Each year we highlight some relevant gift ideas for investors & financial professional besides the obvious (liquor). Whether you need ideas for clients, partners, employees, or even for yourself, here's the 2016 guide:
Discounts on Publications
Wall Street Journal Discount - 50% off 12 months
Hedge Fund Wisdom - Our quarterly newsletter summarizing 13F filings
Recommended Books
TV Shows / Movies / Documentaries
Technology
Miscellaneous
Happy Holidays!
Friday, December 16, 2016
Holiday Gift Guide For Investors & Financial Professionals
Wednesday, December 14, 2016
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Monday, December 12, 2016
Sohn London Conference Notes 2016: Hohn, Bishop, Croxson & More
The Sohn London 2016 conference recently ended and featured hedge fund managers sharing investment ideas to benefit the treatment and cure of pediatric cancer and childhood diseases. Please click the links below to go to each speaker's presentation.
Sohn London Conference Notes 2016
Chris Hohn (Children's Investment Fund): Long Charter (CHTR)
Robert Bishop (Impala Asset Management): Long Rio Tinto (LON:RIO)
Adrian Croxson (Och-Ziff Management): Long Ryanair (LON:RYAN)
Masroor Siddiqui (Naya Capital): Short Aryzta (VTX:ARYN)
Erik Karlsson (Bodenholm Capital): 2 long ideas
Nicolas Walewski (Alken Asset Management): Long B&M Value Retail (LON:BME)
Elif Aktug (Pictet Asset Management): Long Leonardo
Anne-Sophie d'Andlau (CIAM): Long Euro Disney (EPA:EDL)
Ivan Martin Aranguez (Megallanes Value): Long Sonae (ELI:SON)
Marc Chatin (Parus Fund): Short Australian banks
Michel Massoud (Melquart): Long Opera Software (STO:OPERAO)
Dureka Carrasquillo (Canadian Pension Investment): Long Mobileye (MBLY)
Mans Larsson (Makuria Investment Management): 2 long ideas
Bo Bortemark (Carve Capital): Long Ferrovial (BME:FER)
Be sure to also check out notes from other recent investment conferences here.
Sir Chris Hohn Long Charter Communications: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Sir Christopher Hohn of Children's Investment Fund (TCI) who pitched a long of Charter Communications (CHTR).
Sir Chris Hohn's Sohn London Conference Presentation
TCI have already been invested in Charter for 3 years, but Hohn sees it as a multi-year investment. Charter is a public leveraged buyout which makes it an interesting special situation. It bought Time Warner Cable, a much bigger company, using a large amount of debt. Charter can compound at about 25% per year.
Cable companies are interesting because they should no longer be labelled as television businesses but as broadband businesses. Broadband businesses are a toll road on the internet.
Four reasons to like the business:
- Telephone companies are not competitors to broadband providers
- Digitization and cloud technology will change the capital expenditure profile reducing the intensity while the top line is growing.
- Donald Trump will deregulate the sector leading to more pricing power and take away the regulatory risks.
- Cable will also be a disruptor to wireless in the future.
There is a lot of upside still to come for Charter which is underestimated by the investment community. Nearly everyone needs broadband. Charter has the potential to double its customer base over time. Charter is 4x leveraged and TCI wants it to stay that way. In 2012, half the profits were coming from the TV business. Today only 22% come from TV. Hohn thinks that about 90% of the real value of the business is in broadband.
John Malone is the largest shareholder with about 20% of the equity and 25% of the voting rights. TCI own about 5% of the company. Malone is one of the world’s great investors with compounded returns of about 30% per annum. He is shareholder friendly and is committed to share buybacks.
Hohn always tries to find businesses that are protected from competition. TCI have returned 17% per annum net of fees for the last 13 years using this approach. It is hard to break into the fiber broadband market. Google tried recently but have now essentially given up. The industry has effectively become a duopoly between Charter and Comcast (CMCSA), even then because they do different things they are monopolistic within their sectors. Charter has pricing power. It has been raising its pricing by 5% per year. Charter has 30% margins but these could rise to 50% or even 55%.
Risks: the TV business could decline, unbundling will come, wireless could be a threat. Cable will be a disruptive player in wireless. Both Comcast and Charter will probably enter the wireless sector. He thinks Verizon may try to buy Charter in the future.
Be sure to check out the rest of the Sohn London conference presentations here.
Adrian Croxson Long Ryanair: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Adrian Croxson head of European Equities at Och-Ziff Management who pitched long Ryanair (LON:RYAN).
Adrian Croxson's Sohn London Conference Presentation
Long Ryanair Holdings (LON: RYAN)
Och-Ziff have owned Ryanair stock for two years. Ryanair’s own projections suggest that they can grow volumes at 8% per year for the next 8 years. They have enough capacity to do that because they have lower costs. They fly 120 million passengers per year. Demand for air travel will continue to grow. Ryanair keeps taking market share from competitors. It can grow market share from 15% to 25% over the next few years.
It is the lowest cost producer in Europe with 50% less overhead than main competitor Easyjet. Staff costs are low due to route density not necessarily because they pay staff less. They require fewer crews as staff can work out of more than one airport. Landing costs for Ryanair have been flat over the last couple of years because they have gone into airports where other airlines have gone bust. They have a good record for buying planes cheaply as they tend to buy when demand is low. They are getting better at cross selling passengers hire cars and hotels. They do not spend a lot of money on marketing.
Net income can double in the next seven years and the share count will diminish due to buybacks. The CEO owns £1bn of stock.
Be sure to check out the rest of the Sohn London conference presentations here.
Robert Bishop Long Rio Tinto: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Robert Bishop of Impala Asset Management who pitched long Rio Tinto (LON: RIO).
Robert Bishop's Sohn London Conference Presentation
The macro backdrop is set fair for commodities:
- Emerging market (EM) demand is improving. If you are going to invest in a mining company you need to believe that EM markets are getting economically stronger because they account for 65% of metals demand and 55% of oil demand. China is the key player and Bishop believes it hit bottom in January 2016.
- The US and EU infrastructure replacement cycle is just starting. Trump will generate more ‘bang for your buck’ than any previous President.
- More fiscal stimulus is coming worldwide
The micro background is also positive:
- The 5 year downtrend in metal prices is over. The longest in 125 years.
- Metals supply and demand is coming back into line. Copper and zinc already have a supply deficit. Small supply shocks will now lead to bottlenecks in the supply chain and push prices higher.
He believes we are at the start of a new commodity cycle. China will expand construction and infrastructure spending on roads, railways and other forms of transportation. Capital spending in the mining sector is at the bottom of the cycle.
Rio Tinto is the largest miner in the world. It is the large cap, high quality way to play the new commodity cycle. It is the low-cost producer. It lost its way in 2007-2013 with ill-timed acquisitions. Since then it has focused on cutting costs and improving efficiencies. It now has better operating leverage. Capital expenditure has been reigned in and the company is now in a harvesting phase.
Iron ore prices are the key to the Rio Tinto investment. Prices need to keep going up. Demand has outstripped supply this year. There will be more demand for steel from India, China and the US. The demand for steel in the US and Europe will be driven by fiscal stimulus programmes that will be better for commodities than quantitative easing.
Be sure to check out the rest of the Sohn London conference presentations here.
Erik Karlsson Long Autoliv & Philips: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Erik Karlsson of Bodenholm Capital who pitched two long ideas: Autoliv and then Philips.
Erik Karlsson's Sohn London Conference Presentation
Before co-founding Bodenholm in 2015, Erik Karlsson was a partner and senior analyst at AKO Capital, 2007-2015.
Long Autoliv
Autoliv is the global leader in seat belts and airbags with 38% market share. It has grown organically by an average of 4% for the last 10 years and has had a stable EBIT margin of 8-10% most years. It returns 90% of its FCF through dividends and buybacks. The market values Autoliv at 13x next year’s earnings.
Autoliv will gain market share because its main competitor, Takata, has had product failures that led to accidents and the largest auto recall in US history. Since those events two years ago Autoliv has won 55% of all new orders. There is a long lead time in the industry so Autoliv will only get paid 3 years on but the sales are guaranteed. EBIT margin will expand from 8% to 11% by 2019.
They have too much cash on their balance sheet and could buyback more stock. Takata is up for sale and Autoliv could launch a takeover of Takata or a part of it. Buying a distressed company could be risky but management is conservative and have a good acquisitions track record. Takata are forced sellers so Autoliv could strike a good deal.
Good things can happen to the stock if the company experiences growth in net income and PE expansion. With Takata sidelined, Autoliv may be able to increase prices.
To lose money on the Autoliv investment, sales would have to decline 5% and the stock would have to de-rate to 11x EPS. If that happens it would lead to a 10% loss in the investment over the next year.
Long Philips (AEX: PHIA)
Philips has become a better and smaller business. It is only half the size it was 18 years ago. It has been divesting its electronics businesses and becoming more focused on health. There are 4 parts to the business:
- Personal health: e.g., razors
- Health technology: dialysis technology
- Diagnostic treatment: medical equipment
- Connected care
It is achieving higher and more stable organic growth. New Philips is growing at about 4% per year. Margins will improve, FCF will improve. Margins are particularly good in personal health. The company has nearly finished restructuring. Once it has divested its lighting business that is separately listed it will be able to move into a net cash position by 2018.
The company is getting better at capital allocation. It has increased buybacks and dividends and returned Euro 8 billion since 2011 or 38% of its average market cap. Few companies in Europe achieve that. It may lever up a bit to 1.5x net debt in the future. Philips could become the ‘European Medtech.’
To lose money on an investment in Philips revenues would have to decline 2%, margins would have to fall to half the company predicts and the stock would have to de-rate to 13x cashflow.
Be sure to check out the rest of the Sohn London conference presentations here.
Nicolas Walewski Long B&M Value Retail: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Nicolas Walewski of Alken Asset Management who pitched a long of B&M Value Retail (LON:BME).
Nicolas Walewski's Sohn London Conference Presentation
Long B&M Value Retail (LON: BME)
B&M Value Retail is a UK mid-cap, retail discounter that floated at a high valuation in 2014. The stock has de-rated since then. It sells quite a narrow range of 5500 mostly non-food items. Two-thirds of its products sell at less than £3. B&M is growing very fast with sales growth of 44% CAGR over 10 years. It is expected to grow its sales by 15% over the next few years. It has leading industry returns – 20% return on capital employed.
The business model is capital light. The payback period for a new store is just 8 months (a traditional retailer takes 3-5 years). Most of B&M’s stores are in northern England. It has plans to expand into the south-east.
B&M sells products that are usually 30-50% cheaper than its competitors. It can do this because it buys direct from China without any intermediaries. They buy narrow, they buy deep, and they buy cheap. Typically, they buy an entire line of production so they get a good price. B&M does not own prime locations.
The leadership is good. CEO, Simon Aurora, has been with the firm 12 years and has grown the business from 20 stores to over 500. He owns 21% of the shares. The chairman is the experienced ex-Tesco CEO, Sir Terry Leahy.
B&M has established a presence in Germany. It has bought a majority stake in Jawoll with 56 stores. The German management will likely be replaced by Simon Aurora in a year or two.
The share price has been hit by Brexit. It is very cheap. B&M can become the Dollar General (DG) of Europe.
What are the risks? Two issues worry the market. Gross margins and like-for-like sales. The market is worried that Brexit and the devaluation of the Pound will lead to higher import costs. If inflation does pick up, discounters will take market share. You are better off with B&M than a mainstream retailer. B&M pays back the cost of new stores very quickly so it does not need high growth in like-for-like sales, 1 to 2% per year is enough.
Be sure to check out the rest of the Sohn London conference presentations here.
Masroor Siddiqui Short Aryzta: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Masroor Siddiqui of Naya Capital Management who pitched short Aryzta (VTX:ARYN). He was previously a partner at Chris Hohn's TCI.
Masroor Siddiqui's Sohn London Conference Presentation
Aryzta is a Switzerland based speciality baker. It supplies companies like Tim Hortons (QSR) and Starbucks (SBUX).
The business does not have a moat and it would be easy for competitors to enter their space. The leverage is high at 4.5x. The margin reporting is questionable. EBITDA reporting is heavily adjusted. Their reported margins are similar to companies that own lots of brands like Nestle yet Aryzta does not own brands.
They may have been pulling forward receivables which is okay but it is a one-off game. There has been no organic growth to talk about since 2008. Their margins are not sustainable as the industry is becoming more competitive. Siddiqui thinks they are having difficulties refinancing. That is worrying at a time when borrowing is so easy. They may require a rights issue soon.
Aryzta has a new Chairman with a good reputation for restructuring. Siddiqui thinks this is a positive for the short side as he will want to raise new equity.
Be sure to check out the rest of the Sohn London conference presentations here.
Anne-Sophie d'Andlau Long Euro Disney: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Anne-Sophie d'Andlau of CIAM who pitched long Euro Disney (EPA:EDL).
Anne-Sophie d'Andlau's Sohn London Conference Presentation
Long Euro Disney (EPA: EDL)
Euro Disney listed in Paris in 1989 but has never made a profit. The shares are down 99% since floatation. Euro Disney has a complicated ownership structure with Walt Disney US owning 77%.
Euro Disney is the most popular tourist destination in Europe with 15 million visitors per year. The reason it has never made a profit is due to the heavy royalties and management fees it has to pay to Walt Disney US. Net income has always been negative. The licensing fees are three times the accepted market practice. Without the fees, Euro Disney would be as profitable as other Disney theme parks. Euro Disney has a long history of restructurings. Shareholders have been diluted by around 9x. CIAM estimate that over the last ten years Euro 930 million has been overcharged by the Walt Disney company.
About 18 months ago, Walt Disney launched a minority buyout to take Euro Disney private at $1.25 per share, a price that d’Andlau described as ridiculous. It was after the buyout proposal that CIAM got involved.
The Euro Disney business is divided into two segments.
- Resort activities: theme parks, hotels
- Real estate
CIAM have identified unrecognised value in the real estate assets of about Euro 1.9 billion or about half the land value of Euro Disney. This valuation is not included in the company accounts or in the takeover documents. CIAM think the takeover price should be 3x higher. This has led CIAM to take 3 actions.
- They opposed the minority buyout by Disney US to take the company private at $1.25. Euro Disney is still listed. They are challenging the regulator who gave the deal the go-ahead in the Supreme Court.
- In the Criminal Court, they are taking judicial action against Disney US for favouring Disney shareholders over Euro Disney shareholders. More specifically they are accusing Disney of the misuse of corporate assets, the publication of misleading accounts and managing a company for the sole interest of the majority shareholder.
- CIAM is also taking a civil case to try to recover the Euro 930 million that they believe has been siphoned off from Euro Disney over the last 10 years.
Be sure to check out the rest of the Sohn London conference presentations here.
Elif Aktug Long Leonardo: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Elif Aktug who is the Agora Fund Manager at Pictet Asset Management and pitched long Leonardo (BIT:LDO), formerly known as Finmeccanica.
Elif Aktug's Sohn London Conference Presentation
Long Leonardo (BIT: LDO)
Leonardo has had a name change and used to be Finmeccanica.
The company is primarily a defence contractor manufacturing helicopters for military and civil use and global defence electronics. The transportation business has been sold off.
Margins have held up well between 11-12%. They have a strong order book. It is cheap compared to other defence contractors. Leonardo has a high-quality management team.
Be sure to check out the rest of the Sohn London conference presentations here.
Ivan Martin Aranguez Long Sonae: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Ivan Martin Aranguez of Megallanes Value Investors who pitched a long of Sonae (ELI:SON).
Ivan Martin Aranguez's Sohn London Conference Presentation
Long Sonae (ELI: SON)
Sonae is a mid-cap diversified holding company with assets in Portugal. It is run by the Azevedo family who own 52%. Sonae has a good track record, it has 28 years of annual book value growth at an average of 6.5%.
Sonae has a complex structure. It is a largest player in food retail in Portugal (66% of the business) and the second largest telecoms operator in Portugal (33% of the business). It also has a real estate arm (9%) and an investment business (3%). The share price has de-rated since 2015. There is now a 45% discount to NAV. Only two analysts cover the company.
Sonae’s largest business, food retail, has achieved good margins of 6-7% in recent years. This is at a time when there has been a price war in groceries in Portugal. Sonae is the lowest cost producer and well placed to resist competition. It has some good brands including Warten and Sports Zone. A sum of the parts valuation gives Euro 1.45 per share, a discount to NAV of 45%.
Be sure to check out the rest of the Sohn London conference presentations here.
Marc Chatin Short Australian Banks: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Marc Chatin of Parus Fund who pitched a short of Australian banks.
Marc Chatin's Sohn London Conference Presentation
Parus fund is a $2 billion AUM global long/ short equity fund with a net annualized return of 15% since 2003.
Investment idea: Short Australian banks
There are four large Australian banks that make up 80% of market share. Chatin did not distinguish between them, implying they were equally shortable. Banks in Australia have had a good run with +200% upside. They trade on a PE of 12-14x; PB 1.4-2.2x.
Real estate has been booming. Price to income ratio 5.6x for the whole country but 6.4x in metropolitan areas. Debt ratio to household income +200%.
On the supply-side, housing starts are up 200% in the last two years. House prices are beginning to fall. Transaction volumes are coming down – a leading indicator of price.
Demand for Australian housing comes partly from Chinese buyers who make up 10 to 15% of transactions. Total mortgages are up 15% but delinquencies are still low now. Construction will fade. House prices will come down.
Be sure to check out the rest of the Sohn London conference presentations here.
Michel Massoud Long Opera Software: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Michel Massoud of Melquart who pitched a long of Opera Software (STO:OPERAO).
Michel Massoud's Sohn London Conference Presentation
Long Opera Software (STO: OPERAO)
Opera is a mobile advertising focused tech company listed in Oslo. Market cap $1 billion. It has divested its consumer business – mobile desktop browser for $575 million. The remaining businesses are:
- Opera Media Works – an advertising agency.
- Bemodi – the most exciting part. The Netflix of mobile apps. It is run on a subscription basis and has thousands of apps. It has become popular in some emerging market countries, particularly in Brazil. It is growing fast and rolling out into 20 markets.
- Opera TV, based in Poland. A tech business with stable revenues.
The catalysts ahead: Opera has lots of cash from the sale of the of the browser business. They can pay down debt, return a third to shareholders via dividends and buybacks. There is 30% upside if Opera re-rates.
There could be further disposals: Opera TV and the Skyfire business. Sum of the parts valuation suggests upside of 60-84%
Risks: cyclicality, seasonality; Bemodi has not been tested outside of Brazil; the difficulties involved in realising value via disposals.
Be sure to check out the rest of the Sohn London conference presentations here.
Dureka Carrasquillo Long Mobileye: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Dureka Carrasquillo, Senior Portfolio Manager at the Canadian Pension Investment Board for long/short equity in the EME region and pitched long Mobileye (MBLY).
Dureka Carrasquillo's Sohn London Conference Presentation
Long Mobileye (NYSE: MBLY)
Mobileye is an Israeli software company based in Jerusalem. It is a pure play on autonomous cars. It develops software algorithms for damage limitation, analysis, and action.
- It makes sensors – camera, radar and lidar (a surveying method that measures distance to a target by illuminating that target with a laser light)
- It makes mapping software for telling autonomous cars where to go
- Driving software to tell the car how to drive in different places
They have done deep research on autonomous cars. They visited over 150 factories. From invention to coming to market all major innovations in the car industry have taken about 30 years. Expect the first driverless car in 2020. Driverless cars could be a $600 billion market by 2030.
One of the biggest strengths of the company is that it owns the meta data. Ownership will be the best way to monetise the data in a market that will be dominated by large, powerful players. If Mobileye can gain 4% penetration of the global fleet of autonomous vehicles by 2020 then it is trading on 10x 2020 earnings.
Be sure to check out the rest of the Sohn London conference presentations here.
Mans Larsson Long Grand City Properties, Nos: Sohn London Conference
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.
Bo Bortemark Long Ferrovial: Sohn London Conference
We're posting notes from the Sohn London investment conference 2016. Next up is Bo Bortemark of Carve Capital who pitched long Ferrovial (BME:FER).
Bo Bortemark's Sohn London Conference Presentation
Long Ferrovial (BME: FER)
Ferrovial is based in Spain and owns high quality transportation assets. The company does a lot of things but the best businesses are toll roads in Canada and managed lanes in the US. The UK and Australian businesses are struggling. Growth in the toll road business is accelerating. The stock is down 33% from its 2015 high. It is trading at a 50% discount to NAV. Bo Bortemark is also the cofounder of www.investingbythebooks.com
Be sure to check out the rest of the Sohn London conference presentations here.
