Charlie Rose recently sat down with both Warren Buffett of Berkshire Hathaway as well as Bill Gates of Microsoft.
They started off talking about the giving pledge and philanthropy and they've been surprised at the overwhelming participation.
On business, Buffett noted that it's imperative that he be able to know and understand the business and to stay within that sphere of competence. Of his two younger managers (Ted Weschler and Todd Combs), he notes, "I have two people who themselves have different circles of competence." They weren't chosen because of that, but it's nice to have a huge circle he says.
He says it's harder to find acquisitions mainly because of the size of Berkshire these days. On how he finds them, he might get a call, he might be thinking about certain areas. Occasionally, he decides to act.
One key takeaway from the interview was that Buffett said,"We've bought $12 billion net of common stocks since the election. (Ted and Todd) have probably bought some too."
When asked by Rose about his purchase of airline stocks last year, Buffett said it was largely his decision to do so.
The conversation then shifted to allocation of time and Gates poignantly noted that, "You control your time. Sitting and thinking might be a much higher priority. It's not a proxy of seriousness that you fill every minute of your schedule."
Buffett added, "I can't buy time" and Rose noted it's the most precious resource.
Buffett thinks a 4% growth rate that the Trump Administration is targeting is pretty high and in actuality, a 2% rate would be fantastic and could potentially be possible.
Embedded below is the video of Charlie Rose's interview with Warren Buffett:
Friday, February 3, 2017
Warren Buffett's Interview With Charlie Rose: "Bought $12 Billion of Common Stocks Since Election"
Lone Pine Capital Starts Rice Energy Position
Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding shares of Rice Energy (RICE). Per the filing, Lone Pine now owns 5.8% of the company with over 11.68 million shares.
This is a newly disclosed equity position for the firm and the filing was made due to activity on January 23rd, 2017.
Per Google Finance, Rice Energy is "an independent natural gas and oil company. The Company is engaged in the acquisition, exploration and development of natural gas, oil and natural gas liquids (NGL) properties in the Appalachian Basin. The Company conducts its operations through two segments: Exploration and Production, and Midstream. The Exploration and Production segment is engaged in the acquisition, exploration and development of natural gas, oil and NGLs. The Exploration and Production segment operates in the cores of the Marcellus and Utica Shales. The Company controls approximately 231,000 net acres in the Marcellus and Ohio Utica Shale cores. It operates approximately 1,164 drilling locations. The Midstream segment is engaged in the gathering and compression of natural gas, oil and NGL production of, and in the provision of water services to support the well completion activities of, Rice Energy and third parties."
Hedge Fund Links ~ 2/3/17
Excerpts from Viking Global's Q4 letter [ValueWalk]
The case for (some) hedge funds [ai-cio]
Kyle Bass: global markets at the beginning of tectonic shift [Yahoo Finance]
Long-short hedge funds are ditching the shorts to focus on longs [Bloomberg]
The failed quest to bring down Wall Street's most wanted man [Bloomberg]
Hedge funds strike paydirt on Actelion deal after tracking private jet [Bloomberg]
Private equity and hedge fund pros on why they won't hire you [eFinancialCareers]
Pershing Square, nine others hit with SEC 'pay to play' violations [Reuters]
Citadel pays SEC to settle charges of misleading customers [Reuters]
Harvard endowment to lay off half its staff [WSJ]
Activist investor teaming up for CSX stake [Reuters]
A hedge fund expects 'hundreds of billions of dollars' in tech deals [Business Insider]
Numerai is a crowdsourced hedge fund for machine learning experts [TechCrunch]
Scaramucci's SkyBridge to sell majority stake [StreetInsider]
Here's the indictment against Platinum Partners [Business Insider]
When your hedge fund managers buys a Ferrari, find a new manager [Bloomberg]
Thursday, February 2, 2017
Third Point's Q4 Letter: Bullish on Financials
Dan Loeb's hedge fund Third Point finished 2016 up 6.1%. Third Point's fourth quarter letter outlines their bullish stance on markets, noting that de-regulation and tax decreases under various policies from President Donald Trump should spur US economic activity.
That said, they're still keeping an eye out on the potential for trade wars and/or inflation.
Particularly, they like financials and increased exposure to the sector in November and December: "We reallocated half our initial holdings from high-multiple, FCF businesses in payments, ratings, and P&C (which traditionally outperform during periods of deflation), to more traditional reflationary exposures in banks, brokers, and geographically, in Japan."
Third Point highlights that the bank stocks they're playing trade for less than 10x earnings with EPS growth in the high-teens.
Embedded below is Third Point's Q4 letter:
We've also posted up other letters today, so be sure to also check out Greenlight Capital's Q4 letter as well as Oaktree Capital's Howard Marks' latest memo.
Greenlight Capital's Q4 Letter: Dramatically Increased General Motors Position
David Einhorn's hedge fund Greenlight Capital finished 2016 up 8.4% and has returned 16.1% annualized since inception in 1996.
Their fourth quarter letter examines how their portfolio is positioned now that Donald Trump is president and will be trying to change policies.
Greenlight is long various US value stocks that could benefit from corporate tax cuts (AMERCO, CC, Dillard's, DSW), they're long companies that can benefit from repatriation of foreign cash (Apple (AAPL)), and they're long companies that can benefit from demand for consumer durables (General Motors (GM), a position in which they've "dramatically increased their position."
They're also short 'bubble basket' stocks (Netflix), oil frackers, and Caterpillar (CAT).
Turning back to their thesis on GM, Greenlight writes that, "While the bears have been screaming 'peak auto' for the last couple of years, we think a strengthening job market will sustain the current upcycle and lead to better than expected credit performance at GM's finance subsidiary. While the bears also cite long-term concerns over self-driving cars, we see a huge intermediate-term opportunity in assisted-driving cars."
During the quarter, David Einhorn's firm also exited its positions in AECOM (ACM), Michael Kors (KORS), and Take-Two Interactive Software (TTWO). They also covered short positions in FLSmidth (Denmark: FLS), Mead Johnson Nutrition (MJN), and Reynolds American (RAI).
At the end of 2016, their largest positions in alphabetical order were: AerCap, Apple, CONSOL Energy, General Motors, and gold. Their average exposures were 106% long and 81% short.
Embedded below is Greenlight Capital's Q4 letter:
We've posted up a bunch of letters today, so be sure to also check out Third Point's Q4 letter as well as Howard Marks' latest memo.
Howard Marks' Latest Memo: Expert Opinion
Oaktree Capital's Chairman Howard Marks has penned yet another memo entitled Expert Opinion.
He notes that, "There are no facts about the future, just opinions. Anyone who asserts with conviction what he thinks will happen in the macro future is overstating his foresight, whether out of ignorance, hubris or dishonesty."
Embedded below is Oaktree Capital's latest memo from Howard Marks: "Expert Opinion"
We've posted up a bunch of letters today, so be sure to also check out
Third Point's Q4 letter as well as Greenlight Capital's Q4 letter.
Wednesday, January 25, 2017
What We're Reading ~ 1/25/17
US investors favored passive funds over active by a record margin in 2016 [Morningstar]
The best investment writings of 2016 [Meb Faber]
On 3G Capital and the Kraft Heinz merger [Fortune]
A chat with Daniel Kahneman [Collaborative Fund]
Lunch with Bill Gates [FT]
What is your edge? [Base Hit Investing]
On expected risk [A Wealth of Common Sense]
Simon Property Group fights to reinvent the shopping mall [Fortune]
Facebook: Inside Instagram's reinvention [Recode]
Amazon expands into ocean freight [WSJ]
A pitch on Bolloré [Greenwood Investors]
Trump team compiles infrastructure priority list [McClatchy]
New FCC chief wants to destroy net neutrality [CNBC]
The great A.I. awakening [NYTimes]
Summary of some of the latest tech products featured at CES [Learning By Shipping]
Americans use debit cards twice as much as credit [Marketwatch]
China's biggest messaging app is on a collision course with Apple [TechInAsia]
How Social Cash made WeChat the app for everything [Fast Company]
When the Chinese come out to shop [OliverWyman]
How Netflix lost big to Amazon in India [Backchannel]
The best and worst airlines of 2016 [WSJ]
Carlos Slim's profit margins are right where Mexico wants them [Bloomberg]
Reasons to buy bonds in 2017 [Peter Lazaroff]
Friday, December 16, 2016
Holiday Gift Guide For Investors & Financial Professionals
Each year we highlight some relevant gift ideas for investors & financial professional besides the obvious (liquor). Whether you need ideas for clients, partners, employees, or even for yourself, here's the 2016 guide:
Discounts on Publications
Wall Street Journal Discount - 50% off 12 months
Hedge Fund Wisdom - Our quarterly newsletter summarizing 13F filings
Recommended Books
TV Shows / Movies / Documentaries
Technology
Miscellaneous
Happy Holidays!
Wednesday, December 14, 2016
10% Off Scuttleblurb For Our Readers: Summaries of Management Commentary
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Get helpful context, including the author's bracketed commentary and embedded links, as well as regular email alerts on hundreds of blurbs per year.
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Click here to save 10% off your first year subscription with coupon code: marketfolly
Monday, December 12, 2016
Sohn London Conference Notes 2016: Hohn, Bishop, Croxson & More
The Sohn London 2016 conference recently ended and featured hedge fund managers sharing investment ideas to benefit the treatment and cure of pediatric cancer and childhood diseases. Please click the links below to go to each speaker's presentation.
Sohn London Conference Notes 2016
Chris Hohn (Children's Investment Fund): Long Charter (CHTR)
Robert Bishop (Impala Asset Management): Long Rio Tinto (LON:RIO)
Adrian Croxson (Och-Ziff Management): Long Ryanair (LON:RYAN)
Masroor Siddiqui (Naya Capital): Short Aryzta (VTX:ARYN)
Erik Karlsson (Bodenholm Capital): 2 long ideas
Nicolas Walewski (Alken Asset Management): Long B&M Value Retail (LON:BME)
Elif Aktug (Pictet Asset Management): Long Leonardo
Anne-Sophie d'Andlau (CIAM): Long Euro Disney (EPA:EDL)
Ivan Martin Aranguez (Megallanes Value): Long Sonae (ELI:SON)
Marc Chatin (Parus Fund): Short Australian banks
Michel Massoud (Melquart): Long Opera Software (STO:OPERAO)
Dureka Carrasquillo (Canadian Pension Investment): Long Mobileye (MBLY)
Mans Larsson (Makuria Investment Management): 2 long ideas
Bo Bortemark (Carve Capital): Long Ferrovial (BME:FER)
Be sure to also check out notes from other recent investment conferences here.
Sir Chris Hohn Long Charter Communications: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Sir Christopher Hohn of Children's Investment Fund (TCI) who pitched a long of Charter Communications (CHTR).
Sir Chris Hohn's Sohn London Conference Presentation
TCI have already been invested in Charter for 3 years, but Hohn sees it as a multi-year investment. Charter is a public leveraged buyout which makes it an interesting special situation. It bought Time Warner Cable, a much bigger company, using a large amount of debt. Charter can compound at about 25% per year.
Cable companies are interesting because they should no longer be labelled as television businesses but as broadband businesses. Broadband businesses are a toll road on the internet.
Four reasons to like the business:
- Telephone companies are not competitors to broadband providers
- Digitization and cloud technology will change the capital expenditure profile reducing the intensity while the top line is growing.
- Donald Trump will deregulate the sector leading to more pricing power and take away the regulatory risks.
- Cable will also be a disruptor to wireless in the future.
There is a lot of upside still to come for Charter which is underestimated by the investment community. Nearly everyone needs broadband. Charter has the potential to double its customer base over time. Charter is 4x leveraged and TCI wants it to stay that way. In 2012, half the profits were coming from the TV business. Today only 22% come from TV. Hohn thinks that about 90% of the real value of the business is in broadband.
John Malone is the largest shareholder with about 20% of the equity and 25% of the voting rights. TCI own about 5% of the company. Malone is one of the world’s great investors with compounded returns of about 30% per annum. He is shareholder friendly and is committed to share buybacks.
Hohn always tries to find businesses that are protected from competition. TCI have returned 17% per annum net of fees for the last 13 years using this approach. It is hard to break into the fiber broadband market. Google tried recently but have now essentially given up. The industry has effectively become a duopoly between Charter and Comcast (CMCSA), even then because they do different things they are monopolistic within their sectors. Charter has pricing power. It has been raising its pricing by 5% per year. Charter has 30% margins but these could rise to 50% or even 55%.
Risks: the TV business could decline, unbundling will come, wireless could be a threat. Cable will be a disruptive player in wireless. Both Comcast and Charter will probably enter the wireless sector. He thinks Verizon may try to buy Charter in the future.
Be sure to check out the rest of the Sohn London conference presentations here.
Adrian Croxson Long Ryanair: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Adrian Croxson head of European Equities at Och-Ziff Management who pitched long Ryanair (LON:RYAN).
Adrian Croxson's Sohn London Conference Presentation
Long Ryanair Holdings (LON: RYAN)
Och-Ziff have owned Ryanair stock for two years. Ryanair’s own projections suggest that they can grow volumes at 8% per year for the next 8 years. They have enough capacity to do that because they have lower costs. They fly 120 million passengers per year. Demand for air travel will continue to grow. Ryanair keeps taking market share from competitors. It can grow market share from 15% to 25% over the next few years.
It is the lowest cost producer in Europe with 50% less overhead than main competitor Easyjet. Staff costs are low due to route density not necessarily because they pay staff less. They require fewer crews as staff can work out of more than one airport. Landing costs for Ryanair have been flat over the last couple of years because they have gone into airports where other airlines have gone bust. They have a good record for buying planes cheaply as they tend to buy when demand is low. They are getting better at cross selling passengers hire cars and hotels. They do not spend a lot of money on marketing.
Net income can double in the next seven years and the share count will diminish due to buybacks. The CEO owns £1bn of stock.
Be sure to check out the rest of the Sohn London conference presentations here.
Robert Bishop Long Rio Tinto: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Robert Bishop of Impala Asset Management who pitched long Rio Tinto (LON: RIO).
Robert Bishop's Sohn London Conference Presentation
The macro backdrop is set fair for commodities:
- Emerging market (EM) demand is improving. If you are going to invest in a mining company you need to believe that EM markets are getting economically stronger because they account for 65% of metals demand and 55% of oil demand. China is the key player and Bishop believes it hit bottom in January 2016.
- The US and EU infrastructure replacement cycle is just starting. Trump will generate more ‘bang for your buck’ than any previous President.
- More fiscal stimulus is coming worldwide
The micro background is also positive:
- The 5 year downtrend in metal prices is over. The longest in 125 years.
- Metals supply and demand is coming back into line. Copper and zinc already have a supply deficit. Small supply shocks will now lead to bottlenecks in the supply chain and push prices higher.
He believes we are at the start of a new commodity cycle. China will expand construction and infrastructure spending on roads, railways and other forms of transportation. Capital spending in the mining sector is at the bottom of the cycle.
Rio Tinto is the largest miner in the world. It is the large cap, high quality way to play the new commodity cycle. It is the low-cost producer. It lost its way in 2007-2013 with ill-timed acquisitions. Since then it has focused on cutting costs and improving efficiencies. It now has better operating leverage. Capital expenditure has been reigned in and the company is now in a harvesting phase.
Iron ore prices are the key to the Rio Tinto investment. Prices need to keep going up. Demand has outstripped supply this year. There will be more demand for steel from India, China and the US. The demand for steel in the US and Europe will be driven by fiscal stimulus programmes that will be better for commodities than quantitative easing.
Be sure to check out the rest of the Sohn London conference presentations here.
Erik Karlsson Long Autoliv & Philips: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Erik Karlsson of Bodenholm Capital who pitched two long ideas: Autoliv and then Philips.
Erik Karlsson's Sohn London Conference Presentation
Before co-founding Bodenholm in 2015, Erik Karlsson was a partner and senior analyst at AKO Capital, 2007-2015.
Long Autoliv
Autoliv is the global leader in seat belts and airbags with 38% market share. It has grown organically by an average of 4% for the last 10 years and has had a stable EBIT margin of 8-10% most years. It returns 90% of its FCF through dividends and buybacks. The market values Autoliv at 13x next year’s earnings.
Autoliv will gain market share because its main competitor, Takata, has had product failures that led to accidents and the largest auto recall in US history. Since those events two years ago Autoliv has won 55% of all new orders. There is a long lead time in the industry so Autoliv will only get paid 3 years on but the sales are guaranteed. EBIT margin will expand from 8% to 11% by 2019.
They have too much cash on their balance sheet and could buyback more stock. Takata is up for sale and Autoliv could launch a takeover of Takata or a part of it. Buying a distressed company could be risky but management is conservative and have a good acquisitions track record. Takata are forced sellers so Autoliv could strike a good deal.
Good things can happen to the stock if the company experiences growth in net income and PE expansion. With Takata sidelined, Autoliv may be able to increase prices.
To lose money on the Autoliv investment, sales would have to decline 5% and the stock would have to de-rate to 11x EPS. If that happens it would lead to a 10% loss in the investment over the next year.
Long Philips (AEX: PHIA)
Philips has become a better and smaller business. It is only half the size it was 18 years ago. It has been divesting its electronics businesses and becoming more focused on health. There are 4 parts to the business:
- Personal health: e.g., razors
- Health technology: dialysis technology
- Diagnostic treatment: medical equipment
- Connected care
It is achieving higher and more stable organic growth. New Philips is growing at about 4% per year. Margins will improve, FCF will improve. Margins are particularly good in personal health. The company has nearly finished restructuring. Once it has divested its lighting business that is separately listed it will be able to move into a net cash position by 2018.
The company is getting better at capital allocation. It has increased buybacks and dividends and returned Euro 8 billion since 2011 or 38% of its average market cap. Few companies in Europe achieve that. It may lever up a bit to 1.5x net debt in the future. Philips could become the ‘European Medtech.’
To lose money on an investment in Philips revenues would have to decline 2%, margins would have to fall to half the company predicts and the stock would have to de-rate to 13x cashflow.
Be sure to check out the rest of the Sohn London conference presentations here.
Nicolas Walewski Long B&M Value Retail: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Nicolas Walewski of Alken Asset Management who pitched a long of B&M Value Retail (LON:BME).
Nicolas Walewski's Sohn London Conference Presentation
Long B&M Value Retail (LON: BME)
B&M Value Retail is a UK mid-cap, retail discounter that floated at a high valuation in 2014. The stock has de-rated since then. It sells quite a narrow range of 5500 mostly non-food items. Two-thirds of its products sell at less than £3. B&M is growing very fast with sales growth of 44% CAGR over 10 years. It is expected to grow its sales by 15% over the next few years. It has leading industry returns – 20% return on capital employed.
The business model is capital light. The payback period for a new store is just 8 months (a traditional retailer takes 3-5 years). Most of B&M’s stores are in northern England. It has plans to expand into the south-east.
B&M sells products that are usually 30-50% cheaper than its competitors. It can do this because it buys direct from China without any intermediaries. They buy narrow, they buy deep, and they buy cheap. Typically, they buy an entire line of production so they get a good price. B&M does not own prime locations.
The leadership is good. CEO, Simon Aurora, has been with the firm 12 years and has grown the business from 20 stores to over 500. He owns 21% of the shares. The chairman is the experienced ex-Tesco CEO, Sir Terry Leahy.
B&M has established a presence in Germany. It has bought a majority stake in Jawoll with 56 stores. The German management will likely be replaced by Simon Aurora in a year or two.
The share price has been hit by Brexit. It is very cheap. B&M can become the Dollar General (DG) of Europe.
What are the risks? Two issues worry the market. Gross margins and like-for-like sales. The market is worried that Brexit and the devaluation of the Pound will lead to higher import costs. If inflation does pick up, discounters will take market share. You are better off with B&M than a mainstream retailer. B&M pays back the cost of new stores very quickly so it does not need high growth in like-for-like sales, 1 to 2% per year is enough.
Be sure to check out the rest of the Sohn London conference presentations here.
Masroor Siddiqui Short Aryzta: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Masroor Siddiqui of Naya Capital Management who pitched short Aryzta (VTX:ARYN). He was previously a partner at Chris Hohn's TCI.
Masroor Siddiqui's Sohn London Conference Presentation
Aryzta is a Switzerland based speciality baker. It supplies companies like Tim Hortons (QSR) and Starbucks (SBUX).
The business does not have a moat and it would be easy for competitors to enter their space. The leverage is high at 4.5x. The margin reporting is questionable. EBITDA reporting is heavily adjusted. Their reported margins are similar to companies that own lots of brands like Nestle yet Aryzta does not own brands.
They may have been pulling forward receivables which is okay but it is a one-off game. There has been no organic growth to talk about since 2008. Their margins are not sustainable as the industry is becoming more competitive. Siddiqui thinks they are having difficulties refinancing. That is worrying at a time when borrowing is so easy. They may require a rights issue soon.
Aryzta has a new Chairman with a good reputation for restructuring. Siddiqui thinks this is a positive for the short side as he will want to raise new equity.
Be sure to check out the rest of the Sohn London conference presentations here.
Anne-Sophie d'Andlau Long Euro Disney: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Anne-Sophie d'Andlau of CIAM who pitched long Euro Disney (EPA:EDL).
Anne-Sophie d'Andlau's Sohn London Conference Presentation
Long Euro Disney (EPA: EDL)
Euro Disney listed in Paris in 1989 but has never made a profit. The shares are down 99% since floatation. Euro Disney has a complicated ownership structure with Walt Disney US owning 77%.
Euro Disney is the most popular tourist destination in Europe with 15 million visitors per year. The reason it has never made a profit is due to the heavy royalties and management fees it has to pay to Walt Disney US. Net income has always been negative. The licensing fees are three times the accepted market practice. Without the fees, Euro Disney would be as profitable as other Disney theme parks. Euro Disney has a long history of restructurings. Shareholders have been diluted by around 9x. CIAM estimate that over the last ten years Euro 930 million has been overcharged by the Walt Disney company.
About 18 months ago, Walt Disney launched a minority buyout to take Euro Disney private at $1.25 per share, a price that d’Andlau described as ridiculous. It was after the buyout proposal that CIAM got involved.
The Euro Disney business is divided into two segments.
- Resort activities: theme parks, hotels
- Real estate
CIAM have identified unrecognised value in the real estate assets of about Euro 1.9 billion or about half the land value of Euro Disney. This valuation is not included in the company accounts or in the takeover documents. CIAM think the takeover price should be 3x higher. This has led CIAM to take 3 actions.
- They opposed the minority buyout by Disney US to take the company private at $1.25. Euro Disney is still listed. They are challenging the regulator who gave the deal the go-ahead in the Supreme Court.
- In the Criminal Court, they are taking judicial action against Disney US for favouring Disney shareholders over Euro Disney shareholders. More specifically they are accusing Disney of the misuse of corporate assets, the publication of misleading accounts and managing a company for the sole interest of the majority shareholder.
- CIAM is also taking a civil case to try to recover the Euro 930 million that they believe has been siphoned off from Euro Disney over the last 10 years.
Be sure to check out the rest of the Sohn London conference presentations here.
Elif Aktug Long Leonardo: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Elif Aktug who is the Agora Fund Manager at Pictet Asset Management and pitched long Leonardo (BIT:LDO), formerly known as Finmeccanica.
Elif Aktug's Sohn London Conference Presentation
Long Leonardo (BIT: LDO)
Leonardo has had a name change and used to be Finmeccanica.
The company is primarily a defence contractor manufacturing helicopters for military and civil use and global defence electronics. The transportation business has been sold off.
Margins have held up well between 11-12%. They have a strong order book. It is cheap compared to other defence contractors. Leonardo has a high-quality management team.
Be sure to check out the rest of the Sohn London conference presentations here.
Ivan Martin Aranguez Long Sonae: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Ivan Martin Aranguez of Megallanes Value Investors who pitched a long of Sonae (ELI:SON).
Ivan Martin Aranguez's Sohn London Conference Presentation
Long Sonae (ELI: SON)
Sonae is a mid-cap diversified holding company with assets in Portugal. It is run by the Azevedo family who own 52%. Sonae has a good track record, it has 28 years of annual book value growth at an average of 6.5%.
Sonae has a complex structure. It is a largest player in food retail in Portugal (66% of the business) and the second largest telecoms operator in Portugal (33% of the business). It also has a real estate arm (9%) and an investment business (3%). The share price has de-rated since 2015. There is now a 45% discount to NAV. Only two analysts cover the company.
Sonae’s largest business, food retail, has achieved good margins of 6-7% in recent years. This is at a time when there has been a price war in groceries in Portugal. Sonae is the lowest cost producer and well placed to resist competition. It has some good brands including Warten and Sports Zone. A sum of the parts valuation gives Euro 1.45 per share, a discount to NAV of 45%.
Be sure to check out the rest of the Sohn London conference presentations here.
Marc Chatin Short Australian Banks: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Marc Chatin of Parus Fund who pitched a short of Australian banks.
Marc Chatin's Sohn London Conference Presentation
Parus fund is a $2 billion AUM global long/ short equity fund with a net annualized return of 15% since 2003.
Investment idea: Short Australian banks
There are four large Australian banks that make up 80% of market share. Chatin did not distinguish between them, implying they were equally shortable. Banks in Australia have had a good run with +200% upside. They trade on a PE of 12-14x; PB 1.4-2.2x.
Real estate has been booming. Price to income ratio 5.6x for the whole country but 6.4x in metropolitan areas. Debt ratio to household income +200%.
On the supply-side, housing starts are up 200% in the last two years. House prices are beginning to fall. Transaction volumes are coming down – a leading indicator of price.
Demand for Australian housing comes partly from Chinese buyers who make up 10 to 15% of transactions. Total mortgages are up 15% but delinquencies are still low now. Construction will fade. House prices will come down.
Be sure to check out the rest of the Sohn London conference presentations here.
