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.

SALT Conference Notes 2016: Griffin, Cooperman, Burbank, Chanos & More

The Skybridge Alternatives Conference, better known as the SALT Conference, is taking place in Las Vegas this week.  It's a multi-day affair with many speakers on a broad range of subjects.  We've condensed notes into primarily finance/investing thoughts from various hedge fund managers and investors below.


2016 SALT Conference Notes


Ken Griffin (Citadel):  Talked about how he built Citadel and the importance of culture at an organization.  'Avoid marrying a strategy' and instead focus on building a platform with the best people.  Business really taught him how to delegate and manage people.  On finding good talent: you've gotta be able to sell them on why they should leave and come to you.  You have to go out and find that talent instead of waiting for them to come to you.  The ones that 'knock on your door' aren't the best.  One interesting quote:  "Who is the number five manufacturer of personal computers?  Who cares?  We're in a more and more winner take all world."


Leon Cooperman (Omega Advisors):  He talked about a trend of investors moving from active to passive strategies and says that hedge fund performance can't really justify the fees these days, so fees need to come down.  He said that long-term (i.e. 'permanent') capital is doing good because they don't have to worry about lockups (citing Warren Buffett).  The other winner has been quant strategies.  Pitched the stock First Data (FDC) which recently IPO'd.  Says he's got around ~20% of his fund in structured credit at the moment.  Reiterated his belief that conditions for a recession are not present (a concept he's talked about for a while now).  Thinks the bubble is in fixed income.  Government bonds are a bad idea.  Likes Tetragon Financial, yields 7%, dividend coverage of 4x.  Buying a stock trading at half of book.


Kyle Bass (Hayman Capital):  Implied that investors need to lower their return expectations over the next few decades (5% global real return expectation).  Also agreed that fees for funds need to come down.  Says it's much harder to maintain investors than it is conviction.  Thinks we're in the early part of '07 in terms of credit/equity markets.  Says a hard landing in China is happening as we speak. Argues that China credit system is one of the biggest macro imbalances, something has to give sooner rather than later.  Hong Kong real estate is collapsing.


Roslyn Zhang (China Investment Corp):  Sovereign Wealth Fund.  Disappointed with hedge fund performance.  Compared Chinese retail investors to hedge fund herding.  Criticized those betting against the Chinese Yuan.  Argued that China's economy is still strong and that all of the building is due to the massive population; supply can be absorbed.


Sam Zell (Equity Group Investments):  Cost of regulation has gone up around 5x over the last decade.  Have been big investors in Brazil, Far East, Mexico. 


Ty Wallach (Paulson & Co):  Thinks specialty pharma stocks are oversold.  Specifically pointed out Valeant Pharmaceuticals (VRX) bonds.  Bought at 80cents on the dollar and says the co still has $10bn in equity value.  Could sell one of the many companies they've acquired if they need to cover debt payments.


Jeff Smith (Starboard Value): Activist investor.  Says settled with Yahoo (YHOO), put four new members on the board.  Notes the parts of the company are worth more than where its trading.  Core biz with $4bn in revenue, huge stake in Alibaba, Yahoo Japan, add it all up and it's more than the current market cap.  Said 'we're friendly but no one describes us as passive.'


Scott Ferguson (Sachem Head Capital):  Sold out of Zoetis (ZTS).  We noted how Pershing Square was also selling ZTS recently.  Ferguson was the one that brought the idea to Ackman to begin with (he used to work at Pershing).  Talked about how to change leadership and achieve things on behalf of investors: "Money's a great way to effectuate things" i.e. severance for getting rid of a CEO.  Says things are easier for activists these days and companies are more likely to engage. 


Clifton Robbins (Blue Harbour Group):  Activist investor.  Owns 10% of Investors Bancorp (ISBC), says it's trading at a discount to peers.  Also talked about Xilinx (XLNX), a net-cash semiconductor play; says they have some ideas as to how to utilize the balance sheet.


Michael Lewis (Author of Flash Boys and The Big Short):  Said he was surprised that both Moneyball and The Big Short were made into movies.  Said Christian Bale was dead-on with his interpretation of Michael Burry after just spending some hours with him.


Richard Chilton (Chilton Investments): Sherwin Williams (SHW): makes premium paint and coatings.  Says the company's purchase of Valspar was years in the making and they can repay the price with free cashflow in about 5 years.  Thinks there's a lot of synergies and margin overlap.  SHW does higher margins in paint/consumer and VAL does better margins in industrial coatings.  "You can't buy paint online."


John Lykouretzos (Hoplite Capital):  Takes a bit of an issue with the 'oligopoly' theme of airlines, saying it's still a competitive industry with margin pressure.  Bearish on the industry.  Main threats: excess capacity, union labor wage hikes, and of course higher oil prices.  Says that low cost carriers (LCC's) have basically destroyed the chance for legacy airlines to become a true oligopoly.  Thinks American Airlines (AAL) is the most compelling short play there.  Has some of the highest costs & exposure to rising oil.  High leverage.  Weakest FCF generation of the group.  Thinks that Southwest Airlines (LUV) can still add capacity even at higher oil prices (~$80 or so) and still generate high IRR.


John Burbank (Passport Capital):  Says China won't let outside companies 'win' especially Facebook.  "It's a hard place to win if you're not Chinese."  (While he didn't mention it, just look at Amazon's failed venture there as well).  Burbank owns Tencent (700.HK) with short Chinese Renminbi as partial hedge.  Thinks it isn't as much of a crowded trade as Facebook (FB) is.  His slide also said "Short FXI: Hedge out 'Old China' country-specific risk with China large cap ETF."


Jim Chanos (Kynikos Associates): Still short Cheniere Energy (LNG), calling it a 'pipe dream' and very expensive to peers.  Trades at 11-12x EV/EBITDA using "base case" 2021 EBITDA of $2.1bn.  Peers trading between 5-7x 2020 EBITDA.  Also commented on Alibaba (BABA) saying their accounting is dubious and that you don't really know what they're earning, calls it some of the most questionable he's ever seen. Chanos also recently talked about some of his short positions at the Sohn Conference.


For other recent hedge fund manager thoughts, head to our notes from Sohn Conference New York 2016.

Hoplite Capital Discloses Sinclair Broadcast Group Stake

John Lykouretzos' hedge fund Hoplite Capital has filed a 13G with the SEC regarding shares of Sinclair Broadcast Group (SBGI).  Per the filing, Hoplite now owns 5.2% of the company with over 6 million shares.

This is a newly disclosed equity position for the hedge fund and the filing was made due to activity on June 25th.  You can view other portfolio activity from Hoplite here.

Per Google Finance, Sinclair Broadcast Group is a "diversified television broadcasting company. The Company owns or provides certain programming, operating or sales services to more television stations."

Hoplite Capital Reveals SunEdison Stake

John Lykouretzos' hedge fund firm Hoplite Capital has filed a 13G with the SEC and revealed a new equity position in SunEdison (SUNE).  Per the filing, the hedge fund now owns 5.99% of SUNE with over 16 million shares.

The filing was made due to activity on February 26th.  Omega Advisors' Lee Cooperman highlighted his fondness for SUNE a few months back as well, as the company is spinning off its money-losing semiconductor business.

Per Google Finance, SunEdison is "formerly MEMC Electronic Materials, Inc is engaged in the development, manufacture and sale of silicon wafers. The Company is a developer and seller of photovoltaic energy solutions. Through Solar Materials and Solar Energy (SunEdison), it is a developer of solar energy projects. The Company operates in two segments: semiconductor materials and solar energy. The Company’s Solar Energy segment includes the operations of its old Solar Materials segment, as well as its SunEdison business. In the Semiconductor Materials, the Company offers wafers with a variety of features. The Company’s wafers vary in size, surface features, composition, purity levels, crystal properties and electrical properties

You can view some past portfolio activity from Hoplite here.

Hoplite Capital Adds to H&R Block Stake: Q3 Letter

John Lykouretzos' hedge fund Hoplite Capital is out with its Q3 letter.  In it, we see that they added to positions in Sea World Entertainment (SEAS), Monster Beverage (MNST), and H&R Block (HRB) during Q3 as shares sold off but their theses remain unchanged. 

HRB is their largest position and Lykouretzos writes,

"While HRB has recently announced that it will no longer be selling its bank to Republic Bancorp, we are confident they will either sell the bank or shut it down and pursue a more shareholder-friendly capital structure."

The hedge fund also exited their stake in Intuitive Surgical (ISRG) during the quarter as their thesis was incorrect.

This year, ISRG shares tumbled from $500 down to $420 after the second quarter and then continued to cascade to current levels of $369.  Numerous other prominent hedge funds like Viking Global were long shares of ISRG at the end of the Q2 so we'll have to wait and see if others sold in Q3 when the next batch of 13F filings come out.

Some of Hoplite's shorts include a semiconductor manufacturer and a wireless telecom operator in an emerging market.  They've recently added to shorts in companies that supply equipment to mining companies or that have exposure to mining in general and these are some of their top shorts.

Their Q3 letter also mentions that they were short a "handset manufacturer" that spiked when part of the company was acquired, and we assume that this position was Nokia (NOK).  As we detailed this week, Dan Loeb's Third Point bought NOK recently.

At the end of Q3, Hoplite had gross exposure of 150.7% and was 54.9% net long.


For more of the latest hedge fund letters, head to:

- Greenlight Capital's Q3 letter

- Third Point's Q3 letter

- Cobalt Capital's Q3 letter

- Corsair Capital's Q3 letter

John Lykouretzos' Presentation on Starbucks (SBUX): Ira Sohn

We're posting up notes from the Ira Sohn Conference.  Hoplite Capital's John Lykouretzos gave a presentation on going long Starbucks (SBUX).  Note: This is his largest disclosed equity long per the most recent 13F filed with the SEC.  He just initiated the position in Q1.

Lykouretzos started at Tiger Management as an industrial analyst, PM. He then launched Hoplite in 2003.  He thinks about owning and shorting businesses, not stocks. No pair trades, no short ETFs.

Long Starbucks (SBUX):  $54 now. $90 price target in next 3 years. $42B market cap. Net cash $1.7B. Two main drivers:

1. Coffee market is large, growing rapidly, driven by "premiumization" $76B market, not cyclical. Single serve is gaining share, still only 10% of coffee market. US single serve is only 8% of market, but growing at 55% CAGR. K-cups are driving the market, from 5% to 18% share. Stores getting better, mobile payments, etc.

2. SBUX will capitalize; CPG, China growth. CPG growing, K-cup now 17% share from 8% a few months ago. China growth; brand like NKE or AAPL. In US, it's a morning coffee business, in China, it's an evening/afternoon with food, great margins, best in the company. Not undiscovered, but "winners keep on winning"


P.S. - Don't miss other presentations from David Einhorn, John Paulson, Bill Ackman & more: notes from Ira Sohn Conference 2012.