Activist investor Carl Icahn has filed a 13D and Form 4 with the SEC regarding his investment in Herbalife (HLF). Per the filing, Icahn now owns 23.05% of HLF with over 21.44 million shares.
The filing notes that on November 3rd specifically, Icahn bought over 1.83 million HLF shares at a price of $54.7, or over $100 million worth of stock.
For more on this investor, last month we highlighted that Icahn said companies are overvalued considering the risk premium.
Per Google Finance, Herbalife is "a global nutrition company. The Company develops and sells weight management, healthy meals and snacks, sports and fitness, energy and targeted nutritional products, as well as personal care products. The Company's segments include North America; Mexico; South & Central America; Europe, Middle East, and Africa (EMEA); Asia Pacific, and China. The Company markets and sells over 140 products, encompassing approximately 5,000 stock keeping units (SKUs) globally. Its product categories include Weight Management; Targeted Nutrition; Energy, Sports and Fitness; Outer Nutrition, and Literature, Promotional and Other. The Company's representative products include Formula 1 Healthy Meal, Herbal Tea Concentrate, Protein Drink Mix, Personalized Protein Powder, Total Control, Prolessa Duo, Protein Bars, Aloe Concentrate, Niteworks, Garden 7 phytonutrient supplement, Best Defense for improved immune system, COQ10 Plus and Herbalife SKIN line."
Friday, November 4, 2016
Carl Icahn Buys $100 Million Worth of Herbalife (HLF)
Trian Fund Management Sells Some Mondelez
Nelson Peltz's activist firm Trian Fund Management has filed a Form 4 with the SEC regarding its stake in Mondelez (MDLZ).
Per the filing, Trian sold 3.8 million MDLZ shares on November 1st, 2nd, and 3rd at prices ranging from $43.29 to $45.22. After these transactions, Trian still owns 44.21 million shares of Mondelez.
If you missed it, we also posted a recent interview with Nelson Peltz who isn't as cautious as others about the market.
Per Google Finance, Mondelez is "a snack company. The Company manufactures and markets snack food and beverage products for consumers in approximately 165 countries around the world. The Company operates through five segments: Latin America; Asia Pacific; Eastern Europe, Middle East, and Africa (EEMEA); Europe, and North America. Its portfolio includes over seven brands, including Nabisco, Oreo and LU biscuits; Cadbury, Cadbury Dairy Milk and Milka chocolates, and Trident gum, as well as over 50 brands. The Company's brands span five product categories: biscuits (including cookies, crackers and salted snacks); chocolate; gum and candy; beverages (including coffee and powdered beverages), and cheese and grocery. The Company's other brands include Oreo, Chips Ahoy!, Ritz, TUC/Club Social and belVita biscuits; Cadbury Dairy Milk, Milka and Lacta chocolate; Trident gum; Hall's candy, and Tang powdered beverages."
Hedge Fund Links ~ 11/4/16
Pershing Square shakes up fees amid losses [Reuters]
Big hit on drug stocks caps big decline for John Paulson [WSJ]
Lansdowne: no excuses for poor hedge fund performance [Reuters]
Hedge fund clients dump humans for computers and still lose [Bloomberg]
Harvard called 'lazy, fat, stupid' in Endowment report last year [Bloomberg]
Thursday, November 3, 2016
Connect with the World's Wealthiest Family Offices This Month - Exclusive Discount
We wanted to remind our readers that at the end of this month the largest family office association in the world is hosting its annual Family Office Super Summit in Miami, Florida. This event features the biggest names in the family office industry from November 28th-30th. As a Market Folly reader, you can attend for the incredibly low discounted price of just $299.
To register simply enter “Save400” on the form at the bottom of this event page: http://FamilyOffices.com/Super
What will you receive with your $299 admission?
• Access to the Early Arrivals Welcome Reception on November 28th so you can get a head start meeting with family offices, investors, and financial executives over cocktails and hors d'oeuvres.
• Two packed days of networking, investor-led presentations, and family office panel discussions on direct investments, family office wealth management, and managing portfolios for HNWI’s and ultra-wealthy families.
• Fully catered meals, multiple cocktail hours over 3 days, and a Bloody Mary bar mixer to give you even more chances to meet with fellow attendees and investors.
• A chance to mingle with family offices and potential investment partners in Miami who are in town for the conference and the country's biggest private art festival, Art Basel, taking place in South Florida the same week. This festival attracts high-net-worth individuals, celebrities, family offices, and business leaders to the various art exhibits, gallery showings, and premium networking events throughout Miami.
• Real insights directly from family offices responsible for investing some of the world’s largest fortunes on how they make portfolio decisions, what they look for in a prospective investment, and how you can do business together.
This is the premier family office conference and for just $299 as a Market Folly reader you cannot find a better deal to attend a multi-day investor event. Remember, use code “Save400” to lock in this incredible deal using the form on this page: http://FamilyOffices.com/Super or call (305) 503-9077 and tell the Family Office Club that you're a Market Folly reader.
Summaries of Recent Investment Conferences
We've covered a ton of big investment conferences recently that have featured prominent hedge fund managers sharing investment ideas. If you missed any of them, just click each link below to go to notes from that event. Enjoy!
- Capitalize For Kids / Sohn Canada Notes: Cliff Asness (AQR Capital), Jeff Smith (Starboard Value), Tom Russo (Gardner Russo Gardner), Alex Roepers (Atlantic Investment) & more
- Invest For Kids Chicago Notes: Jim Grant (Grant's Interest Rate Observer), Sam Zell (Equity Gruop), Frank Brosens (Taconic Capital), John Lykouretzos (Hoplite Capital) & more
- Great Investors Best Ideas Dallas Notes: David Einhorn (Greenlight Capital), Boone Pickens (BP Capital), Mario Gabelli (GAMCO) & more
- Sohn San Francisco Notes: Mason Morfit (ValueAct Capital), Mick McGuire (Marcato Capital), Chamath Palihapitiya (Social Capital) & more
What We're Reading ~ 11/3/16
The rule of 72 [Mohnish Pabrai]
David Rubenstein speaks with JPMorgan's Jamie Dimon [YouTube]
Charlie Rose interviews Amazon's Jeff Bezos [Charlie Rose]
When do you give up on a stock? [Oddball Stocks]
Pitch on Discovery Communications (DISCK) trading at 12x free cash [ContrarianEdge]
A framework for shorting the VIX [EconompicData]
The competitive advantage of an owner-operator [Base Hit Investing]
Winning at trading by being different [Brett Steenbarger]
China can resist a crash but can't prevent one [Bloomberg View]
Beware of the low stock price illusion [ETF]
Buy the housing dips [Dead Companies Walking]
The science of why you should spend money on experiences, not things [FastCoexist]
Wednesday, November 2, 2016
Third Point's Q3 Letter: Macro Areas They're Focused On
Dan Loeb's hedge fund firm Third Point is out with its third quarter letter. In it, they talk about what macro areas they're focused on now, some credit investments, and their Third Point Ventures private portfolio.
Third Point says they're focused on a few key areas:
- "Understanding the global shift from monetary to fiscal policy"
- "Will fiscal expansion become the new world order?"
- Still see "reasons for concern" in China
- Note we're in the "late stages of a business cycle"
- Earnings estimates "may be inflated at these levels"
They touch on their credit positions in Dell and Sprint and also talk about private investments such as Apigee and Akarna Therapeutics, which was acquired by Allergan (AGN).
Embedded below is Third Point's Q3 letter:
ValueAct Capital Buys More CBRE Group & Trinity Industries, Trims Allison Transmission
Jeff Ubben's activist firm ValueAct Capital has submitted three filings to the SEC regarding some of their portfolio positions.
ValueAct Buys More CBRE Group (CBG)
First, Ubben's investment firm has been out acquiring more shares of CBRE Group (CBG) per a Form 4 filed with the SEC.
On October 28th and 31st, as well as November 1st, ValueAct acquired over 2.21 million shares in total at prices of around $25.8x. After all these buys, they now own over 36.83 million shares. The filing also notes that a little over 600,000 of these shares were made as part of a 10b5-1 plan. We've highlighted recently how ValueAct has been acquiring CBG shares.
For more on this firm, be sure to also check out Mason Morfit's presentation (he's a ValueAct partner) at the Sohn San Francisco conference.
Per Google Finance, CBRE Group is "a commercial real estate services and investment company. It offers services to occupiers, owners, lenders and investors in office, retail, industrial, multifamily and other types of commercial real estate. It offers commercial real estate services under the CBRE brand name, investment management services under the CBRE Global Investors brand name and development services under the Trammell Crow Company brand name. It is focused on several competencies, including commercial property, corporate facilities, project and transaction management, tenant/occupier and property/agency leasing, capital markets solutions, real estate investment management, valuation, development services and proprietary research."
Acquired More Trinity Industries (TRN) Shares
Second, ValueAct has also filed an amended 13D on their position in Trinity Industries (TRN). They were out buying TRN shares in August and September and that continued in October.
Per the filing, they acquired 2.9 million shares in October at prices ranging from $21.09 to $23.68. ValueAct now owns 9.8% of Trinity Industries with over 14.92 million shares.
Per Google Finance, Trinity Industries is "a diversified industrial company that owns a range of businesses providing products and services to the energy, transportation, chemical and construction sectors. The Company's products and services include railcars and railcar parts; parts and steel components; the leasing, management and maintenance of railcars; highway products; aggregates; inland barges; structural wind towers; steel utility structures; storage and distribution containers, and trench shields and shoring products."
Trimmed Allison Transmission (ALSN) Stake
Lastly, in an amended 13D regarding its position in Allison Transmission (ALSN), ValueAct has trimmed their stake in the company and now own 9% of ALSN with 14.82 million shares.
This is down from the 19.12 million shares they owned at the end of the second quarter. The filing was made due to activity on October 27th and notes they sold 4.3 million shares at $28.20 per share.
For more on this firm, we posted up some other recent portfolio activity from ValueAct here.
Per Google Finance, Allison Transmission is "design and manufacture commercial and defense fully-automatic transmissions. The Company manufactures fully-automatic transmissions for medium- and heavy-duty commercial vehicles and medium-and heavy-tactical the United States defense vehicles. The Company operates through manufacture and distribution of fully-automatic transmissions segment. The Company's transmissions are used in a range of applications, including on-highway trucks (distribution, refuse, construction, fire and emergency), buses (primarily school, transit and hybrid-transit), motorhomes, off-highway vehicles and equipment (energy, mining and construction) and defense vehicles (wheeled and tracked). The Company's transmissions are sold under the Allison Transmission brand name and remanufactured transmissions are sold under the ReTran brand name. The Company has developed over 100 different models that are used in over 2,500 different vehicle configurations."
JANA Partners To Vote Team Health Shares in Favor of Buyout
Barry Rosenstein's hedge fund firm JANA Partners has filed an amended 13D with the SEC regarding its position in Team Health Holdings (TMH). Per the filing, JANA's ownership stake remains unchanged at 7.91% of the company with 5.89 million shares.
Their 13D was filed to note that on October 30th, they entered into a "voting and support agreement" relating to the merger where JANA has agreed to vote its shares in favor of Team Health's proposed acquisition by Blackstone Group for $6.1 billion.
Per Google Finance, Team Health Holdings is "a provider of outsourced healthcare professional staffing and administrative services to hospitals and other healthcare providers. The Company operates through four segments: Hospital Based Services, IPC Healthcare, Specialty Services and Other Services. The Hospital Based Services segment provides healthcare service programs to users of healthcare services on a fee for service, as well as a cost plus or contract basis. The IPC Healthcare segment consists of IPC and provides acute hospital medicine and post-acute provider service programs to users of healthcare services. The Specialty Services segment provides healthcare service programs to users of healthcare services in an outpatient setting or in a non-hospital-based environment. The Other Services segment is an aggregation of locums staffing, scribes, and billing, collection and consulting services that provides a range of other healthcare services."
Tuesday, November 1, 2016
Complimentary Copy of Boyar Research's "Forgotten Forty" Stock Picks
Each year, Boyar Research publishes their Forgotten Forty Report featuring the forty stocks in their universe that they believe have the greatest potential for capital appreciation in the year ahead due to a catalyst they see on the horizon.
Their 2017 report will be released towards the end of December, but in the meantime Boyar has been kind enough to provide our readers with last year’s report (which still contains many actionable ideas) for free. You can get your free report here.
Some of the names featured include PayPal, Bank of America, Interval Leisure Group, Liberty Broadband, The Madison Square Garden Company, Harley-Davidson, MRC Global, Scotts Miracle-Gro, Sotheby’s plus 31 others.
Click here to download the free report
Every stock profiled in The Forgotten Forty has a one page write-up highlighting Boyar's investment thesis (including the company’s valuation and potential catalysts for value realization). While the Forgotten Forty contains one page reports on each stock, readers should be comforted to know that Boyar Research has previously published a full-blown research report on every company featured.
The Forgotten Forty has significantly outperformed the major indices on a 3, 5, 10 and 15 year basis.*
*Past performance is no guarantee of future results. These results are not audited.
To download Boyar's Forgotten Forty, please click here
Monday, October 31, 2016
Notes From Capitalize For Kids Conference 2016: Asness, Russo, Smith & More
The Capitalize For Kids / Sohn Canada Conference just ended in Toronto. Below are notes from the event and you can click each link for a summary of that speaker's presentation.
Notes From Capitalize For Kids Conference 2016
- Cliff Asness (AQR Capital): Fireside chat
- Jeff Smith (Starboard Value): Long Stewart Information (STC)
- Tom Russo (Gardner Russo & Gardner): Long MasterCard (MA)
- Alex Roepers (Atlantic Investment Management): Three long ideas
- Dan Farb (Highfields Capital): Long Franklin Resources (BEN)
- Anna Nikolayevsky (Axel Capital): On lower oil forever
- Brad Dunkley (Waratah Capital): Long Linamar
- Michael Gentile (Formula Growth): Long Gamestop (GME), short WD-40 (WDFC)
- Satish Rai (OMERS): Fireside chat
- Aaron Cowen (Suvretta Capital): Two long ideas
- Credit Panel (KKR, Centerbridge Partners, former Apollo): Discussion
- Emerging Manager Panel (Fidalgo, D'Costa, Brimm): Notes will be posted soon
- Clint Carlson (Carlson Capital): Notes will be posted soon
- Tom Wagner (Knighthead Capital): Notes will be posted soon
For more recent investment conference coverage, we've also posted notes from:
- Invest For Kids Chicago (Grant, Zell, Brosens, Lykouretzos)
- Great Investors Best Ideas Dallas (Einhorn, Pickens, Gabelli)
- Sohn San Francisco (Morfit, McGuire, Palihapitiya)
Cliff Asness' Talk at Capitalize For Kids Conference 2016
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Cliff Asness of AQR Capital who had a fireside chat on various finance topics.
Cliff Asness' Talk at Capitalize For Kids Conference 2016
• Believes the role of hedge funds for a long time was to provide alpha and systematic strategies. Now there is generally not much value in the “hedge” aspect since many funds are correlated with the market
• Regarding fees, thinks 2/20 is appropriate if you are able to isolate alpha (by hedging out beta using derivatives), essentially to make sure it is real market outperformance – however, true alpha is hard to find. Says the current fee structure is not sustainable for everyone.
• Suggested two ideas for investment firms/allocators: have lower fees due to longer lockups periods which should better align all stakeholders. Secondly, with zero beta strategies management and performance fees that move inverse of correlation to the markets.
• Sharpe Ratio: It a decent measure but not perfect. Believes it can generally add value to a portfolio if they are not correlated with markets.
• Founded in late 1998 following tenure with Goldman Sachs. Initial focus was on systematic value however ran into difficulties as firm was essentially short expensive and long value. For AQR, capacity is a problem since liquidity is very important. They have closed strategies in the past.
• Believes machine learning (AI) can disrupt anyone doing something with high frequency, generally thinks fundamental stock picking will continue to work.
• Return distribution is quite “visible” in bonds. Limited returns since rates are so low.
• Same with stocks since they are expensive. It’s tough to “buy at the 90th percentile and sell at the 99th”. Key is to find lots of uncorrelated assets
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Jeff Smith Long Stewart Information: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Jeff Smith of activist firm Starboard Value who pitched long Stewart Information (STC).
Jeff Smith's Presentation at Capitalize For Kids Conference 2016
• LONG Stewart Information Services (STC). Leading title insurance company, providing title insurance of home owners for both residential (90% of business) and commercial (10% of business)
• $1 billion market cap, trades at 15x earnings
• Title insurance is generally required by mortgage underwriter for buying a house and an refi. Needed for buyers’ safety to make sure no outstanding loans on the company.
• Different than typical insurance business. Most traditional insurance business insure customers of losses for something they are trying to predict. Title insurance does not predict but essentially performs due diligence and therefore less risky, lower losses.
• Very strong network build over many decades, with 12% market share. STC is one of the four clear leaders in this market.
• Approximately 50% of sales are sold through direct (utilize own employees, higher margin business) and the remaining is agency business.
• Opportunity for Starboard is: STC is currently underearning, pre-tax margins are 5% vs. industry peers of 11%. Believes margins can reach its peers based on additional cost cutting initiatives.
• Since GFC, believes mortgage industry is less susceptible to fraud. Loss rates for title insurers has come down since 2009.
• Balance Sheet is very strong (strongest relative to peers) and can return capital to shareholders • Believes the company trades at a discount to peers due to years of underperformance, historical governance issues and no sell-side attention.
• Recently dual class structure has been removed. • Currently, Starboard has influenced the board and is adding two members (already made one change by placing the Steward CEO on the board).
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Tom Russo Long MasterCard: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Tom Russo of Gardner Russo Gardner who pitched a long of MasterCard (MA).
Tom Russo's Presentation at Capitalize For Kids 2016
• Wells Fargo currently trades at 10x earnings and almost 4% yield and certainly looks like a cheap stock relative to historical levels and the index. It currently has uncertainty due to its reputational crisis.
• However, low capacity to reinvest. Currently own 10% of U.S. deposits and cannot grow further. Now are looking to reinvest in their different lines of business. Believes you can generate a good return
• With MasterCard, while it trades at 20x earnings, approximately 85% of the world still uses cash. Believes there are numerous reasons why this should change over time. MasterCard continues to invest in operating expenses and therefore earnings are currently depressed hence, believes 20x earnings is overstated.
• Overall, believes that while at 10x earnings Wells Fargo is attractive but has no capacity to reinvest, he would argue MasterCard has the capacity to reinvest and therefore MasterCard (even at 20x earnings) represents better value.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Dan Farb Long Franklin Resources: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Dan Farb of hedge fund Highfields Capital who pitched a long of Franklin Resources (BEN).
Dan Farb's Presentation at Capitalize For Kids Conference 2016
• LONG Franklin Resources (BEN). Has 2x the exposure to commodities and emerging markets relative to other asset managers.
• An asset manager with $700 billion in assets.
• Recently, stock and earnings have declined due to this exposure and currently trades at a discount.
• Since 1987, has compounded capital over 16% per year (vs. 10% in S&P). Made two strong acquisitions, Templeton in early 90s and Mutual Shares in the mid-90s
• Average U.S asset manager currently trades at 14x earnings, BEN trades at 12.7x earnings.
• Expects AUM and fund performance to stabilize which should help grow earnings and potentially multiple expands.
• Currently trades at $34/share but has $18/share in net cash and real estate (90% of cash is held offshore).
• Johnson family owns 37% of the shares, aligning well with shareholders’ interests.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Alex Roepers Long Owens-Illinois, Eastman, Harman: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Alex Roepers of Atlantic Investment Management who pitched three longs: Owens-Illinois (OI), Eastman (EMN - spin-off from Kodak), and Harman (HAR).
Alex Roepers' Presentation at Capitalize For Kids Conference 2016
• LONG Owens-Illinois (OI), largest maker of glass in the world. Wine, beer, liqueur.
• Overall, industry has suffered from substitution from plastic and cans. But it is relatively stable.
• This is the winning consolidator, has 80 plants with each plant having a $200 million investment. They operate local duopolies since it is uneconomic to ship glass far distances.
• Has great customers (Heineken, Pernod Ricard, etc), no technological obsolescence, no foreign competition.
• Believes stock price dropped as earnings has been impacted from strong USD (70% of sales outside of US).
• LONG Eastman (EMN). Spinoff from Eastman Kodak.
• Over 75% of the business is now speciality chemicals with sold margins and growth.
• Believes it can earn $8 to $9 cash earnings per share. Currently trades at $66.
• Have recently paid off debt and now are focusing on repurchasing shares and could be a takeout candidate.
• LONG Harman (HAR). Manufacture entertainment systems for cars and do professional services (for concerts, stadium, etc). Top 12 out of 15 car companies are their customers.
• Has followed the company since the 1990s. The company transitioned from audio to consumer to audio for business (car companies, professional services, etc).
• KKR has previously bid on the company in 2007 but deal fell apart leading into GFC. Has recently sold off due to china slowdown, peak auto sales, etc.
• Believes it has strong end-markets and the company has recently posted solid results.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Michael Gentile Long Gamestop, Short WD-40: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Michael Gentile of Formula Growth who pitched long Gamestop (GME) and short WD-40 (WDFC).
Michael Gentile's Presentation at Capitalize For Kids 2016
• Long Idea is Gamestop (GME), largest video game seller in North America and globally.
• Stock hasn’t done much over the past few years despite general increase in market indices.
• Currently, 29% of float is short, 5.9x earnings, 3.5x EV/EBITDA, 19% FCF yield and 5.9% div yield.
• Market belief: believes digital sales (currently 25% of all sales) will replace physical sales in the next few years. Also, GME has had poor Aug and Sept months.
• Believes GameStop is the only retailer that does used business as well as it does. Furthermore, physical sales have an advantage over digital sales due to credits received for selling old games. This is a very important competitive advantage. Also, have a strong loyalty program, with 46 million members.
• Believes virtual reality is a game changing technology and is all free option at this price.
• Believes market is too focused on new hardware and video game sales, which will account for ~19% of gross profit in 2019.
• The rest of their business is used sales, technology (they operate 1600 AT&T stores – very high profitability and non-video game related) and collectables business.
• Since 2009, they have shrunk shares by 38%.
• Target is: $50/share not accounting for virtual reality opportunity.
• Short Idea is WD-40 (WDFC).
• Currently, 29x P/E, 18.7 EV/EBITDA, 2.4% FCF yield. Believes stock price is priced to perfection.
• From 2006 to 2012, NTM P/E has averaged 19x but over the last three years has jumped to 29x earnings.
• Believes low interest rate environment has caused valuations to become extreme. The company has also benefited from lower oil (key input cost) and therefore has achieved higher margins.
• Believes gross margins are primed to fall and multiple contraction given lower growth expectations.
• Target is: $75/share and would cover short position.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Aaron Cowen Long QSR & Adobe: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Aaron Cowen of Suvretta Capital who pitched two long ideas: Restaurant Brands (QSR) and Adobe (ADBE)
Aaron Cowen's Presentation at Capitalize For Kids 2016
• LONG Restaurant Brands (QSR). Franchiser of Burger King and Tim Hortons
• Believes it can be a $75 stock (currently price of $44). Business model is a franchiser business model, it doesn’t own any stores.
• 3G is the management team behind this and has one of the best track records. Tim Hortons integration has been going very strong.
• Believes it can do $3.00/sh in FCF going forward. Believes people are missing this because of all the merger accounting.
• No real e-commerce threat at this point and believes e-commerce is a positive for the business.
• Almost all of 3G’s platforms have compounded capital at very high rates.
• They have dropped operating expenses by a significant amount at Tim Hortons (lowered costs by 60%).
• Believes the company ramps up acquisition machine every 2-3 years and is likely due for one now. Targets could potentially be YUM, Dairy Queen, Popeyes, among others. Believes this is a free call option on management doing something smart.
• LONG Adobe (ADBE). Largest SaaS business in the world. $50 billion market cap.
• Adobe services two functions: Creative Cloud – used by 13 million users to create webpages and is growing 15-20% per year and essentially have a monopoly in this product. Second, Adobe does digital marketing. This helps companies place adds on website and measure ROI on marketing effects.
• It went through a transformation to switch to SaaS from one-time sales in 2013 and believes the street still misunderstands this. Margins were impacted as all the upfront costs associated with SaaS business model. Believes margins will be mid-40s (base case assumption) in 2018 after the company completes its transition.
• Assuming revenue grows at 20% plus margin expansion deserves a high multiple. Expecting EPS of $7/sh in 2018. Target price between $170-180 in base case scenario.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Anna Nikolayevsky on Lower Oil Forever: Capitalize For Kids Conference
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Anna Nikolayevsky of Axel Capital who made a presentation about lower oil forever.
Anna Nikolayevsky's Presentation at Capitalize For Kids 2016
• Current consensus is that current prices (which are in contango) are not sustainable and will increase in 2017, 2018 and 2019. More of these estimates are driven by marginal cost curve and well depletion analysis. However, nobody predicted the fall therefore why should any give value to analyst expectations?
• Overall, the industry is much more productive now (US shale technology advancement). Anna believes $50 is the current ceiling.
• Most forecasters focus on supply, but demand is much more important. Over 50% of oil demand is due to transportation. A few things can impact demand: Higher fuel efficiency (since 2007, fuel efficiency has increased by 22%), sharing economy is also a major risk (better it gets, the fewer cars we’ll need on the road), electric cars are also a serious threat.
• Tesla, has been gaining market share relative to comparable car models.
• Leading car companies and governments are looking to embrace electric or hybrid models. In fact, large car companies are setting high standards to have meaningful percentage of their overall fleet to be electric vehicles in the mid-2020s.
• Regarding cost, combustible engines are becoming more expensive in terms of compliance/ regulatory standards while electric ones are only getting cheaper.
• Interestingly Saudi Arabia is looking to diversify away from oil with long term clean energy targets and announcing it is selling Saudi Aramco.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Credit Panel at Capitalize For Kids Conference 2016
We're posting up notes from the Capitalize For Kids conference 2016. Next up is is the credit panel which featured KKR's Nat Zilkha, Centerbridge's Jonathan Lewinsohn, and ex-Apollo's Ted Goldthorpe.
Credit Panel at Capitalize For Kids Conference 2016
• The asset origination market is very large. It possible to earn good returns in a fixed income environment where solid trading opportunities are more scarce than they were before the crisis, because of lower bank inventories. There is a trend of investors moving towards senior tranches (less risk).
• Even so, the non-investment grade space is approximately $2 trillion. However, in an expensive market like this one, firms are increasingly focused on exiting investments vs looking for new ones.
• Unrated products are harder to sell due to specific mandates. PE firms are now bundling numerous products, getting it rated by the agencies and then reselling it.
• Even after the crisis, there is a notable duration mismatch between assets and liabilities. With rates so low, duration risk is exceptionally high (if you need longer duration assets).
• Commodity cycles are long because of how much capital is invested and how long it takes to complete projects. Generally Public information on energy companies is not reliable since they choose to present the best wells, etc.
• Believes places to look for opportunities are Asia, specifically India, but difficult due to poor regulatory structure.
• Risks to credit investing are numerous (China, higher rates, etc).
• Believes this environment forces investment firms to look for opportunities on a monthly/quarterly basis since they don’t want to miss out on moves (like the large sell-off in early 2016).
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Brad Dunkley Long Linamar: Capitalize For Kids Conference 2016
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Brad Dunkley of Waratah Capital who pitched a long of Linamar (LNR.TO).
Brad Dunkley's Capitalize For Kids Presentation 2016
• Linamar makes engine parts, camshafts and transmissions. They have industry leading margins, and ROEs. They also have a construction equipment division, only 14% of sales.
• Most of it revenues are the power train division which manufactures engine parts. Approximately 70% of revenues from North America and its mainly from the big 3 U.S. OEMs.
• Linda, who is the daughter of the founder and has been running the company since its IPO and has established a very strong record: since 1986, stock price CAGR of over 16%.
• Linamar does have a lost cost production, plants are mainly in Canada, lower healthcare costs, no unionized labour and lower CAD currently helps.
• The alternative for customers is to manufacture these parts internally.
• Believes market perception that peak SAAR will hurt Linamar is incorrect. Since 1996, SAAR has increased by a CAGR of 1% while Linamar has realized financial performance of 12% CAGR (revenue, EBIT, EPS, etc). Doesn’t believe SAAR will crash like the market is expecting (estimate 8% to 10% from peak levels). Thinks electric vehicle threat is overdone, only 1% of market in 2020.
• The company has also does a good job of growing content per car (growing in Europe, NA and Asia).
• Thinks ride-sharing economy will increase miles driven and lower the life of vehicle (current vehicle have an average life of 11yrs). All positives for Linamar going forward.
• At ~5x earnings, don’t need to be worried of the terminal value of the company.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
Satish Rai's Talk at Capitalize For Kids Conference 2016
We're posting up notes from the Capitalize For Kids conference 2016. Next up is Satish Rai of OMERS who had a fireside chat.
Satish Rai's Talk at Capitalize For Kids Conference 2016
• Fixed income as an opportunity doesn’t make sense for OMERS as it’s not a good match to its liability stream.
• Approximately 50% of OMERS balance sheet is outside of traditional public markets (stocks + bonds)
• Believes opportunity set outside of public markets is very large and growing.
• Talked about the "if and when" transaction completed with Great Plains Energy. Great Plains was looking for guaranteed equity financing regarding an acquisition. Structured the deal to be a convert.
• OMERS has also started to provide debt financing to private equity firms. This business has grown from zero to $7 billion in 12 months. The opportunity set had been enormous given that banks aren't able to make some of these loans due to heightened regulation.
Be sure to check out the rest of the presentations from Capitalize For Kids/Sohn Canada Conference.
