Notes From Next Wave Sohn New York Investment Conference 2018

The annual Sohn New York Investment Conference recently took place and featured hedge fund managers sharing their latest investment ideas to benefit charity.  Before the main event, emerging managers shared their ideas in the Next Wave Sohn portion of the event.  Here's notes from these pitches.  You can also view notes from the main Sohn New York Conference here too.

Next Wave Sohn New York Notes 2018

Dylan Adelman, 2017 Sohn Investment Idea Contest Winner, Student at Penn.  Long Vostok New Ventures. (VNV) Listed in Stockholm.  Russian classified business.  He compared it to Craigslist, which has 90% operating margins and only 40 employees, making $500 million/year in profit.  Basically, "the Craigslist of Russia, but run to maximize profit.


Alexander Captain, Cat Rock Capital Management: Long Takeaway (TKWY), listed in Amsterdam.  "The Grubhub of Central Europe."  He said they looked for stocks that could go up 10x in 10 years, such as AMZN that when up 23x, and MA, PCLN, which went up more than 10x each.  Key was three factors: a big market, obvious shift, and winner-take-most economics.  He says Online Food Delivery fits these criteria.  $50B of a $2T food market, so huge market.  Ecommerce for restaurants is an obvious shift, as 80% of orders are still done over the phone now.


Tim Garry, Pelorus Jack Capital: He is predicting a price momentum / Beta crash.  Says 40% of market was driven by fundamental investors 10 years ago, and now it's only 11%. Relation to style factors such as momentum is more important than Beta.  Says there is a big spread between growth and value, and now quants are all in growth trades.  He uses DeMark indicators and was mixing up technical analysis and quant talk.  "High beta stocks underperform low beta."  Sounded like his pitch was almost be long dividend stocks and short growth stocks (back in 2016 for 2 months, growth stocks dropped 5% two months in a row).


Rashmi Kwatra, Sixteenth Street Capital:  Long Bank of Bangladesh (BRAC).  She runs a concentrated long only fund investing in Southeast Asia.  Bangladesh has a population of 163M, is located between India and China, entire country is the size of New York State.  Similar thesis for region - underbanked, rapid growth, etc


Oleg Nodelman, EcoR1 Capital: Long Ascendis Pharma (ASND).  Biotech PM, cancer survivor, claims to be "value oriented" Biotech PM, yet less than 10% of biotechs are profitable, and he points out that there is a 90% clinical failure rate.  ASND is a "platform company" which is in Phase 3 trials of a new Growth Hormone Deficiency treatment that only needs once a week shots instead of current treatments which are daily shots.   He does the math and gets $1.5B peak revenue based on $35k/year and 50% penetration, 8 years duration.  Says Big Pharma will buy them out if they are approved, and could pay 4x revenue to get $129/share. They also have Achondroplasia treatment (this is what Verne Troyer had) which he says is worth $111, and something called PTH worth $49.  so he argues you could double your money on this one.


Scott Goodwin, Diameter Capital Partners: Short Rallye, the owner of a levered French grocery called Casino, buy the 3 year CDS.  He runs a $1.7B credit fund, long/short.  This play has all the elements they look for: business with complexity, challenged industry, and similar playbook in other situations.  "We want equity risk masquerading as credit risk." Grocers are already under attack, just like they are in the US, but if macro turns down at all, there is no margin for error here at all.


Be sure to also check out notes from the main Sohn New York Conference as well, featuring Bill Gurley, David Einhorn, Larry Robbins and more.

Notes From Sohn San Francisco Investment Conference 2017: Okada, McGuire & More

We've already posted up notes from the Next Wave Sohn San Francisco Conference which featured emerging managers.  Now it's time for the main event presentations which featured top hedge fund managers sharing investment ideas to benefit the Excellence In Investing For Children's Causes Foundation.


Notes From Sohn San Francisco Investment Conference 2017

Mark Okada, Highland Capital Management

Idea: Vistra (VST)

Business: Integrated IPP.  Thesis:  Strong market position in bottoming cyclical industry.  An attractive valuation, balance sheet optionality / M&A opportunity.  Lower leverage than peers.  Texas is a power island (barrier to entry) and a rapidly growing state.  Imminent supply rationalization.  Optimal capital structure of 3.5x leverage could drive 13% FCF yield.  M&A potential - lot of interest in the space from 'smart money.'

Valuation: Current share price $19, multiple ways to win and drive a higher share price



Mick McGuire, Marcato Capital Management

Idea: Deckers Brands (DECK)

Activist position that they haven't spoken about publicly before.  Own ~6% of the company, 2nd largest position in their fund.

Business:  Multi-branded footwear and apparel company.  Known primarily for the Ugg shoe brand but also own Hoka One One (cult running brand), Sanuk and Teva brands.

Activist agenda:  Focus on core Ugg brand; pursue sale or spin off of non-core brands.  Reduce costs (best in class consultants think that the cost savings opportunity is $150mm-$200mm.  Recapitalize balance sheet to 1x net debt/EBITDA.  Use proceeds of recapitalization and sale of brands to repurchase shares.  Align management comp with margin, return and TSR improvement.  Ugg has been cast as a fad but has continued to grow.  Retail expansion has hurt margins and revenue per store has continued to decline.  Margins can double from 9% to 19% with recommended strategy.

Valuation:  Opportunity to unlock value from non-core brands - $464 million with very modest topline expectations. $66 share price today - can get to $135 to $158 based on a multiple of 7.0x to 8.0x



Christopher Lord, Criterion Capital Management

Idea: MercadoLibre (MELI)

Business: largest eCommerce and payments platform in Latin America (based in Argentina).  Operates across 18 countries in largest markets in Brazil, Argentina, and Mexico.

Thesis:  Large TAM: $1.2T with long growth runway with more e-commerce adoption.  Adoption should be supported by increasing broadband penetration and smartphone penetration.  Created their own logistics marketplace to help with deliveries.  LatAm has a large emerging middle class.

Growth rates have begun to inflect.  Mobile is expanding the addressable market.  Payments is becoming important to the business - developed a proprietary payments platform similar to PayPal; increases the TAM to $1.8T; provides option value.  Have 27% share of ecommerce in LatAm - expected to increase by 2020.  Revenue growth estimates are significantly higher than consensus for 2018, 19, and 20.

Valuation:  looks conservative relative to TAM opportunity versus analogs like Alibaba.

Bonus short idea: iRobot (IRBT).  Very high share of robot vacuums but Shark will introduce its own robotic vacuum at a very competitive price.  Consensus estimates are too high given the competitive launch.



Nancy Davis, Quadratic Capital Management

Idea: shorting leveraged credit (equity tranche of CLOs)

Thesis: CLOs are popular investments among insurance companies.  Levered credit market will be the first place that will feel the brunt of monetary tightening.

Ways to play it: Short BDCs: TICC Capital (TICC) and Prospect Capital Corp (PSEC).  Valuations are way too high given where LIBOR rates are.



Glen Kacher, Light Street Capital

Idea: Delivery Hero (DHER)

Business: consists of consumer platform, tech stack to transmit orders to restaurants and delivery operations.  #1 player in 35/43 countries; several top markets: Germany, South Korea, Turkey, Saudi Arabia, Kuwait; by far the dominant player in long tail markets

Online food ordering marketplace that operates in Europe.  Marketplace model is ~90% of orders and delivery model is ~10% of orders.  Little to no capex required.  Dark kitchen model where players operate food operations in competitors like SpoonRocket, Sprig, and Munchery has struggled; better business is the delivery and platform for existing restaurants.

Thesis: TAM of 72bn Euros across all markets where online delivery is underpenetrated.  Pricing power to raise prices because they provide value ot restaurant customers.  Expect EBITDA margins to scale significantly.  Multiple ways to win (increase in food delivery TAM, increase in online penetration, increase in market share, delivery hero take rate, LT EBITDA margin.

Valuation: Implied share price of 76 Euros based on the 20x EV/EBITDA multiple, 127% upside to current



Carl Kawaja, Capital Group

Idea: Sony (SNE)

Return of the Daikaiju

Thesis: New management is changing the culture.  Content is king - Sony's presence is underappreciated and the business is under earning.  Gaming, image sensors, music are the businesses that are very valuable; they comprise 2/3 of operating income and 1/3 of revenue.

Gaming: business is large and is evolving to a recurring revenue stream model where you pay a monthly subscription fees supplemented by in-game purchases.  Additionally, they have had some success in mobile games, have the #2 selling mobile game.  Transition to digital game downloads should lift margins.

Sensors:  Photo and video is the future of social interaction so images will continue to be an important business.  Sony's image sensors are critical for digital camera option.  Hal of all CMOS image sensors are Sony; 100% share of iPhone 7 and 8.  Profitability has been deperessed.

Music:  ~92 million paid music subscriptions globally.  #1 music publisher globally with 30% share and #2 record label.  Streaming is now 60% of digital revenues.  Digital music is more profitable than physical music.

Valuation:  Expect 50% upside based on sum of the parts valuation



Oleg Nodelman, EcoR1 Capital

Idea: Ironwood Pharmaceuticals (IRWD)

Business: Biotech company whose primary drug is Linzess - drug for Irritable Bowel Syndrome Constipation (IBSC); marketed by Allergan.

Thesis: Addressable market of 40mm Americans.  Linzess has safety and efficacy superior to competitive drugs.  Management with a long term focus.  Option value with another 7 drugs in the pipeline - current price gives no value to these R&D efforts.

Valuation: $16 per share price but intrinsic value is as high as $43 per share.  Adding in total pipeline value could increase value of $200/share.  Trades at a discount to peers in the space at 9.6x EV/Revenue.




Dan Morehead, Pantera Capital

Idea: Cryptocurrency

Bitcoin is a digital currency protocol similar to TCP/IP for the internet.  Blockchain is a serial killer (better than a category killer).  Fiat currencies are poor stores of value - even the dollar has still lost over 90% of its purchasing power since 1950.

Huge addressable market of the industries that Bitcoin could disrupt.  The protocol layer (Bitcoin) captures most of the value in crypto currency versus the internet where the application that is built on the protocol layer captures most of the value.

Two potential ideas: Kik will be the first major company to tokenize their entire cap table.  Funfair is a fast, fair secular online casino; Funfair aims to cut out the middleman.



Be sure to also check out the pitches from emerging managers via our notes from the Next Wave Sohn San Francisco Conference 2017 as well.