Kase Learning Short Selling Conference Presentations 2018

Whitney Tilson recently launched a new investment conference focused on short selling called the Kase Learning Short Selling Conference.  They've released some videos of pitches from the presentations and we've aggregated them here along with notes from each talk if you just want a quick summary.

Click each link below to go to the presentation.


Kase Learning Short Selling Conference Presentations 2018

- Sahm Adrangi (Kerrisdale Capital): On ad fraud and Quinstreet (QNST)

- Mark Spiegel (Stanphyl Capital): Short Tesla (TSLA)

- Gabriel Grego (Quintessential Capital): Short Folli Follie

- Jillian McIntyre (221B Capital): Short Intelsat (I)

- Berna Barshay (Viola Capital): Short Ralph Lauren (RL)

- Enrique Abeyta: Short Anheuser Busch InBev (BUD)

- Chris Brown (Aristides Capital): Short Energous (WATT)

- Asher Jacobs & Jade Hu (Columbia MBAs): Short Stericycle (SRCL)

Mark Spiegel Short Tesla Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Mark Spiegel who pitched short Tesla (TSLA).  He thinks the company is a zero.


Mark Spiegel's Presentation: Short Tesla (TSLA)

- Telsa's financials are horrible and has no moat of any kind, and this is all before a ton of competition comes online

- Management can't be trusted after Elon Musk made misleading statements

- Lost over $25,000 per car sold based on recent earnings.  Sales of two top models were down double digits year-over-year, again this is before top competition comes online from Porsche, Jaguar and others

- $2.3 billion in negative net working capital, And - $1bn in negative net working capital.  Bulls point to the story being about 'the future' but Tesla's tax credits will expire later this year while competitors will just be starting to use their credits.

- Competition coming:  Jaguar I-Pace coming out is $10,000 less and much nicer.  Jaguar XJ Sedan also going electric.  Audi electric SUV coming 2018 winter and priced $5000 cheaper once Tesla's tax credit runs out.  Porsche's Mission E sedan coming.  Mercedes' ECQ coming out and electric version of the S Class.  Hyundai coming out with a crossover for the mass market.  Chevrolet Bolt out now.  Nissan Leaf next year increases electric range.  First electric Volvo comes out next year.  BMW iX3 comes out in 2 years, and i4 flagship electric car.  The list goes on and on.

-  China is a big market and very important; bulls think TSLA will gain share there but the reality is that so much competition is coming especially in that country that they've already lost

-  Other car companies using larger battery cells and Tesla is committed to smaller, inferior ones

-  Stunning number of executive departures.  Jim Chanos said the only two companies that had similar numbers are Enron and Valeant

Embedded below is the video of Mark Spiegel's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Sahm Adrangi's Presentation on Ad Fraud & Short QuinStreet: Kase Learning Short Selling Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Sahm Adrangi of Kerrisdale Capital who presented about ad fraud and talked about Quinstreet (QNST) which he published a short report on last month.


Sahm Adrangi's Presentation on Ad Fraud & Short QuinStreet (QNST)

- Recently gave a presentation on being short St. Joe (JOE) and short QuinStreet (presentation here), the latter of which plays into the theme of ad fraud

- Ad fraud is basically when online ad impressions or clicks are artificially higher due to bots, not actual users viewing the material.  Pay-per-click ads see 'fake' clicks and then there's sites with tons of fake traffic that are just full of ads to inflate the numbers.  Ad stuffing is when a video has other videos behind the main video someone is watching, giving impressions to something that's not actually being viewed

- Ad fraud is so prevalent and the intermediaries are beneficiaries of it (ad agencies etc), making them slow to adopt preventive measures.  The ultimate loser is the buyer of the ad but it's difficult to detect who is viewing your ad (human vs bot)

-  Technology is rapidly evolving and the bad actors are using more sophisticated measures to generate more fraud

- QuinStreet: if you look at investor presentations or management comments, it's hard to discern where exactly the revenue is coming from (lead generation, or ad-matching placements, etc).   Another report by a separate firm attacked Criteo late last year for suspect traffic as well.

- Walked through examples where some of Quinstreet's sites were receiving traffic from other sites that isn't what it seems: a car insurance site was receiving a lot of traffic, but not from people looking for quotes on car insurance, but rather people earning 'swag bucks' for filling out online surveys and things like that.  Thus car insurers buying ads / paying for leads, weren't really getting what they thought they were (the video below walks through the whole scenario as it's too long to type out)

- Thinks the opacity in the online ad space and lack of disclosures is a good place for short activists to hunt

Embedded below is the video of Sahm Adrangi's presentation:



mbedded below is the slideshow pdf of Sahm Adrangi & Kerrisale Capital's presentation on short QuinStreet (QNST):



Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Jillian McIntyre's Short Intelsat Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Jillian McIntyre of 221B Capital who pitched a short of Intelsat (I).  She runs a fundamental long/short equity fund, typically running 20% net short, typically focuses companies with poor corporate governance (Germany, UK, South Africa, Australia).  Previously worked with Sir Chris Hohn's TCI Fund.


Jillian McIntyre's Presentation: Short Intelsat

- 50% downside in her opinion, only 7% short interest.  $14bn of debt, $1bn run-rate of interest every year, negative cashflow

- Believes company is ripe for technology disruption and has a bad business model; needs capital ASAP

- Company is in satellite communications, provides signal broadcast to major networks, media companies etc.  Mainly exposure to Latin America and Africa.  Thinks there's some similarities to SunEdison (which they pitched back in 2015 which went bankrupt): levels of indebtedness & bad business model

- The recent hype surrounding 5G and the big spectrum auction in November has led to irrational exuberance as Intelsat is up almost 300% this year.  Lot of hype around the potential for C band spectrum.  Even if it's allowed by FCC, could take over a year to start to monetize it.  She thinks the company will see disruption in its ancient satellite model.  Lower-orbit satellites will be launched and are better and cheaper than Intelsat's much higher satellites.  Lots of hype also around potential with 'OneWeb'

-  Co has very complex debt structure and is a serial re-structurer: they think it breached covenants and will need to raise $400-500 million and worst case $1.5-2 bn. Don't think they have access to new revolving credit facilities.  Thinks they have aggressive accounting regarding bad debt provision and amortization rates and reliance on future revenue


Embedded below is the video of Jillian McIntyre's presentation:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Berna Barshay Short Ralph Lauren Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Berna Barshay of Viola Capital Management who pitched a short of Ralph Lauren (RL). 


Berna Barshay's Presentation: Short Ralph Lauren (RL)

-  Consumer specialist.  Industry ripe with disruption.

-  80% of household purchase decisions made by women, 80% of investment choices made by men

-  Ralph Lauren in the middle of attempted turnaround:  Co has lost 19% of sales last three years.  Why?  Historically positioned as an upscale brand, they over distributed (discounting, margin pressure).  Longtime COO departure led to disruption.  Trying to now pullback on promotions and try to reach a new, younger customer.  Stock up 70% in last 9 months, she's more skeptical on turnaround attempt and speed at which it would happen.

-  In the age of Instagram, brands can't control their story as much.  RL is too focused on North America.  Department stores in secular decline.  Trying to replicate Coach merely by reducing points of distribution

-  Ratio of outlets to full price stores is out of whack and is a challenge to elevating the brand back up.  Co is also omnipresent in the 'off price' channel.  TJMaxx and Marshall has a lot of inventory and continued to grow.  The difference between the $89 polo shirt at their flagship store wasn't that much different from the $35 polo shirt at TJMaxx.  RL has devalued their signature item and devalued their brand in the process.  This will be a headwind in the brand elevation efforts.

-  Co wants to update the product and modernize the brand: does this alienate the core customer they have?  Tough to straddle.  It's a preppy, country club look that's been around since the 70s.  Millennials and younger have much different street style

-  She talked to 200 Millennials about favorite clothing brands and received a wide array of responses: RL hardly on the radar, lots of newer brands, niche brands, etc.  Barriers to entry in clothing have come way down.  RL did much better with men than women in survey.

-  Near-term return to topline growth is nearly impossible due to off-price channel and department stores in secular decline.  Trading at 18x like a luxury goods stock but needs to show tangible results

-  Brand turnaround takes years and thinks that while expectations are low, still thinks estimates are too high.  Upcoming investor day could be a catalyst.  Thinks earnings will be flattish for next 2 years.  N. America growth will be down 4%, 11% earnings miss.  Thinks it should trade around 13x, for 30% downside though it's not a valuation short 

Embedded below is the video of Berna Barshay's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Gabriel Grego's Short Folli Follie Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Gabriel Grego of Quintessential Capital who pitched a short of Folli Follie.  (Please note that since presenting earlier this month, the stock traded down 70% and was subsequently halted.)


Gabriel Grego's Presentation: Short Folli Follie

-  Co has 1.3bn euros of sales, trades on the Greek exchange, products are watches, purses, mainly jewelry etc.  70% of revenue and all profit originates in Asia, mainly China.  Now investing into the United States

- Actual sales and profitability are less than accounting suggests. Business is shrinking rapidly, they are worried about potential insolvency

-  Called 630 stores, they only found 289 open... nobody answered or store was closed.  Out of 248 supposed stores in Asia, they only found 64.  Hired Chinese and Japanese teams to do due diligence in the countries.  Went to visit stores, found many were tiny, non-existent or liquidating

-  Claims solid online sales, but traffic is tiny compared to big competitors who supposedly generate similar revenues.  Social media has a tiny presence as well compared to others

-  Thinks the company will have to issue shares or bonds to makeup for a shortfall soon

-  Company claims $1 billion of sales in Asia, but actual China subsidiaries are only showing millions of dollars.  Company has always used the same auditor then suddenly switched to another auditor that's not really as well known

Embedded below is the video of Gabriel Grego's presentation:




Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Enrique Abeyta Short Anheuser Busch Inbev Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Enrique Abeyta who pitched a short of Anheuser Busch Inbev (BUD).  

Enrique Abeyta's Presentation: Short Anheuser Busch Inbev (BUD)

-  Thinks there will be negative earnings revisions.  Craft brewers are a threat, but contract brewing and the lower hurdle to entry in the market is the bigger story: it costs very little to start up a tiny beer somewhere and start producing.

-While most legacy beer companies built their advantage via scale and advertising via expensive mediums (TV, print) today advertising costs have come way down via online advertising and you can target the exact type of customer you're looking for.

-  Also thinks Kraft Heinz (KHC) and Disney (DIS) will face similar threats and would be short those as well (KHC: lots of micro brands starting ot popup, DIS: cost of producing content is coming down and others can do so much more cheaply)

Below is the video of Enrique Abeyta's pitch on shorting Budweiser:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Chris Brown Short Energous (WATT): Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Chris Brown of Aristides Capital who pitched short Energous (WATT).


Chris Brown's Presentation: Short Energous (WATT)

- Company's stock skyrocketed late last year on FCC approval news.  Says CEO pretty much always lies. 

- Energous has an agreement with Apple

- Company seeking to do RF or wireless charging at a distance: claims to create pockets of energy around your device to charge it. The physics behind it isn't new and technology isn't new.  The science behind it is explained in the video below but basically what they're trying to do isn't practical and is extremely exagerrated

- Lots of insider sales recently

-  Marketing is touting 'vaporware' and doing a good job of hyping things.  He thinks the company is a zero and a fraud.


Embedded below is the video of Chris Brown's presentation:





Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Asher Jacobs & Jade Hu Short Stericycle (SRCL) Presentation: Kase Learning Conference

We're posting up a series of presentations from the recent Kase Learning Short Selling Conference.  Next up is Asher Jacbos and Jade Hu, Columbia MBA students who pitched a short of Stericycle (SRCL).


Asher Jacbos & Jade Hu's Presentation: Short Stericycle (SRCL)

-  See 36% downside over the next 18 months.  Fallout over recent lawsuit settlement is only in the early innings as it highlighted the company's price gouging.  Company won't be able to continue its rollup strategy with 4 turns of leverage.  Numerous accounting redflags highlight the company's deteriorating fundamentals

-  Company focuses on the medical waste market with around 80% market share.  Has expanded to other industries like shredding, environmental waste, and other areas

-  They expect the company's pricing power increases to be capped at around 5%, compared to historic increases of 18% biannually.  Competition will increase in the space as they're heavily spending on marketing to take share

-  Think one segment's revenue will drop 7% based on lack of ability to drive pricing.  Sees volume decreasing 7% (but not as severe as it was previously) as they're making price concessions to drive business.  7% revenue decline leads to a 14% EBITDA decrease

-  Company is seeing a mix shift to lower margin businesses.  Credit rating was recently downgraded, lots of debt due in 2020

-  Thinks management is focused on empire building, as incentive compensation is built on absolute adjusted EBITDA

- Expect continued earnings misses, large asset impairment.  Base case assumes 9x EV/EBITDA.  If margins stabilize and the stock gets a higher multiple, there's only 20% upside, capping risk on the short


Embedded below is the video of their presentation:



And here's a link to their presentation from the Columbia Business School's Graham & Doddsville newsletter.

Be sure to check out the rest of the presentations from the Kase Learning Short Selling Conference.

Notes From Sohn Hong Kong Investment Conference 2018

The 2018 Sohn Hong Kong Investment Conference recently took place benefiting the Karen Leung Foundation for gynecological cancer education, prevention, and support.  Fund managers presented investment ideas in a gathering that benefited charity.  Here's a quick summary with notes from the event.


Notes From Sohn Hong Kong Conference 2018

Eashwar Krishnan (Tybourne Capital):  Long: Line (LN).  Dominant messaging platform in Japan and several other countries.  Based on enterprise value (EV) to monthly active users (MAU), Line is the cheapest and most undervalued messaging app in the world.  On this metric, LN trades at $39 while Tencent trades at $207, Naver at $199, Facebook at $180, and Yahoo Japan at $101.  Median number (including others like Kakao, Weibo, Twitter etc) is $67. Sees potential to double your money in three years.  Company can try to take more 'time spent' from other apps and rollout revenue from more advertising, games, financial services and food delivery. Prior to founding Tybourne, he worked at Lone Pine Capital.


Rajesh Sachdeva (Flowering Tree Investment Management): Long: VP Bank (Vietnam Prosperity JSC Bank).  The country has a solid base for an economy and VP Bank is the cheapest bank in Asia yet has the highest returns on equity (ROE).  Largest consumer bank in Vietnam.  5 million customers, around 10% of the labor force of the country.  Has strong underwriting standards.  Thinks the stock can go up 4-5x over the next 3 years as long as there aren't huge economic hiccups.


Avinash Abraham (Torq Capital Management):  Long: Pacific Basin (2343.HK).  Dry shipping company in Hong Kong.  Minor bulks shipping and is "very undervalued."  Company recently became profitable again last year.  Thinks the 10 year bear market in dry bulk shipping is coming to a close.  Company has diversified exposure to products.


Kok Hoi Wong (APS Asset Management):  Short: JD.com (JD).  This has been a consensus long among many managers but argues that it's already priced for perfection.  Thinks impairment losses coming.  Company made bad investments (PaiPai and QQ Wanggou, Bitauto, Tuniu, Yihaodian).  Thinks a big impairment is possible from Yihaodian.  Management is "investing recklessly."  Says to be weary as company can't make a profit in highly competitive Chinese e-commerce market.  Business model is misunderstood. 


Benjamin Fuchs (BFAM Partners):  Long Tencent (700.HK) & Tencent Put Options.  Hedged trade that bets on one of the dominant companies in Asia but allows you to profit from a swing in the stock either direction.  Buy Spring 2019 puts to complement the long equity position. Profitable if shares go more than 15% in either direction


Soren Aandahl (Blue Orca Capital):  Short: Samsonite (1910.HK).  Has previously attacked the company with a recent short report and did so again at the event.  Shares have been halted.  CEO Ramesh Tainwala has been lying about resume & misrepresenting himself as a doctor, calls for his firing.  Company has audit red flags: third auditor in three years.  Pointed out accounting practices and corporate governance.  If you recognize the investor's name he was previously running Glaucus Research which put out a lot of short reports and recently launched an activist fund.


Seth Fischer (Oasis Management): Long Don Quijote Holdings Subsidiary Japan Asset Marketing (8922.JP).  Don Quijote is a retail chain based in Japan that's open 24 hours and sells all kinds of various goods from food to personal care to you name it.  Subsidiary JAM is its real estate segment.  Thinks the company is able to survive "Amazonification of the world" but has been mismanaged.  They've launched an activist campaign, have owned stock since 2017.  Proposed corporate restructuring   Sees 50% upside. Details on their proposal here.


Wesley Wong (Oxbow Capital Management): Long Guangzhou Baiyun Airport (SHA:600004).  Third largest airport in China and 14th largest in the world.  Sees 50% upside in the next year to year-and-a-half.  New terminal coming online will lead to increased number of passenger and rent from retail tenants.  Sees EBTIDA coming in around 20% higher than consensus.


Carl Huttenlocher (Myriad Asset Management): Long MSCI China 2025 Index.  Simple trade, thinks China will be the best global equity market for the next few years.  Chinese A-Shares being included in indexes now will be a catalyst.


Hermes Li (Aspex Management):  Long SJM Holdings (0880.HK).  Likes the casino company as it's poised to benefit from opening the new Lisboa Palace in the back-end of 2019.


Ben Melkman (Light Sky Macro): Thinks inflation in Japan is coming faster than people realize and will yield higher rates.  To bet on this there's two plays: spread trade for bearish exposure on 10-year Japan Commodity Clear House rate or buy banks that will benefit from increased interest rates.


For more investment conference coverage, we've previously posted notes from the Sohn New York Conference and also this week we just posted up notes from the London Value Investor Conference.

ValueAct Capital Takes Olympus Stake

Jeff Ubben's activist investment firm ValueAct Capital has disclosed a 5% ownership stake in Japanese camera and medical device company Olympus (TYO:7733).  Their stake is valued at around $600 million and is a brand new position.  Their core position size seems to be around $1 billion these days, so this is a bit below that.

As far as we're aware, this is firm's first activist bet in Asia.  ValueAct issued a statement, saying, "Olympus has an exceptional business model, market share, technology leadership and emerging markets presence in the global medical device industry.  We think it's an ideal company for our first investment in Japan."

Activism in Japan seems to slowly becoming more acceptable.  Changes in corporate governance in the country have helped that progress.  A few years ago we highlighted Third Point's activist position in Sony and they had also previously invested in Seven & i.

You can view more ValueAct portfolio activity here.

Tiger Global Increases Sunrun Position

Chase Coleman's hedge fund firm Tiger Global has filed a 13G with the SEC regarding its stake in Sunrun (RUN).  Per the filing, Tiger Global now owns 10.7% of the company with over 11.67 million shares.  This is up significantly from the 5.74 million shares they disclosed back at the end of the first quarter.

An additional Form 4 filed with the SEC shows Tiger was buying RUN shares on May 25th, 29th, and 30th.  In total, they bought 776,138 shares at weighted average prices from $10.71 to $11.50.  The filing also notes the securities are held by advisory clients of Tiger Global.

Per Yahoo Finance, Sunrun "engages in the design, development, installation, sale, ownership, and maintenance of residential solar energy systems in the United States. It also sells solar leads. The company markets and sells its products through direct channels, partner channels, mass media, digital media, canvassing, referral, retail, and field marketing. Sunrun Inc. was founded in 2007 and is headquartered in San Francisco, California."

Lone Pine Capital Boosts IQVIA Stake

Steve Mandel's hedge fund firm Lone Pine Capital has filed a 13G with the SEC regarding its stake in IQVIA (IQV).  Per the filing, Lone Pine now owns 5% of the company with over 10.45 million shares.

This is an increase over the 9.89 million shares they owned at the end of the first quarter, per their most recent 13F filing.  The most recent trading activity was on May 16th.  To see the rest of Lone Pine's portfolio, check out the brand new issue of our quarterly newsletter.

Per Yahoo Finance, IQVia is "IQVIA Holdings Inc. provides integrated information and technology-enabled healthcare services in the Americas, Europe, Africa, and the Asia-Pacific. It operates through three segments: Commercial Solutions, Research & Development Solutions, and Integrated Engagement Services."

Whale Rock Capital Adds To MongoDB Stake

Alex Sacerdote's hedge fund firm Whale Rock Capital has filed a 13G with the SEC regarding its stake in MongoDB (MDB).  Per the filing, Whale Rock now owns 16.05% of the company with over 3.83 million shares. 

This is way up from the 556,862 shares they owned at the end of the first quarter. 

They originally disclosed the increased position in a separate 13G filing due to activity in late April, showing a 5.83% ownership stake. The most recent filing was made due to activity on May 24th, showing they've further upped their stake to now 16.05% of the company.

Per Yahoo Finance, MongoDB "operates as a general purpose database platform worldwide. The company offers MongoDB Enterprise Advanced, a subscription package for enterprise customers to run in the cloud, on-premise, or in a hybrid environment; MongoDB Atlas, a cloud-hosted database-as-a-service solution; and Community Server, a free-to-download version of its database, which includes the functionality that developers need to get started with MongoDB. It also provides professional services, such as consulting and training. The company was formerly known as 10gen, Inc. and changed its name to MongoDB, Inc. in August 2013"

Notes From London Value Investor Conference 2018

The 2018 London Value Investor Conference recently concluded and we've got notes from each speaker's presentation.  Click the links below to go each speaker's pitch.


London Value Investor Conference 2018 Notes


- Dawid Krige (Cederberg Capital): Long Kweichow Moutai (SHA):600519) & Dong-E-E-Jiao (SHE:000423)

- Nigel Waller & Andrew Goodwin (Oldfield Partners): Long Kansai Electric (TYO:9503) & E.ON (ETR:EOAN)

- Ben Preston (Orbis): Long Peabody Energy (NYSE:BTU)

- Nick Kirrage (Schroders): Long Standard Chartered (LON: STAN)

- Mark Asquith (Somerset Capital): Long Pacific Textiles (HKG:1382), Sunny Friend (TPE:8341), Cia Hering (BVMF:HGTX3) 

- Alex Wright (Fidelity Special Situations): Long Pearson (LON:PSON), Bunzl (LON:BNZL)

- Stephen Mitchel & Bryan Pilsworth (Foyston, Gordon & Payne): Long Transcontinental (TSE:TCL) & Walgreens Boots Alliance (NASDAQ:WBA)

- Adrian Warner (Avenir Capital): Long HCA Healthcare (NYSE:HCA)

- Stephen Anness (Invesco Perpetual): Long National Oilwell Varco (NYSE:NOV)

- Alvaro Guzman & Fernando Bernad (Az-Valor Asset Management): Long Buenaventura (NYSE:BVN)

- Jonathan Boyar (Boyar Value Group): Long Axalta Coating Systems (AXTA), Acushnet Holdings (GOLF), Madison Square Garden Networks (MSGN), Franklin Resources (BEN), Howard Hughes (HHC) 

- Mark Pearson (Arcus Investment): Long Asanuma Corp (TYO:1852)

Dawid Krige Long Kweichow Moutai & Dong-E-E-Jiao: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Dawid Krige of Cederberg Capital who pitched longs of Kweichow Moutai (SHA:600519) and Dong-E-E-Jiao (SHE:000423).


Dawid Krige's London Value Investor Conference Presentation

Dawid co-founded Cederberg Capital in 2011. From 2005 to 2011 he was at Mondrian Investment Partners where he was a portfolio manager and China specialist. Cederberg are concentrated, fundamental, bottom-up, quality investors focused on China.

Frauds in China exist but they can be avoided. Fraud is not endemic. The recent China Hustle film presents a misleading and overly negative view of Chinese companies.

China is catching up with the US and will overtake it. In terms of STEM graduates - Science,Technology, Engineering, Mathematics – US 5% Vs China 38%. Global Patent applications: US 19% Vs China 43%. Unicorn unlisted start-ups with a valuation of more that $1bn: US 45% Vs China 43%. Yet China only accounts for 4% of the MSCI world index whilst the US is 50%. Over the next 20 to 30years China is going to become 20% to 30% of the MSCI. It will take share from the US.

Long: Kweichow Moutai (SHA: 600519):  Last year Kweichow Moutai overtook Diageo as the world’s largest spirits company. The company is over 300 years old. It spends very little on marketing. Moutai is a national drink and is offered to visiting politicians and dignitaries. It has 99% brand awareness in China. It’s essentially a monopoly with 70% of the spirits market. Its margins are almost 3x Diageo’s. ROIC: 30%. In the last 10 years it has grown at 30% per annum. At a PE 21x 2019 it trades on a similar PE to Diageo but with much more growth.


Long: Dong-E-E-Jiao (SHE: 000423):  Dong is a traditional Chinese medicine company that makes nutritional supplements. The supplements are over-the-counter products that are made from natural ingredients and therefore don’t face regulation. Cederberg think of the company as a luxury consumer goods company and not a healthcare company. The brand has a history that goes back over 2500 years. It has 70% marketshare and 98% brand awareness. It trades on a PE 14x 2019.

Krige said that whether the product works or not is not that important because of its cultural significance. If your parents and your parent’s parents have used it, you are likely to use it.  The biggest risk is from a change in distribution that could happen due to the challenge from e-commerce.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Nigel Waller & Andrew Goodwin Long Kansai Electric & E.ON: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Nigel Waller and Andrew Goodwin of Oldfield Partners who pitched longs of Kansai Electric (TYO:9503) and E.ON (ETR: EOAN).


Nigel Waller & Andrew Goodwin's London Value Investor Conference Presentation

Waller and Goodwin usefully suggested that disruption happens in four different way. Firstly, technology gets investors excited sometimes creating bubbles around new technologies. Investors over react and drive the price of the disrupted stocks too low. The market drives disrupted stocks to valuations that make no sense unless the technological change is very significant, swift and permanent.

A second area of disruption is caused by product cycles. It can affect all industries, but it is particularly prevalent in the pharma sector. The market gets excited about new drugs and over-pessimistic about those that are facing patent cliffs.

A third type is caused by new competition. The market tends to favour the disruptor and focuses its ire on the incumbent. The fourth area of disruption is caused by economic cycles, both large scale macro-economic cycles and smaller scale capital cycles that some sectors are particularly prone too.  As contrarian investors they try to take advantage of these cycles to buy companies when they are cheap.


Long Kansai Electric (TYO: 9503):  In March 2011, Japan suffered a large earthquake that led to the Fukushima nuclear disaster. Prior to Fukushima there were 54 reactors in service providing 30% of Japan’s energy needs. Afterwards all the reactors were taken off line.  Kansai Electric was hit particularly hard because half of its energy production came from nuclear.  Investors exited the stock.

Oldfield Partners started to buy in March 2015 at around 1100 Yen per share. At the time the Japanese market analysts were completely bearish and none of them thought the return to service of the nuclear reactors was likely. Market analysts in Japan are risk averse as that is the only way they have survived the long-term bear market. The Oldfield team became convinced that Japan could not satisfy its energy demands without the nuclear reactors. Despite some local resistance, Japan is slowly bringing its nuclear reactors back online. Kansai now have 4working reactors reducing their reliance on thermal and reducing fuel costs.

Kansai shares are up 60% from Oldfield’s buy price. They feel shares still offer good value as Kansai think that eventually 7 of its 11 reactors will come back on line. Operating profits could increase a further 50% from here.Japanese energy markets are deregulated. Kansai is the lowest cost producer and could enter new regions to grow its market share.


Long E.ON (ETR: EOAN):  The market has been worried that technological and regulatory changes will disrupt E.ON. Since 2010 Germany has been trying to shift from thermal to renewables. The Fukushima disaster led Germany to do a U-turn on its nuclear policy and to set a target for closing its nuclear power stations by 2022. An additional negative for potential E.ON investors was that solar energy was being heavily subsidised.

Oldfield Partners started buying E.ON in Sept 2015 and has an average price of 7.24 euro.  The nuclear operations are in run-off. In terms of returns 65% now comes from the regulated business. E.ON has completed its de-gearing.

In 2018 E.ON announced an asset swap with its big competitor RWE. RWE is going to take E.ON’s renewables and E.ON will get RWE’s regulated business. The asset life of the renewables is probably 25 years whilst the regulated assets have an asset life of around 100 years. That is a good swap and E.ON will have 80% regulated assets. The synergies of the combined business are significant at 600-800m euros. There is a 5% dividend that can grow.

Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Ben Preston Long Peabody Energy: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Ben Preston of Orbis who pitched a long of Peabody Energy (BTU).


Ben Preston's London Value Investor Conference Presentation

Peabody is the world’s largest publicly listed provider of coal. Coal mining had a particularly tough time in 2015/6. At one point almost half of US coal was being produced by companies that had filed for bankruptcy.  Peabody produces 200m tons of coal per year mostly in the US which it mostly sells to power stations. A lower volume of coal is produced in Australia but that is where Peabody makes most of its money from export markets, particularly China.

After the commodity markets peaked in 2011 Peabody found itself with too much debt. It filed for bankruptcy in 2016 and spent a year sorting itself out. The shareholders were wiped out. The re-incarnation has lower capex and debt interest payments. Whilst production is down, free cash flow is up. As Peabody are not opening new mines the money is flowing back to shareholders. There is a very high FCF yield at 25% on a trailing basis.

Since the commodity crash coal production has declined. In addition, China has been trying to tackle its pollution problems by moving away from coal. This has been good for the environment but does not keep Chinese people warm. China relaxed the new clean air policy in 2016. There is a conflict between the E and the S of ESG (environment, social, governance). Tackling air pollution has led to more demand for high quality coal because it is more efficient and pollutes less. Peabody’s coal is high quality.

Peabody is cheap because investors are worried the price of coal will fall back again. Mr Market is convinced it will but if it doesn’t Peabody will do well.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Mark Asquith Long Pacific Textiles, Sunny Friend, Cia Hering: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Mark Asquith of Somerset Capital Management who pitched three longs: Pacific Textiles (HKG:1382), Sunny Friend (TPE:8341), and Cia Hering (BVMF:HGTX3).


Mark Asquith's London Value Investor Conference Presentation

Mark Asquith is the lead manager of the Global Emerging Market Small Cap and EM Small Cap Strategies.

Long: Pacific Textiles (HKG: 1382):  It’s been a savage environment for textile companies. Competition between brands and from Amazon has depressed prices.  Environmental regulations create barriers to entry as few can afford to meet the benchmarks for water, air and heat treatment. Also, there are barriers to entry that are driven by customer expectations: lead time 7-45 days, quality, ESG. Few can meet these. The number of textile enterprises has reduced dramatically in the last 10 years.The market is concerned about growth, tariffs and a stronger Renminbi.  Pacific Textiles is trading at PE 10x, ROE 30%, FCF 10%.

Long: Sunny Friend (TPE: 8341):  Sunny Friend is a waste management company in Taiwan. They have incineration and liquidation waste disposal facilities. It’s a compounder rather than a deep value stock.  In Taiwan, they have 35% market share in medical and 16% in industrial waste.  They have barriers to entry because no one wants a waste management plant in their back yard (NIMBYism). There are also customer switching cost and permits. These protect their Taiwanese business but make it difficult for them to break into the Chinese market. China is a potential growth market (currently <20% of sales).  Sunny friend is not classically cheap, but it does have good free cash flow yield and generation.

Long Cia Hering (BVMF: HGTX3):  Cia Hering is a Brazilian clothing brands company. It has been having a hard time including losing control of its point of sale. The shares fell 80% from 2012-2015.  Somerset bought their stake in 2015/16 when new management replaced the old. The new management have rebranded the product range and invested in point of sale.  Many of their competitors have gone under. Consumer confidence is picking back up.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.

Nick Kirrage Long Standard Chartered: London Value Investor Conference 2018

We're posting up notes from the 2018 London Value Investor Conference.  Next up is Nick Kirrage of Schroders who pitched a long of Standard Chartered (LON: STAN).


Nick Kirrage's London Value Investor Conference Presentation

Deep value has had ten of the worst years of under-performance verses growth on record. Most investors are invested in franchise stocks not deep value. They are over-exposed to growth.

Long: Standard Chartered (LON: STAN):  Nick Kirrage’s partner, Kevin Murphy, pitched Standard Chartered at last year’s conference. Since then it’s down 11%. They’ve liked banking for the last five years. They’ve been early and have been adding to existing banking positions. STAN’s valuation reflects a fear of emerging markets. It’s a unique franchise in emerging markets and is one of Kirrage’s and Murphy’s largest positions.


Be sure to check out the rest of the presentations from the London Value Investor Conference 2018.