake to now 16.05% of the company.

Per Yahoo Finance, MongoDB "operates as a general purpose database platform worldwide. The company offers MongoDB Enterprise Advanced, a subscription package for enterprise customers to run in the cloud, on-premise, or in a hybrid environment; MongoDB Atlas, a cloud-hosted database-as-a-service solution; and Community Server, a free-to-download version of its database, which includes the functionality that developers need to get started with MongoDB. It also provides professional services, such as consulting and training. The company was formerly known as 10gen, Inc. and changed its name to MongoDB, Inc. in August 2013"

Tuesday, May 29, 2018

Notes From London Value Investor Conference 2018

The 2018 London Value Investor Conference recently concluded and we've got notes from each speaker's presentation.  Click the links below to go each speaker's pitch.

London Value Investor Conference 2018 Notes

- Dawid Krige (Cederberg Capital): Long Kweichow Moutai (SHA):600519) & Dong-E-E-Jiao (SHE:000423)

- Nigel Waller & Andrew Goodwin (Oldfield Partners): Long Kansai Electric (TYO:9503) & E.ON (ETR:EOAN)

- Ben Preston (Orbis): Long Peabody Energy (NYSE:BTU)

- Nick Kirrage (Schroders): Long Standard Chartered (LON: STAN)

- Mark Asquith (Somerset Capital): Long Pacific Textiles (HKG:1382), Sunny Friend (TPE:8341), Cia Hering (BVMF:HGTX3) 

- Alex Wright (Fidelity Special Situations): Long Pearson (LON:PSON), Bunzl (LON:BNZL)

- Stephen Mitchel & Bryan Pilsworth (Foyston, Gordon & Payne): Long Transcontinental (TSE:TCL) & Walgreens Boots Alliance (NASDAQ:WBA)

- Adrian Warner (Avenir Capital): Long HCA Healthcare (NYSE:HCA)

- Stephen Anness (Invesco Perpetual): Long National Oilwell Varco (NYSE:NOV)

- Alvaro Guzman & Fernando Bernad (Az-Valor Asset Management): Long Buenaventura (NYSE:BVN)

- Jonathan Boyar (Boyar Value Group): Long Axalta Coating Systems (AXTA), Acushnet Holdings (GOLF), Madison Square Garden Networks (MSGN), Franklin Resources (BEN), Howard Hughes (HHC) 

- Mark Pearson (Arcus Investment): Long Asanuma Corp (TYO:1852)

Dawid Krige Long Kweichow Moutai & Dong-E-E-Jiao: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Dawid Krige of Cederberg Capital who pitched longs of Kweichow Moutai (SHA:600519) and Dong-E-E-Jiao (SHE:000423).

Dawid Krige's London Value Investor Conference Presentation

Dawid co-founded Cederberg Capital in 2011. From 2005 to 2011 he was at Mondrian Investment Partners where he was a portfolio manager and China specialist. Cederberg are concentrated, fundamental, bottom-up, quality investors focused on China.

Frauds in China exist but they can be avoided. Fraud is not endemic. The recent China Hustle film presents a misleading and overly negative view of Chinese companies.

China is catching up with the US and will overtake it. In terms of STEM graduates - Science,Technology, Engineering, Mathematics – US 5% Vs China 38%. Global Patent applications: US 19% Vs China 43%. Unicorn unlisted start-ups with a valuation of more that $1bn: US 45% Vs China 43%. Yet China only accounts for 4% of the MSCI world index whilst the US is 50%. Over the next 20 to 30years China is going to become 20% to 30% of the MSCI. It will take share from the US.

Long: Kweichow Moutai (SHA: 600519):  Last year Kweichow Moutai overtook Diageo as the world’s largest spirits company. The company is over 300 years old. It spends very little on marketing. Moutai is a national drink and is offered to visiting politicians and dignitaries. It has 99% brand awareness in China. It’s essentially a monopoly with 70% of the spirits market. Its margins are almost 3x Diageo’s. ROIC: 30%. In the last 10 years it has grown at 30% per annum. At a PE 21x 2019 it trades on a similar PE to Diageo but with much more growth.

Long: Dong-E-E-Jiao (SHE: 000423):  Dong is a traditional Chinese medicine company that makes nutritional supplements. The supplements are over-the-counter products that are made from natural ingredients and therefore don’t face regulation. Cederberg think of the company as a luxury consumer goods company and not a healthcare company. The brand has a history that goes back over 2500 years. It has 70% marketshare and 98% brand awareness. It trades on a PE 14x 2019.

Krige said that whether the product works or not is not that important because of its cultural significance. If your parents and your parent’s parents have used it, you are likely to use it.  The biggest risk is from a change in distribution that could happen due to the challenge from e-commerce.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Nigel Waller & Andrew Goodwin Long Kansai Electric & E.ON: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Nigel Waller and Andrew Goodwin of Oldfield Partners who pitched longs of Kansai Electric (TYO:9503) and E.ON (ETR: EOAN).

Nigel Waller & Andrew Goodwin's London Value Investor Conference Presentation

Waller and Goodwin usefully suggested that disruption happens in four different way. Firstly, technology gets investors excited sometimes creating bubbles around new technologies. Investors over react and drive the price of the disrupted stocks too low. The market drives disrupted stocks to valuations that make no sense unless the technological change is very significant, swift and permanent.

A second area of disruption is caused by product cycles. It can affect all industries, but it is particularly prevalent in the pharma sector. The market gets excited about new drugs and over-pessimistic about those that are facing patent cliffs.

A third type is caused by new competition. The market tends to favour the disruptor and focuses its ire on the incumbent. The fourth area of disruption is caused by economic cycles, both large scale macro-economic cycles and smaller scale capital cycles that some sectors are particularly prone too.  As contrarian investors they try to take advantage of these cycles to buy companies when they are cheap.

Long Kansai Electric (TYO: 9503):  In March 2011, Japan suffered a large earthquake that led to the Fukushima nuclear disaster. Prior to Fukushima there were 54 reactors in service providing 30% of Japan’s energy needs. Afterwards all the reactors were taken off line.  Kansai Electric was hit particularly hard because half of its energy production came from nuclear.  Investors exited the stock.

Oldfield Partners started to buy in March 2015 at around 1100 Yen per share. At the time the Japanese market analysts were completely bearish and none of them thought the return to service of the nuclear reactors was likely. Market analysts in Japan are risk averse as that is the only way they have survived the long-term bear market. The Oldfield team became convinced that Japan could not satisfy its energy demands without the nuclear reactors. Despite some local resistance, Japan is slowly bringing its nuclear reactors back online. Kansai now have 4working reactors reducing their reliance on thermal and reducing fuel costs.

Kansai shares are up 60% from Oldfield’s buy price. They feel shares still offer good value as Kansai think that eventually 7 of its 11 reactors will come back on line. Operating profits could increase a further 50% from here.Japanese energy markets are deregulated. Kansai is the lowest cost producer and could enter new regions to grow its market share.

Long E.ON (ETR: EOAN):  The market has been worried that technological and regulatory changes will disrupt E.ON. Since 2010 Germany has been trying to shift from thermal to renewables. The Fukushima disaster led Germany to do a U-turn on its nuclear policy and to set a target for closing its nuclear power stations by 2022. An additional negative for potential E.ON investors was that solar energy was being heavily subsidised.

Oldfield Partners started buying E.ON in Sept 2015 and has an average price of 7.24 euro.  The nuclear operations are in run-off. In terms of returns 65% now comes from the regulated business. E.ON has completed its de-gearing.

In 2018 E.ON announced an asset swap with its big competitor RWE. RWE is going to take E.ON’s renewables and E.ON will get RWE’s regulated business. The asset life of the renewables is probably 25 years whilst the regulated assets have an asset life of around 100 years. That is a good swap and E.ON will have 80% regulated assets. The synergies of the combined business are significant at 600-800m euros. There is a 5% dividend that can grow.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Ben Preston Long Peabody Energy: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Ben Preston of Orbis who pitched a long of Peabody Energy (BTU).

Ben Preston's London Value Investor Conference Presentation

Peabody is the world’s largest publicly listed provider of coal. Coal mining had a particularly tough time in 2015/6. At one point almost half of US coal was being produced by companies that had filed for bankruptcy.  Peabody produces 200m tons of coal per year mostly in the US which it mostly sells to power stations. A lower volume of coal is produced in Australia but that is where Peabody makes most of its money from export markets, particularly China.

After the commodity markets peaked in 2011 Peabody found itself with too much debt. It filed for bankruptcy in 2016 and spent a year sorting itself out. The shareholders were wiped out. The re-incarnation has lower capex and debt interest payments. Whilst production is down, free cash flow is up. As Peabody are not opening new mines the money is flowing back to shareholders. There is a very high FCF yield at 25% on a trailing basis.

Since the commodity crash coal production has declined. In addition, China has been trying to tackle its pollution problems by moving away from coal. This has been good for the environment but does not keep Chinese people warm. China relaxed the new clean air policy in 2016. There is a conflict between the E and the S of ESG (environment, social, governance). Tackling air pollution has led to more demand for high quality coal because it is more efficient and pollutes less. Peabody’s coal is high quality.

Peabody is cheap because investors are worried the price of coal will fall back again. Mr Market is convinced it will but if it doesn’t Peabody will do well.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Mark Asquith Long Pacific Textiles, Sunny Friend, Cia Hering: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Mark Asquith of Somerset Capital Management who pitched three longs: Pacific Textiles (HKG:1382), Sunny Friend (TPE:8341), and Cia Hering (BVMF:HGTX3).

Mark Asquith's London Value Investor Conference Presentation

Mark Asquith is the lead manager of the Global Emerging Market Small Cap and EM Small Cap Strategies.

Long: Pacific Textiles (HKG: 1382):  It’s been a savage environment for textile companies. Competition between brands and from Amazon has depressed prices.  Environmental regulations create barriers to entry as few can afford to meet the benchmarks for water, air and heat treatment. Also, there are barriers to entry that are driven by customer expectations: lead time 7-45 days, quality, ESG. Few can meet these. The number of textile enterprises has reduced dramatically in the last 10 years.The market is concerned about growth, tariffs and a stronger Renminbi.  Pacific Textiles is trading at PE 10x, ROE 30%, FCF 10%.

Long: Sunny Friend (TPE: 8341):  Sunny Friend is a waste management company in Taiwan. They have incineration and liquidation waste disposal facilities. It’s a compounder rather than a deep value stock.  In Taiwan, they have 35% market share in medical and 16% in industrial waste.  They have barriers to entry because no one wants a waste management plant in their back yard (NIMBYism). There are also customer switching cost and permits. These protect their Taiwanese business but make it difficult for them to break into the Chinese market. China is a potential growth market (currently <20% of sales).  Sunny friend is not classically cheap, but it does have good free cash flow yield and generation.

Long Cia Hering (BVMF: HGTX3):  Cia Hering is a Brazilian clothing brands company. It has been having a hard time including losing control of its point of sale. The shares fell 80% from 2012-2015.  Somerset bought their stake in 2015/16 when new management replaced the old. The new management have rebranded the product range and invested in point of sale.  Many of their competitors have gone under. Consumer confidence is picking back up.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Nick Kirrage Long Standard Chartered: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Nick Kirrage of Schroders who pitched a long of Standard Chartered (LON: STAN).

Nick Kirrage's London Value Investor Conference Presentation

Deep value has had ten of the worst years of under-performance verses growth on record. Most investors are invested in franchise stocks not deep value. They are over-exposed to growth.

Long: Standard Chartered (LON: STAN):  Nick Kirrage’s partner, Kevin Murphy, pitched Standard Chartered at last year’s conference. Since then it’s down 11%. They’ve liked banking for the last five years. They’ve been early and have been adding to existing banking positions. STAN’s valuation reflects a fear of emerging markets. It’s a unique franchise in emerging markets and is one of Kirrage’s and Murphy’s largest positions.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Alex Wright Long Pearson & Bunzl: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Alex Wright of Fidelity Special Situations Fund who pitched two longs: Pearson (LON:PSON) and Bunzl (LON:BNZL)

Alex Wright's London Value Investor Conference Presentation

Long: Pearson (LON:PSON)  Wright said that Pearson was the most exciting stock in his portfolio. His Special Situations Fund purchased shares in 2017, the shares are up around 35% since then. The stock performed poorly between 2015 and 2017 losing about 60% of its value. Analysts are negative on Pearson with 3 buys and 9 sells, the most sell recommendations in the FTSE 100. Low unemployment in the US has pushed college enrollments down. Also, Amazon and marketplace sellers have challenged text book publishers by providing a more effective platform for re-selling second-hand text books.

Pearson is a complex business that primarily sells text books and online resources for education. It is primarily US focused. The company is misunderstood by the market. Education is a structural growth area. Pearson has 40% market share in their core market. Education is changing from being textbook/ analogue in delivery to being online/ digital. The cost of delivering digital education is preventing competition from other players and giving Pearson a competitive advantage. They are twice the size of their nearest competitor.  Digital will go from 50% to 80%. The digital model is access not ownership, more like Spotify or Netflix. It will stop competition from course material resellers. Over time digital will reduce the cost base and create a simpler business - £300m cost savings by 2020. Pearson could become one of the highest quality companies in the FTSE 100.

Long: Bunzl (LON: BNZL):  Bunzl is a global distributor and outsourcer making things like plastic forks, coffee cups, and cleaning products. The US is their major market.  EV/ sales has fallen from 0.85 to 0.7 since 2015. Investors fear that Bunzl’s business will get disrupted by Amazon. Amazon does sell most of the products that Bunzl distributes.  Amazon won’t eat Bunzl’s lunch. Bunzl does not compete primarily on price. Their customers use them because they are a one stop shop. They supply Walmart stores in the US with till rolls, cleaning products and light bulbs. Walmart is their largest customer. Costa is another big customer who Bunzl supply with coffee cups. They are better than Amazon at delivering reliably on time. They offer their customers bespoke solutions that Amazon don’t. 

Investors have also been worried about Bunzl’s reliance on single use plastics, the negative environmental impact and the potential for regulation. Bunzl is beginning to address this issue.  Where they have the use of recycled products and wood products have led to higher profit margins.  Bunzl can grow by acquisition. Wright noted that analysts on the sell side find it hard to model businesses that grow by acquisition.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Stephen Mitchell & Bryan Pilsworth Long Transcontinental & Walgreens Boots Alliance: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Stephen Mitchell and Bryan Pilsworth of Foyston, Gordon & Payne who pitched two longs: Transcontinental (TSE:TCL) and Walgreens Boots Alliance (NASDAQ:WBA).

Stephen Mitchell & Bryan Pilsworth's London Value Investor Conference Presentation

Long Transcontinental (TSE:TCL):  It's Canada’s largest printing company and an emerging N.A packager. It’s a high-quality company that is not broken but it is going through a change process.  The company is well lead by Francois Olivier (President & CEO) and Isabelle Marcoux (Chair). They have been astute at getting out of declining businesses quickly, for example, they exited the textbook market. The remainder of the printing business achieves high margins.

TCL is better and cheaper than peers. For example, it is more profitable than its competitor, Quad.  Unlike printing, packaging is a growth market. The US market is worth $25bn and is growing 2-3%per year. Transcontinental’s printing know-how is transferable to packaging. TCL entered the packaging market in 2014 and by 2017 it had acquired 7 plants. In 2018 it acquired a further 21 new plants with a US focus from Coveris America.  TCL are now No. 7 in packaging in the US. They are No. 2 in cheese packaging.P/E 11.5x (2019); EPS $2.4; EV/EBITDA 7x (2019)

Long: Walgreen Boots Alliance (NASDAQ: WBA):  The shares are cheap because it’s rumoured that Amazon is going to enter the pharmacy business.  70% of prescriptions are recurring. 85% of prescriptions are generic.  People with recurring prescriptions may chose Amazon home delivery. Pharmacies may lose foot traffic which will impact brick and mortar store sales.

Walgreens is the largest retail pharmacy, health and daily living destination across the US and Europe. Market Cap $63bn. Global sales of $118bn, over 13,200 stores in 11 countries. Over the last 10 years, sales and EPS growth of 8%. Average ROE of 16%.  Two reasons why pharmacy/ store networks have a moat against Amazon.  1. Convenience: 70% of seniors chose pharmacy over mail order due to convenience.  2. Compliance: Managed Care Operators (MCOs) need pharmacies to ensure proper patient drug usage.  So far chains have taken share at the expense of mail order and independents.

High margin beauty products provide an opportunity to improve front-of-store sales and expand margins. Customers like in-store demonstrations before purchase. On-line sales are only 8% but growing.  Walgreens already has an omni-channel offering - a multi-channel sales approach – and a mobile offering. The mobile channel has 88m users in the US. Half of digital sales come through mobile. 50% of users use an app in-store. 20% of users are 55 years or older.  PE 10.3x CY 2018; ROE 19.8% CY 2018; Net debt / EBITDA 1.5x; dividend yield 2.5%.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Adrian Warner Long HCA Healthcare: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Adrian Warner of Avenir Capital who pitched long HCA Healthcare (NYSE:HCA).

Adrian Warner's London Value Investor Conference Presentation

Prior to founding Avenir Capital in 2011 Adrian Warner worked in private equity.

Long: HCA Healthcare (NYSE: HCA):  HCA is a private hospital provider in the US with 179 hospitals, 38K staff, 47K beds. It has a strong  financial track record of growing revenue and margin stability. Margins have averaged 19% for over  20 years. It has leveraged 5% annual revenue growth into 15% annual EPS growth.

The bulk of the industry is not-for-profit hospitals or state/ local govt owned. Only 20% of hospital are for-profit in the US. In terms of inpatient costs per day for-profit hospitals have 24% lower costs, than not-for-profit. HCA is the dominant hospital provider in the for-profit sector with x2 the market share of the nearest competitor, Tenet Healthcare (THC). HCA’s scale and geographic focus provide a competitive advantage. It focuses on large urban markets which allows a greater focus on high-end subscribers. It has also focused on the sunbelt states which have large elderly populations.

Its industry leading capex allows it to attract the best physician groups. Its competitive advantage is demonstrated by long-term margin superiority, 19% Vs 10% for the industry average.  The hospital sector is expected to grow at around 6% per year. Even though there is a lot of regulatory noise, the Republicans failed attempts to pass health care reform in 2017 - with a majority in both houses - shows that radical change in the sector is unlikely.

HCA has grown through acquisition. The CEO believes the pipeline for potential acquisitions is good. Weak competitors provide M&A opportunities. HCA has bought back 20% of its shares since 2013.  EBITDA 7.7x; PE 10.7x; FCF yield 5.5%.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Stephen Anness Long National Oilwell Varco: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Stephen Anness of Invesco Perpetual who pitched a long of National Oilwell Varco (NYSE:NOV).

Stephen Anness' London Value Investor Conference Presentation

Oil stocks have sold off because of the fear of the challenge from electric vehicles and new supply from US shale.  Going back to the 1950s, Energy stocks are trading at a 40% discount to their average price to book value.  The death of oil has been exaggerated. Battery technology has been slow to develop and is not about to replace oil. Batteries are not good at storing energy compared to oil. Petrol is a 50x better store of energy than the best lithium-ion batteries.

Cobalt is a critical component for the cathode. Current production of 130Kt per year is sufficient for only 5.4m vehicles. If all the potential cobalt mines were opened that would allow only 12m EV vehicles in 5 years’ time.  The move to battery power creates serious security issues because 60% of the world’s supply of cobalt is located in one country, The Democratic Republic of Congo.  Because of the growing demand for cars generally, even if a quarter of those were EVs by 2025 – a high estimate - there would still be demand for a growth in ICE vehicles. ICE car sales are therefore likely to rise in the coming years.  Only 20% of oil demand comes from cars anyway. Trucks 24%; other transport (aircraft, ships) 12%; Industry 28%; power 5%.

Oil consumption is still rising whilst net reserves are falling. Increased demand will come from China, Latin America, India. Last year was the worst year for conventional oil discoveries since 1940. In the recent downturn the industry has reduced capex by about $700bn.

National Oilwell Varco is a US based company. Stephen Anness’s fund started purchasing NOV shares in late 2016. The shares trade at a similar price today.  It would be difficult to build an oil rig without using NOV products. It has 70% market share in some areas.  NOV has a strong balance sheet. They have been free cash flow positive for 14 of the last 15 years.  FCF averaged 11% per year over 15 years.  NOV is seen by analysts as an off-shore business. NOV’s off-shore revenues have collapsed from $21bn to $7bn and they have made some on-shore acquisitions. Today, two-thirds of its revenues come from on-shore. The change has not been recognised by analysts.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Alvaro Guzman & Fernando Bernad Long Buenaventura: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Alvaro Guzman and Fernando Bernad of Az-Valor Asset Management who pitched a long of Buenaventura (NYSE:BVN).

Alvaro Guzman & Fernando Bernad's London Value Investor Conference Presentation

Alvaro Guzman was Francisco Parames' partner at Bestinver 2003-2014.

Long: Buenaventura (NYSE: BVN)  Mining is not a good business. ROCE is low across the cycle.  There are potentially some negative stock specific issues: Buenaventura has all its assets in Peru. It is family owned. The stock is up x4 already.  But if you are going to invest in mining copper is not a bad place to be. Population growth, urbanisation, industrialisation and growth in disposable income will lead to more demand.

Copper use in China is only 30KG/ capita Vs 100KG/ capital in the West. There is a long way to go.  Copper production is getting structurally harder. On a global basis, BVN has the 3rd largest copper mine and the 4th largest reserves. It’s a low-cost mine, open pit and highly mechanised.  A 20% stake in the Cerro Verde mine is worth the entire EV of Buenaventura. You get Buenaventura’s gold assets for free.

Guzman disagrees with Buffett’s negative view on gold as an asset for investment. Owning gold is a good insurance policy at a time when governments and institutions are trying to drive inflation higher.BVN’s management team is unusually good in the mining industry. No capital increases; they hate debt; they own more shares than anybody else; they have successfully negotiated a period of hyperinflation; they are good capital allocators.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Jonathan Boyar's London Value Investor Conference Presentation 2018: AXTA, GOLF, MSGN, BEN, HHC

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Jonathan Boyar of Boyar Value Group who presented five long ideas: Axalta Coating Systems (AXTA), Acushnet Holdings (GOLF), Madison Square Garden Networks (MSGN), Franklin Resources (BEN), and Howard Hughes (HHC).

Jonathan Boyar's London Value Investor Conference Presentation

Long: Axalta Coating Systems (AXTA):  Axalta is the world's 5th largest coatings company. Berkshire Hathaway own a large stake. It’s the no. 1 player in refinish (re-painting autos after accidents). Refinish accounts for 50% of their EBITDA and is the crown jewel. They have turned down two takeover offers. The company appears to be for sale, but they are waiting for the right offer. They are buying back shares. They are currently trading ats ubstantially less than an acquirer would pay at EBITDA 10x 2019. This type of company usually gets bought out for 13x to 15x.

Long: Acushnet Holdings (NYSE: GOLF) Acushnet designs, makes and sells golf products. It is a great consumer franchise. It’s not in a major index. It has minimal sell-side coverage. It generates 40% of revenues from consumer products. It’s a potential takeover target. Nike has left the golf product business.

Long: Madison Square Garden Networks (MSGN):  It’s a broadcasting company that was technically the parent from the spin out of Madison Square Garden (MSG). At the time of the spin-out it was carrying a lot of debt (5x levered). They have now reduced that to 3x. Once Disney, Fox and Comcast conclude their M&A activity one of them might be interested in bidding for Madison Square Garden Networks.  The market believes that cable operators might drop the channel. This is unlikely because sports are too important to cable subscribers and advertisers. The shares are cheap at FCF 7x.

Long: Franklin Resources (NYSE: BEN):  Franklin is an Investment management business. They are buying back a lot of stock. The family owns 40% of the company. If the shares get cheap enough the family might buy it outright.

Long: Howard Hughes Corporation (NYSE: HHC).  The real estate is difficult to value and the company is largely ignored by most investors. It is not in a major index. The CEO recently purchased a warrant for $50m that will expire worthless if the stock does not go up.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Mark Pearson Long Asanuma: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Mark Pearson of Arcus Investment who pitched a long of Asanuma Corp (TYO:1852).

Mark Pearson's London Value Investor Conference Presentation

Mark Pearson co-founded Arcus Investment in 1998.Value investing in Japan has under-performed for 10 years. The coming decade is likely to be exceptionally good. Value gets stored up not destroyed.  Defensive and high-quality companies are surprisingly expensive. In his long/ short fund, the gap between expensive shorts and cheap longs is the same as it was in the internet bubble of 1999/2000.

Long: Asanuma Corp (TYO: 1852)  Asanuma is an Osaka based construction company. Construction companies in Japan have been through the wringer and have begun a tentative recovery since 2010. They are still in the early stages in terms of revenue growth.  Since 2010 Asanuma’s net debt has been transformed into net cash (16bn Yen of debt in 2010 to 27bn Yen of cash today). PE 6x. There is no analyst coverage.  The construction sector has been one of the slowest to recover in Japan. New building is still at a low level but at the very least there will be maintenance and refurbishment work.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.