Hedge Fund Links ~ 12/8/17

Inside Elliott Management: how Paul Singer's hedge fund always wins [Fortune]

On the lack of women in the hedge fund industry [Bloomberg]

Ratan Capital founder and an ex-Brahman employee shared confidential info [SEC]

Neil Woodford thinks we're in a bubble [Woodford]

Tudor to shutter discretionary macro fund in restructuring [Bloomberg]

Hutchin Hill shutting down [Bloomberg]

Leon Cooperman loves Navient, but thinks it'd be better off dead [Bloomberg]

The fastest way to wreck your hedge fund career [Institutional Investor]

Notes From Sohn London Conference 2017: Craigen, Serra, Turner & More

The Sohn London investment conference recently concluded and featured investment managers sharing their latest ideas in order to benefit the Sohn Foundation for pediatric cancer treatment and research.  Click the links below to go to each speaker's presentation:


Sohn London Conference Notes 2017

David Craigen (Lansdowne Partners): Short SMC Corp

Davide Serra (Algebris Investments): 1 long idea, 1 short idea

Ross Turner (Pelham Capital): Long Infineon Technologies 

Adrian Croxson (Oz Management): Long Pirelli

Selvan Masil (Westray Capital): 1 long idea, 1 short idea

Pierre Andurand (Andurand Capital): Thoughts on oil

Michel Massoud (Melqart Asset Management): Long OCI

Reade Griffith (Tetragon): Long EVRY

Christian Vogel-Claussen (Alanda Capital): Long United Internet

Emeric Preaubert (Sycomore Asset): Long ALD Automotive

Per Johansson (Bodenholm Capital): 1 long idea, 1 short idea

Sir Paul Ruddock (Lansdowne Partners): On philanthropy

Stephen Loukas (FrontFour Capital): Long Granite REIT

Dean Tenerelli (T. Rowe Price): Long Gestamp Automocion

Beltran de la Lastra (Bestinver): Long Belfesa

Bruno Crastes (H2) Asset Management): Presentation

David Craigen Short SMC Corp: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is David Craigen of Lansdowne Partners who pitched a short of SMC Corp (TYO: 6273).


David Craigen's Sohn London Presentation

SMC is a $30bn market cap Japanese company with $5bn of sales.  It is the world’s largest pneumatic components supplier with a wide global coverage (72 subsidiaries). Craigen first looked at SMC after the Olympus accounting fraud which broke in 2011. The key takeaway from Olympus was that the fraud had been going on for 20 years before it was discovered.

There are several accounting issues at SMC:

-    Large companies around the world are usually audited by one of the big four accountancy firms. SMC has had the same auditor since the late 1980s. The auditor is small with only 16 qualified accounting staff. It does not audit any other mega-cap companies. Clients of this company have subsequently been proven to be frauds.

-    There is no global unified audit. There are 36 unconsolidated subsidiaries – far too high and unusual.

-    SMC finances itself via reverse factoring. Seventy percent of payables to suppliers are factored. Why are suppliers of SMC nervous about its ability to pay them?

-    The Chairman is 91 and has been with the company since inception.

This year there have been three allegations about SMC made by FACTA online, the Japanese publication that first broke the Olympus fraud. They have highlighted related party transactions that have been made through a US subsidiary; opaque tax reporting in SMC’s Mexican operations where a private residence was used as the tax address and the late delivery of orders in the US.

Despite this negative news flow, the sell-side and buy-side maintain a bullish stance. Seventy five percent of analysts’ rate SMC a buy whilst the top five holders’ shareholdings remain unchanged this year.

Since FACTA published its findings SMC’s share price is up 80%.

Lansdowne’s short in SMC is hedged out by 3 long positions in VAT 33%, a Swiss company specialising in semiconductors; Airtac, a Taiwan company which is a pneumatic components pure play; CKD 33%, a Japanese competitor, No.2 to SMC.

Revenue growth for the long basket is much higher (x3) than SMC’s. The long basket is also trading at a substantially lower valuation.

Something is not right with SMC’s margins. SMC does not sell the highest value-added products in the industry yet it’s margins are among the highest. This calls into doubt its reported earnings.


Be sure to check out the rest of the presentations from Sohn London 2017.

Davide Serra Short UK Gilts, Long Santander Mezzanine Debt: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Davide Serra of Algebris Investments who pitched a short of UK 10-year and 20-year Gilts and a long of Santander mezzanine debt.


Davide Serra's Sohn London Presentation

Short 10-Year and 20-Year Gilts

Serra pitched Short 10-Year Gilts at New York Sohn earlier in the year. He reiterated this idea and suggested shorting 20-Year Gilts too

-BREXIT will do nothing to address the social imbalances in the UK. It will actually make them worse. Inequality in the UK is as high as in the US.

- Productivity in the UK is extremely low and imports are high.

- Sterling’s devaluation has generated inflation. The inflation suffered by the lower classes is much higher. Jeremy Corbyn, The Labour Party leader is likely to become the next Prime Minister. Looking at Corbyn’s policies and the likely high level of public spending you want to short 10-Year and 20-Year Gilts.


Long Santander Mezzanine Debt

Santander has not lost money in 200 years of banking. They only had 40 branches 50 years ago now they are running 12000 with 120m clients. Santander were given the Spanish Bank Populaire almost for free by the regulator. As a result, they will be able to achieve higher synergies and more profits.

Algebris are positive on areas of the market where central banks are not buying. Invest where the central banks cannot so that you buy assets that are not being manipulated. Avoid corporate bonds that the ECB has been buying. If you buy European higher yield you get 2%. If you invest in an index of hybrid European financials you get paid 6%. Santander cannot lend to European high yield companies because it is considered too risky and there are regulations preventing it. How can something so risky yield 2% and the bank that is not allowed to lend to it yield 6%? The answer is that the ECB can buy high-yield bonds but not the credit of banks because of possible conflicts of interest with its regulatory role.

Santander is a strong bank. It would have to lose 21bn euro to be unable to pay a coupon. They have never posted a loss.

Remain long the hybrid capital of banks – you want to own the mezzanine debt not the equity.


Be sure to check out the rest of the presentations from Sohn London 2017.

Ross Turner Long Infineon Technologies: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Ross Turner of Pelham Capital who pitched a long of Infineon Technologies (ETR:IFX).


Ross Turner's Sohn London Presentation

Infineon is a global market leader in power semiconductors, it is listed in Germany with a market cap of 25bn euros. It’s main end markets are the 1. automotive sector 2. industrial sector 3. security sector.

Over the last 20 years the company has grown organically on average 9% per year which compares to the overall semi market which has grown at 6% Its main end markets are fast growing. Automotive and industrial are growing at 7% to 8% per year. Two-thirds of Infineon’s business is in the power segment where it has twice the market share of its next competitor. It also has an interesting business in sensors where it is a strong No.2.

One of the exciting things about the company is that its exposed to the electrification of the power train. There are two reasons why we are going to see more electric vehicles. Firstly, the OEMs are having to meet stricter targets. Secondly, the manufacturing cost of EVs is coming down dramatically. By 2020 or 2021 electric vehicles will become a serious consumer proposition in terms of total cost.

By 2020/21 expect EV’s to have more than 500KM of range and to have a rapid charge facility that could be as low as 10 mins. At that point everyone is going to want an electric car. There are supply concerns and materials concerns but nothing that can’t be overcome with a bit of time and investment.

As the power train is electrified more power semiconductors will be needed. EVs need four to five times more power semiconductors than cars with internal combustion engines. Fully autonomous cars and the stages toward them will require even more semiconductors.

Infineon can achieve more than double digit organic revenue growth for the next decade. It trades on 22x forward earnings. It has net cash on its balance sheet.


Be sure to check out the rest of the presentations from Sohn London 2017.

Adrian Croxson Long Pirelli: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Adrian Croxson of Oz Management who pitched a long of Pirelli (BIT:PIRC).


Adrian Croxson's Sohn London Presentation

Pirelli was IPOed two months ago. It used to be a sprawling conglomerate involved in real estate, cable and football clubs but today it’s a pure play premium tire company. Croxson particularly likes Pirelli because the end demand is predictable. Why is the tire market predictable?

-    There are 1.2bn cars in the world which need 1bn replacement tires every year. Car owners must buy new tyres or face a fine from the police or a potential accident.

-    The total number of cars is growing with about 500m new tyre required each year.

-    The global tyre market consistently grows at about 3% per year.

-    If there is an acceleration of new car sales, there will be an acceleration of replacement tyre sales in 3 to 4 years.

-    The tyre companies make most of their money from replacement tyres not from suppling tyres for new cars. They sell the original tyres at a reduced rate to car manufacturers in the hope of getting the replacement tyre sales later.

-    Demand growth has been steady for the last 16 years with barely a drop in the credit crunch.

-    EVs and autonomous cars will still require tires.

The premium tyre market is a small subsection of the tyre market. Premium is defined as high performance tyres of over 18 Inches. It’s a 200m unit market in a total tire market of 1.2bn a year, about 15% of the overall market.

There are only six scale players who compete in the premium market: Pirelli, Nokian, Michelin, Continental, Goodyear and Bridgestone. Their positions are protected by large R&D budgets which help them to stay ahead on grip, safety and efficiency.

The global premium market is growing at around 9% per annum. Customers want larger cars, particularly more luxurious SUVs. This trend will continue. VW is trying to go from 15% SUVs to 40% in the next 5 years. As the rich become richer they want more expensive vehicles. In China in 2006 50,000 luxury cars were sold and today that has reached 2.5m. The Chinese market is now the largest car market in the world. The penetration of luxury tyres is still only about half of what it is in the west.

Pirelli can grow their business at 13% per year. In addition, Pirelli has been able to hold prices above its peer group for the last 5 years.

Pirelli does have a leveraged balance sheet at around 3.5x net debt to EBITDA. The stability of the cash flows should see it de-lever to around 2x by 2020.

Benchmarked against the peer group, the stock could trade up by 60%. As the only pure play premium tyre manufacturer, Pirelli is a higher-quality asset and should command a higher multiple than the peer group.


Be sure to check out the rest of the presentations from Sohn London 2017.

Selvan Masil Long Criteo, Short Cineworld: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Selvan Masil of Westray Capital Management who pitched a long of Criteo (NAS:CRTO) and a short of Cineworld (LON:CINE).


Selvan Masil's Sohn London Presentation

Long Criteo (NAS:CRTO)

Criteo is a French technology company with a market cap of $2.1bn that is listed on the Nasdaq.

What does Criteo do? It helps retailers to covert online shoppers using browsing behaviour to deliver targeted advertising. It does this by being directly integrated into the advertiser’s website. Criteo learns our preferences as we browse. More than two-thirds of its revenue is generated on mobile devices. It can link people’s identities across devices and it can send advertising to mobile, laptop, via Facebook as well as in-app.

What makes Criteo a good investment? It has a very strong position in a fast-growing market. Digital’s share of the advertising budget is projected to grow from 29% in 2015 to 43% in 2020. The fastest growing segment in digital advertising is programmatic. This segment, where Criteo operates, is growing at 25% CAGR 2015-2020.

It is the largest independent player in the programmatic space, third overall behind Facebook and Google. It’s 5x the size of the next independent competitor. Having an independent player is important for all sides. Many e-commerce retailers and web publishers don’t want to give Google and Facebook full access to their sensitive customer data. Facebook and Google value automated and scalable solutions and prefer to deal directly with advertisers.

Criteo has recently started integrating offline CRM data by using data from loyalty cards, credit cards and other unique indentifiers. That level of integration between off-line and on-line shopping is the holy grail for most retailers and will increase the value of Criteo’s database.

Every time internet users browse a website of one of its clients, Criteo tracks the entire purchasing and browsing activity regardless of how the user ended up on that website. Critieo sees more than twice the number of transactions than Amazon. In addition, it tracked users browsing and purchasing activity on 4bn products – more than each of Amazon, Alibaba and Ebay. This unparalleled scale should allow Criteo to send the right ads to the right person at the right time. It creates self-reinforcing network effects. The more clients you have the more data you collect. The more data you have the better the performance of your apps. That in turn helps you attract more clients and generate more data.

The value of the data can be seen in the click-through rates – the proportion of ads that generate a click - that are 4x higher than the industry average. They are second to Facebook on click-through and only just.

Criteo is virtually alone in the industry in charging advertisers based on post click sales. Most digital advertising companies still charge a fee every time the ad is displayed regardless of whether the consumer interreacts with it or not. As a result, many clients have given Criteo an unlimited budget as they only pay for advertising when they make a sale. More than 75% of Criteo’s revenues come from such clients. On average it generates 18x return on investment for clients.

Westray’s interviews with clients, competitors and publishers find that Criteo is consistently ranked best for performance, superior to even Google.

Criteo’s stock has de-rated recently on fears that a new version of Apple’s Safari browser will contain something called Intelligent Tracking Prevention that may disrupt digital advertising players. Masil believes that Criteo has the tech knowhow to be able to deal with this.

The company is undervalued on nearly all metrics. It will continue to grow revenue at a CAGR of 20% between 2016 and 2020 with even higher growth rates for EBITDA. Criteo is unusual among tech companies in that it is highly cash generative. At the end of 2017 the company will have 17-18% of its market cap in cash.


Short Cineworld (LON: CINE)

Cineworld is a cinema operator. Last week Cineworld announced its intentions to buy Regal, the second largest cinema operator in the US. The shares sold off 20%. Masil said that was not part of their original thesis but that the potential purchase of Regal reinforces their negative stance.

Cineworld is one of Europe’s largest operators with 226 cinemas and 2100 screens. It generates 55% of its EBITDA in the UK and Ireland. Most of the rest comes from eastern European countries. Two-thirds of revenue comes from ticket sales and one-third from selling food and drink.

-    The UK cinema market is mature and ex-growth.

-    The company has been expanding aggressively in the UK which is a flawed strategy.

-    Younger people go to the cinema less and instead consume content online.

-    It will be hard to put ticket prices up further. They have already been put up well ahead of inflation.

-    Cineworld is suffering a downturn in admissions per screen. A 5% decline in admissions per screen leads to a 15% decline in EBITDA

-    The structural pressure on the cinema industry is intensifying.

-    The period in which cinemas can show new films exclusively without them being shown online is reducing.

-    Amazon and Netflix are making their own content and growing their customer base rapidly

-    The performance of Cineworld shares has outperformed the sector for no good reason.

-    Cineworld trades at a forward P/E 18x 2018. Capex is high as the cinemas require constant refurbishing.


Be sure to check out the rest of the presentations from Sohn London 2017.

Pierre Andurand's Presentation on Oil: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Pierre Andurand of Andurand Capital who gave a presentation on oil.


Pierre Andurand's Sohn London Presentation

Oil prices will go much higher than consensus. In the last 18 months there has been a lot of negative hype about oil prices. The two most discussed factors have been US shale production and electric vehicles. US shale has been called the internet of oil.

Demand for oil has rarely been as strong as it is today. Demand is as high as it was 10 years ago when there was a lot of talk about the super cycle and demand growth. New oil discoveries are at all-time lows.

Supply will peak before demand at current oil prices. Oil demand will peak sometime between 2027 and 2035, much later than the consensus view. The supply of electric vehicles will be constrained by a shortage of batteries.

Supply will peak in 2020. Oil discoveries peaked in the 1960s. They stabilised in the 1990s making a lower peak with US shale discoveries in the early 2000s but they have been declining since then. We are finding 10x less oil than we were 20 years ago. Global reserves are going down fast. We have a 100bn barrels (or 10% less) of reserves than we had 10 years ago when everyone was worried about peak oil. The largest declines have been in ex-US small oil fields. The rate of decline will quicken and supply will be less than expected.

Nobody wants to invest in oil projects that take 6 years to come to market and 20 years to make a profit. Against expectations, US production is flat this year. Productivity per well will go down. We could need $100 a barrel oil to mitigate the fall in supply.

If OPEC goes back to full production, there would still be a deficit of half a million barrels per day. Inventories are low.

OPEC is unlikely to go back to full production leaving a deficit of 1m barrels per day. In this scenario oil could easily reach $80 per barrel.

If there is a geo-political event in the Middle East like a major war, we could see $150 per barrel. There are a lot of potential downside risks to supply. In-fighting in the Saudi Royal Family.  An Iran-Saudi war. The US could impose sanctions on Iran which could push oil price oil prices up.


Be sure to check out the rest of the presentations from Sohn London 2017.

Michel Massoud Long OCI: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Michel Massoud of Melqart Asset Management who pitched a long of OCI (AEX:OCI).


Michel Massoud Sohn London Presentation

Long: OCI (AEX:OCI)

OCI is a fertilizer and chemical producer listed on the Amsterdam stock market. Market cap: 3.9bh euro.

Fertilizer prices are at historic lows. OCI produces urea, ammonia and methanol. Urea is trading at a 30% discount to the mid-cycle average, ammonia at a 50% discount and methanol at a 6% discount. Prices are close to the bottom. There has been no capacity growth for the last 2 years. China has reduced production of urea exports. There has also been an anti-pollution drive in China that has led to coal prices going up. Coal prices have gone up which has had a knock-on effect on fertilizer production making the economics of fertilizer production less attractive.

OCI is one of the most efficient producers of fertilizer. Even at todays low prices they still produce satisfactory cashflow, unlike 40% of the industry which is producing at a loss. OCI’s geographical location is very good. They are based in northern Europe and Iowa, US. As a result, they have a competitive advantage from not having the transport of many competitors.

OCI have added 50% extra capacity over the last 3 years. By next year they will have 75% fertilizer production and 25% natural gas. To achieve this the company has spent nearly 100% of its market cap on capex in the last 3 years. Capex and net debt are going to decline dramatically when the process is over. FCF yields will go well into the double-digit category. Net debt will decline from 5.2x to 2x by 2019.

Nassef Sawiris and his family own 42% of the business. They have a history of operating in a way that benefits all shareholders. OCI has returned 40% IRR to their shareholders since they listed in 1999.

EV/EBITDA 7.4x suggests 50% upside.

Risks – fertilizers are a commodity business and volatile. The Natural gas plant has not started producing yet so there could be delays. Leverage is high. There is country risk in Egypt and Algeria (15% to 20% of total sales).


Be sure to check out the rest of the presentations from Sohn London 2017.

Reade Griffith Long EVRY: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Reade Griffith, co-founder of Tetragon and CIO of Polygon's European Event-Driven Fund who pitched a long of EVRY.


Reade Griffith's Sohn London Presentation

EVRY is a Norwegian IT services company. It’s a leader in financial services in the Nordic area. On the positive side, EVRY has historically had a high market share and good quality products. The problem with EVRY was that it was predominantly government owed and had low margins. That has been fixed.

APAX, the private equity firm, took EVRY private in 2014 when the government sold its 75% shareholding. APAX took EVRY back to market just 18 months later. That was very quick with the IPO falling in June this year. One of the opportunities is that investors do not yet the believe that the business could have been fixed that quickly.

If the restructuring charges are stripped out - they should be gone by 2019 - EVRY looks cheap compared to its best competitor, Tieto. Judged against Tieto, EVRY should have 50% upside. EVRY is the Nordic leader in IT services and larger than Tieto.

APAX has strengthened and improved the quality of EVRY:

-    They entered a strategic partnership with IBM that allowed them to reduce the fixed cost base. They have a 10-year agreement with a 3-year extension to take services from IBM. The partnership with IBM is also creating new opportunities to sell their services to big players like Google, Microsoft and Amazon.

-     They made a couple of important small acquisitions

-    In the first year EBITDA margins were up from 6.4% to 10.6%

This is a high-quality industry with good margins and cash conversion rates. It should attract investors. Griffith expects margins to get better as the impact of the IBM deal works its way through. He expects 12% margins in the full year 2017. By 2018 and 2019 expect margins to hit 14% which is close to best in class.

IT services in Norway are not a high growth industry – 1% or 2% growth per year. EVRY can grow faster than this, maybe 5% to 6%. They are expanding in Finnish banking which is a new sector for them with a contract to service 50 banks.

APAX did not sell much stock at the IPO. They still own 54%. EVRY IPOed at 31 and the shares are currently trading at 33-34. Griffith thinks APAX were hoping for an IPO price in the upper 40s. He expects APAX to reduce their ownership next year.


Be sure to check out the rest of the presentations from Sohn London 2017.

Christian Vogel-Claussen Long United Internet: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Christian Vogel-Claussen of Alanda Capital Management who pitched long United Internet (ETR:UTDI).


Christian Vogel-Claussen's Sohn London Presentation

At Alanda half of the investment team are traditional analysts and the other half are in-house programmers. The programmers write data scripts to track publicly available information on the companies. They scrape public data and measure performance indicators that companies do not report.

Long: United Internet (ETR:UTDI)

United Internet is a Mobile Virtual Network Operator; a broadband reseller for internet access; it is also involved in web hosting, selling webpages and web domains.

It was founded by Ralph Dommermuth when he was 24. United went public in 1998. Dommermuth is still the CEO of the business, owning 40%.

In the last six months, United has been involved in two interesting deals. They bought a 72% stake in Drillisch, another player in the mobile market, and they sold a minority stake in their web hosting business to Warburg Pincus.

The Drillisch acquisition will disrupt the German telco landscape. The German market is divided between 3 mobile operators: Telefonica Deutschland (TD) which operates under the brand 02 is the largest player with 45m subscribers; T Mobile; Vodaphone.

In 2014, O2 merged with EPlus to form the largest mobile operator. The merger was only given the go-ahead on the grounds that TD would sell 30% of its capacity. The auction was won by Drillisch. Now that United own 101 and Drillisch - the two most aggressive players – they no longer compete against each other. Instead they are both competing for TD’s market share. In addition, 101 can offer a bundle of mobile and broadband to the entire customer base of Drillisch.

Alanda’s data scrapers have data showing that the churn rate of 101 and Drillisch is now 29% lower than the market average. Even though 101 is the smallest operator it is the most popular destination with churners. They are gaining twice as many new subscribers as TD. This means that the newly merged 101 is gaining market share rapidly - 39% of the churners are leaving TD to go to 101. Vogel-Claussen noted that in effect he was giving the audience a short idea: Telefonica Deutschland. TD have not been able to compete on price, 101 are 25% cheaper.

In the web hosting business, United has sold a one-third stake to Warburg Pincus and they are working together in partnership. They now have the fire power to roll-up the fragmented web hosting business in Europe through acquisitions. United has recently announced the acquisition of Strato, the German N0.2 in web hosting.

United has announced that in the next 18 months it will spin-off its web hosting unit. Web hosters in the US usually sell for 14x EBITDA.

United trades at 10x forward EBITDA. Its revenue growth rate is double digit. Expect a FCF CAGR of 17% over the next few years. Investor’s interests are fully aligned with the 40% owner’s.


Be sure to check out the rest of the presentations from Sohn London 2017.

Emeric Preaubert Long ALD Automotive: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Emeric Preaubert of Sycomore Asset Management who pitched a long of ALD Automotive (EPA:ALD).


Emeric Preaubert's Sohn London Presentation

Long: ALD Automotive (EPA: ALD)

ALD is not well known in the investment world. It was recently listed in June this year. Before that it was a subsidiary of Societe General.

ALD is a leader in the car leasing market. The company manages a fleet of 1.5m vehicles in more than 45 countries. It has grown its fleet by high single digits annually over the last 6 years and its revenue by over 20 % per annum (2013-2017).

The company has 3 main sources of revenues: financing margin on the leasing; services; reselling used cars.

Over the last 5 months the stock lost 25% of its value. The market does not like the used cars business. There is a fear that used car prices could decline and in particular that the residual value of diesel cars could fall.

The Volkswagen Diesel scandal acted as a stress test on ALD and they sailed through that without any trouble. They will come through this latest challenge unscathed as well.

In a worst-case scenario, ALD could lose some money on its used car activities. Perhaps car prices could drop as much as they did in the 2008/9 crisis? In the last ten years the company made a profit on its used car sales in all but one year. If there was decline in profitability as there was in 2009, the company could lose 15% of its profit. The would move the company’s P/E ratio from 9 to 12.

The company’s profits are visible. It knows 80% of its revenue when the year begins. If a multiple of 15 is applied to the leasing business and the services business and a multiple of 5 to the used car business the company could trade on a multiple of 14 which would give 50% upside.


Be sure to check out the rest of the presentations from Sohn London 2017.

Per Johansson Short ProSiebensat 1, Long Black Knight: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Per Johansson of Bodenholm Capital who pitched a short of ProSiebensat 1 (ETR:PSM) and a long of Black Knight.


Per Johansson's Sohn London Presentation

Bodenholm has been live for two years. They spend 50% of their time and resources on short selling. When looking for shorts they start with the accounts and utilise the support of forensic accountants.

Short: ProSiebensat 1. (ETR:PSM)

ProSieben is a German TV company. There are 3 legs to the short thesis.

1.    It’s a structurally challenged business that is going to deteriorate. ProSieben has unfavourable channel demographics. A lot of its viewers are in the 40-49-year-old demographic that watch TV the least. They have the wrong content focus. They have been buying US content, but they can’t compete with Amazon and Netflix. They bought Maxdome but it has been a monetary and strategic failure. They took a bit of a write-down in the last quarter but there may be more to come. Advertising revenue has turned down.

2.    Their accounting is less than conservative. The company defines its leverage as 1.5x net debt to EBITDA but that does not include pensions and leasing. If you add that in you reach 2.5x. They have not budgeted for future content which would take the leverage to 5x.

3.    Several senior managers are leaving - the CEO, CFO have left.


Long: Black Knight

In the Nordics they look for quality compounders. In the global space they like conglomerates that are ‘deconglomerizing’ and spin-offs. Black Knight is a spin-off.

Why is Black Knight a good quality company?

-    It’s monopoly type company with 62% market share

-    their moat is growing due to regulation

-    Customer retention is over 90%

-    Switching costs are high

-    High margins and free cash flow

-    They have pricing power – they raise their prices every year.

-    It’s not a cyclical business

-    The balance sheet is strong. Currently the leverage is 2.8x but they will de-lever over the next 3 years to 0.7x net debt to EBITDA.


Be sure to check out the rest of the presentations from Sohn London 2017.

Stephen Loukas Long Granite REIT: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Stephen Loukas of FrontFour Capital who pitched a long of Granite REIT (TSE:GRT).


Stephan Loukas's Sohn London Presentation

Long: Granite REIT (TSE:GRT)

Granite REIT is a Canadian listed owner-manager of industrial property. Its portfolio is comprised of 92 properties with 98% occupancy. It’s listed on TSX and NYSE.

Greenlight Capital have launched an activist campaign there.

Automotive supplier, Magna International, is its primary tenant representing 70% of its revenue.

Exposure: 27% Austria; 30% US; 27% Canada; 16% rest of Europe.

Dividend yield 5.2%. Pay-out ratio 76%. Leverage ratio 24%. Credit rating: investment grade.

There has been a significant change in the composition of the board – 5 new directors have been elected. FrontFour was a catalyst and were successful in having 3 of their directors elected. The CEO will depart early 2018. Expect there to be a change in the company’s strategy.

Magna is a strong company rated A- for credit risk by S&P and Moody’s. It would not be easy for them to leave as the buildings have been designed for their purposes.

The new board has already bought back $11m of stock since June. The company has been buying below $50 and that puts some sort of floor under the price.

Granite trades at a discount to Canadian REITs but a large discount to US and European REITs.

The new management have an opportunity to lever up the balance sheet. They should use the debt capacity to make acquisitions in the US. There maybe be some buybacks too.


Be sure to check out the rest of the presentations from Sohn London 2017.

Dean Tenerelli Long Gestamp Automocion: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Dean Tenerelli of T. Rowe Price who pitched a long of Gestamp Automocion (BME:GEST).


Dean Tenerelli's Sohn London Presentation

Long: Gestamp Automocion (BME:GEST).  Gestamp is a car body builder

OEMs are outsourcing more component parts because they can’t keep up with development. Metal stamping and chassis production has traditionally been one of the least outsourced areas of car production. Currently 58% of bodies are built in-house but Gestamp thinks the outsourcing market will grow by 50% over the next 10 years. That would be a $20bn growth in the outsourcing market.

Whilst the OEM’s are dealing with the challenges of developing electric vehicles and autonomous driving it make sense for them to outsource the body building. They would rather spend the capex on other things.

Gestamp has developed hot stamp technology which allows them to produce bodies that are lighter and more durable. It is the market leader in this technology and they expect demand for hot stamping to grow at 13% per annum. Gestamp has relationships with the 15 largest OEMs. They are involved in the manufacture of 800 vehicles.

Gestamp has good visibility of future orders and production because they are involved early in the design process. They claim that 90% of their revenues out to 2019 are visible.

Revenue growth 2013-2016 averaged 9%. Global auto production has seen 2.5% to 3% growth. The outsourcing market is growing at about 4%. The hot stamp technology is growing at about 13%. The top-line can easily grow at 10%.

In 2014-16 they invested in 7 new plants and 2016-19 they will invest in 13 new plants. Margins have been depressed by the expansion. The plants will take time to build and reach full production. Margins have probably been reduced by 200 basis points and won’t improve until 2019.

ROCE 11-12% 2017, that’s 200 to 300 basis points depressed due to the investments in new plants. Forward P/E 19x 2019.


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Beltran de la Lastra Long Belfesa: Sohn London Conference

We're posting up notes from the Sohn London conference 2017.  Next up is Beltran de la Lastra of Bestinver who pitched a long of Belfesa.


Beltran de la Lastra's Sohn London Presentation

A reasonably easily understood and overlooked company that has been recently IPOed. Market cap: $1bn euro.

Belfesa recycles steel and aluminium. Ninety-two per cent of their revenues come from the selling the of recycled materials, particularly zinc. Revenues tend to get blown around with the price of zinc, so they hedge the zinc price.

The company is difficult to classify by sector and by country. In its previous listing it was listed in Spain (1993) and this time it has been listed in Germany (2017). Triton bought it in 2013 and they sold half of their holding at the IPO, one month ago.

In most of the countries where they operate the market share is close 100%. It’s a consolidated industry. The replacement costs are high – 67m euro per factory. Regulation is getting stronger and is forcing the steel and aluminium manufacturers to recycle. The customer relationships tend to be long term.

They’ve hedged 70% of their zinc sales out until 2020. Ninety percent of volume is pre-sold for the next 3 years.


Be sure to check out the rest of the presentations from Sohn London 2017.

Bruno Castres' Sohn London Conference Presentation

We're posting up notes from the Sohn London conference 2017.  Next up is Bruno Castres of H2O Asset Management.


Bruno Crastes's Sohn London Presentation

Investment managers are not prepared for the return of inflation. Deflationary forces have prevailed for many years. Investors are like the frog in a pan of water that is slowly being brought to the boil – they will not move, they won’t jump out.

Most investors have become machines, they have become mechanised. One of the main reasons is the over use of statistical risk management. Statistical risk management is based on spurious assumptions. In markets you need to understand your environment and anticipate it. Statistical risk management prevents you from doing that. Volatility has become a poor risk indicator, yet everyone is using it.

Crastes recommended a book called “God or Golem” by Norbert Wiener about communication between machines and humans.

Due to central bank intervention risk premia are fake. We are out of deflation. What has worked since 2013 won’t work in the future.


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Sir Paul Ruddock Sohn London Conference Talk on Philanthropy

We're posting up notes from the Sohn London conference 2017.  Next up is Sir Paul Ruddock of Lansdowne Partners who gave a talk on philanthropy.


Sir Paul Ruddock's Sohn London Presentation

Sir Paul spoke about his journey in philanthropy. Those who have been successful in life have an obligation to give back. As Winston Churchill said, “You make a living from what you get, you make a life from what you give.” There are 4 key elements to philanthropy:

-    giving money
-    raising money
-    giving your time
-    using your skills

He wants his philanthropy to be a game changer. You need to research what you are going to do as thoroughly as you would an investment idea. His focus has been on education and the arts.

-    Engage the organisation to find out what they need not what you think they need.
-    Encourage the organisation to match your funding. This increases their engagement and commitment to the project.
-    Measuring philanthropic impact is not easy. Often there are no financial outcomes, but you can quantify some things. Success is often about raising aspirations and opportunities, including inspiring others to give.


Be sure to check out the rest of the presentations from Sohn London 2017.