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. 

Stephen Loukas Long Granite REIT: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Stephen Loukas of FrontFour Capital who pitched a long of Granite REIT (TSE:GRT).


Stephan Loukas's Sohn London Presentation

Long: Granite REIT (TSE:GRT)

Granite REIT is a Canadian listed owner-manager of industrial property. Its portfolio is comprised of 92 properties with 98% occupancy. It’s listed on TSX and NYSE.

Greenlight Capital have launched an activist campaign there.

Automotive supplier, Magna International, is its primary tenant representing 70% of its revenue.

Exposure: 27% Austria; 30% US; 27% Canada; 16% rest of Europe.

Dividend yield 5.2%. Pay-out ratio 76%. Leverage ratio 24%. Credit rating: investment grade.

There has been a significant change in the composition of the board – 5 new directors have been elected. FrontFour was a catalyst and were successful in having 3 of their directors elected. The CEO will depart early 2018. Expect there to be a change in the company’s strategy.

Magna is a strong company rated A- for credit risk by S&P and Moody’s. It would not be easy for them to leave as the buildings have been designed for their purposes.

The new board has already bought back $11m of stock since June. The company has been buying below $50 and that puts some sort of floor under the price.

Granite trades at a discount to Canadian REITs but a large discount to US and European REITs.

The new management have an opportunity to lever up the balance sheet. They should use the debt capacity to make acquisitions in the US. There maybe be some buybacks too.


Be sure to check out the rest of the presentations from Sohn London 2017.

David Lorber's Sohn Canada Presentation: Long Ubisoft

We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.)  Next up is David Lorber from FrontFour Capital who pitched long Ubisoft.

David Lorber's Capitalize For Kids Presentation

-    Value event-driven fund
-    Long – Ubisoft (French listed video game country) 
-    Levered to game development industry (XBOX one and PS4 coming out)
-    Higher margin point of sale, and upgrades add additional margin
-    Shift from physical to digital sales has increased margins
-    Strong North American footprint and have prices pegged to USD
-    3/10 of the top 10 best sellers in 2014
-    Strong pipeline of games to come
-    Valuation is cheaper than EA & Blizzard
-    77% upside to 32 euros/share
-    “For Honour” (new game to come out) looks to be a possible home run with very high quality multi-player play modes
-    Brand extensions will provide additional opportunity through licensing and royalties
-    Secular tailwinds, cheapness of company compared to comps and industry consolidation provide opportunity to get into a great business with lots of upside.


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