Alex Roepers Long Owens Illinois, Huntsman, G4S: Capitalize For Kids Conference 2018

We're posting up notes from the Capitalize For Kids 2018 investment conference.  Next up is Alex Roepers of Atlantic Investment Managment who pitched three long ideas: Owens Illinois (OI), Huntsman (HUN), and G4s (GFS.L).


Alex Roepers' Capitalize For Kids Presentation: Three Long Ideas

•    3 High conviction value stocks

•    Owens Illinois
o    Third time pitching this
o    Largest maker of glass bottles in the world
o    25% global market share
o    Grown 20% despite largest segment shrinking 4% a year
o    Very stable, luxury product is put in glass bottle
o    Taking mega-beer capacity to craft and specialty bottles
o    $400mm FCF, has $100mm annually in asbestos payments
o    Pushing on major corp dev move
•    Sell EU biz 8x EBITDA
•    Use to cut debt in half, use rest to buyback stock
•    With that, can get to $42 share price in 12-18 months
o    All of the negative impact is multiple compression despite earnings power growing, lower debt, etc
o    Talking to financial sponsors, Koch industries, BRK, trying to put fire under their ass
o    15 % global fund position, 25% US fund


•    Huntsman
o    168% upside
o    5.4x PE, 5x EV / EBIT
o    $55 target price
o    Taking their most cyclical business (Venator) public, paid down debt
o    Went from $23 -> $35 and has sold off
o    Fears around their product
o    Downstream, differentiated, not as effected by the spot price changes
o    6% organic growth in polyurethane, great biz
o    Own 53% of Venator – listed spinoff
o    Roadmap to $4.40 EPS by 2020


•    G4S
o    One of the big security contractors. For corps, embassies, airports
o    3-5 year contracts, price escalators
o    Tech components, camera, software, etc which is higher margin
o    9.3x PE
o    Target Price £3.9, 85% upside
o    #1 or #2 player in cash delivery solutions (think Brinks truck)
o    They have a contract with WMT for cash close that saves them two days from cash close at store level to delivering to bank acct at head office
•    Target also starting a pilot
o    Grow 360 cash biz then take it public at scale at high multiple
o    High quality business


Be sure to check out the rest of the presentations from Capitalize For Kids 2018. 

Alex Roepers Interview With Capitalize For Kids

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.

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. 

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.

What We're Reading ~ Analytical Links 6/26/13

10 risks we face right now [TheStreet]

On the Sharpe ratio [Research Puzzle]

Value badly lagging glamour: value premium is now a discount [Greenbackd]

Taking a deeper look at Rosetta Stone (RST) [Investing 501]

On the Fed and interest rates [Aswath Damodaran]

Interview with Liberty Media's (LMCA) John Malone [Denver Business Journal]

If cable is dying, why is it still making so much money? [TheAtlantic]

Nook sales tumble 34%, Barnes & Noble rethinks strategy [CNN Money]

Owens Illinois (OI): Glass bottles lend pop to soda makers [WSJ]

Barron's midyear 2013 roundtable [Barrons]

Why boring stocks beat exciting ones [WSJ]

On the IRS' study of REITs [FT]

Government Accountability Office says airline merger reduces competition (duh) [NYTimes]

On art as an investment [NPR]

Inside story of fraud at Ranbaxy, Indian drug company [Fortune]

Whitney Tilson, Carlo Cannell, Alexander Roepers: Notes from Value Investing Congress

Continuing our coverage of day two of the Value Investing Congress, we have summaries of the presentations from Whitney Tilson & Glenn Tongue (T2 Partners), Carlo Cannell (Cannell Capital), as well as Alexander Roepers (Atlantic Investment Management).

If you missed it, we've posted a plethora of resources from the event, including:

- Presentations from John Burbank & Lee Ainslie
- Bill Ackman's Q&A session from the Congress
- Presentations from David Einhorn, Kyle Bass, & Mohnish Pabrai
- Summaries of speeches from fund managers Zeke Ashton, Guy Spier, & Michael Lowitt

Next, onto the last round of speakers at the Value Investing Congress:

Carlo Cannell ~ Cannell Capital

The fund manager's presentation was named after 'Megaloceros Giganteus,' or an Irish elk that became extinct. Cannell says that over a long enough timeline, all companies will die and his talk zeroed in on a company he believes to be on the verge of extinction. He is short Pitney Bowes (PBI), a company that he says has an obsolete business model. There has been a decline in mail demand and this is hurting the mail processing equipment company.

Cannell warns that it might not be an 'actionable' short at the moment. At the same time, he cautions that stubborn short sellers can be come extinct just as easily. Remember the old market adage? The market can stay irrational longer than you can stay solvent. This isn't the first fund manager we've seen with a negative stance on Pitney Bowes. In the past, we've seen that Matt Iorio's White Elm Capital has owned puts on PBI for numerous quarters.

Two companies that are on Cannell's watchlist as potential shorts are Buffalo Wild Wings (BWLD) and Texas Roadhouse (TXRH). You can view notes from a previous talk by Cannell here.


Whitney Tilson & Glenn Tongue ~ T2 Partners

Tilson and Tongue began their presentation focusing on the economy and their fund has been positioned conservatively given their tepid economic outlook. The T2 managers highlight that the market is likely to remain range-bound, trading sideways via oscillations in either direction that cancel each other out. Housing remains the biggest issue to the economy as prices still have further to fall and inventories need to be absorbed. As such, T2 Partners is short the homebuilders via the exchange traded fund XHB.

The hedge fund is still long BP (BP) as they purchased it back in the company's darkest hour as shares tanked due to the unfortunate oil spill. He jokingly said that he's thankful for Jim Cramer, who he has utilized as a contrarian indicator. Tilson thinks the stock is easily worth $50 (it currently trades around $41 per share, so 20% upside potential). Fears from the oil spill have been greatly overblown and T2 feels the company is still cheap and will reinstate the dividend at some point.

Regarding other portfolio positions, recall that Tilson has been short InterOil (IOC). We've also detailed T2 Partners' latest letter to investors for those interested.


Alexander Roepers ~ Atlantic Investment Management

Roepers typically runs a concentrated portfolio and focuses on mid-cap stocks. He likes predictably profitable companies with solid balance sheets and solid cashflows. Roepers will focus on companies with market caps of $1 billion to $20 billion with a holding period of typically 1-3 years.

He pitched Owens Illinois (OI), pointing to its very strong moat and increasing share in emerging markets and thinks it goes to $45 per share (currently trading around $27). Roepers labeled the company a growth business and points to their packaging business in particular. Hedge fund Viking Global had previously held a position in OI, but they sold completely out in the first quarter of this year.

He also mentioned positions in Xerox (XRX) which he views as an acquisition target and targets $18 per share as a fair valuation of the company. The manager also mentioned ITT (ITT). Lastly, Roepers also rattled off positions in Rheinmetall (RHMGY) in Germany, as well as Muraka and Creata Water.


That wraps up our series of notes from the event. You can scroll through our entire coverage of the Value Investing Congress by clicking here. Stay tuned because in the coming days we'll take in-depth looks at some of the investment ideas from select hedge fund managers. Don't miss out! Receive our free updates via email or free updates via RSS reader.