market folly

We're posting up notes from the Invest For Kids 2016 investment conference.  Next up is Leah Zell of Lizard Investors who pitched long BIM, short Woolworth's.


Leah Zell's Presentation at Invest For Kids Chicago 2016

•    “The Grocery War Zone”

•    Case study of Aldi’s amazing success over the years; see also “Bare Essentials” by Brandes

o    A limited product range of everyday basics that sell fast

o    Commitment tot be the price leader in the marketplace

o    Extensive use of private label offerings

o    Bare bonds no-frills operations

o    Straight dealings with customers, employees, and vendors

o    Decentralized management with minimal corporate overhead (cash management is only centralized function)


•    Long BIM  

•    Same ideas apply to BIM in Turkey, whose slogan translates to “retail at wholesale prices”

•    Very low operating expenses

•    Low share of fragmented Turkish market

•    All expansion funded with cash flow

•    Since 2005 IPO, 26% CAGR in revenue, 34% in net income; >40% ROIC and ROE; net cash balance sheet

•    Trades at 20x 2017 EPS now, but at 15% revenue growth, flat margins and no multiple expansion, still a double by 2020



•    Short Woolworth’s in Australia 

•    Largest grocer but weaker as compared to Coles

•    Aldi now competing with 400 stores too

•    Woolworth’s now pursuing a restructuring, but too little too late? Needs a 3G makeover a la Heinz Kraft

•    At 3.5% operating margin with single-digit sales declines worth AUD $14.50, down 40%

•    Consumers today want either a premium product or the lowest cost – everything in between is getting squeezed

•    Low cost is powerful (see Ryanair) but hard to execute

o    Need a simple concept, ruthless execution, and a loop wherein scale widens the moat

o    If you find a great business like this, hold on for the long term


Be sure to check out the rest of the presentations from Invest For Kids 2016.