Nehal Chopra Long Actavis & Charter Communications: Invest For Kids Chicago

We're posting up notes from Invest For Kids Chicago 2014.  Next up is Nehal Chopra of Tiger Ratan Capital.  She pitched two ideas: Actavis (ACT) and Charter Communications (CHTR).


Nehal Chopra's Invest For Kids Chicago Presentation

•    Started in FY09. Worked at Balyasny beforehand. Was seeded by Julian Robertson/Tiger.
•    Best ideas follow similar pattern: great management teams, high quality businesses. The power of compounding. Secret sauce is operational improvement and capital deployment.

Idea: Actavis (ACT)

•    Owned Forest Labs beforehand.
•    Brent Saunders joined from Forest Labs. Previous CEO of Bausch and Lomb. Brent Saunders turned it around and sold it.
•    At Forest over six months Brent executed a cost cutting program ($500MM), accretive transactions and then sold it for a 25% premium to Actavis. Made 100% return for shareholders. Now runs Actavis.
•    Rolled all of his stock ($100MM) into Actavis.
•    Chairman of Actavis (former CEO) not a slouch as well. 7.3x return.
•    Actavis is a diversified pharma company. Scale of large pharma with cost culture of a generics co. No looming patent cliff.
•    New breed of specialty pharma. Strong platform and distribution. Strong balance sheet strength and FCF generation. Benefits from a low tax rate.
•    Thesis is simple – strongly positioned across all markets which should drive substantial revenue growth. Cost cutting opportunities and debt to EBITDA at 3.5x allows for optionality. Lots of opportunities to deploy FCF into M&A and buybacks.
•    Everytime they buy a product, can drop it into the sales force bag, leads to higher margins.
•    $20+ earnings in FY16/FY17. Number could be closer to 22 to 23. 15x multiple leads to $350 plus target.
•    Actavis rumored to be in the running for Allergan or sold to Pfizer.


Idea: Charter Communications (CHTR)

•    Owned by Paul Allen, balance sheet/ op issues declared bankruptcy. Emerged in 09. Tom Rutledge joined as CEO. Excellent operator.
•    What is Charter today? Two man band, Operator: Tom Rutledge and savvy deal making of John Malone.
•    Malone owns 25.5% through Liberty Media (Liberty Broadband).
•    Rutledge has led CHTR to increase rev per customer, digital penetration, Video ARPU and Products per User. Poured lots of cash into maintenance capex to upgrade/fix network which wasn’t maintained in bankruptcy.
•    April entered into a series of transactions with Comcast. Bought former TWC assets including 1.5MM subs for $7.7B, swapping 1.7MM subs with Comcast, and will also managed Greatland (33% stake) with 2.5MM subs. Receives a mgmt fee for Greatland.
•    Charter is going from 4MM subs to 8MM subs. Many which were undermanaged, allowing Tom Rutledge to manage.
•    Bull case is operational improvements, cash flow generation and capital deployment (buyback/M&A). Levered equity returns and favorable tax position.
•    EBITDA going from $3.5MM in EBITDFA/ $8 - $9MM in FCF and 4.4x net debt, to $5.5B in EBITDA, $18 - $22 in FCF per share, net debt at 4.5x and trades at an implied 7x FCF.
•    Risks are leverage, Google fiber, timing uncertain.


Be sure to check out the rest of the hedge fund presentations from Invest For Kids Chicago here.

Interview With Julian Robertson & Nehal Chopra of Tiger Ratan

Tiger Management founder Julian Robertson made his rare yearly media appearance today on Bloomberg Surveillance.  Here are the highlights of the interview with the hedge fund titan:


Julian Robertson's Interview

On the hedge fund industry's overall performance:   "Hedge funds do better than the markets in bad markets because they are hedge funds. And the, the ideal for hedge fund is a vigorous active market that doesn't move a whole lot. There they can make it in both the long and short basis….In '07, hedge funds, I know ours, just blew it out….It was just unbelievable. And then in '08, we lost, you know much of that."

This isn't the first time he's touched on this as we've highlighted Robertson's thoughts on why hedge funds were underperforming.


On whether he sees the hedge fund industry as a group of top performers and everyone else or whether he bundles performance together:   "I don't think you can bundle everyone together. But I do think one of the things that's affected hedge fund performance over the last, well, really since it started really getting big around the '80s, is the increase in size of hedge funds. It was so much easier to compete with Bank Trust departments, with individual investors, with mutual funds than it is with other hedge funds. And I think the success of hedge funds in general has probably hurt the performance of individual hedge funds…Because the competition is tougher."

Robertson also noted that he's not constructive on Apple (AAPL) anymore and he likes Google (GOOG) more.  For more from the Tiger man, we've posted up notes from Robertson's talk at the Virginia Investment Symposium.


Nehal Chopra of Tiger Ratan Capital

One of the managers Robertson has seeded also joined the interview, Nehal Chopra of Tiger Ratan Capital.  While everyone will be focused on Robertson's soundbites, Chopra actually offered more points on investment process.

She focuses on change-driven opportunities.  She looks at corporate change, CEO change, transformational measures, bankruptcy emergences, and spin-offs.

Chopra's 3 things she looks at when looking for investments: a great management team (really in-depth look at the person's ability to drive results), a good business that is very cheap, and all of it is focused on change.

She says "it's a very targeted process that's repeatable ... change creates confusion.  Confusion creates dislocation of value."

Robertson again touched on how he focuses on competitiveness when looking for new managers to seed and noted Chopra has that.


Embedded below is the video of Julian Robertson's interview with Bloomberg Surveillance: