Disclaimer
This content is for informational purposes only and does not constitute financial advice; we recommend always verifying the ideas presented here and conducting your own research, as there may be errors in interpretation and translation.
Blue Tower Asset Management
https://www.bluetowerasset.com/
Oct 12, 2024
https://static1.squarespace.com/static/54373ea8e4b0152f9d332f13/t/670dfe9b7aa29e78d1872a55/1728970395541/2024+Q3.pdf
Q3 2024
Investment Thesis on Wesco International (WCC):
Wesco International is a distributor of electrical infrastructure, electronic components, and communication equipment for businesses in the U.S. and Canada.
Distributor of electrical infrastructure, components, and communication equipment.
Primary operations in the U.S. and Canada, with three segments: EES, CSS, and UBS.
Broad supplier and customer base, providing pricing power.
Growth strategy supported by economies of scale, operational leverage, and digitalization.
Benefits from trends in reshoring, EV adoption, data center expansion, and solar energy growth.
Valuation:
Upside Potential: Expected return of 17.5%.
Valuation Multiples (TTM): P/E of 13.32 and EV/EBIT of 10.11.
Forward Multiples: P/E of 11.7.
Share Buybacks: $350 million in buybacks in the first half of 2024.
Comparison: Reasonable multiples compared to peers, with growth opportunities in key sectors.
All data as of September 30
Kingdom Capital Advisors
https://www.kingdomcapitaladvisors.com/
https://twitter.com/kingdomcapadv
Oct 08, 2024
https://www.kingdomcapitaladvisors.com/fund-letters/q3-2024
Q3 2024
Investment Thesis on ECC Capital (ECRO):
Investment Thesis: ECC Capital acquired a coal mine in Wyoming that, according to Kingdom’s research, continues to generate healthy cash flow despite plans for a local plant to switch from coal to natural gas in 2026.
Valuation: Kingdom notes that the mine could be generating approximately $20 million in annual cash flow, even though ECC Capital has a market cap of less than $10 million. This valuation suggests a significant short-term appreciation opportunity.
Patient Capital Management
https://patientcapitalmanagement.com/
https://twitter.com/patientcm
Oct 08, 2024
https://patientcapitalmanagement.com/articles/3q24_quarterly_investment_review
Q3 2024
Investment Thesis on Dave & Buster's (PLAY):
Dave & Buster's is a chain of restaurant and entertainment centers combining food, beverages, and arcade games.
Strategic Leadership: Optimization plan following the acquisition of Main Event in 2022, led by Chris Morris.
Strong Business Model: Good profitability metrics and returns on invested capital.
Share Buybacks: 19% reduction in share count since early 2023.
Growth Potential: Strategy to overcome consumer weakness and drive growth.
Valuation:
Projected Free Cash Flow: Dave & Buster’s could generate between $8 and $9 per share in free cash flow within three years.
Target Multiple: 10x, with an estimated price of $80-90 per share. Annual IRR of 35%.
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Heartland Value Fund
https://www.heartlandadvisors.com/Products/Mutual-Funds/Heartland-Value-Fund
https://x.com/HeartlandFunds
Sep 30, 2024
https://www.heartlandadvisors.com/Strategies/Heartland-Value-Fund/3Q24-Value-Fund-Comm
Q3 2024
Investment Thesis on New Gold (NGD):
New Gold is a mining company engaged in the extraction of gold and copper, with operations in Canada.
Strong Operational Management: Achieved production targets for 8 consecutive quarters.
Projected Growth: 42% increase in equivalent gold production by 2026, reaching 600,000 ounces annually.
Cost Reduction: Decrease in AISC from $1,657 to $1,381 per ounce, with further reductions expected.
Financial Flexibility: Enhanced capacity for investment in exploration and reserve expansion.
Valuation:
Valuation multiple: Trading at 8x projected 2025 earnings.
Price-to-free cash flow ratio: Below 6.5x.
Management Confidence: Significant insider buying by executives.
Notes:
Reference price for multiples: Assumed as of September 30.
Heartland Mid Cap Value Fund
https://www.heartlandadvisors.com/
https://x.com/HeartlandFunds
Sep 30, 2024
https://www.heartlandadvisors.com/Strategies/Heartland-Mid-Cap-Value-Fund/3Q24-Mid-Cap-Comm
Q3 2024
Investment Thesis on Smith & Nephew plc (SNN):
Smith & Nephew specializes in the manufacture and sale of medical devices focused on orthopedics, advanced wound care, and sports medicine.
Focus on Operational Efficiency and Profitability: Ongoing self-help plan to optimize productivity, manufacturing quality, and sales.
Improvement Potential in Orthopedics: Historically less efficient segment with room for margin expansion.
Strong Market Position in Advanced Wound Care: Provides a stable foundation for growth.
Valuation:
Trading at an EV/EBITDA multiple of 11x, indicating a discount relative to the industry.
Current margins are depressed but have potential for expansion as operations improve.
Notes:
Reference price for multiples: Assumed as of September 30.
Heartland Value Plus Fund
https://www.heartlandadvisors.com/Products/Mutual-Funds/Heartland-Value-Plus-Fund
https://x.com/HeartlandFunds
Sep 30, 2024
https://www.heartlandadvisors.com/Strategies/Heartland-Value-Plus-Fund/3Q24-VP-Comm
Q3 2024
Investment Thesis on Gates Industrial Corporation (GTES):
Gates Industrial Corporation manufactures power transmission products and hydraulic solutions for industrial and automotive applications.
Cost Optimization: Cost-cutting strategies and a focus on profitable segments are enhancing margins.
Revenue Stability: Over 60% of Gates' revenue comes from regular replacement of mission-critical products.
Market Position: 83% of sales come from markets where Gates is among the top three players.
Stable Income: Sales of essential products with periodic replacement demand.
Valuation:
Valuation multiple: Trading at 8.4x projected EBITDA, below competitors.
Margin Improvement: EBITDA margin has increased from 20.9% to a range of 23.5% - 25.5%.
Stock Pressure: Share price impacted by Blackstone’s reduction in its position.
Notes:
Reference price for multiples: Assumed as of September 30.
Rockwood Strategic
https://www.rockwoodstrategic.co.uk/
Sep 30, 2024
https://d1bcjbyi5yiron.cloudfront.net/app/uploads/2024/10/Factsheet-Q3-2024.pdf
Q3 2024
Investment Thesis on Facilities by ADF (ADFF):
Facilities by ADF specializes in the rental of specialized vehicles for television and film productions.
Specialization in High-Quality Audiovisual Production Rentals:
Major Clients: Netflix, Amazon, Disney, BBC.
Structural Growth Sector: High barriers to entry in a growing industry.
Demand Recovery: Increased demand following the end of the writers’ strike.
Strategic Diversification: Recent acquisition enhances synergies and scale.
Valuation:
Single-digit P/E ratio, indicating an attractive price.
Notes:
Reference price for multiples: Assumed as of September 30.
Headwaters Capital
https://headwaterscapmgmt.com/
https://twitter.com/Headwaters_Cap
Oct 07, 2024
https://headwaterscapmgmt.com/wp-content/uploads/2024/10/HCM-Q3-24-Investor-Letter-FINAL.pdf
Q3 2024
Investment Thesis on Altus Group (AIF):
Altus Group provides software and data analytics solutions for commercial property valuation and management.
Focus on ARGUS Enterprise (AE): Leading platform in commercial property analytics and valuation, recognized as an industry standard.
Transition to SaaS: Generating stable, recurring revenue.
Divestment of Property Tax Business: Allows focus on its most profitable asset and eliminates a cyclical segment.
Cost Optimization and Margin Improvement: Targeting an EBITDA margin of 24% by 2026.
Favorable Environment: Recovery in the real estate market and increasing institutionalization of assets.
Valuation:
Price target of CAD 73: Based on a 20x EBITDA multiple, implying a 38% upside. 2026E EBITDA of CAD 147 million.
Acquisition Potential: Multiple of 26.5x EBITDA, resulting in a target price of CAD 93.55 (77% upside).
Key Catalyst: Sale of the property tax business in 2025, freeing up capital for acquisitions or share buybacks. With a leverage ratio of 2x, it would leave CAD 400 million in net cash and CAD 700 million available for mergers or buybacks.
Sandon Capital
https://sandoncapital.com.au/sandon-capital-activist-fund/
https://twitter.com/sandoncapital
Sep 30, 2024
https://www.dropbox.com/scl/fi/hql3ktjdz0c5xlrtdaanx/240930_Sandon_Capital_Activist_Fund_FY24_unitholder_update.pdf?rlkey=zmxin3gv193ui8qzw7vfy0k1s&e=1&st=mytftf7g&dl=0
Q3 2024
Investment Thesis on Fleetwood Ltd (ASX: FWD):
Fleetwood Limited designs, manufactures, and sells modular accommodation units and recreational vehicle solutions in Australia and New Zealand.
Investment Thesis: Fleetwood has resolved previous contract issues, returning its modular construction business to profitability. Expected growth in modular construction demand in the education, affordable housing, and defense sectors, supporting medium-term growth.
Valuation:
Stock Price: $1.8
Enterprise Value (EV): $130.6 million (Net cash: $39.3 million)
Adjusted EV: $105.6 million excluding a property in Perth valued at $25 million.
Projected P/E for FY2025 (excluding cash and property): ~5.5x
Projected Dividend Yield for FY2025: ~11%
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Investment Thesis on COG Financial Services Ltd (ASX: COG)
COG is the largest asset finance broker and aggregator for SMEs in Australia.
Sustained Growth in Key Segments: Especially strong in Novated Leasing.
Interest Rate Stabilization: Could reduce headwinds and, if rates decline, drive improved results.
Growth Strategy via Acquisitions: Combined with a network effect that is difficult for competitors to replicate.
Valuation:
Share Price: $0.925
Market Cap: $180.7 million
Net Cash: $43.5 million
Projected FY2025 P/E (excluding cash): ~5.2x
Projected Dividend Yield for FY2025: ~9.4%
Investment Thesis on Coventry Group Ltd (ASX: CYG)
Coventry Group Ltd (CYG) supplies industrial products and services in Australia and New Zealand through two divisions: Trade Distribution and Fluid Systems.
Consistent Revenue and Earnings Growth: Achieved growth for seven consecutive years. Recent acquisition of Steelmasters enhances operations, enabling higher margins and improving competitive position.
Valuation:
Share Price: $1.22
Market Cap: $141.9 million
Net Debt: $47.3 million
Enterprise Value (EV): $189.2 million
Free Cash Flow Potential: Expected to generate more than $15 million in annual free cash flow after operational improvements.
P/E Ratio: 9.5
Investment Thesis on Magellan Financial Group Ltd (ASX: MFG)
Magellan Financial Group is an Australian global fund manager that required strategic and leadership changes.
Turnaround Plan by Sandon Capital: A 5-point plan was implemented to optimize management, reduce costs, and improve governance.
Stabilized AUM Outflows: Improved operating performance under new management.
Valuation:
Market Cap: $1,737.0 million (Share Price: $9.61)
Net Debt/(Cash): ($185.7 million)
Investments: $894.5 million
Enterprise Value (EV): $656.7 million
Projected FY2025 P/E (excluding cash and investments): ~4.6x
Projected Dividend Yield for FY2025: ~5.8%
Capital Management Review Expected in February 2025: Potential for share buybacks or capital distributions.
Investment Thesis on IDT Australia (ASX: IDT)
IDT Australia owns strategic pharmaceutical manufacturing assets, currently underutilized, in Melbourne.
New Strategic Focus: Targets active pharmaceutical ingredients (APIs) and emerging markets like advanced therapies and medicinal cannabis.
Secured Contracts: Several recent contracts, aiming for positive cash flow in 2024.
Sandon Capital’s Support: Actively participated in recent funding rounds, showing confidence in IDT’s potential.
Valuation:
Market Cap: $51.6 million (Share Price: $0.12)
Net Cash: $2.8 million
Enterprise Value (EV): $48.7 million
Net Tangible Asset (NTA) per Share: Book value of $0.070, replacement value of $0.228
Investment Thesis on Midway Ltd (ASX: MWY)
Midway Ltd is one of Australia's largest wood fiber exporters and is developing an asset management business for carbon offsetting.
Return to Profitability in FY2024: Supported by land sales revenue and inventory reductions after four years of losses.
Resumed Dividend Payments: Including special dividends.
Growing Forest Management and Carbon Business: Partnerships with Munich Re and Rio Tinto for carbon offset and renewable diesel projects.
Positive Outlook: Legacy issues resolved, positioning for future growth.
Valuation:
Market Cap: $78.6 million (Share Price: $0.90)
Net Cash: $6.4 million
Net Cash from Asset Sales: $32.4 million
Enterprise Value (EV): $39.8 million
Net Tangible Asset (NTA) per Share: $1.48
Investment Thesis on Karoon Energy Ltd (ASX: KAR)
Karoon Energy (KAR) transitioned from an explorer to a producer of oil and gas, with operations in Brazil and the U.S.
Focus on Capital Return: Shareholders, including Sandon Capital, advocate for capital returns rather than costly expansion.
Board and Policy Changes: Initiated by Sandon Capital and other shareholders to adjust compensation and board composition.
New Capital Return Framework: Announced plans to return 20-40% of earnings via dividends and share buybacks.
Discounted Valuation: Trades at a discount relative to other producers, partly due to inconsistent operational performance.
Valuation:
Market Cap: $1,213.9 million (Share Price: $1.52)
Net Debt: US$67.8 million
Enterprise Value (EV): $1,315.1 million
Projected 2024 P/E: ~3.6x
Sandon Capital’s Perspective: Believes the company has capacity for greater shareholder returns.
Plural Investing
https://www.pluralinvesting.com/
Oct 07, 2024
https://static1.squarespace.com/static/57eff176e58c621a298bfa61/t/6705b2dc8d65051a88edfa50/1728426716156/Plural+Partners+Fund+Letter+-+2024%3AQ3.pdf
Q3 2024
Investment Thesis on Seaport Entertainment Group (SEG)
Seaport Entertainment Group (SEG) manages and develops entertainment, commercial, and hospitality properties in New York’s Seaport District.
Strategic Spin-Off: Separated from Howard Hughes Corporation to focus on non-master-planned assets in the Seaport area of New York.
Buying Opportunity: Shares sold off heavily post-spin-off, creating low entry prices.
Capital Raise via Rights Offering: Seaport issued new shares to finance renovations and move toward profitability. Shareholders received rights to purchase 1.27 new shares at $25 each for every existing share, with an oversubscription privilege.
Pershing Square’s Support: Bill Ackman committed to purchasing shares at $25, with potential to increase his stake to 72.6%.
Key Assets: Includes Pier 17 ($600 million, with vacant space and upside potential), 250 Water St (land valued at $180 million), and the Tin Building (a gourmet market with room for improvement).
Experienced Leadership: CEO with a background in restructuring and operational optimization.
Valuation:
Plural’s Investment Price: $27
Current Market Value: $330 million, representing only 25% of the estimated asset value of $1.3 to $1.5 billion.
Income Generation Potential: Pier 17 could generate up to $30 million annually at optimal occupancy.
Price Confidence: Pershing Square’s rights subscription at $25 indicates the current price as a bargain.
Cash Position: Company will have $50 million in net cash post-rights offering.
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Investment Thesis on Watches of Switzerland (WOGS)
Watches of Switzerland is a retailer specializing in luxury watches and high-end jewelry, with exclusive relationships with prestigious brands such as Rolex.
Rolex Relationship: Rolex only sells through authorized retailers like WoS, strengthening its market position.
Strong Business Model: Stable margins and consistent sales growth.
Aligned Management Team: CEO has significant ownership, aligning interests with shareholders.
Strengthened Strategic Relationship: New certifications as authorized service centers for Rolex.
Valuation:
Initial Purchase Price: £3.5 per share; Current Price: £4.8 per share.
Free Cash Flow Multiple: Trading at 12x projected free cash flow for this year.
Upside Potential: Estimated intrinsic value at double the current price (~£9.6 per share in 3 years).
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