market folly

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Eric Andersen of Western Standard who pitched Forrester (FORR), OFS Capital (OFS) and Hartmann.


Eric Andersen's Value Investing Congress Presentation

•    Looks for companies below $500MM, underfollowed, lack of sell-side analysts. Utilizes screens which follow past successful investments. Database of 500+ firms.
•    Focus on downside, quantify the analysis, understand the current business, and analyze the stability of business and management quality.


•    Idea: Forrester (FORR) – high retention and recurring revenue, large market with secular growth.
•    Net cash balance sheet and FCF
•    Forrester is a leading tech research and advisory business.
•    No customer concentration.
•    Business tech – traditional tech research. Marketing strategy is 43% of sales.
•    Too many changes too quickly. Went from product rep sales force to a client rep system.
•    Ramp up on sales force – takes 12 – 18 months to get trained and running.
•    Earnings growth – revamped recruiting and sales model – well received by clients.
•    Confident they can drive double digit bookings/revenue growth.
•    At a peer multiple worth $48 per share – downside is protected by a stock repurchase program, bought 16.2% at prices slightly above the current price.
•    $80MM in cash returned in FY14 estimated.
•    Since 09 – returned 42% of market cap in buybacks/dividends.
•    Risks: sales ramp could not materialize, other competitors – however many are also customers.
•    Limited float – owner –operator who doesn’t sell
•    2% dividend, plus buyback and earnings growth


•    Next Idea: OFS Capital (OFS) – busted IPO – skewed risk/reward 60-80% return
•    Trades at 80% of BV
•    Dividend paid to wait
•    Externally managed BDC – middle market lending
•    Sold off due to SBIC license – which was received in December.
•    SBIC loans have 12-16% rates and return on equity of 20% or more.
•    Access to SBA debenture program.
•    NI should grow as the funds are invested.
•    External manager owns 30%.
•    CEO owns 10% directly.
•    Industry checks reveal positives on the management and strong returns.
•    Things they should at 126% of TBV/11x earnings.
•    Risks: execution, interest rate risk, dilution and small business could be hit hard in a downturn.
•    Mitigation – can’t raise cash below bv without shareholder consent.


•    Hartmann – Danish company – 10.5% FCF yield/7.5% with growth capex.
•    Packaging company (packaging for eggs).
•    40% market share in their space. Made out of recycled paper – strong, versatile and environmental.
•    Barriers to entry – customer relationships, quality, and technical know-how.
•    Broad portfolio – six production facilities.
•    Growth drivers – premium packaging (premium eggs carry higher margins) molded fiber is gaining share in the United States vs. foam.
•    Increases it USA capacity by 33%.
•    Increasing consumption of eggs in Europe. Cheap form of protein.
•    Prior management terrible at capital allocation and operations. Restructuring program was initiated and went back to “basics”
•    ROIC has grown to 20%, believe it is sustainable.
•    At a peer multiple – worth 270 kroner per share.
•    Risk: Paper pricing and energy usage. Low growth industry and sales tied to commodity.


Be sure to check out the rest of the Value Investing Congress presentations.