market folly

We're posting up notes from the Sohn San Francisco Investment Conference which featured hedge fund managers sharing their latest investment ideas to benefit charity.  The Next Wave segment featured emerging managers Stephen Perkins (Toronado Capital), Touk Sinantha (AltraVue Capital), Raj Venkatesan (Trinity Alps Capital), and Christopher Weldon (Stamina Capital).

We've also posted up notes from the main event of Sohn San Francisco so be sure to check that out as well.


Notes from Next Wave Sohn San Francisco 2019


Stephen Perkins, Toronado Capital Management

Idea: Blackline (BL)

•    Software business models are great but software is not undiscovered anymore
•    Blackline (BL) – software company modernizing finance and accounting processes for mid-size enterprises
•    Replaces excel with a vast process improvement
•    Strong user growth – 19% CAGR in users from 2015- Q2 2019
•    SAP relationship will help drive future growth
•    Market is large and underpenetrated and little competition
•    Strong renewal rates at 97-98% dollar retention over last 5 years
•    Founder led with the founder owning ~10% of the company
•    Competition is really thin
•    Focus on this one part of the enterprise is a competitive advantage


Touk Sinantha, AltraVue Capital – value investing firm

Idea: SIGA Technologies (SIGA)– Specialty Pharma

•    Post bankruptcy microcap
•    Focused on biodefense and only company with vaccine for Small Pox
•    US and Russia continue to keep stock of the virus and possible to recreate the virus synthetically
•    Siga was a good business that went bankrupt because of legal fight over acquisition by another company
•    Continue to provide Small Pox vaccine to national stockpile
•    Stock became orphaned for a number of reasons
•    $600mm BARDA contract
•    Core value estimated at $7 per share or ~30% upside
•    Optionality:
o    International sales: ~$4 per share
o    TPOXX Label expansion: $2 value
o    New products: $0 value
•    Sum of the core value and potential upside value = $7+$4+$2= $13 per share
•    Risks: BARDA funding risk, Capital allocation risk, new competition, liability risk


Raj Venkatesan, Trinity Alps Capital Partners (long only, global and sector agnostic)

Idea: Afya (Brazil – but trades as an ADR)

•    Focused on medical education
•    Good reform happening in Brazil that are tailwinds to the business
•    Population in Brazil is aging and healthcare spend is growing at low double digits
•    Low number of doctors on a per capital basis and applicants/openings for med schools have declined
•    70% of medical education in Brazil is private
•    Path to become a doctor and specialist is long (like the US)
•    Earnings power of a specialist doctor is very high
•    Payback for general physician education is 5 years
•    Pure play way to play medicine in Brazil
•    Multiple growth levers:
o    TAM doubles in 5 years to R$32B
o    Roll up strategy
o    Regulated brownfield and greenfield growth opps
o    Asset light monetization of content  - vertical and horizontal
•    Value: Think Afya is a double
•    Risks: Macro/currency, regulatory framework, Recent IPO/limited history


Christopher Weldon, Stamina Capital ($200mm AUM, 3 years in)

Idea: Adyen long (3 year double)

•    Payment processor/merchant acquirer based out of the Netherlands
•    Visa is a good case study for Adyen – great operating leverage as revenue and costs are completely unrelated
•    Lowest cost operator
•    Value: believe it can double in 3 years driven by ~35% revenue, >50% FCF CAGR
•    Displacing legacy merchant acquirers given cost advantage: First Data and WorldPays of the world
•    Growth levers:
o    Customers growing quickly
o    Wallet share gains
o    New customers
o    New services
•    Digital payments are a secular share gainer in global transactions
•    Very large TAM of $25 trillion card based payments
•    Base case: +80% upside; Reward Case: +250%; Risk case: -25%


Click here to also read notes from the main event of Sohn San Francisco.