market folly

Next up in our notes from Invest For Kids Chicago is Frank Brosens of Taconic Capital.

Brosens' Thesis on the 'New' General Motors

•    There are 3 catalysts for the repricing of GM

•    (1) New management team 
o    Better capital allocation since going public in November 2010 with new CEO Dan Akerson (Private equity background)
o    Better capital allocation will lead to resurgence

•    (2) Administration willing to sell post election
o    Treasury stake (mid 40s cost basis) is goings to come to market
o    Overhang of would be gone.  Institutions would come back to the stock (including being added to indices)
o    32 billion cash until treasury sells stake (only need 20bn to run company) and have $10bn revolver.
o    Company could buy back half of treasury stake. (Boosts EPS 16%)

•    (3) Valuation is currently overly conservative assumptions (Brossens notes the stock could triple).
o    SAAR is improving and could hits 15 MM next year
o    30% of GM’s 2013 line-up is re-engineered and the refresh cycle is driver of profitability and market share
o    The 2013 GM lineup has many trucks (GM makes ~10K per truck sold).  This is significantly in excess of the last truck refresh cycle in which GM made $2 to 3K per truck. Overall, a $3.5 billion dollar incremental opportunity
o    Average car age on road is beyond 11 years
o    GM trades at a discounts on EBITDA basis to Ford, Toyota, and VW
o    By 2015 if the current EV to EBITDA multiple stays flat the equity price will be $67 and if the FCF multiple stays flat the stock could be worth $89

It's also worth pointing out that Greenlight Capital's David Einhorn pitched GM at the Value Investing Congress as well.


For the rest of the hedge fund presentations from the event, head to notes from Invest For Kids Chicago.