Alex Roepers of Atlantic Investment Management sat down with Capitalize For Kids for their Investor Series and talks about his strategy for beating the market while holding only six stocks. Here's a few excerpts:
On the current markets: "From a 40,000 foot level,you know the 10-year treasury yield is around 2.4%, while the S&P 500 dividend yield is around 2.1% and the earnings yield is about 5%, based on an index P/E of 17x. So we see the market as not overly cheap for sure but also not overly expensive. The continued low interest environment remains supportive for the overall market.
Within the market of course, you have many different pockets – it is a bit of a barbell, bifurcated market. On one hand, you have Tesla and the other story stocks that have a cult following and valuations that we think make absolutely no sense. On the other hand, you have many overlooked but solidly profitable companies who have little or no top-line growth, such as General Motors, automotive suppliers, airlines and retailers.We would say the market is full of interesting opportunities, long and short. It is ok on balance as long as rates remain reasonable."
On one of his top holdings Commscope (COMM): "(COMM is) a $5 billion integrated manufacturer of end-to-end solutions connecting wired and wireless networks, including networking equipment like antennas as well as coaxial and fiber optic cables. Solid secular growth is rooted in increased use of streaming data, video and movies and increased use of smart phones and internet mobility in general. Foreign sales are 50% and increasing due to growth in less mature markets, both developed and emerging, which require improved bandwidth and connectivity. We see it as a solid business. Key customers include Comcast, Verizon, AT&T,Charter Communications, Anixter and Liberty Media.
We started scaling into CommScope last October around $30/share. From there, the shares rallied to $42, up by 40% within 6 months. We were trimming along the way to keep the position in check as a percentage of capital. Then, in early May, due to a reduced forecast for Q2-2017, for reasons we deem to be transitory, Commscope shares were knocked down to $35, where we added back the shares we had sold on strength previously. We see the shares reaching $50 in the next 6 to 12 months on reasonable earnings and valuation assumptions. Given our analysis CommScope has solid downside support here,compelling upside on its own and also takeover potential."
On overlooked value play Diebold Nixdorf (DBD): "They are a leading maker of automated teller machines (ATM) as well as electronic point-of-sale (EPOS) solutions for the retail market. In ATM’s, NCR and Hyosung are key competitors and in the retail vertical it is IBM-Toshiba and NCR mostly. There are some 3.3 million ATMs installed worldwide, one third of which are Diebold Nixdorf’s.
A key concern is that the proliferation of electronic payments will cause a reduced need for the use of ATM’s. We believe that this concern is overblown as cash transactions and notes in circulation continue to grow even in the United States and Europe. ATMs remain a productivity tool for banks and an integral part of their customer interaction.While there has been a lot of consolidation of bank branches, the total ATM count in mature markets has actually been stable and now we see the overall banking sector is improving which bodes well for new and upgraded ATMs. The installed base is an important barrier to entry and key driver of business. About 60% of Diebold Nixdorf’s sales come from maintenance services and software.
In the past two years, Diebold shares had fallen from $40 down to the low twenties. Besides a recent earnings warning in what is “year one” of a transformational merger, another key reason behind the share price weakness was a spell of declining capital spending by banks. The transformational deal was to buy a key competitor called Wincor Nixdorf out of Germany. Wincor, which was sold by Siemens to private equity in 1999, and subsequently listed in2004, generates $2.5 billion in sales, $1.5 billion from ATMs and $1 billion from retail point of sale systems (POS) used by retailers like Ikea, Zara and H&M. The cross-border deal took a year before it closed in August of last year, during which NCR and others took advantage of the uncertainty and inability by the two merger companies to react. We see significant potential from combining the complementary footprints and capabilities ... we see Diebold Nixdorf shares reaching over $40/share in 18-24 months, based on 11-12x our 2020 EPS target."
He also gives updates on Harman (HAR) and Owens-Illinois (OI) and chats about other topics. You can read the rest of the interview here.
Thursday, August 3, 2017
Alex Roepers Interview With Capitalize For Kids
Monday, October 31, 2016
Alex Roepers Long Owens-Illinois, Eastman, Harman: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Alex Roepers of Atlantic Investment Management who pitched three longs: Owens-Illinois (OI), Eastman (EMN - spin-off from Kodak), and Harman (HAR).
Alex Roepers' Presentation at Capitalize For Kids Conference 2016
• LONG Owens-Illinois (OI), largest maker of glass in the world. Wine, beer, liqueur.
• Overall, industry has suffered from substitution from plastic and cans. But it is relatively stable.
• This is the winning consolidator, has 80 plants with each plant having a $200 million investment. They operate local duopolies since it is uneconomic to ship glass far distances.
• Has great customers (Heineken, Pernod Ricard, etc), no technological obsolescence, no foreign competition.
• Believes stock price dropped as earnings has been impacted from strong USD (70% of sales outside of US).
• LONG Eastman (EMN). Spinoff from Eastman Kodak.
• Over 75% of the business is now speciality chemicals with sold margins and growth.
• Believes it can earn $8 to $9 cash earnings per share. Currently trades at $66.
• Have recently paid off debt and now are focusing on repurchasing shares and could be a takeout candidate.
• LONG Harman (HAR). Manufacture entertainment systems for cars and do professional services (for concerts, stadium, etc). Top 12 out of 15 car companies are their customers.
• Has followed the company since the 1990s. The company transitioned from audio to consumer to audio for business (car companies, professional services, etc).
• KKR has previously bid on the company in 2007 but deal fell apart leading into GFC. Has recently sold off due to china slowdown, peak auto sales, etc.
• Believes it has strong end-markets and the company has recently posted solid results.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Tuesday, October 28, 2014
Alex Roepers' 3 Investment Ideas at Capitalize For Kids Sohn Canada Conference
We're posting up notes from the Capitalize For Kids Sohn Canada conference that just took place. Next up is Alex Roepers of Atlantic Investment Management who pitched 3 long ideas.
Alex Roepers' Sohn Canada Presentation
Looks to enter positions 7-8x EV/EBIT and close 10-12x EV/EBIT. Usually has a 12-24 month holding period but is a case by case basis. Considers the firm a gentle activist. Usually does not look to make too much noise (took a jab at some more public activist investors). Always has a plan ready once a position is taken and looks to work with management, if not, then work with the Board.
First pitch was LONG Owens-Illinois (OI). They are a glass bottle maker (the standard in most spirits). Price target $45 within 12 months (~71% upside from Friday’s close). Said it was un-economical to ship more than 300 miles which is why there is a need for plants to optimize distribution. The factories have an estimated replacement value of $13B. Believes can earn $3.25/share in 2014, target based on 14x 2015 EPS. The recent sell off has created an opportunity to get back in to the stock (has traded the stock since the firm’s inception in 1992).
Next, pitched LONG Triumph Group (TGI). Has a price target of $100 within 24 months (~62% upside from Thursday close). Should trade about 11x 2016 EPS. Operational improvements, share repurchases and M&A will lead to solid EPS growth.
Lastly, pitched LONG Harman International (HAR). Has a price target of price target $141, (~46% upside from Thursday close). The “infotainment” segment has 24% global market share and penetration is very high in car audio (10 out of 15 leading brands use Harman when). Was puzzled as to why Google or Microsoft hasn’t bought them yet. Lots of cross-over with a consumer focused and respected brand. A multiple year phase of 30% EPS CAGR, should allow return to higher multiple (14-15x) in 2016. Believes it could earn $7 2016 EPS.
Be sure to check out the rest of the presentations from Capitalize For Kids Sohn Canada here.
Tuesday, September 17, 2013
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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Be sure to check out the other presentations from the New York VIC here.
