The 2017 Capitalize For Kids Investors Conference is only a few months away in Toronto, Ontario. It features top investment managers sharing their investment ideas while all proceeds are allocated to solving the toughest challenges in children's brain and mental health.
You can learn more about the conference and register at their website: https://www.capitalizeforkids.org/conference
Capitalize For Kids Conference Details
When: October 18th and 19th, 2017
Where: Arcadian Court, Toronto, Ontario
2017 Speakers List
David Einhorn, Greenlight Capital
Richard Chilton, Chilton Investment Company
Prem Watsa, Fairfax Financial
Aaron Cowen, Suvretta Capital
Jeffrey Smith, Starboard Value
Brad Dunkley and Blair Levinsky, Waratah Capital
Dan Dreyfus, 3G Capital
Samantha Greenberg, Margate Capital
Paul Hilal, Mantle Ridge
Ted Goldthorpe, BC Partners
James Keenan, BlackRock
Jeffrey Olin, Vision Capital
Brandon Osten, Venator Capital
David Blitzer, Blackstone
John Wilson, Sprott
Richard Pilosof and Mike Quinn, RP Investment Advisors
Youlia Rowland, Proxima Capital
Ajay Royan, Mithril Capital
Christian Lassonde, Impression Ventures
This is a high quality event and basically has become Canada's pre-eminent investment conference. And as you can see above, it features some quality speakers. Hear their latest investment ideas and benefit charity at the same time.
The conference is already 60% sold out, so hurry before it's too late. More than 400 pension plans, family offices, and buy-side investors will be in attendance.
You can register for the conference by clicking here.
Embedded below is the flyer for the event:
Friday, July 28, 2017
Capitalize For Kids Investors Conference 2017: Einhorn, Watsa, Chilton & More
Monday, October 31, 2016
Notes From Capitalize For Kids Conference 2016: Asness, Russo, Smith & More
The Capitalize For Kids / Sohn Canada Conference just ended in Toronto. Below are notes from the event and you can click each link for a summary of that speaker's presentation.
Notes From Capitalize For Kids Conference 2016
- Cliff Asness (AQR Capital): Fireside chat
- Jeff Smith (Starboard Value): Long Stewart Information (STC)
- Tom Russo (Gardner Russo & Gardner): Long MasterCard (MA)
- Alex Roepers (Atlantic Investment Management): Three long ideas
- Dan Farb (Highfields Capital): Long Franklin Resources (BEN)
- Anna Nikolayevsky (Axel Capital): On lower oil forever
- Brad Dunkley (Waratah Capital): Long Linamar
- Michael Gentile (Formula Growth): Long Gamestop (GME), short WD-40 (WDFC)
- Satish Rai (OMERS): Fireside chat
- Aaron Cowen (Suvretta Capital): Two long ideas
- Credit Panel (KKR, Centerbridge Partners, former Apollo): Discussion
- Emerging Manager Panel (Fidalgo, D'Costa, Brimm): Notes will be posted soon
- Clint Carlson (Carlson Capital): Notes will be posted soon
- Tom Wagner (Knighthead Capital): Notes will be posted soon
For more recent investment conference coverage, we've also posted notes from:
- Invest For Kids Chicago (Grant, Zell, Brosens, Lykouretzos)
- Great Investors Best Ideas Dallas (Einhorn, Pickens, Gabelli)
- Sohn San Francisco (Morfit, McGuire, Palihapitiya)
Cliff Asness' Talk at Capitalize For Kids Conference 2016
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Cliff Asness of AQR Capital who had a fireside chat on various finance topics.
Cliff Asness' Talk at Capitalize For Kids Conference 2016
• Believes the role of hedge funds for a long time was to provide alpha and systematic strategies. Now there is generally not much value in the “hedge” aspect since many funds are correlated with the market
• Regarding fees, thinks 2/20 is appropriate if you are able to isolate alpha (by hedging out beta using derivatives), essentially to make sure it is real market outperformance – however, true alpha is hard to find. Says the current fee structure is not sustainable for everyone.
• Suggested two ideas for investment firms/allocators: have lower fees due to longer lockups periods which should better align all stakeholders. Secondly, with zero beta strategies management and performance fees that move inverse of correlation to the markets.
• Sharpe Ratio: It a decent measure but not perfect. Believes it can generally add value to a portfolio if they are not correlated with markets.
• Founded in late 1998 following tenure with Goldman Sachs. Initial focus was on systematic value however ran into difficulties as firm was essentially short expensive and long value. For AQR, capacity is a problem since liquidity is very important. They have closed strategies in the past.
• Believes machine learning (AI) can disrupt anyone doing something with high frequency, generally thinks fundamental stock picking will continue to work.
• Return distribution is quite “visible” in bonds. Limited returns since rates are so low.
• Same with stocks since they are expensive. It’s tough to “buy at the 90th percentile and sell at the 99th”. Key is to find lots of uncorrelated assets
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Jeff Smith Long Stewart Information: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Jeff Smith of activist firm Starboard Value who pitched long Stewart Information (STC).
Jeff Smith's Presentation at Capitalize For Kids Conference 2016
• LONG Stewart Information Services (STC). Leading title insurance company, providing title insurance of home owners for both residential (90% of business) and commercial (10% of business)
• $1 billion market cap, trades at 15x earnings
• Title insurance is generally required by mortgage underwriter for buying a house and an refi. Needed for buyers’ safety to make sure no outstanding loans on the company.
• Different than typical insurance business. Most traditional insurance business insure customers of losses for something they are trying to predict. Title insurance does not predict but essentially performs due diligence and therefore less risky, lower losses.
• Very strong network build over many decades, with 12% market share. STC is one of the four clear leaders in this market.
• Approximately 50% of sales are sold through direct (utilize own employees, higher margin business) and the remaining is agency business.
• Opportunity for Starboard is: STC is currently underearning, pre-tax margins are 5% vs. industry peers of 11%. Believes margins can reach its peers based on additional cost cutting initiatives.
• Since GFC, believes mortgage industry is less susceptible to fraud. Loss rates for title insurers has come down since 2009.
• Balance Sheet is very strong (strongest relative to peers) and can return capital to shareholders • Believes the company trades at a discount to peers due to years of underperformance, historical governance issues and no sell-side attention.
• Recently dual class structure has been removed. • Currently, Starboard has influenced the board and is adding two members (already made one change by placing the Steward CEO on the board).
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Tom Russo Long MasterCard: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Tom Russo of Gardner Russo Gardner who pitched a long of MasterCard (MA).
Tom Russo's Presentation at Capitalize For Kids 2016
• Wells Fargo currently trades at 10x earnings and almost 4% yield and certainly looks like a cheap stock relative to historical levels and the index. It currently has uncertainty due to its reputational crisis.
• However, low capacity to reinvest. Currently own 10% of U.S. deposits and cannot grow further. Now are looking to reinvest in their different lines of business. Believes you can generate a good return
• With MasterCard, while it trades at 20x earnings, approximately 85% of the world still uses cash. Believes there are numerous reasons why this should change over time. MasterCard continues to invest in operating expenses and therefore earnings are currently depressed hence, believes 20x earnings is overstated.
• Overall, believes that while at 10x earnings Wells Fargo is attractive but has no capacity to reinvest, he would argue MasterCard has the capacity to reinvest and therefore MasterCard (even at 20x earnings) represents better value.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Dan Farb Long Franklin Resources: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Dan Farb of hedge fund Highfields Capital who pitched a long of Franklin Resources (BEN).
Dan Farb's Presentation at Capitalize For Kids Conference 2016
• LONG Franklin Resources (BEN). Has 2x the exposure to commodities and emerging markets relative to other asset managers.
• An asset manager with $700 billion in assets.
• Recently, stock and earnings have declined due to this exposure and currently trades at a discount.
• Since 1987, has compounded capital over 16% per year (vs. 10% in S&P). Made two strong acquisitions, Templeton in early 90s and Mutual Shares in the mid-90s
• Average U.S asset manager currently trades at 14x earnings, BEN trades at 12.7x earnings.
• Expects AUM and fund performance to stabilize which should help grow earnings and potentially multiple expands.
• Currently trades at $34/share but has $18/share in net cash and real estate (90% of cash is held offshore).
• Johnson family owns 37% of the shares, aligning well with shareholders’ interests.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Alex Roepers Long Owens-Illinois, Eastman, Harman: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Alex Roepers of Atlantic Investment Management who pitched three longs: Owens-Illinois (OI), Eastman (EMN - spin-off from Kodak), and Harman (HAR).
Alex Roepers' Presentation at Capitalize For Kids Conference 2016
• LONG Owens-Illinois (OI), largest maker of glass in the world. Wine, beer, liqueur.
• Overall, industry has suffered from substitution from plastic and cans. But it is relatively stable.
• This is the winning consolidator, has 80 plants with each plant having a $200 million investment. They operate local duopolies since it is uneconomic to ship glass far distances.
• Has great customers (Heineken, Pernod Ricard, etc), no technological obsolescence, no foreign competition.
• Believes stock price dropped as earnings has been impacted from strong USD (70% of sales outside of US).
• LONG Eastman (EMN). Spinoff from Eastman Kodak.
• Over 75% of the business is now speciality chemicals with sold margins and growth.
• Believes it can earn $8 to $9 cash earnings per share. Currently trades at $66.
• Have recently paid off debt and now are focusing on repurchasing shares and could be a takeout candidate.
• LONG Harman (HAR). Manufacture entertainment systems for cars and do professional services (for concerts, stadium, etc). Top 12 out of 15 car companies are their customers.
• Has followed the company since the 1990s. The company transitioned from audio to consumer to audio for business (car companies, professional services, etc).
• KKR has previously bid on the company in 2007 but deal fell apart leading into GFC. Has recently sold off due to china slowdown, peak auto sales, etc.
• Believes it has strong end-markets and the company has recently posted solid results.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Michael Gentile Long Gamestop, Short WD-40: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Michael Gentile of Formula Growth who pitched long Gamestop (GME) and short WD-40 (WDFC).
Michael Gentile's Presentation at Capitalize For Kids 2016
• Long Idea is Gamestop (GME), largest video game seller in North America and globally.
• Stock hasn’t done much over the past few years despite general increase in market indices.
• Currently, 29% of float is short, 5.9x earnings, 3.5x EV/EBITDA, 19% FCF yield and 5.9% div yield.
• Market belief: believes digital sales (currently 25% of all sales) will replace physical sales in the next few years. Also, GME has had poor Aug and Sept months.
• Believes GameStop is the only retailer that does used business as well as it does. Furthermore, physical sales have an advantage over digital sales due to credits received for selling old games. This is a very important competitive advantage. Also, have a strong loyalty program, with 46 million members.
• Believes virtual reality is a game changing technology and is all free option at this price.
• Believes market is too focused on new hardware and video game sales, which will account for ~19% of gross profit in 2019.
• The rest of their business is used sales, technology (they operate 1600 AT&T stores – very high profitability and non-video game related) and collectables business.
• Since 2009, they have shrunk shares by 38%.
• Target is: $50/share not accounting for virtual reality opportunity.
• Short Idea is WD-40 (WDFC).
• Currently, 29x P/E, 18.7 EV/EBITDA, 2.4% FCF yield. Believes stock price is priced to perfection.
• From 2006 to 2012, NTM P/E has averaged 19x but over the last three years has jumped to 29x earnings.
• Believes low interest rate environment has caused valuations to become extreme. The company has also benefited from lower oil (key input cost) and therefore has achieved higher margins.
• Believes gross margins are primed to fall and multiple contraction given lower growth expectations.
• Target is: $75/share and would cover short position.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Aaron Cowen Long QSR & Adobe: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Aaron Cowen of Suvretta Capital who pitched two long ideas: Restaurant Brands (QSR) and Adobe (ADBE)
Aaron Cowen's Presentation at Capitalize For Kids 2016
• LONG Restaurant Brands (QSR). Franchiser of Burger King and Tim Hortons
• Believes it can be a $75 stock (currently price of $44). Business model is a franchiser business model, it doesn’t own any stores.
• 3G is the management team behind this and has one of the best track records. Tim Hortons integration has been going very strong.
• Believes it can do $3.00/sh in FCF going forward. Believes people are missing this because of all the merger accounting.
• No real e-commerce threat at this point and believes e-commerce is a positive for the business.
• Almost all of 3G’s platforms have compounded capital at very high rates.
• They have dropped operating expenses by a significant amount at Tim Hortons (lowered costs by 60%).
• Believes the company ramps up acquisition machine every 2-3 years and is likely due for one now. Targets could potentially be YUM, Dairy Queen, Popeyes, among others. Believes this is a free call option on management doing something smart.
• LONG Adobe (ADBE). Largest SaaS business in the world. $50 billion market cap.
• Adobe services two functions: Creative Cloud – used by 13 million users to create webpages and is growing 15-20% per year and essentially have a monopoly in this product. Second, Adobe does digital marketing. This helps companies place adds on website and measure ROI on marketing effects.
• It went through a transformation to switch to SaaS from one-time sales in 2013 and believes the street still misunderstands this. Margins were impacted as all the upfront costs associated with SaaS business model. Believes margins will be mid-40s (base case assumption) in 2018 after the company completes its transition.
• Assuming revenue grows at 20% plus margin expansion deserves a high multiple. Expecting EPS of $7/sh in 2018. Target price between $170-180 in base case scenario.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Anna Nikolayevsky on Lower Oil Forever: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Anna Nikolayevsky of Axel Capital who made a presentation about lower oil forever.
Anna Nikolayevsky's Presentation at Capitalize For Kids 2016
• Current consensus is that current prices (which are in contango) are not sustainable and will increase in 2017, 2018 and 2019. More of these estimates are driven by marginal cost curve and well depletion analysis. However, nobody predicted the fall therefore why should any give value to analyst expectations?
• Overall, the industry is much more productive now (US shale technology advancement). Anna believes $50 is the current ceiling.
• Most forecasters focus on supply, but demand is much more important. Over 50% of oil demand is due to transportation. A few things can impact demand: Higher fuel efficiency (since 2007, fuel efficiency has increased by 22%), sharing economy is also a major risk (better it gets, the fewer cars we’ll need on the road), electric cars are also a serious threat.
• Tesla, has been gaining market share relative to comparable car models.
• Leading car companies and governments are looking to embrace electric or hybrid models. In fact, large car companies are setting high standards to have meaningful percentage of their overall fleet to be electric vehicles in the mid-2020s.
• Regarding cost, combustible engines are becoming more expensive in terms of compliance/ regulatory standards while electric ones are only getting cheaper.
• Interestingly Saudi Arabia is looking to diversify away from oil with long term clean energy targets and announcing it is selling Saudi Aramco.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Credit Panel at Capitalize For Kids Conference 2016
We're posting up notes from the Capitalize For Kids conference 2016. Next up is is the credit panel which featured KKR's Nat Zilkha, Centerbridge's Jonathan Lewinsohn, and ex-Apollo's Ted Goldthorpe.
Credit Panel at Capitalize For Kids Conference 2016
• The asset origination market is very large. It possible to earn good returns in a fixed income environment where solid trading opportunities are more scarce than they were before the crisis, because of lower bank inventories. There is a trend of investors moving towards senior tranches (less risk).
• Even so, the non-investment grade space is approximately $2 trillion. However, in an expensive market like this one, firms are increasingly focused on exiting investments vs looking for new ones.
• Unrated products are harder to sell due to specific mandates. PE firms are now bundling numerous products, getting it rated by the agencies and then reselling it.
• Even after the crisis, there is a notable duration mismatch between assets and liabilities. With rates so low, duration risk is exceptionally high (if you need longer duration assets).
• Commodity cycles are long because of how much capital is invested and how long it takes to complete projects. Generally Public information on energy companies is not reliable since they choose to present the best wells, etc.
• Believes places to look for opportunities are Asia, specifically India, but difficult due to poor regulatory structure.
• Risks to credit investing are numerous (China, higher rates, etc).
• Believes this environment forces investment firms to look for opportunities on a monthly/quarterly basis since they don’t want to miss out on moves (like the large sell-off in early 2016).
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Brad Dunkley Long Linamar: Capitalize For Kids Conference 2016
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Brad Dunkley of Waratah Capital who pitched a long of Linamar (LNR.TO).
Brad Dunkley's Capitalize For Kids Presentation 2016
• Linamar makes engine parts, camshafts and transmissions. They have industry leading margins, and ROEs. They also have a construction equipment division, only 14% of sales.
• Most of it revenues are the power train division which manufactures engine parts. Approximately 70% of revenues from North America and its mainly from the big 3 U.S. OEMs.
• Linda, who is the daughter of the founder and has been running the company since its IPO and has established a very strong record: since 1986, stock price CAGR of over 16%.
• Linamar does have a lost cost production, plants are mainly in Canada, lower healthcare costs, no unionized labour and lower CAD currently helps.
• The alternative for customers is to manufacture these parts internally.
• Believes market perception that peak SAAR will hurt Linamar is incorrect. Since 1996, SAAR has increased by a CAGR of 1% while Linamar has realized financial performance of 12% CAGR (revenue, EBIT, EPS, etc). Doesn’t believe SAAR will crash like the market is expecting (estimate 8% to 10% from peak levels). Thinks electric vehicle threat is overdone, only 1% of market in 2020.
• The company has also does a good job of growing content per car (growing in Europe, NA and Asia).
• Thinks ride-sharing economy will increase miles driven and lower the life of vehicle (current vehicle have an average life of 11yrs). All positives for Linamar going forward.
• At ~5x earnings, don’t need to be worried of the terminal value of the company.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Satish Rai's Talk at Capitalize For Kids Conference 2016
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Satish Rai of OMERS who had a fireside chat.
Satish Rai's Talk at Capitalize For Kids Conference 2016
• Fixed income as an opportunity doesn’t make sense for OMERS as it’s not a good match to its liability stream.
• Approximately 50% of OMERS balance sheet is outside of traditional public markets (stocks + bonds)
• Believes opportunity set outside of public markets is very large and growing.
• Talked about the "if and when" transaction completed with Great Plains Energy. Great Plains was looking for guaranteed equity financing regarding an acquisition. Structured the deal to be a convert.
• OMERS has also started to provide debt financing to private equity firms. This business has grown from zero to $7 billion in 12 months. The opportunity set had been enormous given that banks aren't able to make some of these loans due to heightened regulation.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Monday, May 23, 2016
Capitalize For Kids Investors Conference 2016
On October 26th and 27th, Capitalize for Kids will present their 3rd annual Investors Conference at Arcadian Court in Toronto, in partnership with the Sohn Conference Foundation. More than 20 world-renowned money managers will be presenting their highest conviction ideas in front of 400 of the most prominent family offices, pension plans, and institutional investors in North America.
All proceeds are allocated to help solve the toughest challenges in children's brain and mental health. Limited tickets and exclusive packages available. You can find out more and register at: https://capitalizeforkids.org/
Confirmed Speakers
Ed Garden, Trian Fund Management
Jeffrey Smith, Starboard Value
Bruce Richards, Marathon Asset Management
Cliff Asness, AQR Capital
Brad Dunkley, Waratah Advisors
Tom Russo, Gardner Russo & Gardner
Tom Wagner, Knighthead Capital Management
Michael Gentile, Formula Growth
Ted Goldthorpe, Apollo Investment Corp
Nat Zilkha, KKR & Co
Jonathan Lewinsohn, Centerbridge Partners
Aaron Cowen, Suvretta Capital Management
Honourable Michael Wilson, Former Minister of Finance for Canada
Embedded below is the flyer for the event:
You can click here to register for the conference.
Thursday, October 1, 2015
Sohn Canada Investment Conference Notes 2015: Capitalize For Kids
The Sohn Canada / Capitalize For Kids 2015 investment conference just ended and was another great success benefiting children's brain health. Below are links to notes from each speaker's presentation. Enjoy!
Sohn Canada / Capitalize For Kids Conference Notes 2015
- Howard Marks' Talk (Oaktree Capital)
- Mick McGuire (Marcato Capital): 2 long ideas
- David Zorub (BlueMountain): Short Mattel (MAT)
- Dinakar Singh (TPG Axon): 2 long ideas
- Clifton Robbins (Blue Harbour Group): Long AGCO
- Jeff Smith (Starboard Value): Long Advance Auto Parts (AAP)
- Daniel Dreyfus (3G Capital): Long Reliance Steel & Aluminum (RS)
- Daniel Lewis (Orange Capital): Long Amaya
- Philip Hilal (Clearfield Capital): Long SS&C Technologies (SSNC)
- John Khoury (Long Pond Capital): long Forest City Enterprises (FCE/A)
- Jacob Doft (Highline Capital): Long cruise lines
- Jody LaNasa (Serengeti Asset Management): Long IRSA
- Reno Giancola (Alignvest): Long Great Canadian Gaming
- Dan Zwirn (Arena Investors) Presentation
- Ted Goldthorpe (Apollo Investment) Presentation
- Anna Nikolayevsky (Axel Capital) Bearish Presentation
- David Lorber (FrontFour Capital): Long Ubisoft
- Blair Levinsky (Waratah Capital): Short High Liner Foods
- Paul Sabourin (Polar Securities) and Greg Mills (RBC Capital) Presentation
Howard Marks' Capitalize For Kids Presentation (Sohn Canada 2015)
We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.) Next up is Howard Marks from Oaktree Capital.
Howard Marks' Sohn Canada/Capitalize For Kids Presentation 2015
- China changing from an export economy to a consumption engine. They are not invested in China due to their lack of knowledge surrounding debtor rights and landscape. Have some small investments to gain experience in the area. China’s threat to the US is not direct as < 10%, maybe 5% of GDP are directly from China. It will hurt through second order effects through trade partners such as Australia and Canada. Worry about the countries dependent on China.
- They focus on distressed in non-commoditized markets such as real estate, shipping, power and European MPL’s. See opportunities in Oil but prefer to invest in financially distressed rather than operationally distressed.
- Wants rates to go up as low rates reward borrowers and penalize investors and creditors.
- It "absolutely is not" a great time to be a distressed investor.
- One of the worst things you can do as an investor is to invest in something you just don't understand.
Be sure to check out the rest of the presentations from the Capitalize For Kids Conference.
Mick McGuire's Sohn Canada Presentation: Long Sotheby's & Virtus Investment Partners
We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.) Next up is Mick McGuire from Marcato Capital. He presented two long ideas: Sotheby's (BID) and Virtus Investment Partners (VRTS).
Mick McGuire's Sohn Canada Presentation
- LONG Sotheby’s (BID)
- Agent in the art collection industry primarily hosting auctions and private sales
- Trading at 8x EBITDA, 31% EBITDA margin, 47% share of a $12.9Bn market
- Business is split into two divisions: agency and financial services
- Agency performs the auction and private sale process
- Not capital intensive, provides consistent return with a fairly amount of inherent leverage as larger purchases provide additional commissions.
- Interest at 7%, < 50% LTV, guaranteed by collector
- Funds this business with a low cost $1Bn revolver
- Run rate $50MM
- Frothy art market may be a negative catalyst but Mick sees growth in the private sales market as this has little penetration to date from Sotheby’s.
- Opportunity to grow financing division to add additional net interest income
- Reasons for undervaluation
- $450MM excess cash on books
- $250MM in inventory a.k.a. art and jewelry, sell side appoints no value to this but there is definitely value in these items
- Real estate owned by the company, approximated value of $175MM for the NYC location and $250MM for the London location
- Additional value in the loan book
- Currently $774MM in loans, $594MM in debt against these loans, currently 77% LTV with a target of 85% providing additional interest margin.
- Catalysts
- Refinancing of the NYC location should close in Q3
- $250MM share repurchase
- Approximately $1.1Bn in non-operating assets a.k.a. redundant assets that could be sold which is 40% of the market cap
- A new CEO was brought in and personally invested $2MM and has a compensation package oriented to long term stock price appreciation.
- With the redundant assets removed, the stock is trading at 4.1x EBITDA
- Mick sees the position at ~$50/share or 60% upside from today’s prices.
- LONG Virtus Investment Partners Inc (VRTS)
- Asset management with a distribution platform that primarily uses sub advisors to manage funds.
- The balance sheet is misunderstood providing upside for the stock if value can be released.
- It has a market cap of approximately $1Bn and an enterprise value of $480MM
- Trading at 6x earnings
- Has a 15% AUM CAGR (which is evenly distributed between net inflows and performance)
- VRTS seeds most of its own capital to begin with, due to accounting these are seen as cash outflows which skews the cash flows from operations
- This is called their accelerate seed program and it is funded by a $100MM issuance and FCF - They have $115MM in FCF when adjusted for this
- EV/LTM EBITDA is 3.7x
- Have a reputational concern due to a fund “AlphaSector Fund” using backtested returns for marketing. Outflows from this fund have skewed the net inflows/outflows figure to the worse causing the trend to look poorly. When adjusted the AUM has had consistent inflows. Once the AlphaSector is behind them in Q1 2016, the figures will market properly.
- Industry EV/EBITDA is closer to 8x
- Cash and investments are approximately 50% of the net assets, most sell side analysts are putting discounts on this figure for unjustified reasons.
- Currently trading at $98, sees the stock at $224/share in 2-3 years through the combination of value activation activities such as returning cash to shareholders.
Be sure to check out the rest of the presentations from the Sohn Canada Conference.
David Zorub Short Mattel: Sohn Canada Presentation
We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.) Next up is David Zorub from BlueMountain Capital who pitched short Mattel (MAT).
David Zorub's Sohn Canada Presentation
- SHORT Mattel (MAT)
- Toy company with 12% global market share
- Sales declined 7% in 2014 along with margins contracting
- Brands make up a huge portion of this business at it is catered to retail
- They are seeing weakness in several brands such as Barbie, Monster High (as seen in brand ranking)
- Recent power brand Disney, specifically Frozen, has kept Mattel’s sales from cratering
- Starting in 2016, Hasbro will hold the licensing for Disney creating a huge gap in sales targets by many sell side analysts projections and little is there to fill the gap
- 2016 consensus sales is $5.6Bn, BM projects $5.1Bn. Consensus EBIT of $710MM is much higher than the BM projection of $400MM
- Bulls will think: new management team, legacy brands will fill hole
- Not true for 4 reasons:
o Difficult industry dynamics: children are fickle, it is a seasonal business (Q4 focus), low growth due to changing interests such as more digital options
o Monster High is fading: Brand ranked #1 in 2012, #3 in 2013, and #6 in 2014, trend is assumed to continue. Analysis was done on the industry and it was found that often these trends continue at a rate of 25%+ declines per year.
o Legacy brands are falling: Barbie is seeing lower sales as consumers are becoming more sensitive to what the toys stand for namely, thin body and dumb (blonde) etc. Barbie POS is on a 3 year decline.
o Licenses & content strategy: Hasbro has been dominating all the movie names (Spider man, iron man, etc.) and is adding Disney. These are generally long-term contracts so Mattel will have a tough time catching up in short order.
- Management is not new! The “new” CEO has been on the board since 1996.
- Mattel is on its 4th restructuring since 2008, not sure how many more cost cutting initiatives are needed before they give up.
- Risks: key product launch, if another “Frozen” were to happen – seen as unlikely. M&A activity is an option but will not likely be used as it is a bad signal to the market that they have no organic growth left. Activist or LBO – do not see a take private or activist due to the lack of growth potential or FCF generation.
Be sure to check out the rest of the presentations from Capitalize For Kids Conference.
Dinakar Singh's Sohn Canada Presentation: Long Hitachi & India Private Banks
We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.) Next up is Dinakar Singh from TPG Axon. He pitched two long ideas: Hitachi and India private banks (Yes Bank and Axis Bank).
Dinakar Singh's Sohn Canada Presentation
- Currently seeing problem markets rather than problem world
- Services are doing well and manufacturing is doing poorly
- Zero capex growth in 1990’s, may see this happen again
- See opportunities in Japan (through restructurings) and India (earnings growth)
- Long Hitachi: see operating margins improving from 6.5% to 10%, 8x PE, see going to 14x in line with industry
- Long India private banks (Yes Bank and Axis Bank): bank sector restructuring, consumer growth, cyclical recovery, dramatic growth for private banks
Be sure to check out the rest of the presentations from the Capitalize For Kids Conference.
Philip Hilal's Sohn Canada Presentation: Long SS&C Technologies
We're posting up notes from the Sohn Canada Investment Conference 2015 (Capitalize For Kids.) Next up is Philip Hilal from Clearfield Capital. He pitched SS&C Technologies (SSNC) as a long.
Philip Hilal's Capitalize For Kids Presentation
- Special situations such as companies undergoing transformation. Previously worked at Kingdon and Bill Ackman is reportedly an investor
- LONG SS&C Technologies (SSNC)
- Market Cap $7Bn, sees 40% upside
- Serves the financial services industry with administration for hedge funds among other services
- Sell side doesn’t follow closely, under appreciates the synergies in the 3 most recent acquisitions
- They have mission critical software – regulation will drive more business going forward
- Highly recurring revenue with 90% retention
- High margins over 40% EBITDA margin and high FCF
- Bill Stone is CEO, has completed 40 acquisitions and owns 12MM shares
- Has a history of improving acquired businesses
- Still small in industry and has room to expand
- These 3 transformative acquisitions stand to double EBITDA
- Advent acquisition should be 25% accretive and Citi Fund services should be 18% accretive
- $5 earnings forecast for 2017 and a 20x multiple applied puts stock at $100, compared to current levels ~$70
- Catalyst: Nov 4 2015, investor day, may refresh guidance on synergies in acquisitions
- Risks: Integration (mitigant: long history of integrating businesses), Organic growth decline (mitigant: possible but most likely temporary), and leverage (successful history of deleveraging)
Be sure to check out the rest of the presentations from the Capitalize For Kids Conference.
