market folly

We're posting notes from the Sohn London investment conference 2016.  Next up is Mans Larsson of Makuria Investment Management who pitched two long ideas: Grand City Properties (GER:GYC) and Nos (ELI:NOS).


Mans Larsson's Sohn London Conference Presentation

Mans Larsson - founded Makuria Investment Management in 2013. Makuria has $775 million AUM and invests long / short across the capital structure with a bias towards credit and special situations.

Long Grand City Properties (GER: GYC) 

Grand City Properties is a German specialist real estate company focused on densely populated areas. It focuses on multi dwelling units – basic accommodation. It is a mid-cap company that is trading near 52-week lows. German residential property has good fundamentals. There is acceleration in rental growth (about 4% annual growth). Unlike many countries, real estate value in Germany has not grown in recent years. There is no history of home ownership in Germany but that is changing.

Grand City Properties could raise their rents as they are 20% below the market. The founder and chairman owns 33% of the stock and are well aligned with shareholders. The stock trades at a 20% discount to replacement cost. Cashflow is growing organically in the mid-teens. Cashflow can grow from Euro 144 million today to Euro 200 million in three years.

Grand City has issued perpetual bonds at rates as low as 2.5%. That will be a huge help to them if rates rise.


Long Nos (ELI: NOS) 

Nos is a Portuguese mid cap company that is a leading provider of cable TV, fibre broadband and 4G networks. It is a high-quality business with predictable and growing FCF. Nos trades at below 13x operating cashflow. It is is the leading cable TV provider in Portugal growing their market share from 25% in 2012 to 30% today. It has invested heavily in the last few years and now has the best in class fibre optic broadband and 4G network. It also has good set top box technology.

The capital expenditure phase is now over allowing Nos to move from an investment to a harvesting phase. Recently Nos and Vodaphone have agreed to share football rights which should reduce the price war between the two players.

The Portuguese stock market is one of the cheapest markets in Europe. Nos’s valuation is compelling at about 6x EBITDA. Pricing is low and could be raised. The cable business is relatively recession proof. The Portuguese economy is improving. Leverage is about 2x which is not high for the industry.

Be sure to check out the rest of the Sohn London conference presentations here.