VIC Idea Summaries
Below are summaries of ideas posted on Value Investors Club. VIC is great! … but noisy. The summaries below are supposed to help sift through that noise.
Around 2-5 new investment ideas appear on VIC daily. Some are really good and some are posted just to meet membership quotas. Initially, these are for VIC members only, but all move to the public domain after 45 days. That’s when summaries will appear here and on Twitter.
Is the 45 days delay on VIC ideas before they become public a big issue? Not at all – only a very limited number of VIC write-ups actually move the markets right away. Usually, the articles age really well, with critical pushback and additional insights in the comments section.
Note: You will need to register for free guest access to Value Investors Club to be able to access VIC posts with a 45-day delay window.
Market cap is indicated at the time of posting the summary.
May 9, 2022
PagSeguro Digital (PAGS), mcap=$4bn, price $12.35 vs. $18.1
Brazilian SQ. The secular growth story in Brazil’s non-cash payments. Pricing/margins in the merchant acquiring industry are expected to normalize (competition acts more rationally) and higher funding costs will be transferred to customers.
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May 9, 2022
Uniti Group (UNIT), mcap=$2.9bn, price $11.7 vs. $13.9
Rural telecom infrastructure REIT, mispriced due to the bankruptcy taint of their key customer Windstream (66% of revenues) as well as fuss on lease renewal in 2030. Highly predictable cash flows UNIT has been approached by EQT Partners last year with a bid of $15, rejected by management. Likely to be acquired and recombined with Windstream.
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May 9, 2022
AVIS BUDGET GROUP (CAR), mcap=$12.3bn, price $256 vs. $268
Car rental business is over-earning over-earning due to the auto OEM production issues impact on used car prices and rental vehicle supply. Competition is intense and historical economics has been uninspiring.
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May 9, 2022
Activision Blizzard (ATVI), mcap=$61bn, price $77.84 vs. $79.16
Merger arbitrage on Microsoft’s announced acquisition at $95/share. ATVI shareholders approved the transaction, antitrust approval pending. If ATVI / MSFT merger breaks, the stand-alone valuation might exceed $95, due to dominant video game franchises, lead in e-sports, and expected earnings ramp from delayed games.
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May 6, 2022
Sanken Electric (6707.T), mcap=$900m, price ¥4870 vs. ¥4990
Japan-based semiconductor company trading at a fraction of its 52% stake in ALGM. On top of that Sanken generates $850m in revenues from its power semiconductor business. Activist Effisimo launched tender in Feb’21, accumulated 20% ownership, and might aim for a 30% stake. The activist was previously successfully involved in the Toshiba split-up and might help to close the discount to SOTP value here as well.
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May 6, 2022
Inditex (ITX.MI), mcap=€66bn, price €21.04 vs. €21.02
A bet on Inditex, the largest apparel retailer in the world, returning to historical trading multiples of 25x earnings. This is a high-quality business with a +20% ROE. Russian impact (c. 10% of EBT) is significant but manageable. Speedy growth of Chinese fast-fashion online competitor Shein is a threat, but as the industry is still very much fragmented with Inditex having only 2% global share, there is plenty of room to grow.
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May 6, 2022
Adams Resources & Energy (AE), mcap=$152m, price $38 vs. $35
Crude oil marketing, transportation and storage company positioned to benefit from increased US oil production driven by Ukraine war and US recovery from the pandemic. Pipeline and storage asset acquisitions made during COVID are being turned around and will slowly become contributors to profitability. Prime takeover target by larger peers.
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May 6, 2022
Nordic Entertainment Group (NENT-B.ST), mcap=$2.5bn, price SEK324 vs. SEK374
Subscription streaming (Viaplay) and pay-TV provider in Europe. No.5 player in European SVOD, far behind $NFLX. The thesis mostly based on the continued expansion of the streaming market and Viaplay (35% of revs) being the key ’add-on’ to Netflix due to local original content and sports options. Much cheaper on a revenue basis compared to Netflix.
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May 5, 2022
Cairn Homes (CRN.L), mcap=€850m, price €1.13 vs. €1.25
Ireland’s largest homebuilder - this is mostly a macro bet on Ireland's homebuilding industry due to (1) housing market undersupply over the last 10 years, (2) high ownership affordability vs renting in Ireland, and (3) lack of scaled-up builders. FCF >> share repurchases.
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May 5, 2022
Logan Ridge Finance (LRFC), mcap=$53m, price $19.5 vs. $23.3
BDC with one of the widest 40% discounts to NAV. Lack of scale, no dividends, and ⅓ of the portfolio in equities. New management in place with a track record of taking over busted BDCs and closing the gap to NAV.
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May 4, 2022
INNOVATE (VATE), mcap=$238m, price $3.04 vs. $3.72
Holding company that recently went through transformation and that is expected to sell/IPO its operating businesses in 2023/2024. Activist in control after ousting previous management.
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May 4, 2022
EQT Corporation (EQT), mcap=$15bn, price $40.1 vs. $27.1
A bet on US natural gas stocks being cashflow machines over the next several years, due to US E&Ps accommodating Europe’s migration to friendly supply sources. EQT trades only slightly above pre-Ukraine war prices.
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May 4, 2022
Polymetal International (POLY.L), mcap=£1.2bn, price £2.58 vs. £1.40
Gold miner with 60% of EBITDA from Russia and 2 mines and Kazakhstan. FCF from Kazakhstan easily supports the current valuation. Technical selling due to index removal. High risk of delisting as well as asset theft/expropriation.
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May 4, 2022
HP Inc. (HPQ), mcap=$39bn, price $37.1 vs. $35.8
COVID beneficiary with expanded margins due to increased demand/pricing for home printers and notebooks. Margins to normalize to pre-covid levels due to fierce competition. Mgmt’s projections of 1% growth are unrealistic.
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