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Annual investment conference, fully online,
hosted by MOI Global, January 10-12, 2019
Page 1
Selected Session Highlights from Best Ideas 2019
Note: The following idea snapshots have been provided by the respective instructors or compiled by
MOI Global using information provided by the instructors. The following is provided for educational
purposes only and does not constitute a recommendation to buy or sell any security.
SAHM ADRANGI, CHIEF INVESTMENT OFFICER, KERRISDALE CAPITAL MANAGEMENT
Sea Limited (US: SE) is an internet company based in Singapore and focused on the Southeast
Asian market (“Sea” stands for South East Asia). It has three verticals: (i) a gaming distribution
business (called Garena), (ii) an e-commerce business (called Shopee) and (iii) an electronic
payments business.
The gaming business, which Sahm estimates to be worth ~$4 billion, generates substantial FCF and
is the dominant distributor of video games from publishers such as Tencent, Riot Games, and
Electronic Arts. The investment thesis, however, revolves around the e-commerce business, which is
aggressively expanding and vying to become the dominant e-commerce platform (similar to Alibaba,
Amazon) in Southeast Asia, focusing on the markets of Indonesia, Taiwan, Malaysia, Vietnam,
Thailand, and Philippines. Backed by Tencent (which owns 33% of the company), SEA’s Shopee
business is a #1 or #2 player in Indonesia and a top player in the other markets as well, rapidly
gaining market share from incumbents.
The market recently valued Shopee at only $1-2 billion, but given the large addressable market,
Shopee should be worth multiples of that. Shopee and/or Sea may soon get an investment from a
strategic investor with global e-commerce ambitions (such as Walmart, Amazon, Alibaba), which will
likely value the Shopee business at a premium.
GAURAV AGGARWAL, PORTFOLIO MANAGER, METIS CAPITAL MANAGEMENT
Time Technoplast (India: TIMETECHNO) is the leading large-size plastic industrial drum
manufacturer (market size of ~$1.5-2 billion) and has a dominant position in Indian plastic industrial
packaging, used chiefly by the chemical, petrochemical, and food & beverage industries.
The management team is passionate, innovative, and transparent. Insiders own 51% of the equity.
From 2010-2014, the company expanded aggressively and has become a market leader in Southeast
Asia and the Middle East. An increased percentage of global sales of industrial packaging comes
from Asia (up from 20% to 35% over the last decade due to multiple industries shifting to a lower cost
base). India is the leader in Asia for usage of plastic drums/containers with about 55% plastic, 45%
metal. In Asia, the mix is closer to 15/85, so a runway of growth exists as the company converts
customers to safer, longer shelf life, and lower lifetime cost products.
In light of an ongoing focus on value-added products and 70+% capacity utilization in the overseas
industrial packaging business (~30% of revenue), Gaurav expects ROCE to continue to increase
toward 20+% for the next few years.
Annual investment conference, fully online,
hosted by MOI Global, January 10-12, 2019
Page 2
Due to weak small-cap market sentiment and extrapolation of FQ2 numbers, the valuation is
compelling. In FQ2, EBITDA margins were affected by unusually volatile material costs, which will be
passed on with lag in FQ3 and FQ4. Gaurav estimates 50+% upside based on DCF analysis and
70+% upside based comparable company multiples.
DANIEL BALDINI, MANAGING PARTNER, OBERON ASSET MANAGEMENT
Wizz Air (UK: WIZZ) is the largest airline in Central and Eastern Europe. Similar to Ryanair, Wizz
operates as an ultra-low-cost carrier, a model its management team has executed well in the past,
creating substantial shareholder value across multiple companies. With significantly lower costs than
all competitors except Ryanair, Wizz has taken share in a market which itself has grown quickly.
Wizz is likely to expand its cost advantage in the future thanks to an order book for attractively priced
Airbus aircraft with improved unit costs and lower financing costs due to its recently awarded
investment grade credit rating.
Wizz should grow earnings at ~20% CAGR over the next five years yet is valued at only 14x earnings,
below its average historic multiple.
BOGUMIL BARANOWSKI, CO-FOUNDER AND PARTNER, SICART ASSOCIATES
AT&T (US: T) is a leading U.S. telecom company. The stock is down, cheap, and out of favor. A
boring name for exciting times, AT&T is a stable, slowly growing business with a healthy ~6.5%
dividend. The shares trade near a multi-year low and at a historically low valuation. The business
should benefit from 5G data rollout over the next few years.
The Time Warner acquisition offers significant long-term potential, but it has been a source of
distraction so far, both for management and investors. The nature of AT&T’s business suggests it
should do relatively well in a recession.
DAVID BARR AND AMAR PANDYA, PENDERFUND CAPITAL MANAGEMENT
Athabasca Oil (Canada: ATH) is a Canadian small-cap oil and gas producer focused on exploration
and development in Alberta’s Western Canadian Sedimentary Basin. The company has a portfolio of
long-life, low-decline thermal oil assets, light oil assets and long-term development assets. The
company has had a tumultuous history as one of the largest Canadian IPOs, subsequently facing
issues and controversies, culminating in a 90+% drop in the share price. Over the last few years a
new management team has transformed the business, diversifying assets, finding creative ways to
raise capital, entering JV partnerships, and completing an accretive acquisition. The company
recently announced the sale of non-core infrastructure assets, which were receiving no implied value,
for half the company’s market cap. The stock trades at 0.3x NAV, ~3x P/CF, with pro forma leverage
Annual investment conference, fully online,
hosted by MOI Global, January 10-12, 2019
Page 3
of less than 0.6x net debt to cash flow. Amar expects proceeds from the recent asset sale to be used
for redeeming high-yield debt (accretive to cash generation), creating a catalyst for the shares.
Diversified Royalty (Canada: DIV) is a Canadian small-cap that acquires top-line royalties from
multi-location businesses and franchisors. The company holds royalty rights to three well-tenured and
defensible businesses and is seeking accretive acquisitions with the surplus capital on the balance
sheet. The company is led by founder Sean Morrison who has a unique ability to source and structure
royalty transactions in the Canadian market. Due to a selloff in Canadian small-caps, interest rate
fears, and lack of news flow, the shares have declined and trade near 52-week lows, with an 8%
dividend yield. This is a discount to less diversified Canadian royalty peers, which have historically
traded at 5-7% yields. Once cash is fully deployed, the company should re-rate given the benefits of
diversification and superior brand quality of the underlying businesses. Depending on various
acquisition scenarios, DIV should trade at $3.50-4.50 per share, or roughly 40-60%.
JOHN BARR, PORTFOLIO MANAGER, NEEDHAM FUNDS
PDF Solutions (US: PDFS) is a semiconductor data analytics company emerging from a period of
investment in new products. It supplies software and other services to improve manufacturing yield for
semiconductor manufacturing companies. PDFS has a market cap of $275 million, about $100 million
of cash, and annual revenue of nearly $100 million. The company’s SaaS offering for big data
analytics, Exensio, has ~$40 million of annual revenue and is growing 30% annually. Its solution for
next-generation chip inspection and control, Design-for-Inspection, is in use at a leading
semiconductor manufacturing company. At $200 million of revenue, the business could earn $1.50-
2.00 per share. Risk exists with regard to new products and their effect on revenue and earnings.
PDF has cash of $3 per share and $50-60 million of royalties expected over the next few years, which
could be worth another $1.50-1.80 per share. Exensio could be valued at 3-5x revenue, or $3.50-6.00
per share. These elements total $8-11 per share. Should the company’s lead Design-for-Inspection
customer not come to terms on a next order, this part of the business might not have much value in
the short term. VIEX Capital Advisors recently disclosed a 6% equity stake. Should the company fail
to execute, VIEX might push for structural changes or a sale.
JASON BENOWITZ, SENIOR PORTFOLIO MANAGER, THE ROOSEVELT INVESTMENT GROUP
Aptiv (US: APTV) is the leading Tier I automotive supplier in electrification and autonomous
technology. This is supporting strong win rates and pipeline growth above the industry, which Jason
expects will translate into future market share gains, outsized growth in content per vehicle, and profit
margin expansion.
Last year’s spinoff of the powertrain business has unlocked value by creating a pure-play, focused
leader in attractive vehicle technologies, to which investors could ultimately assign a premium
multiple. Aptiv management has guided conservatively, setting the company up to exceed
expectations in the medium term.
Annual investment conference, fully online,
hosted by MOI Global, January 10-12, 2019
Page 4
Jason’s valuation analysis implies substantial upside in his base case scenario, while also suggesting
that downside is limited, even under a fairly draconian bear case. Investors may have priced in too
much concern about the automotive cycle and the U.S.-China trade dispute, while overlooking the
company’s leadership in markets with strong secular growth.
CHRIS BLOOMSTRAN, CHIEF INVESTMENT OFFICER, SEMPER AUGUSTUS INVESTMENTS GROUP
Cummins (US: CMI) provides diesel and natural gas engines and engine-related component
products, including filtration, aftertreatment, turbochargers, fuel systems, controls systems, air
handling systems, transmissions and electric power generation systems. Cummins sells to OEMs,
distributors, and other customers. The network of ~500 wholly-owned and independent distributor
locations spans across 7,500 dealer locations in 190+ countries.
Long-standing customers include primary heavy and medium-duty truck manufacturers, including
PACCAR, Daimler Trucks North America, Navistar International, Volvo, and Fiat Chrysler. The stock
closed 2018 at $133 per share, down nearly one-third from the all-time high reached in early 2018.
The business will have produced $23+ billion in revenue and earned $2+ billion in profit in the year
just ended. Led by a shareholder-focused and long-tenured management team, returns on equity and
capital are 20+%.
The stock discounts the inevitable economic cycle as well as concerns about electrified power as a
disruptor to diesel engine technology. At 9.6x current-year expected earnings, the investment case
rests on both risks being overstated and over-discounted.
PATRICK BRENNAN, PORTFOLIO MANAGER, BRENNAN ASSET MANAGEMENT
Multiple financial names have experienced substantial declines over the past three months as
leverage concerns, tax-loss selling and recession/interest rate fears have all led investors to quickly
dispose of “risk off” names. Blind selling has driven shares of Jefferies Financial Group ($6.3 billion
market cap) and Permanent TSB Group Holdings (~€730 million market cap) far below a reasonable
fair value estimate.
Jefferies Financial (US: JEF): Despite CEO Richard Handler’s strong long-term track record at
Jefferies, investors have never embraced the company following the 2013 merger with Leucadia. But,
JEF trades (~70% of tangible book value) far below reasonable fair value estimates and below our
downside valuation estimates. A series of value enhancing actions (National Beef/Garcadia
monetizations, capital return from Jefferies, aggressive share repurchases) should serve as a catalyst
for a hated stock.
Permanent TSB (UK: IL0A): While depressing macro headlines, negative interest rates and no-deal
Brexit fears dominate any discussion of European financial names, the Irish economy continues to
post solid economic growth and experience a red-hot housing market. For Irish banks, this favorable
backdrop is masked by government ownership stakes and high non-performing loan (NPL) ratios.
Annual investment conference, fully online,
hosted by MOI Global, January 10-12, 2019
Page 5
Trading at below 40% of tangible book, TSB’s bombed-out valuation offers substantial downside
protection and allows investors several ways to win. Meaningful NPL reductions following recent
securitization announcements should allow aggressive capital return in 2019/2020 with dividends
amounting to a sizeable percentage of the bank’s total value. While interest rates have been low for
years and may stay this way, even small increase would offer meaningful net interest income upside.
Finally, a sale is possible. Several U.S. financial names generated huge gains following government
exits, and this could repeat in Ireland. A long-rumored sale of TSB could repay taxpayers, drive
synergies and offer the highest shareholder returns.
THOMAS BUSHEY, PORTFOLIO MANAGER, SUNDERLAND CAPITAL PARTNERS
Yatra (US: YTRA), headquartered in India, is an online travel agency catering to the evolving travel
industry in India. Yatra is the largest corporate online travel agency and the second-largest consumer
online travel agency in its market. It is well-positioned for the coming growth in travel in India. The
company is well-run, as evidenced by revenue growth of 30+% and the acquisition of leading
corporate travel agency Air Travel Bureau.
The vehicle through which YTRA went public has not been conducive to garnering a long-term
shareholder base. Since the founding in 2006, $200+ million has been invested in the company,
exceeding recent enterprise value. In essence, we are buying the business for about half the
investment it took to build it over the last twelve years. Yatra trades at a major discount to peers on
the basis of sales (and a reasonable multiple of the profitable corporate travel earning stream). The
attractive corporate business has strong growth, 15-25% margins, and has been subsidizing the
leisure business.
The company has sufficient cash to operate until it reaches cash flow breakeven on a combined
basis. Yatra’s future profile of 20-30% top-line growth justifies a higher multiple, as suggested by the
discount to peers. Idiosyncratic trading events and turnover in the shareholder base notwithstanding,
the quality of the business is underappreciated as the online travel market in India has a long runway
of growth ahead.
JOHN CARRAUX, PORTFOLIO MANAGER, PUNCH & ASSOCIATES INVESTMENT MANAGEMENT
Drive Shack (US: DS) is a unique golf entertainment business with significant growth potential that
recently traded below the liquidation value of the company’s assets. Under the leadership of a proven
management team that is aligned with shareholders, John believes that Drive Shack should be able to
build a franchise of golf entertainment locations over the next 3-5 years that will create shareholder
value. The share quotation does not reflect this growth potential as the recent market valuation is
below the cash and securities on the company’s balance sheet.
Annual investment conference, fully online,
hosted by MOI Global, January 10-12, 2019
Page 6
EDWARD CHANG, PORTFOLIO MANAGER, PLEDGE CAPITAL
The Joint Corp. (US: JYNT) is the largest chiropractic chain in the U.S., employing over one
thousand of the sixty thousand licensed chiropractors in the country.
The largely franchised chain has a low-cost direct-payor model that eliminates most paper-work and
is focused on short convenient visits. Their clinics charges less than the out of pocket expense or co-
payment / consumer’s share of co-insurance; and significantly less than total fee charged by other
chiropractors. This has helped the chain grow franchise system sales from ~$22 million to ~$150
million in the last five years, a ~45% CAGR.
With new unit economics improving, unit growth is accelerating. There is still substantial room for the
chain to grow into its long-term unit potential (4x+).
BEN CLAREMON, SECURITIES ANALYST, COVE STREET CAPITAL
Axalta Coating Systems (US: AXTA) is a leading manufacturer and distributor of performance
coatings, mainly serving automotive, commercial vehicle and industrial end markets. The company
was once part of DuPont but was sold in 2013 to Carlyle Group, who then took the company public in
late 2014.
After a few years of restructuring and consistent operational improvement, Axalta has become a high-
margin, high-return, FCF-generating company whose stock has been under pressure due to a number
of issues that Ben believes to be transitory in nature. Axalta’s end markets are most certainly
impacted by short-term issues such as the cyclicality in auto manufacturing and downturns within
emerging market economies. Over the long term, Axalta should be able to grow revenue and enhance
margin as it benefits from material tailwinds.
Due to Axalta’s leading positions in the refinish and light vehicle end markets, the company has the
opportunity to be an industry consolidator or to be acquired as the global coatings players continue to
focus scale. Both Akzo Nobel and Nippon Paint expressed an interest in Axalta in late 2017. The
recent decline in the stock price has made the valuation more attractive, and with Berkshire Hathaway
as the largest shareholder, there is also a possibility that Berkshire makes a bid for the company.
KEVIN COPE, CHIEF INVESTMENT OFFICER, HUTCHINSON CAPITAL MANAGEMENT
National Oilwell Varco (US: NOV) is the dominant supplier of the equipment used by oil and gas
exploration companies to find and extract energy resources. With #1 market share in 80% of its 28
product lines, and no position lower than #3, the company has the scale and financial resources to
adapt to the changing energy exploration market. As E&P companies have transitioned their capex
budgets from large offshore projects to unconventional land drilling, the intensity of the equipment
they consume has risen sharply. NOV has “followed the money” and transitioned their product
offerings to match client needs.
Annual investment conference, fully online,
hosted by MOI Global, January 10-12, 2019
Page 7
NOV offers an opportunity to buy a company in the late stages of transition at generationally low
industry conditions. This investment may appeal to (i) long-term buyers who look through the cycle,
and (ii) opportunistic investors who transact within the cycle to take advantage of valuations that
reflect overly pessimistic expectations.
The devastating downcycle for oil-related companies, which began in June 2014, has been so severe
that it necessitated transformation for providers like National Oilwell Varco. The company’s superb
management team navigated the treacherous cycle while transforming the company from one
dependent on large offshore rig construction to one more broadly diversified. The company has a
massive installed base with stable proprietary aftermarket revenue.
At the recent market quotation, investors are getting stable cash flow from the onshore business plus
a free embedded option on the offshore recovery. NOV’s business has low capital intensity but sells
to clients that commit large sums of capital to their businesses. Strong FCF generation enabled NOV
to pivot the business model toward shifting E&P spend while also developing the emerging
technologies necessary to extend its competitive advantage. We use long-term cash Economic Value
Added models to estimate intrinsic value. Traditional multiple analysis is not constructive for this
cyclical company that has undergone such a significant transformation.
JAMES DAVOLOS, VICE PRESIDENT AND PORTFOLIO MANAGER, HORIZON KINETICS
Viper Energy Partners (US: VNOM) was taken public in 2014 by Diamondback Energy (US: FANG)
in order to monetize a royalty position in the Midland Basin on acreage owned and operated by
Diamondback. The transaction facilitated an independent valuation for royalty acreage, which requires
minimal working capital, as compared to capital-intensive operated acreage. Diamondback maintains
a sizable stake in Viper Energy.
In contrast to most public energy “royalty” companies at the time, Viper was the first growth-oriented
company, which has been facilitated by drop-down transactions with the parent. Viper has expanded
beyond sponsored transactions from the parent and acquired assets from third parties. Royalty
acreage has grown by 4.4x since the IPO.
Viper and its peers have limited acquisitions to cash flow accretive deals. This has resulted in an
accretive acquisition mechanism, whereby the company can purchase acreage at a 50+% discount to
the implied value of the acreage. A critical variable to this compounding mechanism is capital
structure; historically the company has only utilized short-term debt in the form of a revolving credit
facility to close acquisitions. Subsequently, the company issued shares to pay down the revolver. To
the extent that the company can issue shares at a material premium to the acquired acreage, the
transactions are accretive on a cash flow and NAV basis.
Based on trailing distributions, Viper trades at a forward distribution yield of ~8%. While declines in oil
prices will impact this rate in the short term, James expects organic production growth and hub basis
differentials to mitigate the impact over the next year.
Annual investment conference, fully online,
hosted by MOI Global, January 10-12, 2019
Page 8
STEPHEN DODSON, PORTFOLIO MANAGER, BRETTON FUND
Carter’s (US: CRI) is the largest children’s apparel maker in the U.S. Founded 150+ years ago, the
company has consistently and steadily grown, establishing a dominant position in baby clothes,
counting 80% of new families as customers. Recently hurt by the closings of Toys R Us and Bon-Ton,
the brand remains strong and customers will find other ways to buy Carter’s goods. Trading at ~12x
earnings (the lowest multiple since 2010), Stephen believes this consistent grower is a bargain.
MESUT ELLIALTIOGLU, CHIEF INVESTMENT OFFICER, TALAS TURKEY VALUE FUND
Arcelik A.S. (Turkey: ARCLK) is the leading household appliance manufacturer, produces and
markets consumer durable goods, consumer electronics, small home appliances and kitchen
accessories as well as in the provision of after-sales services. With eighteen factories in seven
countries (Turkey, Romania, Russia, China, South Africa, Thailand, and Pakistan), marketing and
sales organizations in 33 countries, Arcelik provides goods and services in 130+ countries.
Arcelik is by far the leader in Turkey with roughly 50% market share. It is also the third-largest home
appliance company in EMEA, the UK, France, and Poland. Arcelik is the number-one appliances
company in Romania, South Africa, and Pakistan. Arcelik’s focus is on international growth via market
share gains and organic growth in the underpenetrated markets of Sub-Saharan Africa, India, and
South East Asia.
Operations outside Turkey comprise 65% of Arcelik’s revenue. The economic slowdown in Turkey
has led to a substantial 55% decline (in USD terms) in Arcelik’s share price. The recent market
capitalization of Arcelik is near a ten-year low of $1.9 billion, as compared to $4.2 billion in 2017.
Arcelik trades at a 2020E P/E of 6x, EV/EBITDA of 4x, and EV to revenue of 0.4x.
AVI FISHER, FOUNDER AND CHIEF INVESTMENT OFFICER, LONG CAST INVESTMENT ADVISORS
Intelligent Systems (US: INS) Intelligent Systems is a micro-cap company ($120 million market cap,
$100 million EV) that traditionally licenses card issuer processing software and is on the verge of
selling its largest license to date (to an undisclosed customer, but “scuttlebutt” is Goldman Sachs /
Marcus). Concurrently, the company is moving into the processing-as-a-service side of the business,
which has substantially higher recurring revenue and incremental margin component, and where it
has been gaining traction.
Revenue doubled from 2015 to 2016 on the processing business and will double again from 2017 to
2018 to $20 million on processing + customization around the pending license sale. Management is
guiding to continued growth next year as it expects to book the license and backfill that with continued
growth in processing revenue. The company has a history as a “holdco” but is down to one operating
segment. The founder and long-time CEO owns 25% of the stock.
Annual investment conference, fully online,
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RICK FUJIMOTO, MANAGING PARTNER, SILVERADO INVESTMENT PARTNERS
Tech Data Corporation (US: TECD) is one of the world’s largest wholesale distributors of technology
products. It distributes PC systems, mobile phones, printers, consumer electronics, data storage,
networking, servers, and more. TECD connects 1,000+ hardware and software vendors like Apple,
Cisco, HP, and Microsoft to 125,000+ value-added resellers that serve end users.
Tech Data serves as a key link in the technology ecosystem because it allows resellers (IT companies
serving small businesses) fast and efficient access to any technology product without having to
maintain or negotiate pricing for their inventory. With revenue of $38 billion and customers in 100+
countries, Tech Data has built a strong and geographically diverse network.
While the company appointed a new CEO in 2018, Richard Hume was promoted from within. The
company has a good capital allocation record, with large buybacks and accretive acquisitions. Net
income for the year ended January 31, 2019 should approach $315 million, but Rick estimates the
company actually earns more, making it attractive at the recent market price.
RENO GIANCOLA, PORT INVESTMENTS, AND JEFF HALES, PROVIDENT CAPITAL
Chemtrade Logistics (Canada: CHE.UN) is a global provider of industrial chemicals, diversified
across three operating segments: sulphur products, water solutions, and electrochemcials. Unlike
traditional chemicals companies, Chemtrade’s business is stable with little commodity exposure or
economic sensitivity. Chemtrade had an awful 2018, which has created an attractive opportunity for
long-term investors.
The company faced rail congestion issues, extensive plant maintenance, costly litigation, a reduction
in sulfur supply from a key supplier, and margin pressure in its municipal water solutions business
driven by a lag in passing-through raw materials inflation. These issues have been resolved, and
despite positive developments and strong/improving fundamentals for the sulphur products and
electrochmcials businesses, the stock languishes near seven-year lows.
At 6.5x 2019E EBITDA, ~16% FCF yield, and ~11% dividend yield, the shares reflect a high degree of
pessimism, which is unwarranted. Despite a challenging 2017-2018, the company has a long history
of creating value for shareholders. Since the IPO in 2001, total shareholder return has been 11+% per
annum, almost double the S&P/TSX Composite Index over the same period. Reno and Jeff estimate
the company is conservatively worth $16-18 per share, representing roughly 50-100% upside.
ERIC GOMBERG, FOUNDER, DANE CAPITAL MANAGEMENT
NRC Group (US: NRCG) is a recently public environmental services company that trades at a
substantial multiple discount to peers despite a superior growth outlook (20%+ EBITDA growth) over
the next several years (at least through 2020). NRC is largely unknown due to becoming public via
SPAC, but Eric believes strong fundamentals will quickly drive investor awareness. The business has
high barriers to entry, a diverse customer base of over 5,000 customers, and exceptional recurring
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Page 10
revenue characteristics for non-discretionary spend, making the business largely anti-recessionary
and defensive.
The company has three business units, a standby services segment for potential oil spills or other
potential accidents, with 99% annual customer retention and incremental margins in excess of 75%,
an environmental services unit, with over 3000 customers, for low cost (sub $10,000), non-
discretionary remediation activities, and waste disposal, with EBITDA margins of ~50%. Post 2019, in
which cap-ex will be elevated to complete three new landfills (which will have payback periods of 4-5
quarters), cap-ex will be 3-4%, resulting in tremendous free cash flow (2020 should exceed $60mn
versus a sub-$300mn market cap).
At a current 6.2x 2019 EV/EBITDA, shares trade at over a four-EBITDA turns discount to comps (over
10x), which Eric believes is unsustainably low. Eric note significant insider ownership (JF Lehman, the
“seller” still owns 65% of the company), and think it’s worth mentioning that the SPAC sponsor’s first
transaction (BLBD) is up 90% since completion. Eric believes shares of NRCG have the potential to
double over the next 6-12 months.
STEVE GORELIK, PORTFOLIO MANAGER, FIREBIRD MANAGEMENT
Siauliu Bankas (Lithuania: SAB1L) is the largest locally owned bank in Lithuania. The country is one
of the fastest-growing economies in EU, driven by a successful restructuring following the crisis of
2008-2009. Siauliu Bankas translates local ownership into a competitive advantage through better
customer service and faster lending decisions as compared to foreign competitors. Since the
consolidation of two smaller competitors in 2015, the bank’s loan book grew 28% through the end of
2017, compared to 18% growth for the Lithuanian banking sector.
The bank is highly profitable, generating sustainable ROE of 15+%, but recently traded at 8x P/E and
1x book value due to a perceived share overhang from a recently dissolved shareholder agreement.
Upcoming catalysts include higher dividends from the newly approved dividend policy and potential
M&A as the European Bank for Reconstruction and Development, a 26% shareholder, looks to
monetize its stake in the company. Even without a re-rating, an investment in Siauliu Bankas may
deliver ~25% annually over the intermediate term due to the compounding of capital.
BRIAN GROSSO, PORTFOLIO MANAGER, JBF CAPITAL
Takigami Steel (Japan: 5918) is a micro-cap construction company at a discount to liquidation value,
with improving governance and capital allocation. The core construction business is profitable and the
stock trades at one-third of liquidation value. Most of the assets are non-core and invested in stocks,
bonds, real estate, and cash.
In the last six years, corporate governance in Japan has improved considerably, and there are many
visible improvements at Takigami since the founding family took back control of management in 2010.
The company has raised the dividend and deployed cash for share repurchases, real estate
investments, and a small acquisition — all at good prices.
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While no liquidation or other value-unlocking event like a management buyout has been announced,
the governance improvements are promising. In recent years, numerous other small Japanese
companies have suddenly unlocked shareholder value with little notice. Even if one must wait eight
years, value is accumulating and the expected return approximates 270%, or ~18% annually.
BRIAN HENNESSEY, PORTFOLIO MANAGER, ALPINE WOODS CAPITAL
Thor Industries (US: THO) Thor Industries is the largest manufacturer of recreational vehicles in the
U.S., with 48% market share. Thor will soon be the only truly global player, driven by the acquisition of
German private RV maker Erwyn Hymer, which has the largest share of the European RV market at
29%. Thor has a long history of financial and operational prudence, with a nearly forty-year history of
uninterrupted profitability and 25 consecutive years of positive FCF in a cyclical industry.
As the acquisition (expected to close in January 2019) will leverage the balance sheet (2.4x net debt
to 2018 pro forma EBITDA) at what is feared to be the top of the cycle, Thor’s stock has been cut by
nearly 70% from a peak in January 2018 and recently traded at a pro forma P/E of 7.0x and a price-
to-book value multiple of 0.7x. The acquisition immediately adds at $2.25+ per share to earnings and
is a catalyst as investors do their diligence on the target’s growth trajectory.
A 10x multiple would place the stock at $70+ per share, or ~40% upside. If the downcycle is milder
than feared, which seems plausible as dealer inventories approach tight levels, the upside may be
even greater.
NAVEEN JEEREDDI, CHIEF EXECUTIVE OFFICER, JEEREDDI PARTNERS
Micron Technology (US: MU) is a global manufacturer of dynamic random access memory chips
(DRAMs), flash memories (NANDs), semiconductor components, and other memory modules for the
computer industry. Micron trades at less than 4x LTM earnings and EBIT. The memory industry is a
profitable oligopoly (consisting of three DRAM players and six NAND players) characterized by short
pricing cycles of memory products and strong secular demand trends including cloud computing,
mobile devices, artificial intelligence, gaming platforms, autonomous vehicles, and the internet-of-
things applications. Micron has an ~$40 billion market capitalization with no debt and has been a
public company for many decades. Micron investors, having experienced tremendous cyclical feast-
or-famine swings in the past, possess a reflexive distaste for Micron in down cycles, resulting in a
bargain valuation for the business on multiple metrics.
Micron’s industry supply and demand structure have vastly improved over the last few years. The
industry has consolidated on the supply side with more rational profit-oriented players. Demand has
exploded and diversified with new sustainable long-term secular drivers. Barriers to entry are higher
(and increasing) due to the complexity and capital intensity of the sector. Management is owner-
oriented and has implemented an aggressive accretive share buyback program.
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CURTIS JENSEN, PORTFOLIO MANAGER, ROBOTTI & COMPANY ADVISORS
Tidewater Midstream & Infrastructure (Canada: TWM), headquartered in Calgary, Alberta, provides
oil and gas midstream services, including gathering, processing, and transportation and NGL
marketing and extraction as well as storage services. The company receives fees under long-term
contracts for its services. Management started the company by opportunistically buying up distressed
assets during the energy downturn of 2015-16.
Commodity prices in Canada remain depressed, owing to a lack of takeaway and egress options such
as those provided by the company. The shares trade at a meaningful discount to any reasonable
assessment of economic value, likely owing to poor sector sentiment and the company’s small size
and perceived quality. Two large projects slated for completion in 2019 should improve the company’s
scale, cash flows, counterparty risk, and asset quality.
Birch Hill Equity, a Toronto-based private equity firm, recently acquired 22% of the shares.
Tidewater’s CEO is paid C$1 per year and has committed to purchasing stock in the open market
every year (he owns more than five million shares).
CHRIS KARLIN, CHIEF INVESTMENT OFFICER, AQUITANIA CAPITAL MANAGEMENT
Diamond Hill Investment Group (US: DHIL) is an institutional asset manager. Using a value
investment philosophy, DHIL manages $22 billion in assets under management across thirteen equity
and credit strategies. DHIL serves individual and institutional clients through mutual funds and
separate accounts. Valuations have fallen sharply for active asset managers over the last two years
despite continued growth at DHIL. At a recent valuation of 5x EV/EBIT, Diamond Hill trades well
below its average EV/EBIT of 9x from 2013-2017 and below an estimated private market value of 10x
EV/EBIT. This discount was exacerbated in a sharp selloff in Q4 2018. While the market capitalization
is $580 million and enterprise value is $357 million, DHIL has no analyst coverage. With a solid
balance sheet and shareholder-friendly management, Chris expects that the valuation discount will
not persist. The company has announced a $50 million share repurchase plan. Chris estimates value
at $230 per share, or nearly 50% above the recent market quotation.
STEVEN KIEL, CHIEF INVESTMENT OFFICER, ARQUITOS CAPITAL MANAGEMENT
Westaim (Canada: WED) is an investment company with two subsidiaries: Houston International
Insurance Group (HIIG), a specialty property and casualty insurance company that is up for sale, and
Arena Group, a growing credit fund. Westaim as a whole currently trades for 20% below book value.
They have a shareholder friendly culture, led by investment veterans originally from the Canadian
investment company, Goodwood. In addition to its two current subsidiaries, Westaim is pursuing
strategic investments in the financial services industry, providing upside optionality. An investment in
Westaim gives you access to good capital allocators at a cheap price with low risk.
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Page 13
ASHISH KILA, DIRECTOR, PERFECT GROUP
DCB Bank (India: DCBBANK) operates in a sector in India that is experiencing large value migration.
The company is young and dynamic, with a long runway to compound capital, backed by an
“intelligent fanatic” with a proven track record. Revenue and earnings have grown at a CAGR of 20%
and 35%, respectively, over the past eight years. The company has similar key metrics on business
quality as do industry leaders, a higher growth rate, and is available at less than half the valuation of
comparable companies. The shares recently traded at ~1.6x book value.
SHAWN KRAVETZ, PRESIDENT, ESPLANADE CAPITAL
Century Casinos (US: CNTY) is an owner/operator of casinos. With assets primarily in Canada,
Poland, and Colorado, Century is a world away from Macau and the Las Vegas Strip, but has been
lumped into the global casino morass. It enjoys one of the least leveraged balance sheets in the
industry. Having overcome challenges in 2018, Century is poised to nearly double run-rate EBITDA
by the end of 2019, leading to one of the industry’s lowest EBITDA multiples despite robust organic
growth. Century’s capable veteran management team has been buying stock recently at these levels.
With their core business performing well and their largest property opening in April, Century presents
a catalyst-rich play on the global casino industry.
MIKE KRUGER, MANAGING PARTNER, MPK PARTNERS
Boustead Projects (Singapore: AVM) does the design and project management of Class A industrial
real estate in Southeast Asia for multinational corporations in high-value industries; actual
construction work is outsourced. Since 2010, Boustead has used its balance sheet to build certain
properties, which are then leased to the client. Despite this, net cash is one-fourth of the recent
market cap.
The shares recently traded at less than one-third of NAV. Boustead is not a typical family-owned
Asian real estate stock that languishes at a discount with no catalyst in sight. Founder FF Wong has
delivered a compounded total return to shareholders of 18+% since 2000. Two catalysts are in place:
First, backlog has soared 150+% to all-time highs recently, which should benefit earnings by the June
2019 quarter. Second, Boustead will likely put its owned properties into a REIT (comps at 1.0x NAV of
higher) over the next couple of years.
NATHANIEL LEACH, PORTFOLIO MANAGER, LBW WEALTH MANAGEMENT
Liberty Sirius XM (US: (LSXMA/B/K) is a tracker stock of Liberty Media Corp and one of the entities
managed by John Malone and Greg Maffei. Its main assets consist of a ~71% interest in Sirius XM
Holdings, a ~70% interest in Sirius XM Canada, and ~$1.05 billion of Pandora Media and iHeart
Media bonds.
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Page 14
The largest asset, Sirius XM Holdings, announced in September of this year an intention to acquire
the portion of Pandora Media it did not already own by issuing Sirius XM stock. The market did not
react well to the news and Sirius XM’s stock has since dropped ~15%. The shares trade at a ~33%
discount to NAV. Liberty Sirius XM is an attractive vehicle to take advantage of the recent price
weakness and NAV discount and buy Sirius XM at a discount to intrinsic value.
STANLEY LIM, SENIOR RESEARCH ANALYST, DALTON INVESTMENTS
Facebook (US: FB) is the largest social networking company in the world. It owns four of the six
social platforms in the world with more than one billion monthly active users. The company is well-
placed in the growing digital advertising industry. Facebook has faced a series of negative press
regarding security and privacy issues. These issues seem overblown and Facebook continues to
have a strong moat that is growing due to control of users’ digital real estate.
Xiaomi Corporation (Hong Kong: 1810) is a smartphone manufacturer, Internet-of-Things device
distributor, and a software company. It is one of the top smartphone brands in markets like China,
India, Europe, and Indonesia. Xiaomi is one of the fastest-growing global technology companies, with
the IoT segment more than doubling year on year. Xiaomi is a misunderstood company, with
investors focusing too much on the low-margin smartphone business. Stanley believes that Xiaomi
could be the next major electronics brand, rivaling Samsung and Sony.
JOE MAGYER, CHIEF INVESTMENT OFFICER, LAKEHOUSE CAPITAL
Facebook (US: FB) may seem to be on the ropes given the bad press it has received. However, the
user base and revenue are growing at very healthy rates. The business also owns three other fast-
growing platforms — Instagram, WhatsApp, and Messenger — that each have more than one billion
monthly active users and are at earlier stages of monetization.
The business is highly cash generative and has more than 9% of its market capitalization in net cash,
affording downside protection and strategic optionality, and the shares are deeply our of favor at
around 37% below recent highs.
RIMMY MALHOTRA, PORTFOLIO MANAGER, NICOYA CAPITAL
Crossroads Systems (US: CRSS) is a post-bankruptcy NOL shell merged with a profitable specialty
finance company traded on the Pink Sheets. Information disclosure and liquidity is limited, but Rimmy
believes the shares could be worth materially more than the recent $7 share price, with downside
protection. Insiders own 77% of the shares and are astute long-term business builders.
Crossroads builds and finances affordable housing focused on the Hispanic market. The homes,
sales and financing processes are tailored to this demographic. Crossroads refurbishes blighted
homes it sells and finances with a traditional 30-year qualifying mortgage.
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Page 15
The company finances the homes using funds obtained through U.S. government-sponsored
programs designed to promote home ownership in low- and moderate-income census tracts. Over the
last two decades, Crossroads has originated and profitably held $250 million of mortgages.
JUAN MATIENZO, MANAGING PARTNER, MERCOR INVESTMENT GROUP
Passat (France: PSAT) is a family-controlled French seller of home and beauty products. Sales and
earnings have declined sharply over the last few years, but the business remains profitable. The
shares recently traded at negative enterprise value and a discount to liquidation value.
Nichiwa Sangyo Co. (Japan: 2055) is a manufacturer of feed mixtures. The shares trade at a quarter
of book value and a high-teens FCF yield.
Sanko Co (Japan: 6964) is a maker of precision components. The shares trade at negative enterprise
value and a large discount to liquidation value. The company is profitable and has significant insider
ownership.
MICHAEL MELBY, FOUNDER AND PORTFOLIO MANAGER, GATE CITY CAPITAL MANAGEMENT
Maui Land & Pineapple (US: MLP) owns 23,000+ acres of land on the island of Maui in Hawaii. The
owned acreage includes nearly 21,000 acres of land in and around the world-renowned Kapalua
Resort, home to the Ritz-Carlton Kapalua. Most of the company’s land holdings were purchased in
the early 1900s and continue to be held on the books at cost. Maui Land & Pineapple owns several
fully-entitled parcels of land within the Kapalua Resort.
The company is likely to proceed with development of some of its premier land holdings within the
next year. In addition to the land holdings, MLP also owns several buildings within the Kapalua Resort
and operates a profitable leasing business. It also operates a water utility company and manages a
spa within the Kapalua Resort. These segments generate FCF and provide financial flexibility as the
company prepares to develop its land holdings.
MLP has a market cap of $190 million and no net debt as it utilized proceeds from the sale of non-
core properties to repay $50+ million of debt over the past three years. MLP stock enables the buyer
to purchase Hawaii land at a valuation of just over $8,250 per acre. Mike’s estimates intrinsic value at
roughly $400 million or almost $21 per share, representing 100+% upside.
GARY MISHURIS, CHIEF INVESTMENT OFFICER, SILVER RING VALUE PARTNERS
Arcadis (Netherlands: ARCAD NA) Arcadis offers consulting and engineering design services without
taking on project execution risk. The company is under new management, with the board having
removed the prior CEO and brought in the ex-COO of Fluor, an engineer by training.
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The business had previously averaged ~10% operating margin, but due to a combination of execution
issues and a decline in oil-related infrastructure demand, the business operates closer to a 7%
margin. Management actions should restore the margin partway to historical levels, aided by low
single-digit organic sales growth.
The stock has a high short interest, with short-sellers claiming the company overstates earnings and
understates debt (recently at ~2.5x net debt to EBITDA). Gary has spoken to some of the short-
sellers, analyzed their assertions, and concluded that the company’s finances are sound.
At less than 10x run-rate depressed earnings and less than 7x Gary’s estimate of normalized mid-
cycle EPS/FCF, the shares trade at less than half of Gary’s base case value estimate, with ~30%
downside to the worst case.
Risks include potential inability to improve margins, Gary’s balance sheet analysis proving incorrect,
and a global recession lowering profitability in the medium term.
SAMIR MOHAMED, COLLABORATIVE VALUE INVESTOR, FAMILY OFFICE
Despegar.com (US: DESP), an Argentina-based, U.S.-listed company, is the largest online travel
agent in Latin America. With its two-sided network of travelers on the one hand and travel suppliers
(airlines, hotels) on the other hand, the company benefits from network effects and is gaining market
share in a fragmented market. Despegar has a broad travel product portfolio with direct booking
capability, giving the company several advantages over travel meta search engines like Trivago or
Kayak.
With revenue of $524 million in 2017 at a 13.6% EBIT margin the company has a long growth runway
to reach scale over the next 6-10 years. Due to macroeconomic challenges in Argentina and
investor’s risk aversion towards Latin America the company’s share price has declined 50+% since
the IPO in September 2017. In a conservative forecast the company would have an EV/EBIT of about
3x in 2025 at the recent share price.
MICHAEL MOROSI, EQUITY PORTFOLIO MANAGER, MAPFRE AM
QAD Inc. (US: CADA)’s value-accretive business model transition continues to gain momentum. The
attractive financial attributes of the new model are increasingly evident in margin expansion and cash
flow generation. Meanwhile, the organization maintains its customer-centric focus to retain existing
customers and acquire new ones.
Michael’s valuation of $950 million has multiple levers for upside, offers a 15-20% margin of safety,
and should increase over time with continued growth in the subscription business.
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A.J. NORONHA, PARTNER, DESAI CAPITAL MANAGEMENT
Mallinckrodt (US: MNK) meets the key criteria A.J. looks for in an investment: (i) significant discount
to intrinsic value; (ii) strong margins, which demonstrate operational excellence; (iii) strong cash flow
and a low price to cash flow multiple; and (iv) a significant price discount to book value. Risks include
revenue concentration, pricing pressure, and political or legal pressure.
A.J. considers the overall risk-reward tradeoff as attractive at recent prices. The stock recently traded
at ~$19 per share, roughly half of the 52-week high of ~$37 per share.
SAMIR PATEL, FOUNDER AND PORTFOLIO MANAGER, ASKELADDEN CAPITAL
Franklin Covey (US: FC) is a leading provider of corporate training content in a highly fragmented
$90+ billion global space. Over the past three years, the company has transitioned from a discrete
one-off sales model to a strategically embedded, recurring-revenue model with 90+% dollar renewal
and 25-30% of new contracts being signed for multi-year periods, providing exceptional resiliency and
a strong base from which to deliver accelerated growth. The company has high gross margins (70%
consolidated, 80+% on content portion of the business), leading to 40+% incremental EBITDA
margins.
With high single to low double-digit revenue growth, the company should deliver teens to twenties
EBITDA growth for an extended period of time, yet the stock trades at ~10x EBITDA and ~1.4x
revenue. A DCF suggests the stock is worth $46 per share, while both transaction and publicly-traded
comparables also suggest a higher valuation.
Long-tenured management has high ownership and likes to use most cash flow to repurchase shares
at attractive prices.
MATTHEW PETERSON, MANAGING PARTNER, PETERSON CAPITAL MANAGEMENT
The Daily Journal Corporation (US: DJCO) is an American publishing and technology company with
hidden assets and off-balance sheet value. With no analysts or investor relations department, few
understand the transformation that has occurred.
While historically a legal newspaper publishing company, today DJCO operates a SaaS business
model providing case management software to courts and government agencies around the U.S. and
the world. Licensed software for many ten-year contracts is currently in the multi-year implementation
stage. Implementation is expensed as provided, while the long-term recurring high-margin revenue is
not yet included on the income statement.
The board includes high-profile names such as Rick Guerin, Peter Kaufman, and Charlie Munger.
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FERNANDO PINA, FOUNDING PARTNER, LIS CAPITAL
São Carlos Empreendimentos (Brazil: SCAR3) is one of Brazil’s leading commercial property
investment companies, controlled by the same partners as is the private equity firm 3G Capital. São
Carlos, which commenced operations in 1989, owns and operates a premium portfolio of corporate
buildings and convenience centers in Brazil’s two largest cities, São Paulo and Rio de Janeiro.
An investment in São Carlos is a way to partner with a “value investor” in the commercial property
space. São Carlos acquires properties at relatively low valuations, pursues improvements, and then
divests opportunistically, generating value in the process. The business model — rent revenue,
coupled with active management of the properties portfolio — makes São Carlos one of the most
profitable public companies in the Brazilian real estate sector.
At the recent market price, the shares have a margin of safety as they trade at a valuation
approximating the original acquisition price of properties, i.e., significantly below replacement cost or
market value, thereby ascribing no value to the company’s record of value creation. The idea
combines quality (in light of the company’s proven capacity to compound value) and an attractive
price (as the shares can be bought at a discount to NAV).
BRIAN PITKIN, MANAGING MEMBER, URI CAPITAL MANAGEMENT
AIG (US: AIG) is another in a long line of global financial institutions that have fallen far out of favor
with investors. AIG is a well-known global property and casualty insurer, paired with a US-dominated
life and retirement business.
The company has derisked the balance sheet after taking painful reserve charges and implementing
an “adverse development cover” with Berkshire Hathaway. Improving returns on equity, driven by
P&C underwriting profitability, should lead to a higher, more normalized valuation for AIG.
The company fits the pattern of good — sometimes great — businesses operating profitably —
sometimes very profitably — with global scale, but, for differing reasons, have been far out of favor
with investors, allowing Brian to invest at valuations well below book value. AIG recently traded at
8.5x 2019E earnings of $5.11 per share, i.e., a market price of $43 per share, well below adjusted
book value of $56 per share and stated book value of $66 per share.
ANDY PREIKSCHAT, PORTFOLIO MANAGER, EDGEBROOK PARTNERS
XPEL (Canada: DAP-U) pioneered “self-healing” paint protection film for the automotive industry and
is the market leader for this category globally. XPEL grew sales from $10.7 million in 2012 to more
than $100 million in 2018 while maintaining profitability and barely diluting shareholders. The
company is run by “incentivized fanatics” who own 45+% of shares. The company culture is one of
high energy, disciplined ethics, and product innovation. From 2017, when the stock was at $1.54 per
share, with EPS of $0.08, Andy expects the company to grow EPS eight-fold by 2021.
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PATRICK RETZER, CHIEF INVESTMENT OFFICER, RETZER CAPITAL MANAGEMENT
Franklin Covey (US: FC) is a global company specializing in organizational performance
improvement by providing training and consulting services in seven areas: leadership, execution,
productivity, trust, sales performance, customer loyalty and education. They have consistently created
shareholder value in a tax efficient manner, having bought back $62 million of stock in the past fifteen
quarters and carry almost no net debt. The Company is a high gross margin, high FCF company that
has completed the transition from a traditional sales revenue model to a subscription-based revenue
model.
Pat presented Franklin Covey last year when the stock was $20.45 per share. It subsequently ran up
to $31.20 per share in January after the company reported earnings. FC recently hit $21.45 per share,
providing an opportunity as the company ramps up adjusted EBITDA, deferred revenue, and FCF. On
the most recent earnings call, management reiterated an interest in restarting share buybacks.
School Specialty (US: SCOO) is a leading provider of supplies, furniture, technology products,
supplemental learning products and curriculum solutions to the educational marketplace. SCOO
serves, in some manner, 90+% of school districts and 70+% of schools in the U.S., with 100,000+
SKUs. The 21st Century Safe School value proposition looks to improve student outcomes by
addressing the social, emotional, mental and physical well-being and safety of students on a cohesive
and holistic basis. The Safety & Security and Guardian offerings address the needs of schools in the
face of recent school shootings.
Pat presented SCOO last year when the stock price was $16.65 per share. It subsequently reached a
high of $20.02 per share last June, but plunged after missing on their third quarter earnings. The miss
was based on higher transportation costs, higher than normal employee turnover and the slippage of
some high margin business into 2019. SCOO trades at ~5.5x enterprise value to lowered 2018
EBITDA guidance. With management’s view that 2019 could be the year they expected in 2018, the
stock appears poised for material upside.
JIM ROUMELL, PRESIDENT, ROUMELL ASSET MANAGEMENT
Enzo Biochem (US: ENZ) is a debt-free company with a strategically located clinical lab footprint in
the NY/NJ/CT Tri-state area in a consolidating industry. The company has significant IP assets, a
therapeutics business Jim expects to be monetized in H1 2019, significant IP litigation optionality, and
a vertically integrated clinical lab platform with gross margin expectations of 65% versus a current
35% model.
ENZ’s recent enterprise value is roughly 90% of what the company has collected in IP litigation in the
past several years. The company has won settlements and royalty payments of $100 million ($67
million net) in recent years, highlighting its rich IP assets. The company has seven outstanding IP
lawsuits, six of which are financed on a contingency basis with the law firm that has already won ENZ
suits against Illumina, Thermo Fisher Scientific, and Siemens.
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ENZ possesses multiple ways to win. The stock price has dropped from $10+ per share two years
ago to sub-$3 per share recently because of dramatically reduced reimbursement payments
(Medicare and private pay insurers) for clinical lab services.
While there is near-term pain associated with the reimbursement issue affecting ENZ’s lab business,
the company appears well-positioned to be a winner with its low-cost Ampiprobe lab platform.
Smaller, independent labs are being squeezed particularly hard, and ENZ offers an outsourced
diagnostic solution. At a price of $2.75 per share, ENZ’s market cap is $130 million and EV is $77
million, reflecting $53 million in net cash.
NITIN SACHETI, PORTFOLIO MANAGER, PAPYRUS CAPITAL
Echostar Corporation (US: SATS) is an underfollowed satellite business run by a smart
owner/manager (Charlie Ergen), with three core businesses offering significant upside. The company
owns valuable intellectual property in Ka-band high throughput satellites, which Echostar can build at
one-tenth the cost per bit of other satellites.
While the product has generated internal rates of return in the high-20% range in its first application
(rural consumer broadband), 5G offers many more uses for the satellite IP. The company will likely
launch joint ventures across the world or make an acquisition of a business with worldwide
distribution, in which Echostar will “plug in” its IP and generate significant value.
Nitin believes the company will realize intrinsic value over the next two to three years as 5G standards
take effect.
DANILO SANTIAGO, PORTFOLIO MANAGER, RATIONAL INVESTMENT METHODOLOGY
Thor Industries (US: THO) is the parent company of a collection of RV brands in North America.
Over the past two years, the company produced and sold close to 250,000 RVs in the region. The
most recent acquisition in the U.S. market was Jayco, which significantly increased THO’s market
share in the country. Now Thor has close to 50% of the U.S. market (by units).
The most significant competitor, Forest River, which holds close to 35% of the market, is owned by
Berkshire Hathaway. Warren Buffett’s companies rarely engage in price wars, which means that
Thor’s biggest competitor should behave rationally. Therefore, although the RV industry will always be
a competitive one, the risk of a devastating price war is small.
Thor became more difficult to analyze as the company announced the acquisition of Erwin Heymer
Group, the biggest RV manufacturing company in Europe. After the deal closes at the beginning of
2019, Thor will have 75% of their sales in the U.S. and 25% in Europe. Analyst estimates do not
incorporate an increase in EPS due to the deal.
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Page 21
The market has been disappointed with declining sales in the wholesale channel, as retailers need to
adjust their inventories since the North American market appears to have reached a plateau. The risk
is that the decline may spread to the retail channel.
Even when modeling a significant recession in a year or so, the potential cash flow Thor can generate
implies that long-term investors can buy the shares with an implied IRR of 16+% (doubling one’s
capital in 5 ½ years).
DAVE SATHER, PRESIDENT, SATHER FINANCIAL
Brown-Forman (US: BF.B) is an American spirits company that owns several brands, the largest of
which is Jack Daniel’s.
Jack Daniel’s generates roughly 60% of the firm’s cases sold worldwide and has become a foundation
for the growth of both new Jack Daniel’s products, such as Honey and Fire, and other brands owned
by Brown-Forman.
The stock rarely trades at fair value but headwinds involving a 25% tariff on bourbon exports to
Europe and a CEO transition have caused a 20% price decline since May. Given the inelastic
demand of the industry and resilient staying power, the recent drop in price gives investors an
opportunity to buy an extremely durable business at what Dave considers to be fair value.
The firm benefits from cost advantages associated with producing premium products and strong
brand appeal which yields margins higher than competitors who generate revenue nearly 5x that of
Brown-Forman. It’s existing value chain allows for newer brands to piggy back off of Jack Daniel’s in
markets that are estimated to yield 10%+ CAGR’s over the next five years. Much of this growth stems
from increased global demand, taking market share from global competitors, and consumer
preference changes in the U.S. shifting from beer to higher end spirits.
Management has also prioritized returning value to shareholders by both reducing outstanding shares
by 16% and more than doubling its dividend since 2008 and intends on continuing this capital
allocation strategy. These factors have earnings estimated to grow between 10-15% over the next few
years.
ADRIAN SAVILLE, CHIEF EXECUTIVE OFFICER, CANNON ASSET MANAGERS
Combined Motor Holdings (South Africa: CMH) is a holding company in the retail motor market. The
group holds the franchise for the sale of products of automobile brands. CMH also consists of
franchises in the transportation and finance industries with a South African presence. Over the past
ten years, CMH has generated an average return on equity of 22% and has returned 100% of original
investment to shareholders in the form of dividends and buybacks. CMH carries no long-term debt,
has surplus cash on balance sheet, and trades on a trailing P/E multiple of 6.6x, with a dividend yield
of 8.0%. Notwithstanding the sluggish domestic economic conditions, the company represents an
exceptional long-term opportunity and is a top idea for 2019.
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Sabvest (South Africa: SBV, SVN) is an investment holding company founded by Christopher
Seabrooke in 1987. Sabvest has investments in domestic and offshore assets, the bulk of which are
represented by interests in unlisted industrial groups, including SA Bias Industries, Sunspray Food
Ingredients, Flexo Line Products, Mandarin Holdings, Classic Food Brands, and Mandarin Industries.
Sabvest has generated a return to shareholders of 54x capital over its 30-year history, equivalent to a
return on invested capital of ~22% per annum since 1988. Despite this prodigious long-term result,
Sabvest is generally unknown. The shares have been tightly held and thinly traded for most of
Sabvest’s history. Recently, the company has undergone a capital and shareholder rearrangement
that improves the free float. This liquidity improvement and wider ownership should translate into
near-term benefits for investors, including a narrowing of the discount to net asset value, which Adrian
estimates at ZAR 56 per share, as compared to a market price of ZAR 40 per share.
Telkom (South Africa: TKG) is a leading information and communications technology services
provider in South Africa, offering fixed-line, mobile, data, and information technology services. The
company trades on 10.5x earnings with a 5.6% dividend yield, displaying utility-like attributes in terms
of performance with a return on assets of 9.2% per annum and return on equity of 11.7% per annum.
Telkom’s underlying property portfolio has a market value of ZAR 24 billion, equal to three-quarters of
Telkom’s market cap of ZAR 32 billion. Adrian expects this portfolio to be separately listed,
representing a recognition of capital for shareholders.
ADAM J. SCHWARTZ, CHIEF INVESTMENT OFFICER, BLACK BEAR VALUE PARTNER
Short Credit ETFs: Investors have unrealistic expectations of their credit ETF holdings. Bond
illiquidity underlies an assumption of daily ETF liquidity.
Asset-liability mismatches can lead to painful endings. These structures were not created for illiquid
bonds in the event of a large selloff. It is hard to predict how things play out if the market makers lose
confidence in the liquidity of the underlying bonds. Indexing illiquid junk bonds or near-junk investment
grade bonds with limited legal protections is asking for trouble if the waters start to get rocky.
The “high yield” bonds have a current ~6% annual yield with a loss-adjusted yield closer to ~3-4% and
possibly 0-2%. When high-yield prices inevitably decline and there is a need for liquidity, those
structures may fall apart. The same argument largely holds true with investment-grade ETFs. One-
half of the holdings are BBB, barely above junk status. The payoff could be asymmetric and provides
a unique way to profit outside the norms of typical long investing.
KEITH SMITH, FUND MANAGER, BONHOEFFER FUND
A common characteristic among the following firms is recurring revenue, with a large addressable
market and and a modest valuation. These firms also have disciplined and repeatable underwriting
processes to weed out the best opportunities in each of their opportunity sets and have historically
generated above average returns on capital.
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STORE Capital (US: STOR) is an internally managed triple net-lease real estate investment trust, or
REIT. STORE is one of the largest and fastest growing net-lease REITs and owns a large, well-
diversified portfolio that consists of investments in 2,206 property locations, substantially all of which
are profit centers, in 49 states. The addressable market for STORE is large as STORE only has a 2%
market share and is one of the larger triple-net lessors in the business.
STORE has increased book value and dividends per share by 13% per year and AFFO per share by
7% per year over the past five years. The management team has great underwriting with credit losses
at 0.2% of the portfolio per year since inception (2014). The firm focuses on profitable unit economics
associated with leases which reduces the risk of these leases. The focus is also on growing segments
of the real estate market including services, experiential retail and mission critical manufacturing in
growing regions of the country. The average remaining lease term is fourteen years.
The common shares recently traded at an adjusted funds from operations multiple of 16x and
dividend yield of 4.4%. The trailing gross cap rate interest margin is 5.5%. STORE is modestly
levered with a debt/equity ratio of 0.8x and has an investment grade credit rating. While the multiple is
not cheap for the average real estate equity, it is for a secure, stable and growing cash flow stream
with the opportunity to re-invest cash flows at high rates of return, currently ~12%.
In June 2017, Berkshire Hathaway took a 9.8% stake in STORE, close to the maximum an entity can
hold of a REIT (10%), which is another testament to its underwriting process. The price paid by
Berkshire when adjusted for the lack of marketability of the stock of 10% is 14x adjusted funds from
operations.
TPG Specialty Finance (US: TSLX) is a business development company. The BDC provides senior
secured loans (first-lien, second-lien, and unitranche), mezzanine debt, non-control structured equity,
and common equity with a focus on co-investments for organic growth, acquisitions, market or
product expansion, restructuring initiatives, recapitalizations, and refinancing. The BDC lends to in
business services, software and technology, healthcare, energy, consumer and retail, manufacturing,
industrials, royalty related businesses, education, and specialty finance.
At this point in the credit cycle, 94% of TPG Specialty’s loans are first-lien collateralized loans. The
management team’s background is primarily from a specialty finance lender purchased by Wells
Fargo in the late 1990s called Foothill Capital so team has bank level of underwriting experience. The
team has great underwriting with credit losses at 0.5% of the portfolio per year since inception (2014).
TPG Specialty has increased book value and dividends per share by 10% per year and had an
average return on equity of 12% over the past five years.
The shares recently traded at an earnings multiple of 8.9x, and dividend yield of 9.6%. The trailing net
interest margin (including all fees) is 11%. TPG Specialty is modestly levered with a debt/equity ratio
of 0.8x and has an investment grade credit rating. Recently, BDCs have had an option to increase
leverage and TPG is pursuing this and is increasing the target leverage levels and corresponding
return in equity by 20%.
Ashtead Group (UK: AHT) rents a range of construction and industrial equipment. It offers equipment
for use in lifting, powering, generation, moving, digging, compacting, drilling, supporting, scrubbing,
pumping, directing, heating, and ventilating works. Ashtead is the second-largest U.S. equipment
rental firm through its Sunbelt Rental subsidiary. Although equipment leasing is tied to the cyclical
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Page 24
construction market, given Ashtead’s higher operating margins (due to geographic clustering) and
Ashtead’s product and geographic diversification, the historic cyclicality of returns should be
dampened. Ashtead has only an 8% market share in the U.S. rental equipment market and is one of
the larger U.S. rental equipment lessors in the business.
Ashtead has increased book value and dividend per share by 52% per year and net income per share
by 47% per year over the past five years. This growth has been achieved by a combination of organic
growth via consolidation, Greenfield site openings, increased product offerings and share buybacks.
Ashtead is modestly levered with a debt/equity ratio of 1.1x, a debt-to-EBITDA ratio of 1.7x, and has
an investment grade credit rating. Ashtead has a large runway to invest at rates of returns of return in
the upper teens (group returns on capital have been above 15% since 2013).
The shares recently traded at an earnings multiple of 7x, EV/EBITDA of 6x, and a dividend yield of
2%. Of the publicly traded equipment leasing firms (such as United Rentals, HERC Cramo &
Ramirent), Ashtead has the highest return on equity (30%) and the lowest leverage.
SEAN STANNARD-STOCKTON, CHIEF INVESTMENT OFFICER, ENSEMBLE CAPITAL MANAGEMENT
Sensata Technologies (US: ST) provides sensors to essentially all of the world’s automakers to
make cars safer, more fuel-efficient, and less damaging to the environment.
While global auto sales will likely grow at a low single-digit rate over the long term, the amount of
sensor content per car is growing at a mid-to-high single digit rate, and Sean expects this to continue
for a long time. Importantly, Sensata is well positioned to thrive as the world moves towards
electrification with their content per electric vehicle higher than their content per gas powered vehicle.
The company’s business model is highly cash generative and the management team are effective
capital allocators, deploying FCF using opportunistic stock buy backs and acquiring complementary
sensor businesses that generate strong returns for shareholders.
SAURABH SUD, PORTFOLIO MANAGER, T. ROWE PRICE
Paratek Pharmaceuticals (US: PRTK) (convertible debt and equity) is a misunderstood biopharma
company focused on the development and commercialization of antibiotics. Paratek’s lead product
candidate, omadacycline, is a novel tetracycline-derived, broad-spectrum antibiotic that received FDA
approval in October 2018, for both oral tablet and intravenous formulations for use against ABSSSI
(acute skin and skin structure infection) and CABP (community-acquired bacterial pneumonia).
Capital has been receding from the antibiotic sector for years, and we are at a point where resistance
is moving faster than our ability to provide new antibiotics.
Paratek’s debt is likely covered 3-4x based on its asset valuation. The convertible debt recently
yielded 10.7% (PRTK 4.75% 2024s), offering an asymmetric payoff as the company embarks on its
commercialization journey.
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Page 25
With the product approval risk behind us, the market underestimates a credible management’s
incentives and potential asset conversion events that mitigate downside for the convertible debt. In an
upside scenario, the stock also is likely worth 2-4x but we will need the earning power of a profitable
operation to confirm the potential asset valuation via good capital allocation during the
commercialization phase.
JEFF SUTTON, FOUNDER AND PRESIDENT, VALUETREE INVESTMENTS
Murphy USA (US: MUSA) operates 1,461 gas stations and convenience stores, primarily across the
Southeastern and Midwestern U.S. The company has historically partnered with Walmart for 1,160
locations, which are often located in Walmart parking lots. In recent years, Murphy has diversified
operations away from its dependence on Walmart by opening 301 standalone convenience stores.
These standalone stores offer higher profit margins due to retail merchandise sales, as opposed to
earning a small margin almost entirely from gasoline sales at other locations.
The company’s newest initiative (announced in early 2016) to “raze and rebuild” many of its existing
Walmart locations offers upside potential. Murphy recently traded at $74 per share, a trailing P/E of
~15x, EV/EBITDA of ~8x, and price to cash flow of ~7x. Valuing the company at peer multiples of
~20x earnings, ~10x EBITDA, and ~10x cash flow suggests that Murphy could be worth $105 per
share. According to Jeff’s analysis, applying the potential results of the “raze and rebuild” program to
recent valuation multiples suggests a value of $107 per share. Combining the potential impact of the
initiative with higher peer multiples would imply a stock price of $148 per share.
Murphy owns the majority of its real estate locations. Analyzing the possibility of a sale-leaseback
transaction suggests the company could be worth $135 per share. Jeff estimates that the company
generates $268 million in normalized maintenance FCF. Applying a 7% FCF yield indicates that
Murphy may have intrinsic value of $119 per share, or as high as $159 per share if the “raze and
rebuild” program is successfully implemented company-wide.
CHRIS SWASBROOK, MANAGING DIRECTOR, ELEVATION CAPITAL MANAGEMENT
Through successive rounds of M&A, Molson Coors (US: TAP) has become one of the largest
brewers in the world. However in recent years, beer consumption (especially non-craft beer) is in
decline in developed countries. This coupled with Molson Coors’ higher leverage (to fund the USD12B
MillerCoors transaction) are the main reasons why Molson Coors is one of the worst performing
publicly listed global brewers recently, and is currently trading near/below book value — with a 10+%
FCF yield.
Elevation Capital believes the following factors will see the stock re-rate in 2019/2020:
1. A continuation of the deleveraging to achieve a Debt / EBITDA ratio of 3.75x;
2. Increase in quarterly dividends by +40% to +70% from current levels;
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3. Introduction of its first non-alcoholic cannabis-infused beverages for the Canadian market;
4. Early delivery on its cost saving targets of $700M for the 2017-2019 period; and,
5. A share repurchase program reinstated.
Elevation Capital believes the stock will re-rate to at least 12x EV/EBITDA, which implies a price of
USD92.20 per share, which offers upside potential of +44% from recent levels — based on Molson
Coors share price of US$64.10 at at 23 November 2018.
In a takeover scenario, Elevation Capital believes the stock is worth 14x EV/EBITDA, which implies a
price of USD115.33, offering an upside potential of +80% — based on Molson Coors share price of
US$64.10 at at 23 November 2018.
MATTHEW SWEENEY, FOUNDER AND MANAGING PARTNER, LAUGHING WATER CAPITAL
EZCorp (US: EZPW) is the second-largest publicly traded pawn store chain. At a time of macro
uncertainty and rising recession fears, pawn is arguably one of the best businesses to consider due to
its defensive nature. For example, EZPW grew same store pawn service charges +17%, +9%, +16%
from 2008-2010.
Additionally, even absent a weakening economy, organic growth in 2019 is essentially guaranteed
through the rolling off of one time items, as well as operational improvements and full year impact of
acquisitions made in 2018.
Further upside exists in the form of continued acquisitions: at a recent investor day, management
indicated they expect to grow Latin American store count by 22-44% over the next nine months.
Given a recession-proof business with significant growth on tap, one might expect a premium
multiple, yet we estimate that on an absolute basis EZPW trades below NAV and at multiples not
seen since the 2009 crisis. On a relative basis, EZPW trades at a more than 50% discount to a public
peer. To be fair, the company deserves a discount due to a controlling shareholder and the risk of
potential dilution through convertible bonds, but recent improvements to corporate governance are
promising, and the convertible bonds are well out of the money at recent prices, which justify
significant upside for EZPW. Importantly, this upside should grow if the economy weakens.
WILLIAM THOMSON, MANAGING PARTNER, MASSIF CAPITAL
Kazatomprom (UK: KAP) is the largest uranium producer in the world (~23% of global primary supply
in 2018) and the lowest-cost producer in the industry. The firm operates or has an equity interest in
nine of the eleven lowest-cost mines in the world. Due to the firm’s complex structure, which includes
ten asset-level partnerships with equity interests of 30-65%, significant balance sheet value is
obscured by IFRS equity method accounting rules for JVs.
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At Uranium spot prices and a 10% discount rate, the mines the firm operates or has an interest in
trade at a 22% discount to intrinsic value. This valuation ignores industry tailwinds, the firm’s
dominant position within the industry and a dividend of up to 75% of FCF going forward.
A more realistic valuation may be $22-24 per share, suggesting the firm trades at a discount to
intrinsic value of 38-43%. Kazatomprom is one of a handful of well-established publicly traded
uranium firms that have a combination of producing assets, FCF, and a solid balance sheet. Most
firms in the industry are either pre-production or exploration firms, creating a situation in which there is
not only a potential supply crunch in uranium in the future but also limited supply of investable assets.
ELLIOT TURNER, MANAGING DIRECTOR, RGA INVESTMENT ADVISORS
PayPal Holdings (US: PYPL) and Roku (US: ROKU) both benefit from improving unit economics
and large, growing total addressable markets. Each company benefits from an open-ecosystem that
favors customer choice and smooth user experience.
PayPal suffers from an over-emphasis on take rate and too little appreciation for the virtuous cycle
flowing around increasing user engagement. Improving unit economics at PayPal will drive higher out-
year margins supporting a DCF-driven price target upwards of $120 per share.
Since Roku’s IPO, too many analysts have viewed the company as a hardware company and have
failed to appreciate the business model evolution to an advertising platform. At a price around 3x
2020 platform sales and 2020 expected growth upwards of 40% y/y with a long runway of operating
leverage, the company offers investors rapid growth at a reasonable price.
RUDI VAN NIEKERK, FOUNDER AND PRINCIPAL MANAGER, DESERT LION CAPITAL
Cartrack (South Africa: CTK) is a leading global provider of telematics solutions delivered as
Software-as-a-Service with best-in-industry returns on capital, strong growth trajectory operating in a
large and growing addressable market, and high insider ownership — trading at a below-average
valuation.
The company is listed in South Africa on the Johannesburg Stock Exchange, which is fairly inefficient
in price discovery outside the universe of the largest stocks.
Cartrack has a footprint in 24 countries and with 850,000+ subscribers it is positioned as a top ten
global player. The company has been investing aggressively in R&D and capacity for growth ahead of
the curve and is about to break through and capitalize on economies of scale in many markets.
Excellent financial characteristics: 93% annuity/recurring revenue with earnings clarity, 34% ROCE,
44% ROE, 100+% cash conversion.
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JEAN PIERRE VERSTER, PORTFOLIO MANAGER, FAIRTREE CAPITAL
Salmar (Norway: SALM) is one of the largest and most efficient producers of farmed salmon, with an
equity market quotation of $6+ billion. The company is integrated across the salmon value chain, from
broodstock, roe and smolt production to value added product processing and sales. The salmon
fishing industry has attractive structural supply/demand characteristics.
As a low-cost producer with scale, Salmar is well-positioned to continue generating EBITDA margins
of 30+%, maintain net profit margins of 20+%, and to deliver sustainable ROE of 30+%. Salmar
shares have doubled over the past year and are up 55% annually over the past five years, raising the
question whether the recent price includes a margin of safety.
Jean Pierre believes Salmar shares could be worth 50% more within four years, with additional upside
from new offshore fish farming initiatives. Salmar is an example of the principle that the most
expensive mistake in investing may be selling too soon, or thinking it is too late to buy a great
company compounding intrinsic value at an above-average rate.
AMIT WADHWANEY, PORTFOLIO MANAGER, MOERUS CAPITAL MANAGEMENT
Tidewater (US: TDW) is one of the largest provider of offshore supply vehicles (“OSV”) and marine
support services to the offshore energy exploration, development and production industry. The
company’s OSVs tow and anchor-handle mobile drilling rigs and equipment, transport supplies and
personnel and provide support to pipe laying and other offshore construction activities. Revenues
relates directly to offshore activity in the exploration and production of hydrocarbons, notably oil.
Following the collapse in oil prices in 2014 and the resurgence of lower-cost, unconventional sources
of oil (notably shale), there was a significant drop-off in the higher-cost offshore exploration activity,
with the resulting collapse in demand for OSVs and other support services plunging most companies
in this industry into various degrees of distress.
Tidewater emerged from bankruptcy with much of the previous debt converted to equity (or warrants),
resulting in a greatly improved balance sheet, with the assets marked down to the recent depressed
valuations in the market.
At recent prices, Tidewater trades at a discount of at least 30-40% to a depressed book value that
reflects write-downs of asset values on the order of 70+%. This situation is unlikely to persist in the
long run as the company’s more financially leveraged competitors withdraw vessels from the market
and/or consolidation among industry participants diminishes the number of viable competitors,
improving the supply-demand balance and pricing dynamics in the market for Tidewater’s services.
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MARK WALKER, MANAGING PARTNER, TOLLYMORE INVESTMENT PARTNERS
ITE Group (UK: ITE) is a UK-listed global exhibitions organizer. The investment merits can be
summarized as “a very good, very cheap business”. ITE is a capital-light, founder-led business
providing high-utility and enduring B2B services. A long track record of delivering ~30% returns on
capital has been facilitated by a network effects-based defensible moat. The business model is
characterized by double-digit revenue growth, high top-line visibility, strong cash conversion of
earnings, and an appropriate capital structure. Non-fundamental selling pressures have contributed to
a de-rating of the stock to a 19% FCF yield, leaving the business trading at a fraction if its private
business value.
ADAM ZUERCHER, CHIEF INVESTMENT OFFICER, HIXON ZUERCHER CAPITAL MANAGEMENT
Walt Disney (US: DIS) is the world leader at the box office, their parks have no equals, and they are
building an empire through mergers and acquisitions. The business is doing well and experiencing
strong growth, while being fundamentally sound. Adam believes the best is yet to come.
Disney’s new family-oriented streaming service, Disney+, along with ESPN+ and the company’s
majority stake in Hulu should provide growth for many years. The addition and growth of this new
segment of the business should justify higher multiples for stock, which in combination with growth in
other segments, makes Disney Adam’s best idea for 2019 and beyond.
The above summaries cover selected conference sessions only. Access all sessions at
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