Carlo Cannell Cavco Industries & Build-A-Bear Presentation: Value Investing Congress Las Vegas

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Carlo Cannell of Cannell Capital who pitched Cavco Industries and Build-A-Bear long.


Carlo Canell's Value Investing Congress Presentation

• Pitch: Maker of the coveted Iron Ranch! (Cavco Industries). 
• Tortoise do win- boring is sexy!  
• 1994 and 1999 were the last peak for the industry. Perhaps could attain or exceed.
• #2 participant before Berkshire, only 45% capacity utilized!
• Lots of operating leverage with min. CapEx. 
• CJS securities think $10.5 EPS assuming the company gets back to half of historic run-rate. Think they can earn $16 with capital employed and MFH marketing rebounds – not much sell-side coverage
• Now onto Plug Power – exciting company. Peak $1.1B market cap, $63MM losses, accumulated deficits are huge! It’s all about the future. Mentions the company –   didn’t say short it per se but a high valuation. (did not pitch this as a short but as a comparison for an exciting company).
• With a dull company you are not subject to built in belief like plug power.


• Pitch: Build-A-Bear workshop is the next idea. New CEO in June 2013.
• What is attractive – strong brand easy to wholesale or license. 
• In the worst year FY 09 – company generated $24MM cash flow from ops. Mini- Disney experience – affordable. Turnaround is all about pruning stores – expect   EBITDA growth.
• Recaptured 20% of traffic from closed stores.
• BBW was neglected at $10.25.
• Objective at Cannell is to create wealth not transfer wealth (like the tech companies above mentioned).


• Q&A – comment on Tesla since you have a disdain for high-tech. believes it is a   remarkable company (no position), innovator CEO, but once it starts producing   earnings, it will be valued as a remarkable auto company. Don’t think its 20MM person market.
• Why don’t you short it – risk appetite for VMEM, TSLA, or plug powers is very high.   Preference is to shoot them in the back! One strategy –investment arrogance to presume high flyers are necessarily proven shorts. Doesn’t know they will be falling.
• Coldwater creek is an example of a company which lost its way- filing or has filed   ch.11. 
• TSLA has a free call on capital can just issue shares.
• Any of the companies you talked about are shorts? Since you mentioned shoot them in the back. Some shorts – a few companies doesn’t mention which one he is specifically short– a transformation from print companies (like Dex Media, standard register) massive amounts of debt – equity is razor thin. Digital sales are not coming through. Legacy companies clearly wounded. 
• Thought that equity would be wounded by the debt. 
• Carlo believes all retailers will come to an end – evolution. Track 1993 restaurant IPOs shocked by the mortality rate. Blimpie is an example.
• Brutal time for short sellers, Whitney Tilson says Carlo is one of the best – do you wait till  they fall for 50%/80% and then jump in? Successful short selling – look at things through the eyes of a fledgling stock market manipulator. (staff office with unethical  brokers) reach out to organized crime to order stocks! Dealing with disreputable  people. 
• Thin float, lock up the stock, a lot of buyers, very little sellers. 
• Short sellers should follow the filings and comments – who are the sellers and when are they declared effective. The short manipulators are first out. As shorts you want   to short at the same time. Stocks implode when the manipulators exit – this isn’t  new. In Canada the occupation of a stock market promoter is “noble”.
• Manufactured home lending – question about credit access for buyers. Only to play for the manufactured home lending is through Berkshire or Cavco. Manufacturing housing lending hasn’t come back.
• How does Carlo size shorts? When you wake up and see the ticker of the short –  reduce by 25%! Not a scientific process. Ideally many shorts at 45 bps, hard to  maintain however – very volatile. 
• Talk about Crumbs Bakery – is a retailer of 60 cupcake stores - $3 per cupcake.  Very potent following among the 17 to 10 female and 45 and up suburban mom.   High gross profits. Troubled company, but the valuation is virtually nonexistent.  Interest is taking the brand of Crumbs and could this be franchised? If so what are the charactertistics of the stores. Better stores can produce 30 – 35% EBITDA margins.   Some stores in California are hurting due to poor leases.
• Binary outcome. Think they can do 400 stores – who knows what the exact store potential. Quick version of the thesis.
• Summary – long presentation – really pitches on Build a Bear and Cavco.
• Point is that it's ok to buy boring companies! Have a discipline to contain the toxic speculative juices or at least take advantage of the speculative juices of others.


Be sure to check out the rest of the Value Investing Congress presentations.

Cannell Capital Files 13D on Hooper Holmes (HH), Sends Letter to Board

Carlo Cannell's hedge fund Cannell Capital filed a 13D on shares of Hooper Holmes (HH).  They've disclosed a 14.24% ownership stake in the company with 9,946,766 shares.

The activist 13D details that Cannell was out buying in mid-August at prices between $0.36 and $0.38.  Carlo Cannell then attached a letter to the board as well with comments.


Cannell's Letter To Hooper Holmes

"Mr. Ronald Aprahamian
Chairman of the Board
Hooper Holmes, Inc.
170 Mt. Airy Road Basking Ridge, NJ 07920 

Dear Mr. Aprahamian, 

Cannell Capital LLC ("CC") writes today with several suggestions and comments for Hooper Holmes, Inc. ("HH"), the common equity of which CC, or accounts managed by CC, owns 14.2% as of September 30, 2013. 

First, in our opinion, the size and remuneration of the Board of Directors ("BOD") is too large.  The $73,000 to $104,000 each non-executive member has received per annum as the stock price has slid from $17.43 in April 2000 to $0.36 in August 2013 is galling.  We estimate aggregate cash compensation of $1.0 million for its six directors.  That is simply not reasonable (see Exhibit "A" enclosed).  Given the pro forma size following the divestiture of Portamedic, which we reckon should decrease revenues 60%, we call for the removal of Elaine Rigolosi for two reasons (i) as Chair of the Compensation Committee she is culpable for the egregiousness of compensation over her 25 terms; (ii) she is in our opinion less qualified than other new members of the Board. 

Second, the BOD should "downgrade" the auditor of HH. The $593,000 that KPMG LLP received last year is excessive given the current manifestation of HH. As part and parcel of this downgrade we call for the BOD to effect a reverse stock split sufficient - amongst other measures - to effect in a Form 15 filing a notice of its intent to "go dark." (Here is list of pros and cons for which we suggest for illustrative purposes: http://www.andrewskurth.com/pressroom-publications-126.html ). 

Lastly, we wish to congratulate HH for negotiating the sale of Portamedic. Our 2015 forecast of the Health & Wellness segment, now unencumbered by the Portamedic "cancer", is as follows: 

(FY Dec, $ Million)             Good            Great
Health & Wellness Growth  20%             25%
Revenue                                $72              $78
Net Income                           2                  4  


We are gratified by the recent progress.  We think the current pro forma enterprise value of $12 million is a paltry price to pay for a growing and good margin business, now liberated from the musty legacy business.  Combined with continued and robust reduction of superfluous expenses, we believe this "phoenix" could yield over $8 million in cash flow from operations in the next couple of years.  This would imply an attractive high-double-digit-percent return should a strategic buyer become interested in this growing niche - an outcome for which we both foretell and hope. 

Sincerely, 
/s/ J. Carlo Cannell
Managing Member"


About Hooper Holmes

Per Google Finance, Hooper Holmes is "engaged in providing health risk assessment services to the life insurance and health industries Hooper Holmes operates in one business segment and provides paramedical and medical examinations, personal health interviews and record collection, and laboratory testing, which help life insurance companies evaluate the risks associated with underwriting policies. It also conducts wellness screenings for wellness companies, disease management organizations and health plans. The Company's core activities consist of arranging for paramedical examinations on behalf of insurance carriers, primarily in connection with such carriers’ processing and evaluation of the risks associated with underwriting insurance policies - mainly life insurance policies. In October 2013, the Company sold its Portamedic service line to American Para Professional Systems, Inc."


Hear Cannell's Latest Investment Ideas

Carlo Cannell will be presenting his latest investment ideas at the Las Vegas Value Investing Congress next spring.  For a limited time, Market Folly readers can receive a huge 50% discount by clicking here.

Carlo Cannell Adds to Valuevision Media Position: 13G Filing

Carlo Cannell's investment firm Cannell Capital has just filed a 13G with the SEC on Valuevision Media (VVTV).  Per the filing, Cannell has revealed a 5.05% ownership stake in VVTV with shares.

This marks an increase in their position by 121,994 shares.  Cannell owned just over 2.3 million shares at the end of the second quarter. 

The filing indicates the date of trading activity that triggered this disclosure is listed as August 29th, 2012.  The fine print of the SEC filing also points out that Cannell Capital's ownership stake comes as a result of owning shares for various entities it is the investment adviser or general partner of.

Per Google Finance, Valuevision Media is "a multichannel electronic retailer that markets, sells and distributes products to consumers through television, telephones, online, mobile and social media. The Company's primary form of product exposure is its round-the-clock television shopping network, ShopNBC, which is distributed primarily through cable and satellite affiliation agreements, and markets brand name and private label products in the categories of Jewelry and watches; home and electronics; beauty, health and fitness, and fashion and accessories."

You can view past portfolio activity from Cannell Capital here.

Cannell Capital Trims Sun Healthcare Group Stake

J. Carlo Cannell's hedge fund firm Cannell Capital recently filed an amended 13G with the SEC.  In it, they reveal a 4.8% ownership stake in Sun Healthcare Group (SUNH) with 1,213,745 shares.  This is around a 24% decrease in their position size since the end of 2011. 

The disclosure was required due to trading activity on March 23rd, 2012 (quite a delayed filing it seems, but nevertheless wanted to highlight this activity).  We've highlighted Cannell Capital before as the firm was founded in 1992 and focuses primarily on small cap value plays.

Per Google Finance, Sun Healthcare is "a healthcare services company, serving principally the senior population. The Company operates in three segments: inpatient services, rehabilitation therapy services, and medical staffing services."

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.