The 9th annual Invest For Kids Chicago conference recently concluded and featured top investors sharing investment picks to benefit charitable organizations.
Last year's conference picks returned 22.9% in an equal-weighted portfolio over the past year. Here are this year's picks: click each link to go to that speaker's presentation.
Invest For Kids Chicago Notes 2017
- Dmitry Balyasny (Balyasny Asset Management): long Hertz (HTZ)
- Sam Zell (Equity Group Investments): On retail real estate
- Alec Litowitz (Magnetar): Presentation
- Amos Meron, (Empyrean Capital): long Seritage (SRG)
- Rajiv Jain (GQG Partners): long Sberbank (SBER.RU)
- Rick Reider (Blackrock): long emerging markets debt
- Jimmy Levin (Oz Management): Long Chinese banks
- Mathew Klody (MCN Capital): short Domino's (DPZ)
- Seth Singerman (Singerman Real Estate): long Washington Prime Group (WPG)
- Bart Stephens, Blockchain Capital: bullish bitcoin, ethereum, blockchain
Monday, November 6, 2017
Notes From Invest For Kids Chicago Conference 2017: Balyasny, Zell, Litowitz & More
Tuesday, October 10, 2017
Invest For Kids Chicago Conference 2017 Right Around the Corner
The 9th annual Invest For Kids Chicago Conference is just under one month away. It will feature top investors presenting their latest investment ideas in order to benefit smaller charitable organizations. Over the past 8 years, they've supported 47 organizations with gifts of $150,000 to $225,000 each. This year 7 organizations will be beneficiaries.
You can learn more about the event and register for the conference here.
Invest For Kids Conference Details
When: November 2nd, 2017 1:30pm to 5:30pm
Where: Harris Theater, Chicago
2017 Speakers List
Dmitry Balyasny, Balyasny Asset Management
Sam Zell, Equity Group Investments
Alec Litowitz, Magnetar Capital
Amos Meron, Empyrean Capital
Rick Rieder, Blackrock
Michael Sacks, GCM Grosvenor
Jimmy Levin, Oz Management
Bart Stephens, Blockchain Capital
Rajiv Jain, GQG Partners
Bethany McLean, Journalist
Arne Duncan, Emerson Collective
The event always has three goals: assemble highly regarded managers to share their ideas, bring the Chicago investment community together, and of course provide support for various smaller organizations in an effort to support underprivileged children.
If you're near the Chicago area or in the Midwest, it's definitely worth checking out.
Click here to register for Invest For Kids Chicago.
Thursday, October 27, 2016
Notes From Invest For Kids Chicago 2016: Grant, Zell, Brosens, Lykouretzous
The 8th annual Invest For Kids Chicago investment conference just ended and below are notes from the event. Just click each link to go to that presentation. Enjoy!
Notes From Invest For Kids Chicago Conference 2016
- Jim Grant (Grant's Interest Rate Observer): Bearish on BlackRock (BLK)
- Sam Zell (Equity Group): Fireside chat
- John Lykouretzos (Hoplite Capital): Long Sealed Air (SEE)
- Frank Brosens (Taconic Capital): Long Kaupthing
- Ed Garden (Trian Partners): Long Bank of New York Mellon (BK)
- Jonathan Gray (Blackstone Group): On real estate
- Leah Zell (Lizard Investors): Long BIM, Short Woolworth's
- Josh Wolfe (Lux Capital): Long nVidia (NVDA), Short Intel (INTC)
- Matt Halbower (Pentwater Capital): 2 investment ideas
- William Heard (Heard Capital): Long Fair Isaac (FICO)
- Arthur Kaz (Greenbriar Asset Management): Long Avaya bonds
For more investment conference coverage, be sure to also check out our notes from the recent Sohn San Francisco conference as well as the Great Investors Best Ideas Dallas conference.
Jim Grant Bearish on BlackRock: Invest For Kids Chicago 2016
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is Jim Grant of Grant's Interest Rate Observer who was bearish on BlackRock (BLK).
Jim Grant's Presentation at Invest For Kids Chicago 2016
• So much data – how do we know what is true?
• Easy to be overwhelmed
• Narratives as a belief system
• Active investors accept or reject narratives; passible investors always accept the narrative by default
• Markets are episodically efficient; they are no more coolly analytical than the people in them or the algorithms they write
• Interest rates are certainly low – not good for my business model
• Since 1997, the number of public companies in U.S. has been cut in half
• Now we have the first nominally negative bond yields in 5,000 years
• If Fed were late to raise rates it wouldn’t be the first time; likewise wouldn’t be the first time the bond market underestimated the fallibility of human beings
• Bearish on Blackrock (BLK)
• Its motto should be “built for a time of falling rates, rising asset prices, massive inflows…”
• Tailor-made for the financial moment
• Hand-in-glove with the Fed – Blackrock is the Federal Reserve’s Wall Street doppelganger
• BLK took in 18% of all mutual fund and ETF inflows in 2015
• Assets may come, assets may go
• Margins? There is a price war in passive. Fees are ~69 bps at BLK versus 15 at Vanguard. Further compression is likely.
• BLK is at 18x EPS vs. 14x industry average
• Massive amounts of insider selling at BLK without any buys
Be sure to check out the rest of the presentations from Invest For Kids 2016.
Sam Zell's Presentation at Invest For Kids Chicago 2016
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is Sam Zell of Equity Group Investments. He had a fireside chat to talk real estate.
Sam Zell's Presentation at Invest For Kids Chicago 2016
• 70% of what we do is in assets other than real estate
• We prefer a monopoly, but we’ll settled for an oligopoly; we look at costs to entry and barriers to entry and replacement cost
• We’ve done a lot of roll-ups over the years, and each begins with the idea that we don’t necessarily believe in synergies
• Domestic versus international investments: going outside of the U.S. means sacrificing the rule of law; trading growth for rule of law; tricky to weigh those considerations, but emerging markets are where the growth is; fertility and economic growth create demand; biggest challenge we have today is where the demand will come from:
o International investments also bring the risk of currency volatility, which requires extra patience
o Prefer inflation-sensitive asses when currency is an issue
o Mexico, Brazil, Colombia, India are biggest markets for us; very optimistic about Latin America
o We like investing in a country when it is on the cusp of reaching investment grade
o Doesn’t always work; we’ve been fortunate to move in and out at good times; Brazil recently was like handing the car keys to a teenager…sometimes they wreck it
o European demographics are horrible, and only Japan might be worse; hard to see growing demand
• Why does negativity abound among the investing class? We’re only wealthier in the past few years in terms of a fiat currency – are we moving from a responsible developed world to one dominated by competitive devaluations? And where is the demand? Our compliance costs have gone up 5x over the past eight years. So productivity is at an all-time low while regulation is at all-time high – unlikely to make historical rates of return in such an environment.
• Look at the stock market. One could say that given the level of investment and growth it is overpriced. Real estate assets are at an all-time high. Inflation is at all-time lows. The result is not likely to be long-term positive results. More likely to have a recession, a cleansing, a market clearing before U.S. can grow. We can’t pretend and extend our way to growth.
• On being pessimistic compared to Jon Gray or Barry Sternlicht: “I’m not as optimistic, but then I use my own money.”
o Not finding ways to deploy capital in CRE today. Happy to sell to Jon and Barry.
• On the traits of a good leader: it starts with 11th commandment, which is thou shalt not take oneself too seriously. Smile, make fun of yourself. Lead by example, not pontification.
• The definition of a schmuck is someone who has reached his goals.
Be sure to check out the rest of the presentations from Invest For Kids 2016.
Frank Brosens Long Kaupthing Icelandic Bank: Invest For Kids Chicago 2016
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is Frank Brosens of Taconic Capital who pitched long Kaupthing, one of three Icelandic banks.
Frank Brosens' Presentation at Invest For Kids Chicago 2016
• $6 billion AUM, event-driven and multi-strategy
• Risks are high due to central banks
• We seek very low correlation in our investments; we want no beta or duration; look for non-economic actors and forced sellers
• Angst in the hedge fund industry as high as ever, but the opportunity is actually pretty good • Returns likely to be muted versus historical levels
• Long Kaupthing, one of three Icelandic banks
• Iceland’s banking industry swelled in the prior decade to unsustainable levels – assets/GDP of ~10x
• We are largest Kaupthing creditor, having acquired most of the stake in 2012 and 2013
• In 2015 our partner in London got restricted and entered the negotiations with Icelandic task force
• In December 2015 the liquidation process finally commenced; payouts began in January 2016 but only 1/3 of proceeds distributed so far
• >200 assets in 12 countries; disclosure is very opaque – have to be a detective
o Our partner went person by person within Kaupthing, often using LinkedIn, to piece together relationships and affiliations; then talked to local businessmen and brokers to triangulate asset values
o Today, 16% cash, 33% operating assets and real estate, 25% stake in stable Icelandic bank, 25% other/misc.
o We believe our notes are worth par, with some upside beyond that, against a price of 86
o Most asset sales are coming in the next few quarters, so time horizon should be one year or less
Be sure to check out the rest of the presentations from Invest For Kids 2016.
John Lykouretzos Long Sealed Air: Invest For Kids Presentation
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is John Lykouretzos of Hoplite Capital who pitched long Sealed Air (SEE).
John Lykouretzos' Presentation at Invest For Kids Chicago 2016
• $2.6 billion AUM, Tiger Cub, equity long/short, established 2003
• Largest holding is Sealed Air (SEE)
• Started in bubble wrap, now has three businesses
• Highly integrated into customers’ processes = good pricing power
• History of management was very good and then quite bad; new CEO named in 2012 and turnaround, results have been impressive; overhauled strategy, executives, pricing, cost structure, compensation; focus now on FCF
o Turnaround is far from over – [EBITDA] margins have another 400 basis points to expand
• Pricing power remains, even after CEO has aggressively raised price multiple times in recent years; customers have no choice; also now getting paid as a percentage of the savings generated for the customer
o Estimate 1-2% price increases per year through 2022; mix improving too; 2% volume growth
• Limited capital intensity and no M&A appetite – 10% of shares likely to be repurchased each year
• Normalized FCF per share going from ~$2.89 in FY16 to $4.49 in FY18
• Diversey (cleaning and sanitation segment) is somewhat of a comp to Ecolab; acquired in 2012 in an ill-conceived move, leaving the company over-levered and lacking direction
o Will spin off this business; it could grow faster as an independent company – it needs investment in its salesforce, whereas SEE’s other businesses do not
• Target price: $60 in 2016, $70 in 2017, $84 in 2018, $102 in 2019
Be sure to check out the rest of the presentations from Invest For Kids 2016.
Jonathan Gray on Real Estate: Invest For Kids Chicago 2016
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is Jonathan Gray, head of real estate at Blackstone who talked about real estate.
Jonathan Gray's Presentation at Invest For Kids Chicago 2016
• 16% net return to Blackstone
• Our edge is scale and conviction
• We seek an opportunity to buy it, fix it, sell it
• Timing on Hilton and EOP deals in 2007 was poor, but still made 3x our investors’ money because we had the right structure and we didn’t panic; both were good assets and while levered they had reserves and no covenants; key was not being forced to sell; and had 2/3 of EOP assets not been sold 90 days after closing to delever, we wouldn’t be sitting here
• Airbnb has reduced hotels’ pricing power, but most are leisure travels; business travels often still want hotels
• Record occupancy across hotel industry
• Good opportunity in logistics but a real challenge for retail, especially “generic consumer supply” retail
• We’re looking to own in areas that are exciting and driven by technology/innovation: Bay Area, Seattle, New York
• Risks today: sharp jump in rates due to wage inflation; political crisis leading to economic crisis in Europe; China deceleration gets worse
o All are risks but none are base case
• Sam Zell says I’m too optimistic but I think we’re likely to continue slow growth; housing recovery has legs; banks are in good shape; realistic but trying to find opportunity in slow growth world
• Powerful urbanization trend in Chicago – people want to come here and live in the city, with companies like McDonald’s and Conagra following them
Be sure to check out the rest of the presentations from Invest For Kids 2016.
Ed Garden Long Bank of New York Mellon: Invest For Kids Chicago 2016
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is Ed Garden of Trian Partners who pitched a long of Bank of New York Mellon (BK).
Ed Garden's Presentation at Invest For Kids Chicago 2016
• Long Bank of New York Mellon (BK)
o $1.3 billion invested; Garden on board since Dec. 2014
• We invest in great companies when undermanaged, underperforming, underappreciated; we try to work with management to become best in class at everything; we usually take a board seat
o Eliminate management’s information advantage over board
o Find problems, identify opportunities to attack
• No hedging, long only, dislike the activist label
o Income statement focus, not balance sheet
• BK fits our risk profile: provides critical infrastructure, has good capital, is fee-driven (not NIM driven), has huge scale, and has opportunity to improve operations with cyclical upside as a bonus
• Progress so far: 9% reduction in real estate owned; leaner cost structure; five new board members; returning $2.75 per share to shareholders in 12 months ended 6/30/17; margins and EPS up
• 25% discount to the market valuation; hurts to have “bank” in our name; most earnings streams at cyclical trough
Be sure to check out the rest of the presentations from Invest For Kids 2016.
Leah Zell Long BIM, Short Woolworth's: Invest For Kids Chicago 2016
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is Leah Zell of Lizard Investors who pitched long BIM, short Woolworth's.
Leah Zell's Presentation at Invest For Kids Chicago 2016
• “The Grocery War Zone”
• Case study of Aldi’s amazing success over the years; see also “Bare Essentials” by Brandes
o A limited product range of everyday basics that sell fast
o Commitment tot be the price leader in the marketplace
o Extensive use of private label offerings
o Bare bonds no-frills operations
o Straight dealings with customers, employees, and vendors
o Decentralized management with minimal corporate overhead (cash management is only centralized function)
• Long BIM
• Same ideas apply to BIM in Turkey, whose slogan translates to “retail at wholesale prices”
• Very low operating expenses
• Low share of fragmented Turkish market
• All expansion funded with cash flow
• Since 2005 IPO, 26% CAGR in revenue, 34% in net income; >40% ROIC and ROE; net cash balance sheet
• Trades at 20x 2017 EPS now, but at 15% revenue growth, flat margins and no multiple expansion, still a double by 2020
• Short Woolworth’s in Australia
• Largest grocer but weaker as compared to Coles
• Aldi now competing with 400 stores too
• Woolworth’s now pursuing a restructuring, but too little too late? Needs a 3G makeover a la Heinz Kraft
• At 3.5% operating margin with single-digit sales declines worth AUD $14.50, down 40%
• Consumers today want either a premium product or the lowest cost – everything in between is getting squeezed
• Low cost is powerful (see Ryanair) but hard to execute
o Need a simple concept, ruthless execution, and a loop wherein scale widens the moat
o If you find a great business like this, hold on for the long term
Be sure to check out the rest of the presentations from Invest For Kids 2016.
Matt Halbower Long Turquoise Hill & VMWare Tracking Stock: Invest For Kids Chicago 2016
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is Matt Halbower of Pentwater Capital who pitched Turquoise Hill (TRQ) and VMWare tracking stock (DVMT).
Matt Halbower's Presentation at Invest For Kids Chicago 2016
• $3.4 billion AUM
• Long Turquoise Hill (TRQ)
• Copper and gold miner with one mine in Mongolia; 51% owned by Rio Tinto
• Phase II development on underground mine that will increase output 4x; requires spending $5 billion over next five years
• Balance sheet is attractive: no debt, $1.4 bn cash, $4.1 bn receivable from Rio Tinto
o Negative $3.1 billion enterprise value
• At 7x 2021 EBITDA, worth $8 per share, but likely taken private sooner
• Rio Tinto has a new CEO, and he has made many public comments about his bullishness on copper; Rio Tinto has engaged bankers regarding its stake in TRQ; logical outcome to take private, likely around $6 per share
• Long DVMT, VM Ware tracker issued by Dell
• VM Ware balance sheet is cash rich; stock is 20% cheap to peers; lots of FCF and buybacks
• Tracker is trading at 35% discount to VM Ware, much wider than typical 10% discount
o Discount likely due to Dell as non-investment grade issuer, even though Dell is generating a lot of cash and rapidly delivering – will be IG soon
• Agreement gives Silver Lake ability to IPO its Dell shares under certain conditions at certain points over the next two years; if so, DMVT tracker can be taken out at a premium
• IPO seems more likely than not, in which case we think the discount closes; if VM Ware also performs as expected opportunity to make 2x on DMVT
Be sure to check out the rest of the presentations from Invest For Kids 2016.
Josh Wolfe Short Intel, Long nVidia: Invest For Kids Chicago 2016
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is Josh Wolfe of Lux Capital who pitched short Intel (INTC) and long nVidia (NVDA).
Josh Wolfe's Presentation at Invest For Kids Chicago 2016
• Founder of Lux Capital, $750 million VC fund
• Science background
• Has Bill Gates on one of his companies’ boards (only board other than Microsoft and Berkshire)
• Seeks truly radical change and disruptive technology
• Lux is differentiated by longer horizon of 10 years
• Best way to predict the future is to invent it
• Gap between sci-fi and sci-fact is shrinking
• Companies
o Kymeta: meta-physics in satellites for transportation applications; Gates on board of directors
o Planet Labs: tiny satellites
o Orbital Insight: data analytics and artificial intelligence using big data, often sold to hedge funds
o Zoox: CPU (multi-cores) going to GPU (hundreds of cores); “these guys are the second coming of Jobs and Woz)
o Nervana Systems: just sold to Intel
• Short Intel (INTC) – it is a shell of its former self; it is trying to buy success via M&A; nobody coming out of top schools wants to work there
• Long nVidia (NVDA), on the other hand, which is ascendant -- $850 million of FCF this year going to $1 billion next year
o NVDA is the “arms dealer” to all of the companies we’re backing
Be sure to check out the rest of the presentations from Invest For Kids 2016.
William Heard Long Fair Isaac (FICO): Invest For Kids Chicago 2016
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is William Heard of Heard Capital who pitched long Fair Isaac (FICO).
William Heard's Presentation at Invest For Kids Chicago 2016
• Long Fair Isaac (FICO)
• Misunderstood, synonymous with credit scores but has a much broader, better business
• 60% applications, 25% credit scores, 15% tools
• Valuation seems rich on P/E and P/BV but still a good opportunity
• Not just levered to consumer credit and mature, saturated markets -- $8 billion total addressable market, so a move from current 3% share to 5% means hundreds of millions in revenues
• Shrinking share count: -57% since 2004
• Have beaten quarterly estimates more often than not in recent quarters
• Only six analysts cover the company
• $150 price target at 22x forward EPS
Be sure to check out the rest of the presentations from Invest For Kids 2016.
Arthur Kaz Long Avaya Bonds: Invest For Kids Chicago 2016
We're posting up notes from the Invest For Kids 2016 investment conference. Next up is Arthur Kaz of Greenbriar Asset Management who pitched long Avaya bonds.
Arthur Kaz's Presentation at Invest For Kids Chicago 2016
• Long Avaya bonds
o 7% senior secured 1st lien notes worth par within a year
o Also buying 2nd lien notes at 43
• Company likely to file for Chapter 11 protection as soon as next month
• Revenue declining in shift from hardware to software, but margins are offsetting -- -7% sales but +7.7% EBITDA margins
• Lots of special charges and add-backs that can soon be addressed
• $200 million of interest expense
• Believes there is $850 million of EBITDA
o At 6x and with 4x leverage, believes first liens get 76 cents of cash and stock for ~2/3 of equity in reorganized company
o Room to be wrong on both EBITDA and multiple
Be sure to check out the rest of the presentations from Invest For Kids 2016.
Thursday, September 29, 2016
Invest For Kids Chicago 2016: Brosens, Zell, Grant & More
The eighth annual Invest For Kids Chicago conference is coming up soon on October 26th, 2016. It will feature presentations from elite investment managers in concise 15 minute presentations in order to benefit underprivileged kids in the Chicago area. You can register for the conference here.
Speakers List: Invest For Kids 2016
- Frank Brosens, Taconic Capital
- Ed Garden, Trian Partners
- Jim Grant, Grant's Interest Rate Observer
- Sam Zell, Equity Group Investments
- Jonathan Gray, Blackstone
- John Lykouretzos, Hoplite Capital
- Matt Halbower, Pentwater Capital
- Michael Sacks, GCM Grosvenor
- Debra Cafaro, Ventas
- Josh Wolfe, Lux Capital
- Leah Joy Zell, Lizard Investors
- William Heard, Heard Capital
- Arthur Kaz, Greenbriar Asset Management
Event Details
When: October 26th, 2016 from 1:30pm to 5:30pm
Where: Chicago, Illinois at the Harris Theater
Registration: https://investforkidschicago.org
The 2016 conference's beneficiaries include: College Possible, Urban Initiatives, The People's Music School, The Posse Foundation, North Chicago Community Partners, Perspectives Charter Schools, and Chicago Children's Advocacy Center.
This is always an excellent event so we highly recommend attending, especially if you're in the Midwest. Click here to register for the event.
Friday, November 6, 2015
Notes From Invest For Kids Chicago 2015: Burbank, Sandler, Tananbaum & More
The seventh annual Invest For Kids Chicago conference recently took place benefiting underprivileged children in Chicago. Many prominent investors shared their latest ideas and you can click below to read about each presentation.
Invest For Kids Chicago 2015 Notes
- John Burbank (Passport Capital): Long CF Industries
- Steve Tananbaum (GoldenTree Asset Management): Calpine equity
- Ricky Sandler (Eminence Capital): 2 longs & 1 short idea
- Andy Hall (Astenbeck Capital): Outlook for oil
- James Flynn (Deerfield Management): Horizon Pharma & Valeant Pharmaceuticals
- Soren Aandahl (Glaucus Research): Short EROS
- David Samra (Artisan Partners): Pitch on RBS
- Rupal Bhansali (Ariel Investments): 2 long ideas
- David Heller (Cloud Gate Capital): Long Berry Plastics
- Andy Greenberg (Saker Management): Long NXRT
- Michael Sacks (GCM Grosvenor) & Barry Sternlicht's (Starwood) conversation
- Sam Zell & Andrew Litt on real estate
John Burbank Long CF Industries: Invest For Kids Chicago Presentation
We're posting up notes from the Invest For Kids Chicago conference 2015. Next up is John Burbank of Passport Capital. He pitched a long of CF Industries (CF).
John Burbank's Invest For Kids Chicago Presentation
• Pitching CF Industries (CF).
• Biggest position for two years.
• One of the few commodity equities he wanted to be long.
• Remains bearish on commodities.
• Located for 30 minutes from Chicago for just for another quarter, did a merger.
• Stock traded down 30% off the deals.
• First was a purchase of OCI. 60% of nitrogen fertilizer capacity in USA/5% global market share.
• USA is the Saudi Arabia of Natural Gas.
• $2 gas margins over 50%.
• Went to $70 in early July, ended at $45 by September.
• CF to exchange $7.4B of stock and assumed debt and cash for OCI NA and European nitrogen/methanol facilities. 2016 close data. Enables a tax inversion.
• Over-levered copper companies which are going to zero rising 50%, yet stuff like CF dropping doesn’t make sense.
• HSR approved yesterday and the stock dropped, not understood by the market.
• By February should be closed.
• CHS Co-Op – sold a minority stake at a premium. CHS canceled a 3.1BB nitrogen plant. Instead will invest 2.8B in CF for 9% of CF’s pre OCI deal production.
• Deal values CF equity at ~$107.
• Combined market cap of $17B. 3-5B of EBITDA post deal.
• Cash flow from ops after mcapex of $1.8 to 3.2B.
• Product capacity of 25.1MM short tons.
• Will use FCF to return to shareholders.
• Take five years to build capacity so nothing to do with money.
• CF is not a mining company.
• Short Mosaic (MOS), Potash (POT), Agrium (AGU), K&S as a hedge. Negative on markets and commodities.
• Also is long USD.
• CF is 8th best performing stock over the past ten years behind apple.
• EPS 5.5-6 dependent upon corn yields.
• Street doesn’t understand this industry or the OCI deal.
• Passport has an analyst with a Dow/GE background tracking this. Good edge.
• CF has returned 11% of its market cap annually to shareholders, bouht back 35% of company since FY12. 2.3% div yield. Will probably buy abck more stock.
• Sold phosphate biz (not great) to Mosaic.
• Executives are buyers.
• Will return $12Bn to shareholders over next four years. Mcap is 17B.
• Can’t buyback stock now until deal closes.
• Buybacks based upon flat prices.
• Thinks commodity prices going down, USA might go into something that feels like a recession. Shouldn’t own most stocks. Want something confident in liquidity and management.
• Trade long CF / short 2/3 MOS and 1/3 POT as a pair.
Check out the rest of the presentations from Invest For Kids Chicago 2015.
Steve Tananbaum on Calpine Equity: Invest For Kids Chicago Presentation
We're posting up notes from the Invest For Kids Chicago conference 2015. Next up is GoldenTree Asset Management's Steve Tananbaum who talked about Calpine equity.
Steve Tananbaum's Invest For Kids Chicago Presentation
• $24B AUM – credit manager formed in 2000.
• Credit market discussion – HY defaults increasing, many leading indicators.
• High transaction multiples and leverage increasing – debt to ebitda around 5.2x. Increase in default rates, just about to begin over the next 12-24 months.
• Would get 1000 bps, think were halfway there at 500 bps spread.
• Is HY cheap now? Now its ok, closer to fair value.
• 2/3 bonds trading below par. 90% of loans trading below PAR
• Now a bond/loan picker market.
• June 14 – 90% of bonds above par
• In bonds – 2/3 of what is trading below 95 isn’t energy. Loans its 80%.
• Looking at triple C credits, many funds who owned them did great in FY09-13, and then 14/15 something went wrong. What occurred is the lowest part of the market had a significant reversal (i.e. CCC) underperforming by almost a 1000 bps. Expect it to continue.
• Triple C headwind.
• Oil futures $52 for dec 15, hy market/stock market pricing in a $65 price. Performance in energy/commodity function where oil is.
• Problematic sector? Technology. Leverage is around 7x currently for Tech LBOs. What enters LBO tech market is slow to no growth tech companies (i.e. Compuware although no mentioned by name). Went from 4x to 8x. Technology is 8% of CCC issuance.
• Illiquidity in HY market? More where it is in the 90s, 05 was an anomaly.
• Finding some value in structured products. Greater issuance versus corp bonds a decade ago. 2x1 structure vs corporate. Now it is 20% of issuance. Less eyes on structured products.
• Adjustable rate feature in structured rate products aren’t being priced in.
• Idea is Calpine equity (CPN) –an independent power producer trading at low multiple, trough earnings and strong cash flow.
• Half of cash flow is locked in for 3 years. Stable earnings outlook even in a low commodity price environment.
• Young reliable efficient gas and geothermal fleet.
• Texas – currently at trough earnings/depressed margin (25% of cash flow)
• Buying back stock aggressively – 20% over last two years.
• Significant NOL to shield free cash.
• Will buy back another 15% of stock.
• $22.3 by FY17 or a 20% FCF yield today.
• Create gas assets at $477kw less than half of replacement costs.
• Risk is increasing renewable supply such as wind/solar, potential new gas supply if prices recover and high leverage at 5.4x or 6.4x including major maintenance.
• Bonds trade above par at spread basis, credit markets benign view.
• FCF conversion currently 33%.
• Trades for ~8.25x EBITDA.
• Price target includes 298 shares, $3.16 per share of FCF and implies a 12% fcf yield.
• Down 32% YTD – market thinks price will be priced off $2 gas. Half of cash flows already locked in.
Check out the rest of the presentations from Invest For Kids Chicago 2015.
Ricky Sandler Long GMCR & ZNGA, Short WAB (Invest For Kids Chicago Presentation)
We're posting up notes from the Invest For Kids Chicago conference 2015. Next up is Eminence Capital's Ricky Sandler who pitched a long of Keurig Green Mountain Coffee (GMCR).
Ricky Sandler's Invest For Kids Chicago Presentation
• At 25 launched his own business Fusion Partners. In '98 started Eminence
• Long idea: GMCR/Keurig Green Mountain.
• Controversial there is a credible short story. Thinks it’s already priced in and an incredible long opportunity.
• Two businesses, hot biz (kcups) and Kold with sodas, brand new.
• Hot platform sell 9MM to 10mm brewers/year and sell 10B to 11B kcups per year.
• Razor/razorblade model.
• Significant room for increased household penetration. Current penetration at 21M to 22M households compared to 70MM homes. With a coffeemaker.
• Think market goes single serve.
• Industry kcup should grow in the LDD range.
• $4 of EPS from the hot business in FY15 estimated.
• Think hot EPS can reach $5 over the next couple years driven by volume growth, $300MM restructuring, normalizing brewer losses form the last holiday season, normalized coffee costs, share buybacks and offsetting some headwinds.
• Kold launched in September with Coca-Cola. Addressable market thinks its 5x – 10x hot.
• Reviews are high on quality but negative on price/value.
• $375 asp per machine and pods more expensive than a can of coke.
• Not so much price of pod, but thinks the range of pods/products.
• Think its convenience/choice. Negatives looking at just price.
• Kold loss 50 cents per share.
• Trades at 15.5x FY15E sept EPS and 13.5x EPS ex kold.
• EPS estimates under pressure – poor 2.0 brewer launch execution and K-cup profitability impacted by mix shift. Finally negative reaction to kold.
• Hot value = 17x -20x hot EPS ($5) or 85-100 plus option value for kold.
• KO owns 17% at $92. Insiders bought at $90.
• Loves Baidu (BIDU), and a top five position.
• Zynga (ZNGA) – mobile gaming. Franchises include Farmville, words with friends.
• Some think games are obsolete, ZNGA has 75MM active users.
• Zynga was late to the consumer shift from desktop to mobile making the last two years rough. • Mobile games for the last year =70% of bookings vs 30% a year ago.
• Expect new titles over the next 12 months.
• Trading at 1x sales when backing out SF real estate ($500MM value). $687MM EV.
• Launch 6 new games, $300MM incremental bookings bringing total bookings to $900MM.
• KING sold for 2.6x sales, using that valuation = $5.
• At a 35% margin, ZNGA generate $315MM EBITDA or trading for 2x.
• Has big infrastructure to support bigger biz. Downside protection by cash and real estate.
• Top hit potential = $1B rev potential.
• Mobile gaming is $20B biz. New categories such as esports and real money gaming growing.
• Wabtec (WAB) – Short.
• Leading supplier of brakes, electronics and other railroad components to the global rail industry.
• 55% - 60% of EBIT comes from NA freight segment.
• LT rail is GDPish industry and cyclical.
• Track record is fantastic – only US listed co whose stock price increased every year for 14 straight years, 19% EPS CAGR form 06 to 15E and hadn’t missed earnings since 09 and 3Q15.
• Bull thesis – not cyclical, high ROIC/ high market share high after market mix/quality biz.
• Product mix is opaque due to acquisition strategy.
• Bulls think EPS will grow double digits for ever.
• WAB is cyclical and currently at the peak of rail equipment super cycle driven by NA O&G activity.
• Demand driven by trail traffic, production of new locomotives and freight cars.
• Rail traffic is weak – CNI talking about laying off employees.
• Locomotives – NSC storing locomotives, expect it to be up to 200. GE orders dropped significantly, only sold compared 3 the last quarter.
• Freightcar peak – industry backlog driven by tank cars oil and covered hoppers i.e. frack sand. 40% downside to deliveries.
• Trading at 20x EPS, 13x EBITDA. Could be peak earnings in FY15. Mid cycle earnings $3.5 - $4. At 16x = $60 or 30% downside.
• Low short interest, favorable sell side ratings.
• Consensus calls for positive organic growth.
Check out the rest of the presentations from Invest For Kids Chicago 2015.
Andy Hall's Outlook For Oil: Invest For Kids Chicago Presentation
We're posting up notes from the Invest For Kids Chicago conference 2015. Next up is Andy Hall of Astenbeck Capital who talked about his outlook for oil.
Andy Hall's Invest For Kids Chicago Presentation
• Presentation is the outlook for oil.
• Rarely consensus view for oil has been this pessimistic.
• Saudi Arabia/Worries over China – murky long term outlook for oil and fossil fuels. Running out of storage perhaps. Cash costs production avg $20 per barrel.
• Perception is worse than reality. Q3 stock build at 500K BPD vs estimate of 1.6MM BPD.
• Q2 estimated surplus revised lower by 900 KBPD.
• No super contango means no distressed surplus of oil in contrast to 09 and 86.
• Global oil demand growing at 2MM BPD so far in FY15, double the rate predicted at beginning of the year.
• Chinese demand growing at 7% YoY, led by gasoline and jet fuel.
• Demand response to lower prices has already reduced surplus. Current oversupply is not just crude oil but also NGLs.
• Overall surplus will continue to shrink and become a growing deficit in h2 2016.
• In 1986 OPEC spare capacity was almost 20% of global product, today OPEC spare capacity is less than 2%.
• Cuts in industry capex will prove excessive – industry cut capex by 25% in FY15. Further cuts expected in fy16, only second time in 30 years capex cut in consecutive years. Believes capex reductions will prove excessive – not 1986.
• Significant lag between laying down rigs and production rolling over. Production peaked in June and has since dropped by 500 kbpd. USA shale/tight oil production overs over first.
• Us production to continue to fall – EIA has reduced USA oil production forecast for FY16 from growth of 200 kbpd to a decline of 400 kbpd.
• Rig productivity has plateaued.
• Iran will add 300k to 400k barrels per day. Iraq will decline due to budgetary constraints.
• Nigeria, Venezuela and Algeria at risk.
• High geopolitical risks throughout oil producing regions.
• Stop growth – supply declines by 8.6% per annum at existing production. 1.3MM bpd per annum has been the average or 1.4% growth in demand.
• Thinks $70 per barrel is where it needs to be. Shale co’s said $40 break even yet they haven’t been able to generate FCF since FY10. Their supplier costs will likely rise as well particularly after consolidation.
• 2/3 E&P have negative cash flow and may be heading to bankruptcy. PXD says they need $70, EOG needs $80.
Check out the rest of the presentations from Invest For Kids Chicago 2015.
