Sohn Conference San Francisco 2014 Notes: Ubben, Billick, McGuire & More

The 5th Annual Sohn Conference San Francisco took took place on Wednesday October 29th.  MarketFolly was there to cover the event. Excellence SF is in partnership with the Sohn Conference Foundation and is focused on improving educational opportunities and life outcomes for underserved youth.  Conference proceeds also support the Sohn Conference Foundation.  Donations may still be made at www.excellencesf.org 


Sohn Conference San Francisco 2014 Notes


Jeff Ubben - ValueAct Capital - LONG Agrium (AGU) Thesis:  They have a $750M stake in the company.  Generally sees opportunity in the space.  AGU has continued to invest in the business the past 7 years, thinks this investment will start to show returns.  JANA went after mgmt and lost proxy battle, but this still lead to change in mgmt.  They agreed with Jana.  AGU's retail business is the jewel of the company.  Wholesale business is volatile.  AGU has put $7.6B into capex since 2012.  $1.7B should start to get returned to stockholders starting in 2016 or 2017.  Sees a share price of $120 to $150 a share. 

Key reasons for liking AGU:
1)  New CEO has a more focused game plan;
2)  Strong growth in FCF despite down cycle;
3)  Cheap any way you look at it;
4)  Well positioned in consolidating market. Thinks this is a good investment that offers potential returns of 20% a year for a few years.  


Kurt Billick - Bocage Capital - LONG Lundin Mng (LUNMF) Thesis:  Has a commodity focus.  For a while, China had been the key driver in increased commodity demand.  The lack of investment in infrastructure up to that point, lead to a steep climb in prices, which in turn lead to more capital and investment.  Nickel and Zinc are seeing excess inventories absorbed.  Copper is even more interesting.  Likes mining companies that mine base metals and LUNMF mines Nickel, Zinc and Copper.  


Mick McGuire - Marcato Capital Management - LONG Packaging Corp of America (PKG) Thesis:  Started his presentation out by noting that his pick from last year Sotheby's (BID) is down since he presented, and he likes it even more than he did last year.  With respect to PKG, it has a market cap of roughly $7B and they own roughly 3% of that.  Favorable trend for companies in this space as there has been consolidation leading to pricing power.  There's also an opportunity for part of the business that processes virgin wood pulp to become an MLP.  Sees possible price of $122 or 77% upside compared a price of roughly $70 at the time of the presentation.


Brian Zied - Charter Bridge Capital - LONG CaesarStone (CSTE) Thesis:  Likes to focus on industries driven by evolving consumer landscape.  CSTE's product is engineered quartz surfaces for kitchen countertops, bathrooms, floors and walls.  Quartz is gaining share vs. granite and marble.  Quartz has similar aesthetic, but superior performance.  Better characteristics include: scratch and heat resistant, non-porous, identical slabs, lifetime warranty.  Quartz is less expensive too.  Kitchens have become a larger part of the American home over time and are now a focal point of the home compared to say the 50s or 60s.  Remodels now usually also focus on kitchens first.  Quartz is gaining share relative to granite and marble.  CSTE is the only branded luxury quartz countertop maker.  EBIT margin and ROE are much higher than peers.  Compound sales growth over the last two years has been 45%.  Sees a possible stock price of $97 based on eventual EPS of $6.50 and a PE multiple of 15.  


Carl Kawaja - Capital Research Company - LONG Zulily (ZU) Thesis:  Internet retailer that is largely unpopular right now with large short interest.  IPO in November of 2013.  Most people in the audience at Sohn in SF are men, and men don't get ZU.  ZU vs AMZN, about half of items on ZU are not on AMZN.  Site is customized and successful.  ZU offers merchants better terms on their site.  Potential market is big.  Typical customer spends $150 in first year, but if they stay, they eventually avg $500 a year.  Reminds him of Costco.  Bear arguments include:  slow ship time, shipping charges not sustainable, and kid sales are dropping.  By 2018 he sees a potential market value of $11B compared to a bit over $4B right now.  


Sandy Colen - Apex Capital - LONG Container Store (TCS) Thesis:  Likes big opportunities that can be held for a long time.  TCS is down 60% YTD.  IPO'd at 18 and went to the 40s and is now at 17.  Some see weak traffic.  Keys to success include:  grow store base, branded closet line, controlled spending, improve operating leverage.  Sees potential EPS of $1.40 in 2017 and $8.50 in 2025 compared to analyst consensus of $1.00 for 2017.  


Mick Hellman - HMI Capital - LONG LPL Financial (LPLA) Thesis:  In money management there are two key groups, the manufacturers and the distributors.  LPL is in distribution.  Has over 14,000 advisors with $465B in Assets Under Control.  Stock is down a lot recently, but believes problems are solvable.  90% return on tangible capital.  Tailwinds include: large recurring opportunity, more need for financial advice, mix to fee based, client money tends to stay on platform.  Chokepoints include:  best platform, compliance and practice mgmt, scale play, stickiness of platform, flexible product platform.  Sees opportunity for low 20% annual returns.  


Scott Fearon - Crown Capital Management - LONG Grand Canyon Education (LOPE) Thesis:  Owns 115,000 shares of LOPE.  Focus is companies less than a couple billion in market cap.  Lots of money managers don't understand LOPE.  Of the for profits, LOPE is the only one up since 1/3/2012.  Revenues have also been growing.  There is a large short interest in the stock.  There are 11,000 students in the physical school and another 53,000 online.  Four positives about LOPE include: ground campus, affordable, christian, relevant degrees.  Outside possibility of turning dorms into REIT.  Admission standards are high.  Low default rates on student loans on par or better than traditional nonprofit colleges.  Potential for $12 in EPS in 10 years with a 15 PE implies a price potential of $180.


Meridee Moore - Watershed Asset Management - LONG W.R. Grace (GRA) Thesis:  This was also her stock pick in 2011.  Feels like October 2011 again.  All chemical companies are down, but GRA is different kind of chemical company.  Three main lines: Catalyst Technologies, Materials Technologies, Construction Products.  Focus is on ROIC.  Stock is at $89 now.  Was roughly at $39 when she recommended it in Oct. of 2011.  GRA emerged from Chapter 11 in February of 2014.  Stock could be up 37% a year from now based on peer value of EBITDA.  Risks: global slowdown, high rare earths prices, strong dollar, delaying in construction infrastructure spending, recent declines in oil if sustained could mean low prices for Catalyst Technologies.  


Jose Medeiros - Stonerise Capital Partners - LONG QVC (QVCA) Thesis:  Likes to have concentrated portfolio of 6 to 8 long investments a year.  QVC is value hiding in plain sight.  Digital retail.  High retention rates with spend per customer going up.  Attractive financial model and 8% FCF yield.  Was buried in LINTA before, but now trading.  Not much analyst coverage yet.  Trades at $25 with potential for a price of roughly $42 in 2016. Second Pick: LONG Global Eagle (ENT) Thesis:  In flight entertainment and connectivity is a growing market and ENT is a leader.  Has 150+ airline customers.  Deals with airlines are recurring and have long term contracts of 7 - 10 years.  Air traffic is doubling every 15 years and connectivity is growing even faster.  Penetration and take rates are low now.  Gogo, a competitor, is based on ground to air.  Doesn't work over water and other issues as well as that.  Satellite based better.  Market cap of $800M.  Is down more than 40% in the last 12 months.  Has a strong balance sheet.  Other potential catalysts like Dish sponsorship deal.  


Jeff Osher - Harvest Small Cap Partners - LONG Green Dot (GDOT) Thesis:  They own over $50M of stock.  Sees at least 88% upside over 6 to 12 months as concerns get addressed.  Growth is reaccelerating.  30% of cap is cash.  Has a $1.1B market cap.  TAM is 160M customers (17M unbanked, 51M underbanked, 90M unhappily banked).  Simple financial model, sales come from: sale of cards, transfers / reloads, interchange.  Amex entry into market scared investors, but Amex not doing well with prepaid cards.  Misconceptions include:  concerns about collapsing margins, structural growth issues, loss of WMT will destroy GDOT.  


For more recent conference coverage, head to our notes from Sohn Canada investment conference as well as a summary of the stock picks from the Robin Hood Investors' Conference.

Brian Zied Long Outerwall Presentation: Capitalize For Kids Sohn Canada

We're posting up notes from the Capitalize For Kids Sohn Canada conference that just took place.  Next up is Brian Zied of Charter Bridge Capital who pitched long Outerwall (OUTR).


Brian Zied's Sohn Canada Presentation

Runs a L/S Equity Strategy with a focus on consumer. Presented three case studies:  1) The Home Depot: $125B hardware store that built a culture that benefited consumers,  2) Cigarettes: why do people still smoke?  Smoking is a social decision, the experience of smoking a cigarette –gives a break in their day, 3) Netflix: why it didn’t kill cable, consumers just watched more TV (both online and off) –benefited both


Pitched LONG Outerwall (OUTR), a provider of automated retail solutions, known for their Redbox service. It has 44,000 kiosks around the US, which represent 85% of revenues and 20% operating margins. Over the past 5 years, has grown revenues at 18% CAGR, EBITDA at 21% CAGR, yet has 34% short interest outstanding. Currently trades at 4x 2015 EBITDA or about 20% 2015 FCF. Negative market sentiment due to their core business of DVD becoming irrelevant by VoD and Amazon/iTunes. However, Redbox has grown from 25% market share to 34% market share from 2011 to 2014, incredible given negative sentiment.

Stated that consumers use multiple rental services, 16% of all users surveyed indicated they use both Redbox/VoD and 45% of consumers preferred Redbox outright over video on demand or other services. Will likely continue to increase share from DVD by mail and brick and mortar (local convenience stores). This can perhaps lead to pricing power if they are able to continue to expand kiosks and win share. Believes new studio agreements are likely to provide more flexibility with similar economics, adding to the underling characteristics of the business of stable to growing revenues and margins (highlighting that volatility from movie success).

Be sure to check out the rest of the presentations from Capitalize For Kids Sohn Canada here.

Notes From Excellence in Investing San Francisco 2013: Burbank, McGuire, Billick & More

The 4th annual Excellence in Investing: San Francisco conference took place this week and MarketFolly was there to cover the event.  Excellence SF partners with the Sohn Conference Foundation and is dedicated to the support of education and other children's causes.

It's not too late to make donations and here's a link to do so,  The success of the event has grown over time and this year marked record attendance.  Since inception, more than $1 million has now been raised in support of these causes.


Notes From Excellence in Investing: San Francisco 2013


John Burbank III -  Passport Capital

Idea: Long Digital Garage (TYO:4819) 

Thesis:  Things seem frothy now.  Like plays linked to innovation.  The QE fueled rally is likely coming to an end.  Stay away from growth coming from and derived from QE.  Tech is less sensitive to GDP.  Innovation is not EM activity, it is DM activity.  In Japan Abe says follow Abenomics.  Likes Digital Garage.  It has around a 20% stake in Kakaku (TYO:2371).  Owns small stake in Twitter (possibly $100M).  CEO owns 14% of the company.  Stock just split.  Thinks it has a 22% upside to current value PLUS optionality on the future.  Can hedge out Kakaku if you want given that company's high valuation.   Burbank also recently had a macro discussion with Kyle Bass that we've posted as well.


Kurt Billick -  Bocage Capital

Idea: Long Domestic Oil Refineries (specifically Tesoro (TSO) & Marathon Petroleum (MPC))

Thesis:  Likes Malcolm's presentation on CF (below) as his idea has a similar theme, but with refineries.  North American oil business was thought of as mature and in structural decline.  Gulf coast's ability to refine oil will be overwhelmed with supply.  Discount in price of oil for US refineries is less than that of all of the margin for many refineries in rest of globe.  Other advantages are processing costs lower due to cheaper natural gas and financial arbitrage.  Likes all refineries (ALJ, DK, HFC, MPC, PBF, TSO, VLO and WNR).  His favorites are Tesoro (TSO) and Marathon Petroleum (MPC).  TSO is still in early stages of getting discounted crude.  Dan Loeb's Third Point has also written their thesis on TSO in a past letter.  MPC is a recent spinoff with management just now getting in tune with running as a standalone refiner.   Billick also recently appeared on a best ideas panel at another conference that you can read about at that link.


Mick McGuire -  Marcato Capital Management

Idea: Long Sotheby's (BID) 

Thesis:  Owns 7% of the stock.  These are their first public comments regarding the investment.  Capital has not been allocated well.  Core business is good.  Lots of opportunity to unlock value of real estate.  There are under-utilized assets.  Thinks stock is worth $68 which is more than 30% above current price.  One of two major auction houses with Christie's.  Has been falling behind Christie's in some areas.  Opportunity for improvement there with the income statement.  Regarding the balance sheet, opportunity to unlock value with the real estate holdings.  They've been growing the lending business with after tax profits from the auction business.  Instead they should be funding this with other facilities like securitization or receivables.  Dealer segment not big, but performance there is symbolic of poor capital allocation.  $1.3B in trapped equity with poor opportunities for reinvestment.  This money should be returned to shareholders through buybacks, etc.  You can view McGuire's slideshow presentation on Sotheby's here.  


Mason Morfit -  ValueAct Capital

Idea: Incentive Based Investing

Thesis:  Many companies have perverse incentives in place right now.  He prefers to reward to performers, not caretakers.  One of the problems with financial metric based performance is that management sets targets.  They have implemented changes at Valeant Pharmaceuticals (VRX) and Adobe with significant increases in price after the changes.  Note that ValueAct recently trimmed their ADBE stake.


Christopher James -  Partner Fund Management

Idea: Long Adobe (ADBE) 

Thesis:  Mobility is impacting marketing and advertising.  Spending is migrating to mobile, social and online marketing.  Emergence of "Marketing Cloud".  Closed Loop Marketing... key players are becoming SalesForce (CRM) and Adobe.  Both are focusing on this trend and building platforms and making acquisitions to establish dominant platforms.  Adobe has been moving from traditional software model to SAAS.  Better economics with this newer model as acquisition costs are low and renewals are high.  Thinks they can do $3 in FCF in 2015 and $4 in FCF in 2016. 


David Herro - Harris Associates

Idea: Long Select European Equities (Credit Suisse, BMW Group, Diageo) 

Thesis:  Looks for opportunities from Mr. Market where price is significantly below intrinsic value.  Use a discounted cash flow model to calculate intrinsic value.  Likes European equities.  Fixed exchange rates caused distortions.  Very different micro-economic policies by country in EU create bottlenecks to adjustment.  Unit labor costs in Europe declining.  Debt yields are dropping.  Competitiveness is increasing.  Europe trades at a discount.  Consider European companies based there, but with global or US reach.  Europe is good at luxury.  Likes Credit Suisse as it is trading at less than 10 times normalized earnings.  BMW Group has over 20% of profit from China.  EV to EBITDA is less than 6.  Weathered the recession very well.  Diageo (DEO) is the world's largest premium spirits and beverage company.  Yield is over 3%.  Great business for the long, long term.  


Malcolm Fairbairn -  Ascend Capital

Idea: Long CF Industries (CF)  

Thesis:  Based largely on dynamics relating to natural gas and nitrogen.  China is the largest producer and user of NatGas.  Nitrogen demand growing 2% a year.  Futures suggest price doesn't break $5 until 2020.  CF benefits from low prices.  CF has leading margins but trades at discount to peers.  Recently increased dividend.  Thinks price could be $250 based on the peer group's 3.8% yield with a 50% earnings payout.   We've also posted Third Point's thesis on CF from their past letter.


Christopher Lord -  Criterion Capital Management

Idea: Long Tower Companies (American Tower (AMT), Crown Castle (CCI) and SBA Communications (SBAC)) 

Thesis:  Last years pick was Google.  Things look frothy now.  Likes "Towers".  Seen a 35x increase in mobile traffic the last six years.  Estimates the increase will have been 430x for ten year period ending 2017.  Towers are winners.  The US is going from 2 top cell carriers to 3 or 4.  Tower companies build towers and cell carriers pay most of the other costs.  These businesses can't be replaced.  Best real estate is already taken.  There are also restrictions on new towers.  Contracts also have automatic price escalators.   Given that models have high operating leverage, much of the price increases go straight to bottom line of the towers.  Picks are AMT with a target of $110, CCI with a target of $100, and SBAC with a target of $110.  Right now these companies are trading at lower multiples to other types of REITs, but they have higher growth rates.  Bonus thoughts: likes shorting 3D printers, Cree (CREE), SAAS Cloud Companies trading at greater than 20x Revenues, Cisco (CSCO), EMC (EMC), VM Ware (VMW).


Brian Zied -  Charter Bridge Capital Management

Idea: Long Brunswick (BC) 

Thesis:  Charter Bridge runs a long/short fund.  Prior to founding the firm, Zied was at Maverick Capital.  He focuses on consumer driven small and mid-size businesses.  Brunswick focused on Marine, Fitness, Bowling and Billiards.  Strong in engine business.  Attractive investment with many ways to win (depressed boat cycle, marine innovation, restructuring opportunity).  There is a 40 year history of boat sales.  For a long time new boat sales were between 300K and 500K boats a year.  Boat cycle was at 120K at the bottom of recession, now at 150K boats a year.  Participation in boating is at an all-time high.  Boats have a 25 to 30 year life.  There are 200K boats being scrapped per year.  Obviously, these trends are going to run in to each other with new boat sales rising.  Revenues still haven't come back from pre-crisis levels.  Innovation in GPS sky hook anchoring and joystick controls.  Precrisis boat revs were greater than $2B, now only at $1B...the recovery is inevitable.  Typically new boat sales are 25% of annual boat sales, right now they are only 16%.  Largest position in their portfolio.  Brunswick is currently at 7.4x EBITDA and 14.9x PE whereas most peers average 10.5x EBITDA and 17.4X PE.  Sees a free call option with 50% to 80% upside.


Carl Kawaja -  Capital Research Company

Idea: Long EADS (EAD) 

Thesis:  Flight is still a modern miracle that many don't appreciate.  Likes companies that solve problems.  Planes are BIG.  This business has a moat that won't get disrupted by three kids in a dorm room (like social media).  Majority of world flies less than once a year.  Air travel won't revert to mean, it will just continue to grow.  The business of airlines is getting better.  Fuel efficiency is driving sales of new planes and will increase profits for manufacturers.  Thoughts on valuation:  1) Earnings will grow... a lot.  Many of the upfront costs already incurred for R&D.  2) They will get more orders...addressable market is more than $1T with a $800B backlog.  Market cap is $51B... PV of future ops alone is worth more than $64B.  Sees stock doubling over time.


Michael Moe -  GSV Capital

Idea: Long Twitter (TWTR)  

Thesis:  From 1991 to 2000, there were 550 IPOs per year.  Following decade has seen an average of 113 IPOs per year.  Before market caps were around $100M at time of IPO, now they are on average over $1B.  This means VC firms must invest longer before firms go public.  In 2013, IPOs are performing very strong.  GSV is a public vehicle for VC stage companies.  Twitter is his idea.  They currently have a position in it.  It is 15% of the fund.  Ad growth of 124%.  There are 620 million shares outstanding.  At $25 a share the market cap is about $15.5B.  Positive cash flow the first half of 2013.  Participating in multiple trends including:  Social, Personal Branding, Mobile, Second Screen Watching TV, Next Gen Devices.  Mobile usage has now surpassed desktop usage.  Vine (Twitter owned) is #1 App.  Thinks it could go as high as $160 a share.  


Christopher Balding -  HSBC Business School  

Idea: Macro Call of Short China 

Thesis:  He's an Associate Professor of Finance and Economics at the HSBC Business School of Peking University Graduate School.  A lot of data from China is manipulated.  China is a huge bubble.  Example of bad reporting is growth numbers.  Growth reported from provinces aggregates to 10.8% growth whereas official GDP from China is 7.8%.  Another example: official CPI housing price inflation up 14% while real estate prices up 111%.  Price in income ratio for real estate in San Francisco is 9.4.  This seems high, but it is 32 in Shenzhen.  The official numbers say that steel companies in China have $500B in debt and only $300M in profits.  Would be very careful before simply taking financial and economic data at face value.  Banks in China are starved for capital right now.  There is risk dispersion.  2/3rds of the stocks in China have been really hurt while 1/3rd are trading at a premium.  Example is BYD trading at a P/E of 1,100.  If you don't want to short China directly, another option is shorting China derivative plays like companies in Australia heavily tied to China. We've also posted up Jim Chanos' short China thesis as well for those interested.


That wraps up notes from Excellence in Investing: San Francisco 2013.  For more coverage on top hedge funds, scroll through the hedge fund letters we've posted up recently.

Notes From Ira Sohn West: John Burbank, Barry Rosenstein, Jeffrey Ubben, Brian Zied & More

Zero Hedge recently posted up notes from the Ira Sohn West Conference that just took place out in San Francisco. It included a heavy-hitting speaker line-up of prominent hedge fund managers. Let's quickly summarize their investment picks and presentations:

John Burbank of Passport Capital: He focused on how the US should be viewed as an 'emerging market' from an investment perspective due to increased sovereign risk of the US. Burbank argues that the US is at an inflection point and can head in the direction of either Argentina or Germany. You can read more from this manager in a recent interview Burbank did as well.

Barry Rosenstein of JANA Partners: He thinks the activist investor environment is improving. Rosenstein also points out the high levels of cash at corporations and notes that private equity has $500 billion on the sidelines. In terms of investment picks, he likes Netherlands based TNT (TNT NA). The global transport company could be attractive to FedEx, who only has small market share in Europe. TNT trades at 6x EBITDA and 11x earnings. Rosenstein actually thinks the company will break up in the next 6-9 months and thinks it goes to 27 euros from its current price of 20 euros. The JANA Partners fund managers also is fond of Charles River Labs (CRL) as the company has raised prices and gained market share. Currently at $32, he believes $46 is attainable with a breakup value of above $50 per share.

Brian Zied of Charter Bridge Capital: Before founding Charter Bridge, Zied was previously a Managing Director at Lee Ainslie's Maverick Capital. Zied likes Sirius XM Radio (SIRI) here as 60% of new cars have built in satellite radios and 46% of those convert into paying customers. While the company is leveraged, he expects them to pay off debt soon. He also highlights John Malone's significant ownership stake in the company, arguing that they could acquire Sirius.

Jeffrey Ubben of ValueAct Capital: In his activist investing, he looks for oligopolistic industries and intellectual property. In recent investments, his hedge fund acquired 20% of Valeant Pharmaceuticals (VRX) as a turnaround story. We've covered some of ValueAct's recent portfolio activity here.


Many other manages provided their thoughts and latest investment ideas at the event. Embedded below courtesy of Zero Hedge is a set of notes from the Ira Sohn West Conference (Email readers will need to come to the site to view it):



For more on the latest hedge fund portfolio movements, click here to scroll through our coverage.