The 2018 Capitalize For Kids investment conference recently took place and featured top investment managers sharing their latest investment ideas to benefit childrens' mental health. To date, they've raised over $5 million for their beneficiaries. Click each link below to go to that speaker's presentation.
Notes From Capitalize For Kids Conference 2018
- Bob Prince (Bridgewater Associates): Outlook and investment strategy
- Ed Garden (Trian Fund Management): Long PPG Industries
- Jeff Ubben (ValueAct Capital): Long Hawaiian Electric (HE)
- Jeff Smith (Starboard Value): Long Marvell Technology Group (MRVL)
- Ulrike Hoffmann-Burchardi (Tudor Investment Corp): Long MongoDB (MDB)
- Alex Roepers (Atlantic Investment Management): 3 Long Ideas
- Francis Cueto (Asturias Capital): Short Belden
- Brad Dunkley (Waratah Advisors): Long Premium Brands
- Jennifer Foster (Chilton Investment): Long Hasbro (HAS)
- Zachary George (FrontFour Capital): Long Marriott Vacations (VAC)
- Evan Hornbuckle (Wellington Management): Long Under Armour (UA)
- Maria Jelescu (Ardinall Investment Management): Long Tellurian
- Ryan Marr (Waypoint Investment Partners): Long Chorus Aviation
- Mark McKenna (BlackRock): Long Cigna (CI)
- Kim Shannon (Sionna Investment Managers): Long CI Financial
- Colin Stewart (JC Clark): Long Information Services Corp
- Andrew Iu (Burgundy Asset Management): Long Hostelworld
- Ted Goldthorpe (BC Partners) & John Zito (Apollo Global Management): Credit Panel
For more recent investment conference coverage, be sure to also check out notes from Invest For Kids Chicago, as well as a summary of Great Investors' Best Ideas Dallas.
Monday, October 29, 2018
Notes From Capitalize For Kids Investment Conference 2018
Bob Prince's Presentation: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Bob Prince, co-CIO of Bridgewater Associates.
Bob Prince's Capitalize For Kids Presentation
• Presentation title - “Outlook and Investment Strategy”
• Look back over the past decade and present - distill to cash flows and discount rates = prices and returns
• Beneath that is money and credit flows, which determine discount rates
• These are below the surface primitives that drive the headlines
• 10 years ago high risk premiums, today low risk premiums. These have driven returns
• Transitioned from long period of monetary easing to tightened
• Flow of global money and credit is gradually rolling over
• The pace of monetary tightening is moderate, mostly driven by the Fed via roll down and short rate, with impacts on USD
• While unusual for this stage of the cycle, the global financial system is not over leveraged and is supporting growth. Typically expansion financed by leverage, but this expansion financed by money, not credit, as consumers have de-levered, banks financed by core deposits, banks are lending. Capital Markets seeing low credit spreads, no credit sell off despite stock market pullback. Money pull back, but economic growth is still booming, pushing up cash flows. Strong year on earnings still. When does monetary tightening impact credit, then we have impact on economy and earnings.
• First stage of correction / recession is just a monetary pullback, but if credit and risk premiums are affected —> earnings and economic impact which leads to a recession
• China policy is now of comparable importance as the US and Europe. As China’s labour gets more expensive, we see outsourcing of labour to adjacent countries, which is becoming an independent Asian economic bloc. China + Asian 8 country bloc roughly has a GDP of Europe or USA.
• Expected returns of assets are low and the next downturn present unique risks
• Pullback of liquidity is listing the yields of all assets,
• First time since 90’s we have seen real monetary tightening
• A chart with asset returns at different stages of the cycle
o Late cycle, monetary tightening, shows everything suffers except commodities
o Early and Mid cycle, traditional assets perform well.
• Thinks we are approaching the later end of the cycle where inflation accelerates and commodities will benefit
• Unique Risks in the next downturn
o Central banks ability to reverse the downturn is more limited - need 500bps rate cut to turnaround, QE mostly spent
o Political divisions will impact effective policy action
o Deflation with interest rates near zero can trigger a self reinforcing rise in real interest rates and rising risk premiums
o Lots of obligations out there to be kept - pensions obligations, etc
• Look east
• Asia bloc taking share of global output very quickly. Increasingly independent of the issues of the west, driven by Chinese policy, which leads to independence from west. So adds portfolio diverification due to independence of economic returns. 1 year growth of GDP > Mexico GDP, 5 year > Japan, 10 year > Europe
• Balance a strategic mix, go to the beach, earn the risk premium, and diversify asset classes and macro exposures. Balance the risk allocation to growth and inflation, so when economy goes up or down, inflation goes up or down, still earn risk premium
• 50-60 long bonds, 20 equities, 10 energy equities, 10 gold equities. 7% a year since 2000, 10% since 1970. Diversify, balance exposure to growth and inflation. Not exposed to sustained inflationary or economic situation if you listen to that.
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Jeff Ubben Long Hawaiian Electric: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Jeff Ubben of ValueAct Capital who pitched a long of Hawaiian Electric (HE).
Jeff Ubben's Capitalize For Kids Presentation: Long Hawaiian Electric
• “The Utility of the Future”
• Talking about the ValueAct Spring Fund
• Stakeholder capitalism will be the de jeur over the next 20 years
• Thus the spring fund, making companies more sustainable - invest more, go faster, be a leader, solve the problem (climate change, education, etc.)
• Hawaiian Electric - Biggest and newest investment in the spring fund
• “The resilient and growing platform that enables clean energy production and electrification of transportation to decarbonize Hawaii faster”
• Hawaii is largely an oil burner for electricity generation. 50% of US’s oil burned for power in HE. Particularly since they have tons of renewable areas
• Renewables are much more expensive since their diesel is particularly expensive
• Intermittency is the issue
• Batteries are so good that you will never need a gas peaking plant again
• Can generate 6.5bn in savings throughout the whole state which can be passed to ratepayers, state and shareholders
o Study has aggressive assumptions w.r.t rooftop solar
o Also requires a smart grid.
o Legislature and governor are buying and they are pushing them
o PUC is decoupling earnings from electron generation
• Kauai buying renewable, 70% renewables by 2019
• Off fossil fuel
• Better and less volatile rates
• Public health benefits
• Climate change mitigation
• Lower Cost of ownership for EVs
• Grid resilience
• Reduced habitat conflict and land required
• You can give lifetime free day transportation to prevent grid overloading
• 7% -> 9-10%, bank will fund rooftop solar and charging stations in MFH housing
• Terrible efficiency ratio
• This creates value for all players
• Multi-constituent environment
• Moving Hawaii into leader status
• Financial status - levers for traditional return
• Can become a growth vehicle vs dividend clipper as it has more avenues for growth
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Ed Garden Long PPG Industries: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Ed Garden of Trian Fund Management who pitched a long of PPG Industries (PPG).
Ed Garden's Capitalize For Kids Presentation: Long PPG Industries
PPG Industries
• Paints and coatings business
• Great business, 40% upside on SOTP
• No tech disruption risk, AMZN risk, private label risk. Strong moat
• We are facing an inflationary time, great time to buy as they pass on inflation, increasing gross margin
• Terrible management, lost key customer (Lowe’s), Materially underperforming peers, market on all metrics, Profit warnings, shrinking earnings while peers are growing earnings
• Accounting issues, May 2018 – says 10-K can’t be relied upon due to expense accrual issues
• Did a stupid Hostile acquisition, massively flawed strategy
Trian's Solution
• Bring back legendary CEO Chuck Bunch
• Best CEO in coatings, never sold his stock, wants to return
• Had 40 year career at PPG. Large growth in North American Architectural. Needs Capital and Attention
• Wants it to be spun off
• Add leverage to business
• Improve Governance
• Chuck had outperformed peers by 4,700bps over tenure
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Jeff Smith Long Marvell Technology Group: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Jeff Smith of Starboard Value who pitched a long of Marvell Technology Group (MRVL). They added to the position recently and filed.
Jeff Smith's Capitalize For Kids Presentation: Long Marvell Technology Group
• Semi co. Acquired Cavium in July 2018
• Half their biz in storage, half in networking
• Both are growing, both are well positioned
• #1, or #2 in almost every key market
• What SB has done with Marvell
• 114% underperformance vs peers over 5 years pre-SB
• Options backdating, 8 CFOs 8 years. Accounting investigation, auditor resignation
• Loved the business was great, Marvell’s customers wanted them to succeed
• Entire board and management changed since 2016. Just a settlement, not a proxy. More than half the board replaced via settlement, rest turned over after
• New management and CFO
• Revenue shrunk, now its growing
• Gross margins shrunk, now record highs
• Op margins shrunk dramatically, now op margins at record highs
• Stock has 2x’d since first 13D filing
• Only partially closed underinvestment gap, still below index returns, gap is widening in underperformance
• Why now? The acquisition positions it well for 5G and internet megatrend.
• Now has complete solution in enterprise Cloud data centre and service provider. Now Marvell can compete with Broadcom, who was the only complete solution. Customers want them to compete and be strong against Broadcom
• Trades below unaffected deal price
• What’s changed?
o Concerns around Cavium’s growth trajectory and inventory destocking
o Fear related to Marvell’s end markets
o Macro concerns, tariffs etc
o 10%+ FCF yield
• Inventory sell down and 4G lag before 5G buildup has temporarily impacted growth rate
• Cavium taking share in these end markets
• Went from consumer products biz, now infrastructure end markets (data centres, etc)
• Storage concern - Hard disk drives secular declines.
o Great profitable biz in slow declineo Hard drive for notebooks only 7% of Marvell’s revs
o Storage biz as a whole now focused more datacentres and Edge / Other internet
o Desktop / notebook is only 20% today
o Data centre still a share gainer
• Networking biz - all are share gainers in high growth markets
o Wi-fi
o ARM
o EDGE
o Ethernet
o Data centre
o 5G
• Not included in LT Financial Model
o Not included 5G, Revenue synergies on deal, or ARM server processors. So not accounting for the revenue growth for the above
o However, they are accounting for all the costs
• Thinks management is credible, killed their guidance. Implying that they sandbag guidance very hard.
• Goes through earnings guidance and earnings and were all big beats
• R&D is higher than their peers. Still thinks it is a solid investment in product that will payoff
• Put managers in place, thinks they are making very responsible investments, that should allow them to continue to beat earnings
• Either get that revenue, or those R&D costs will come out.
o —> earnings $2+/shr. 8x earnings today
o Trades dramatically below their peers on most metrics.
• Company in the market buying stock, $1b+ buyback program
• Still excited about this idea
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Ulrike Hoffmann-Burchardi Long MongoDB: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Ulrike Hoffmann-Burchardi of Tudor Investment Corp who pitched a long of MongoDB (MDB).
Ulrike Hoffmann-Burchardi's Capitalize For Kids Presentation: Long MongoDB
MongoDB
o Yottabytes
• Digitization is the megatrend —> conversion of information into data
• Identified drivers
o Devices
o # of sensors / devices
o Connections between sensors and Devices
• She has a chart of # of yottabytes generated annually
o Conservative estimate of their estimate - 2028 1 yottabyte a year in data
o Mostly unstructured data
• Have to be able to derive insights from the data
• Businesses are truly aware of the opportunity
o And counted the number of times data and ML/AI are mentioned
o Data being mentioned frequently and growingo AI less frequently, but growing fast too
o Google mentions AI/ML 50% more than the #2. On average every 6 minutes
• 2 types of biz (using a Gold Rush analogy)
o Data science enhances core biz
The Miners: GOOGL, AMZN, TWTR
o Core biz data analysis tool –
The Merchants (selling pickaxes): NVDA, IBM, AMD
• What is a better bet? Miners or merchants. Merchants outperform everyone else 225% vs 103% miners
• Which companies help derive insights from data?
• Stack
o Storage
o Extraction
o Data warehouse
o Analytics
• MongoDB hits the full stack
• Contrasts relational to MongoDB
o Relational 1979 - rows and columns. Structured data, and on premise
o MongoDB 2009 - All data, Petabytes scaling easy, in the cloud
• 3 Criteriao Market
• $68bn by 2025 - $28bn is unstructured data
o Leadership
• MongoDB is the leader in non-relational DB, with 40% share, and not tied to a given vendor
• Star ratings on Github repos, and Mongo DBs are killing it. Much more than any other solution out thereo Execution
• CEO and CTO are studs
• CEO - Dev Ittycheria - Entrepreneur BladeLogic, BMC, and then invested at Greylock
• He made a big bet on the cloud that paid off
• Professionalized the GTM and has done very well
• CTO Brain of MongoDB
• Brings them to feature parity with relational DBs + their benefits on top
• $8bn+ revenue annually in 2025 at 20% op margins then. Still 10xer over that period.
• $120 NTM price target, 40% growing over the NTM
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Credit Panel: Ted Goldthorpe & John Zito at Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is the credit panel which consisted of Ted Goldthorpe (BC Partners) and John Zito (Apollo Global Management).
Credit Panel at Capitalize For Kids Conference: Ted Goldthorpe & John Zito
Ted - Illiquid Credit
John - Liquid Credit
• Markets less efficient than ever - main theme
• ETFs today 10% of the market
• ETFs and high yield all driven by flows
o Leads to interesting decoupling in the market`
• John: ETF Creation - buys the biggest issuer of debt, not the largest market cap. Not a function of who is the most solvent. Buy a unit of risk in the co with the most debt outstanding.
• When there are outflows, could be very violent moves
• Tesla - Disconnect between equity and debt
o Historically over 30 years - 88% correlation between Russell 2000 and HYG
o HYG unchanged last 30 days, Russell down 30%
• Credit / equity relationship completely changed
• TSLA, Carvana, Wayfair are good examples
• Softbank / VCs paying high revenue multiples for companies that are growing fast.
• Carvana 9bn mkt cap, 9x revs, $350mm of HY, looking for 6% bond yield. 9% cost when it priced.
o Shows divergence between credit and equity markets. Stock down 50% this month, bonds unchanged
• Tesla, despite good earnings, has bond at 80cent on dollar, $50bn of equity, big difference
• Liquid / illiquid risk
• Value being created by taking illiquid loans off of balance sheets, lending to PE.
• Bought unrated debt from bank to a power plant with A rated customers. Bought at 70c on dollar, got it rated, flipped for 1.2x MOIC, infinite IRR
• A loan they underwrote had 38% LTV, 13% IRR on loan, whereas equity sponsor expecting 15% IRR. Illiquid credit allows for great risk adjusted returns
• SUNE + private or public, high quality MLPs, gaming RE (vici),with long term cash flows getting underpriced in public equity markets
o Can reclassify as infra debt instead of public equity and get cost of debt couple hundred BPs lower. No one wants mark to market headache
• multiple infra vs equity buyer base looks at stuff there is a big spread between yields as infrastructure investors are thirsty for yield
• More stuff being called infra – be careful
o TXU equity held in infra funds
o GreenForLife BC Partners bought (waste management) - some LPs classify as infrastructure
o call it infrastructure = cost of capital goes down
• When is next default cycle?
o EU HY 3x higher, triple B grown crazy
o Lots of stress in hospital, mining, retail
o Default rate underestimate stress being felt by companies
• Growth in insurance cos crazy
o To make money, must get a very large Triple B portfolio optimal portfolio
o Lots of the growth in assets around there because of it
o 10-20% of triple B. —> HY during a down cycle. What does that impact HY?
• Central banks pulling out lots of liquidity in the next 18 months
o real delta into short rates globally
o EU bonds swapped into dollars is 300+bps positive spread
• ECB causing serious distortions in EU credit market
• Steinhoff
o Filed for bankruptcy
o No entities in Germany originally.
• Incorporated an entity because of IG rating
• Issued bonds in Germany
• 1.85% yield
• Much of it was placed with ECB at par
• 6 mos later at 40c on the dollar
• ECB set to be largest HY manager in EU.
o Distorted market, now exited market and lots of issues with defaults and downgrades now
• Active management will need to be really important for the next 5 years because of these risks to serious dislocations
• Could lead to massive repricing’s in the FI market
• J Crew
o Took IP away from lenders and raised money on it
o Covenants and document ignorance are killing lenders due to scummy sponsors
• All metrics on covenants worse than 2007. Investors need bonds so they just take it
• Covenants matter only at most importance time (recession), so there is a non-linear negative impact
• Last 3 biggest deals, if they want to sell assets, they can take a dividend without compensating creditors.
o Reuters - 6.5bn
o AkzoNobel - 3bn
o Envision - 2bn
• EBITDA adjustments at ATH too
o EBITDA quality getting worse
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
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.
Francis Cueto Short Belden: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Francis Cueto of Asturios Capital who pitched short Belden (BDC), seeing 40-50% downside.
Francis Cueto's Capitalize For Kids Presentation: Short Belden
Secular Decliner
• What is it?
o Hard to tell, reporting on segments changed 3 times last 3 years. Trying to hide core of biz. Change revenue segments
• Asturios has their own revenue segment mix that they have estimated. 62% of revenue in Copper Cabling and Connectors. These are the guys who make the “cords” in cord cutting.
• Copper competitive mix vs. fibre, 5G / Wi-Fi, awful, on other side of all trends
• ATT CEO on Apr-17 - 5G quote on replacing copper connectivity
• CEO VZ Dec-17 - Copper cos will see a secular decline, just can’t deliver the functionality
• CFO Commscope Aug-17 - Copper side of market is a non-growth biz
• Cost of copper vs fibre - Fibre costs down 19% over 15 years - Copper cost has 114% over that time period.
Deceptive Accounting
• “Adjusted” NI vs FCF – serious discrepancies
• FCF down significantly, but adjusted NI curiously stable.
• Working capital and restructuring killing the FCF
• Rising inventory days and DSO. Inventory on shelves and financing sales
• Big jump in 1 time restructuring costs
• Snell Acquisition - Q1 2018 acquisition in the UK. No press release.
o Only mention buried on the 82nd of 10-K. Helped them beat the quarter.
o Who is Snell? Shrinking revs
o Down from 105mm -> 80mm over last 5 years. No 2017 revs. They guide it up to $115mm of revenue post acquisition in 2018.
Bad Balance Sheet
• Drives suboptimal strategic behaviour - underinvestment
• Constrains shareholder friend corporate action - transformative M&A / buybacks
• Amplifies impact of downward revisions
• 2.7x net leverage (Management’s definition) to EBITDA
• 3.8x Net leverage w/ preferred convertible (management)
• 4.5x net leverage w/ preferred ex restructuring
• 5.8x net leverage w/ preferred ex restructuring and NWC
• If not worth more than 6x EBITDA, equity worthless
Target price is $34, 46% below current trading levels.
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Colin Stewart Long Information Services Corp: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Colin Stewart of JC Clark who pitched a long of Information Services Corp (ISV.TO).
Colin Stewart's Capitalize For Kids Presentation: Long Information Services Corp
• L/S in Toronto. 9.2% net for 19 years
• Attractive businesses today – as seen by the what the multiple market is paying for them
o Infrao Database / storage
o Land / Real estate
o Tech
• Recurring revs, pricing power, high margin structure, etc
• Similar characteristics, less well know
• Land registry has those characteristics
• Information Services Corporation
o Saskatchewan land and corporate registry services
• 45% upside over next 1-3 year
• Monopoly position in its core registry business
• Undervalued, underfollowed, housing worries
• Can grow + M&A opportunities
• Good biz, cheap asset, growth = asymmetric
• 7.7% FCF yield• Registry ops 54% revs
o 15 years left on MSA w/ SK governmento Monopoly on this biz. Can use and resell data later
o 0.3% of all real estate transactions in Saskatchewan
• Services 33% revs
o Distribution of public records and data
o Growing thru acquisitions
• Tech solutions 13% revs
o Bought a product they used a ton and liked
Secular trends
Under levered, cheap multiple
Core registry is infra structure like asset
High quality biz
Underfollowed
Valuation is great
Providing backend tech to Nova Scotia, wins in Arkansas and Ohio to provide their service.
Teranet at 10.2x EBITDA in 2008. Had 10 years remaining on their contract.
At least 45% undervalued
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Kim Shannon Long CI Financial: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Kim Shannon, co-CIO of Sionna Investment Management. She pitched CI Financial (CIX.TO), seeing 68% upside.
Kim Shannon's Capitalize For Kids Presentation: Long CI Financial
• “Disruption Trap or Contrarian Value?”
• Thinks tech disruption of a theme is too far, too fast
• Mentions the Gartner Hype cycle and thinks the expectations are too high for this company.
• Some do get disrupted, many don’t. Thinks more companies are victims than would be true. Reminds her of the wake of dot-com bubble where there were good opportunities
• Factfulness is a great book that she thinks is relevant for this situation and it goes over human errors and emotions. More negative and fearful than one needs to be.
• Lots of quotes of historical misjudgements of future trends. “You’ll never make money on the internet” Bill gates to Steve jobs in 1995. This is one of the quotes she shared on it
• Humans are clearly not great at extrapolating tech disruption
• The Stock
o Is cheap - 8.6 PE
o P / CF is 8.3x
o 37% below 52 Week high
o 48% ATH, Low financial risk - Net debt to equity is .43
o Interest coverage is 25x times
o 2.3x debt re-payability
o Solid profits and earnings, high ROIC, ROE >20%, Growing EPS will continue to grow
o Should trade at a premium multiple.
o Insiders been buying YTD, no sales. Buying accelerated. Company plans to increase share repurchases
o CI Financial
o Unlikely supporter as they used to be a big subadvisor in 2006. 90% of revenue at the time. Shows some articles about the squabble
o Amazing sales machine and cost control and great serial acquirers. Watched spectrum united deal after it closed. Took out most of its costs.
o Just bought Sentry and cut cost there too.
o Skillful, aggressive capital allocators. One of the firsts into the “income trust” game
• Why has it fallen?
o Dividend cut
• Typically shows weakness in ops
• But they chose that they’d rather buy back stock as its accretive. Don’t want to be constrained by dividend payments when they can buy back shares or make acquisitions
• This is the market taking the wrong signal from this action.
o Negative perception of fund management
• Regulatory pressure
• Fee pressure
• Redemptions
• Lower fee substitutes
• Secular vs. cyclical pressure on returns
• Over done?
• Suggests active management death debate is overblown
• Still has profit margins >30%
• Despite fee pressure of -3-4% per year
• Can balance the fee pressure with synergies from acquisitions, cost control thru tech
• Indications that alts which have not out performed S&P500 last decade may stop taking asset flows
o Maybe peaked due to capacity constraints
• Largest independent fund manager in Canada
• Believe at $19 is a contrarian value buy
• Worth $32, 68% upside
• In Jan, was as cheap as $30
• Potential takeover target - as it has significant scale in Canada and would be attractive to global player looking to make headway in the market
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Maria Jelescu Long Tellurian: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Maria Jelescu of Ardinall Investment Management who pitched long Tellurian (TELL), seeing 25% 1-year upside and 4-9x in the long-term.
Maria Jelescu's Capitalize For Kids Presentation: Long Tellurian
• TELL - LNG project. Large scale LNG development. US oversupplied. One of few pure-play LNG developers. 25% near term uplift 12 mo
• Long term, stock has 4-9x potential
• Full alignment w/ management and key stakeholders
• Reviews how what used to be a group of regional gas markets with large price discrepancies is now becoming a global market.
• Global demand is growing quite fast.
• Clean, reliable and affordable solution for energy
• Historically LNG for supermajors, Cheniere has changed that
• Founders of Cheniere are founders of TELL. They have 20 year take or pays
• LNG today: developed by Supermajor and JV partners that are buyers
• Tellurian is building an integrated model where their equity partners are their customers
• removes the 3 risk
o Gas Supply - Own 15Tcf in resource for $1bn
o Gas Transport Midstream pipeline
o Gas Liquefaction - Bechtel contract
Alignment of partners Bechtel and GE. Own pipeline, etc. Double the LNG Canada Project size. Chairman former founder of Cheniere (LNG).
Management is making “Cheniere 2.0” with a twist. Tellurian becomes the GP of the project where they get management fee ($100mm / year) + promote on 28-42% of LNG volumes. Partners commit entry price + fixed price.
Who are equity partners and who would pay the fees? Tellurian generates a ton of fees, but is the 2nd cheapest LNG project global, still gives a very high, unlevered, double digit returns as equity partners. Total, a 19% shareholder sees value. No firm partners yet, but plenty in the data-room
Management fee at 20x = equity market cap today. Get the carry for free.
Base case - low case: cash flow = market cap today. Cost reimbursements after final investment decision in 2019 - > 25% to the share price. Phase 3 = 9x in 9 years, assuming flat share count.
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Jennifer Foster Long Hasbro: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Jennifer Foster of Chilton Investment Company who pitched long Hasbro (HAS), seeing 50% upside.
Jennifer Foster's Capitalize For Kids Presentation: Long Hasbro
• Franchise business (owned IP) – 52% of sales [above average operating margins]
• Partner business (licenced IP) – 31% of sales [below average operating margins]
• Gaming business– 17% of sales [above average operating margins]
• High quality, global business, 18x forward PE, high ROIC, stable operating margins over cycleShareholder friendly with 5% shareholder yield (dividend + buyback)
• 90% of toy sales oriented to recurring events (birthdays, holidays, etc) providing stability
• Analog toys and games growth has accelerated since smartphones have been introduced
• Have been able to adapt to digital disruption by leveraging their unique IP that are currently monetized in Franchise business by selling toys. Magic the Gathering game in Open beta, have been experimenting and tweaking game for a long time. Very famous and popular analog game franchise and has significant potential to make money if the game is well designed.
• Dealing with Toys R Us overhang which should be resolved by EOY18x 7 year median earnings multiple for toys business
• 2x digital premium for gaming assets, as digital peers at 23x earnings
• $6 estimated 2020 EPS
• $120 share price, 50% upside
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Evan Hornbuckle Long Under Armour: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Evan Hornbuckle of Wellington Management who pitched a long of Under Armour (UA).
Evan Hornbuckle's Capitalize For Kids Presentation: Long Under Armour
Brand turnaround, trough sentiment, under-earning and unloved
• Many successful consumer turnarounds – LULU, Nike, Adidas, Puma
• New management not “growth at all costs” ROIC, gross margin oriented
• Extremely high short interest
• Cheap if you look forward 3 years, put normalized EBIT margin (9%) and historical earnings multiple (30x)
• UA overbuilt opex and inventory to prep for $10bn in sales, Sports Authority went bankrupt and didn’t downsize fast enough. Tried to grow into it
• Liquidating excess inventory, beating 2018 guidance. Has a large markdown reserve account ($144mm) which once released is ~2018 EBITDA.
• Another $80mm in gross cost savings announced, unclear if it will be used to reinvest in business
Base case – 3 year outlook
• Sales – 8% CAGR [assumes modest global share gains in the category]EBIT Margin 9% [ 6-7 year average] 30x Multiple [ very rarely traded below this multiple before the recent blow up]
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Zach George Long Marriott Vacations: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Zach George of FrontFour Capital who pitched a long of Marriott Vacations Worldwide (VAC).
Zach George's Capitalize For Kids Presentation: Long Marriott Vacations
• Largest global Upper-upscale and luxury branded vacation ownership company, premier resort, club and exchange program operator
• 100% upside from current levels
• VAC closed the transformational of ILG
o Pushed by FrontFour
o Serious synergies being discount
• VAC’s performance has been terrible this year, driven by
o Concerns that consumer spending has peaked
o Quarate retail selling its large stake in VAC
o Management focused on integration
o Yet to report its first Clean Quarter post deal close
o $1bn+ in FCF in 2 years on 6bn EV
• Reviews the timeshare biz model
o Claims points model has fixed previous issues with timeshares
o Better amenties versus standard hotels
• High quality customers, $130k+ HHI, High home ownership rate, high FICOs, mostly married
• Deal closed Sept 1
• CEO bought shares with his own money
• $75mm in targeted annual cost savings in 2 years
• Some rev synergies
• $1.60 / share annual dividend
• Recurring revs, low capex
o 60% is recurring, fee based streams
o Synergies are ~10% of 2019 EBITDA
• CEO thinks cost synergies will “pale” in comparison to revenue synergies
• Thinks $195 in 2020. 15x 2020 Earnings
• VAC ROIC and FCF conversion > market averages
• Large, impressive brand portfolio
• Deal is leader in branded vacation ownership
• Established an industry duopoly
• Why does this exist?
o Concerns timeshare biz has peaked
o Initial synergy guidance below expectations
• Wanted $100mm in cost synergies + rev synergies guidance
o Investors have had to digest significant timeshare equity supply
o Wyndham WW $5bn spinoff
o Hilton Grand Vacations HNA has sold $1bn block
o Qurate retail block sale
o Niche space has lot to do
o Management being conservative on guidance until deal closed
• 2020 -> $13/share FCF
• Some sell side models haven’t been updated for the deal closing
• Thinks 15x PE multiple on 2020 pro forma eps = $195
• Cheapest among its peers on FCF Yield
• Risk
o Regulatory risks as regulated on state level
o Substitutes like Airbnb
o Cancellation of HOA management contracts
• Unlikely to be cancelled due to the number of votes needed
o slowdown in credit securitization market
• Slows ability to churn inventory
o insufficient timeshare inventory
• $6.5bn of VOI sales inventory
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Ryan Marr Long Chorus Aviation: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Ryan Marr of Waypoint Investment Partners who pitched a long of Chorus Aviation (TSX:CHR).
Ryan Marr's Capitalize For Kids Presentation: Long Chorus Aviation
Segments
• Charter (Air Canada Jazz) - 40% of sales
• Maintenance - 5% of sales
• Regional leasing - 55% of sales
• $234mm FCF
• 7% Dividend yield
• Charter biz
o Predictable charter biz, no earnings vol to AC, till 2025
• Leasing biz
o ROE is at average of peers
• Trades at a discount to both of their peer groups
• Discount due to Air Canada relationship risk
• Company’s statements understate leasing biz profitable
• Air Canada
o People think it will get “Aimia’d” by Air Canada
o Jazz and Aimia spun out in 2006 From Air Canada
o Had contracts in place above market fees to maximize value from IPO to Air Canada
o 2015 - Amend and Extend agreement
• Reductions in markups + more capex
• Less than $20mm reduction due to leasing provision where Q400 is leased to AC and its earnings making up the difference
o Jazz existing separate from Air Canada is beneficial to Air Canada for cost management purposes.
o Jazz is 45% of AC’s flights, 25% of all passengers
o Strong market position due to this benefit for labour, and few regional competitors having any overlapping routes
• Lease portfolio
o Poor disclosure for the lease portfolio
o LDD ROE
o Why in the regional leasing?
• Desire for diversification
• Leasing Experience with AC
• Leases Q400s AC
• 3rd party opportunities & Capital support
• $200mm investment from Fairfax (TSX:FFH) to support leasing
o Attractive and established marketing
o Regional leasing market has little leasing
o Competitive advantage in aircraft leasing
• Leasing in general
o Tax benefits
o Capital benefits
o Regional 20% leased vs 40% leased more generally
o Was due to government support to regional carriers which are no longer here
o Chorus already 3rd largest regional lease provider
• Thinks they can take share
• Many PE backed w/ lim. Life funds, will be sellers of their biz over time
o Their competitive advantage is due to being an operator of aircraft
• $10 target, 45% upside, 7% dividend to wait
o Equity growth from capital reinvestment
o Contract flying biz over 7 years generates entire market cap in cash
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Mark McKenna Long Cigna: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Mark McKenna of BlackRock who pitched a long of Cigna (CI).
Mark McKenna's Capitalize For Kids Presentation: Long Cigna
• It is a vertical merger
o Vertical integration. Reduce costs, increased access, integrate an experience, intensify experience
o Transformative experience
o Old media telco -> phone, PC, TV, Content all different and silo’do Current media telco -> content, TV, phone, network, PC, content, all completely integrated, leading to a superior experience
• Early days in healthcare transformation that should follow media’s lead
o Liquid, large cap, 40-80% upside in NTM
o Healthcare today: Everything is disparate. Doctor, pharmacy, MRI, Hospital, etc all silo’d
o Healthcare going forward: all integrated and information shared etc
• Cigna, Express Scripts deal. Additive thru integration
• Cigna - health Network
o Dentist, Doctor, Hospital, MRI - Medical Expertise
o Cigna doesn’t take risk, but for a self-insuring company, they manage the rest of the networks, management, etc
• Express Scripts - PBM network
o Formulary
o Pharmacy
• No communications between the two for 30-60 days
• Integrates experience
o Expansive data set
o Fully aligned incentives (Shouldn’t be writing more scripts)
o Increased patient touchpoints and deeper health interventions
o Total cost of care reduction and better patient outcomes
• Value creative for Cigna shareholders
o Cigna EPS 2021 from $18 —> $2.50 post deal
o Mostly cost synergies, but $2 / share of revenue synergies, which is a conservative estimate
o Thinks its very likely these are realized
• Carl Icahn hates it
o Price
o Regulatory risk
o Competitive disruption
o Post-Anthem margins and customer retentions
o Value destructive
• BlackRock lead a behind the scenes campaign between shareholders and ISS
o BR got the deal thru
• 30-40% recovery even if doesn’t happen, from recovery of share price + 15% share repurchase
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Andrew Iu Long Hostelworld: Capitalize For Kids Conference 2018
We're posting up notes from Capitalize For Kids 2018 investment conference. Next up is emerging manager Andrew Iu of Burgundy Asset Management who pitched a long of Hostelword (HSW.L).
Andrew Iu's Capitalize For Kids Presentation: Long Hostelworld
Hostelworld – Cheap, microcap online travel agency (OTA)
Defensible market – EXPE tried to grow their hostel business and failed
Opportunity to grow commission rates in line with Booking
Incremental contribution margin for Hostel operators 70%+, so they can take the rate increaseApp is successful driving engagement, which is reducing dependence on Google, increasing their EBITDA margin over time
9x FCF
Cheap because:
Worries around economic growth (despite being hostels being the lowest cost means of travel)
Revenue slowing and EBITDA falling [this is due to new cancellation policy impacting revenue recognition (but not cash flow), making income statement ugly]
Significant redemptions from their largest shareholder Woodford, leading to price pressure
20% IRR without multiple expansion, coming from dividend yield, take rate expansion, revenue growth, and share gains
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Brad Dunkley Long Premium Brands: Capitalize For Kids Conference 2018
We're posting up notes from the Capitalize For Kids 2018 investment conference. Next up is Brad Dunkley of Waratah Advisors who pitched a long of Premium Brands Holdings (PBH.TO).
Brad Dunkley's Capitalize For Kids Presentation: Long Premium Brands
• Largest holding - secular holding
• Specialty meat biz
• $3bn sales, $3bn market cap
• Meat is the fashion business
o “On Trend” products keyo Local Authentic brands with a story
o All natural
o Ethically raised
o Low card, high protein
o Paying for quality is in
• Premium outperforming mass in beer industry
• Craft beer volumes crushing it, taking share
• Not dissimilar
• Muskoka Brewery - small, but 200 across the country all taking share from Labatt
• Labatt would buy them, but lose their soul when they become big co. Share gaining would stop
• Hemplers —> Oscar Meyer is similar analogy. Hemplers only in Pacific North West
• Hard to compete with the local, and story behind the co
• First biz in PBH is speciality foods 80% of EBITDA, 20% is food distribution
• Hemplers is 1 of 40 brands owned by PBH
o Only buys a biz where the manager wants to stay
o Focused on high regional market share, not high national market share
o #1 in Canada in beef jerky + pepperoni stickso #2 in jerky in US with Oberto acquisition
o Taking expertise from other businesses and advising acquired businesses. Sharing best practices. Taking certain products from one brand and bringing them to another in another region
o Most SBUX breakfast sandwiches made by PBH
• Food Service business
o premium and customized cuts of meat and seafood
o High-end restaurants, local butcher shops
o Focused on “centre of plate” Fish, Steak, Seafood
o Supply The Keg with steaks across Canada
• $1bn revenues acquired of LTM period
• Oberto branded meat stick launch throughout the US
• Continued QSR / Food service contract wins in sandwich biz
o QSRs, Convenience stores, retail
o Helps QSR customers save on labour and spoilage
o High ROII biz
• Foodservice expansion into central / eastern Canadao Opening 1H 2019. New factory
• Create value thru accretive, low-risk M&A
o Acquirer of choice, customized transactions - lower multiples paid
o No integration of assets, target management stays on
o Higher manager retention - 48 mentioned since 2005, only 2 left
o kind of like BRK
o Great reputation as acquirer of choice
o 3rd, 4th gen business where families are more emotionally attached to business.
• Product innovation
• Geographic expansion
• Input sourcing and informational advantages
• High ROI greenfield projects, driving 4-6% annual organic growth volume
• Pays 9-10x EBITDA on recent deals
• EPS CAGR since 2011 26.4%
• Stock is 17.5% CAGR since 2001, including the most recent drawdown of 23%
• CEO, CFO haven’t sold shares, continually buying and adding
o Thinks they are underpaid. No options issued.
• Down 23% from April ATHs. Why?
o Missed earnings 4 q’s in a row due to labour costs, factory opening late
o General sell-off of Canadian consumer stocks
o Company had perfect timing on equity issuance in April
• $150mm equity issuance at $117.35
• $172.5m coverts
• Tightly held, Turtle creek, Pender west
• Biggest Equity raise ever at ATH
• People who finally excited to get in (big bank funds) have blown out, and convert arb funds
o 11.7x NTM EBITDA. Cheaper than Saputo and growing faster than Saputo
• Recent precedents Big meat cos buying at 14x, 12x currently for PBH
o No value attributed to company platform
o Now? Trough sentiment
o Defensive in macro
• No price target
o Buy and forget about it
o 13-15% annual compounder for foreseeable future
Be sure to check out the rest of the presentations from Capitalize For Kids 2018.
Wednesday, September 5, 2018
Capitalize For Kids Investors Conference: 85% Sold Out
The 2018 Capitalize for Kids Investors Conference is only two months away and is now 85% sold out. The lineup features world-renowned investing minds including Bob Prince, Co-CIO of Bridgewater Associates, David Rubenstein of The Carlyle Group, Jeff Ubben of ValueAct Capital, Ed Garden of Trian Fund Management, Jeffrey Smith of Starboard Value, and many more.
In total, more than $1.5 million will be raised to build capacity in the youth mental health sector. The event takes place on October 24th & 25th in Toronto.
Learn more and register: https://www.capitalizeforkids.org/conference/
Embedded below is a one-pager for the event
