market folly

We've posted up notes from the Value Investing Congress in Las Vegas and next up in the series is Zeke Ashton of Centaur Capital Partners who pitched BMW Preferreds.


Zeke Ashton's Value Investing Congress Presentation

•    Founded Centaur Capital Partners in 2002. Long-Bias, goes both long and short.
•    Started out as a “hybrid”, value investing made sense in 1997 – value stocks would just stay cheap. If you  bought tech stocks, made 50% in a month. Since he was new, looking at what worked. Was a value investor at heart, but couldn’t help himself to invest in some of these tech stocks.
•    Ballard power –speculative investment went from 100 to 2.
•    Deswell – cigar butt investment at that time – went up 50% and sold it. Bought it for 2x PE. Stock price declined and was flat, but shareholders received their capital back through dividends.
•    What to take from this? Graham and Dodd works – but buying good companies is better.
•    Comparison – Yahoo! Acquisition of broadcast.com is eerily similar to Facebook’s acquisition of WhatsApp.  Doesn’t know how Whatsapp will play out, but we know what happened with Yahoo! (Plus it was a win for us Dallas Maverick Fans)


•    Opposite End of the value scale – Tesla Vs. BMW. End of the day, both are Car Companies. Market Cap for Tesla $30B market cap, 23,500 cars sold, expecting 35k next year – BMW 2MM cars a year, not counting motorcycles – cars sold growing. From a scale standpoint, completely different businesses.
•    Tesla wasn’t so much in the car business – made a lot of revenue from various “regulatory credits”, which are deducted from your COGS! Alone, these are 8% of revenues. As a percentage of gross margin 45%.
•    TSLA has a smart group of guys – interesting how they hid the credits.
•    BMW is entering the EV market – has been prepping for this for a long time.
•    One BMW model – I3 and the I8 - $135K BMW convertible. 
•    BMW partnered with a Chinese car company to create an EV brand – Zinoro. If TSLA gains billions off opening one Chinese dealership, then what happens ot the JV which is opening multiple dealerships.
•    Financial services business is phenomenal. BMW Finance is a hidden asset. Also has an insurance operation – extended warranties, etc. Amazing businesses. They obtain 45% of all BMW sales as customers – captive base.
•    What would it take to replicate BMW? Well over the past ten years, they have spent over $100B in CapEx and $41B in R&D. Another secret sauce – can access the credit markets at attractive terms.


•    Buy BMW through the preferred – 25% discount or 8x earnings and 3.9% dividend yield. One of the best brands in the world, along with an attractive FinCo
•    SOTP – 6x OCF for the OpCo and a multiple for the FinCo in line with the market. Fair value for common shares $100 euros, common is at $91 – hence preferreds are the most attractive.
•    Tesla is priced for perfection, I wouldn’t recommend a short but it is an interesting company.
•    Q&A asked about the comparison between Chobani and General Mills (Tom Russo’s presentation).  BMW takes their time to be perfect.

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