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 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 post-opening for the 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.

Market cap and share price is indicated at the time of posting the summary with comparison to price at VIC publication.

June 13, 2022

Turquoise Hill Resources (TRQ), mcap=$5.8bn, price $28.83 vs $28.13

Merger arb with the expectation of revised higher bid. Majority owner of a copper mine in Mongolia that is operated by RIO and is about ready to start production - one of the largest and most productive copper mines in the world. Rio Tinto wants this asset badly and offered to buy out TRQ at $26.68. Multiple activists agitate for a higher price and shares trade at 5% premium to the current offer.
Read More
June 10, 2022

Alight (ALIT), mcap=$4.4bn, price $7.91 vs $8.82

Mission-critical HR/payroll software provider - market leader serving over half of Fortune 500. Sticky contracts with 15y tenure and 97% retention. Over 83% of revs are recurring. Trades 4x-14x turns cheaper than peers on EBITDA mainly due to previous SPAC taint. Additional upside from continued strategic transformation, targeted margin improvements, bolt-on M&A prospects, and captive 30m+ audience on its platform. There are also ALIT take-out rumors.
Read More
June 10, 2022

Coinbase Global (COIN), mcap=$17.7bn, price $63 vs $133

Largest crypto exchange in the US. Over-earning, steadily losing share to new entrants, and with ballooning customer acquisition costs (+470% yoy). Fees from retail trades expected to compress from the current 1.2% to 0.1-0.5% charged by competitors. Due to operating leverage, the decline in retail volume/users will have a disproportionate effect on the bottom line.
Read More
June 10, 2022

i-mobile (6535.T), mcap=jpy30bn, price jpy1418 vs jpy1177

Japanese portal for in-kind tax refunds with 10% earnings CAGR and at 9xPE. Disclosures in English. Track record of buybacks and good capital allocation. Beat guidance for 5 years. Op profit CAGR guided at +19% for next 4 years. Excess cash 57% of the mcap.
Read More
June 9, 2022

Meggitt (MGGT.L), mcap=£6bn, price £7.73 vs £7.72

Mid-cap merger arbitrage with a 3.5% spread or 11% expected IRR. Meggitt to be acquired at £8/share by PH. Closing is expected in Aug'22. Shareholder approval was received and most of the regulatory approvals also in the pocket. Approval by UK antitrust watchdog is still pending.
Read More
June 9, 2022

CAE Inc. (CAE), mcap=$8.4bn, price $26.36 vs $25.70

A play on post-COVID air travel recovery without exposure to variables like loading factors, airfare, fuel, or labor cost. Flight simulator equipment manufacturer and training provider. Near-monopoly status. Plenty of growth ahead as 50% of training is done in-house - cost-cutting pressures from LLCs will force full-service airlines to outsource. The industry is facing massive age-driven pilot retirement over the next 10 years, suggesting an upcoming spike in demand for new pilot training.
Read More
June 8, 2022

Vertex Energy (VTNR), mcap=$1.3bn, price $18 vs $9

Motor oil collector/recycler that has recently acquired a refinery from a forced seller SHEL and transformed itself into a bet on Renewable Diesel. The source of value creation comes from converting the refinery's hydrocracker to produce RD. Trades at 2x EBITDA on the current crack spread - a material discount to peers. Off the radar of most investors given the recent closure of the acquisition and poor analyst coverage.
Read More
June 8, 2022

Spectrum Brands (SPB), mcap=$3.6bn, price $87.64 vs $85.80

Branded consumer products company divesting one division for after-tax proceeds equivalent to current market cap and planning to spin-off/list another segment. The transactions will deleverage the company making it more focused on Home & Garden and Pet businesses and in turn, positioning it for re-rating. Mgmt has been communicating undervaluation, buying back stock, and recently approved a new buyback plan. 
Read More
June 8, 2022

Mattel (MAT), mcap=$8.6bn, price $24.53 vs $23.00

Iconic toymaker trading below historical multiples, despite new CEO in place since 2018, successful turnaround with material cost savings, good execution of core toy business, and multiple avenues of optionality to monetize IP library. Stock partially abandoned by investors due to leadership missteps in earlier years and misperception that MAT is a dying business.  
Read More
June 8, 2022

Overstock.com (OSTK), mcap=$1.4bn, price $31.46 vs $34.85

Online furniture retailer - temporary COVID beneficiary pretending to be a growth business. Gained share due to competitors' supply chain disruptions. Recent windfall expected to reverse - already failing to deliver. OSTK is a competitive laggard far behind W, getting outspent 7:1 on ads and offering inferior service to customers. B&M peers are regaining share from W/OSTK.
Read More
June 6, 2022

KKR & Co (KKR), mcap=$47bn, price $55.3 vs $55.8

Alternative asset manager with a strong track record in both (1) fundraising/business building and (2) investment returns. KKR value is based on fee-related earnings (and in turn AUM) which is non-cyclical and has grown at high rates. AUM compounded 22% from 2004-2020 with fee-related earnings expected to continue growing at high teens. Cheap on adjusted fee-related earnings multiple relative to peers, having underperformed BX and others by a significant margin.
Read More
June 6, 2022

LSL Property Services (LSL.L), mcap=£360m, price £3.40 vs £3.79

Provider of services to UK housing and mortgage market at 8xNOPAT. Only 25% of revenue is exposed directly to the housing cycle. The key asset is the Financial Services Network which acts as a middleman between UK lenders/insurers and the independent mortgage/insurance brokers providing compliance infrastructure and enabling benefits of scale to smaller players in a fragmented market. Expected to rerate due to (1) upgraded management team driving growth, (2)new initiatives coming to fruition, and (3) continued improvement in investor comms.
Read More
June 6, 2022

Full House Resorts (FLL), mcap=$250m, price $7.14 vs $9.38

Regional operator of 5 casinos with EBITDA expected to compound at 45% CAGR (from FY22 to FY25) driven by two new properties coming fully online by 2023 and 2025. New developments will also make FLL a scale operator in the regional gaming space warranting a multiple re-rate in line with larger regional gaming peers. Additional upside from 6 permitted sports betting skins in Colorado and Indiana.
Read More
June 4, 2022

Dogus Otomotiv (DOAS.IS), mcap=try14bn, price try71.9 vs try64.45

Exclusive distributor of all VWAGY group cars in Turkey with a network of over 400 dealerships. Trades at low single-digit PE. In 2021 posted 60% earnings growth despite a severe shortage of vehicles which capped deliveries. The Turkish car market is undersupplied after a decade of artificial demand suppression due to the highest car taxes in the world. Further growth to come with increasing incomes, macroeconomic normalization, likely car policy reform, and strong visible growth in secondhand and repairs.
Read More
June 4, 2022

ADDvise Group (ADDV-B.ST), mcap=sek1.1bn, price sek6.53 vs sek6.3

Sweedish MedTech rollup with a programmatic M&A playbook - seeking to exploit public/private valuation arbitrage by acquiring businesses at 5-7x EBITDA. Considered to be early-stage DHR or TMO. Recently seen explosion in growth, margins, and M&A capabilities. Higher scale, improved geographical/product diversification, and increased sell-side coverage/liquidity are expected to drive re-valuation. Management owns 25% and continues buying in the open market.
Read More
June 4, 2022

STEP Energy Services (STEP.TO), mcap=C$354m, price C$5.2 vs C$3.69

Canadian pressure pumping firm at 4x forward EBITDA. Undervalued due to high leverage following debt-funded acquisitions. The pressure pumping market is to be undersupplied later this year. Stock is expected to benefit from positive earnings revisions, multiple expansion, and balance sheet de-risking. 
Read More
June 4, 2022

CarMax (KMX), mcap=$15.8bn, price $96.35 vs $94.50

Excellent business at a depressed price due to temporary headwinds. At the current valuation of 13x TTM earnings downside is well protected. The largest used car retailer in the US and the third-largest wholesaler. Expected to continue gaining share in a fragmented market. Long track record of revenue/earnings growth and buybacks.
Read More
June 2, 2022

Aritzia (ATZ.TO), mcap=C$3.3bn, price C$37.66 vs C$44.98

Canadian clothing brand with locations in Canada and the US. The upside mainly comes from a successful US expansion to reach similar penetration levels as in Canada. A higher retail presence is also expected to drive e-commerce. Strong brand and execution allowed ATZ to achieve the second-highest sales per sq.ft., only behind LULU.
Read More
June 2, 2022

Fiverr International (FVRR), mcap=$1.5bn, price $40.32 vs $63.75

Two-way freelance marketplace, taking a cut from the orders on the platform. Competitor of UPWK. The thesis is that company's move up-market and mix shift Fiverr Business will drive outperformance. A $115bn TAM, with 80% of freelance transactions still taking place offline, provides enough space for multiple winners.
Read More
June 2, 2022

CoreCard Corporation (CCRD), mcap=$204m, $22.62 vs $24.30

Company offers support services for credit card issuers with 70% of sales coming from GS (for managing APPL credit card). Trades materially below peers. Investors tend to view the company more as a commoditized BPO rather than a Fintech with a valuable software stack, although CCRD operates with 50-60% GMs and at 20-25% sustained rev growth despite employing zero sales force. Excellent reputation with industry insiders with regard to technology and dependability.
Read More
June 2, 2022

Miller Industries (MLR), mcap=$272m, price $24.68 vs $27.10

A classic situation of a great company hit by short-term challenges and trading at bargain-basement prices. World's largest manufacturer of towing and vehicle recovery equipment. Earnings are temporarily depressed due to inflation and supply chain disruptions, but demand is at an all-time high. Management is confident of returning to historical levels of profitability.
Read More
June 1, 2022

East Resources Acquisition (ERESW), mcap=$423m, price $0.07 vs $0.25

Mispriced SPAC warrants at $0.25 with no target yet and limited time left till expiration (Jul'22). The thesis rests on the successful closing business combination - this is supported by historical SPAC completion rates and a limited number of SPACs competing for deals in the traditional upstream energy space. The market is implying a ⅛ chance that ERES business combination will be completed before the deadline. The author thinks the chances should be higher at around 25%.
Read More
June 1, 2022

Overseas Shipholding Group (OSG), mcap=$186m, price $2.14 vs $2.20

Sub-scale Jones Act tanker shipping firm. Recent results were negatively affected by COVID disruptions on its routes and forced lay-up of 1/3 of the fleet. Currently, only two ships remain in lay-up and these are expected to come into service over the next 3-6 months. The economics of bringing back all ships out of lay-up are fairly dramatic - $70m expected pre overhead profit contribution vs $45m losses in 2021. A shareholder with 15% ownership tried to buy the company at $3/share in mid-2021 and is likely to come back with a higher offer.
Read More
June 1, 2022

Life Time Group Holdings (LTH), mcap=$2.8bn, price $14.65 vs $15.34

Operator of 150 fitness centers across the US. Post-Covid recovery play with the potential to double over the next 18 months. Predicated on the belief that gym visits/memberships will reach pre-pandemic levels, with 2023 revenues and EBITDA forecasted to exceed 2019 levels by c. +20% each partially driven by 16% growth in store count.
Read More
June 1, 2022

Tractor Supply Company (TSCO), mcap=$21.5bn, price $187 vs $237

COVID beneficiary trading at peak multiple of peak earnings. Large-cap farming supplies company caring for 'recreational farmers' and homes with gardens. Recent growth in revenues and elevated margins were driven by stay-at-home and deurbanization trends as well as government stimulus checks spent on big-ticket items - all unsustainable going fwd and expected to mean revert. New store growth close to saturation point. Upside scenario of sustained elevated sales and margins already priced in, creating an asymmetric short.
Read More
June 1, 2022

Pinterest (PINS), mcap=$14bn, price $19.65 vs $22.50

Sustainable business model with users having high commercial intent and open to ads (think GOOG Search). Not expensive on 2023 numbers. Market overly focused on 2022 - which is expected to be bad as the pandemic bump unwinds. Investing to build a creator-led video-content ecosystem and grow on-platform shopping functionality. Margins are expected to continue improving with scale (now at 15% EBITDA). Rumored to have been an acquisition target by MSFT and PYPL.
Read More
May 31, 2022

SNC-Lavalin Group (SNC.TO), mcap=C$4.5bn, price C$25.55 vs C$29.11

E&C company with a non-cyclical backlog of long-term strategic projects and additional toll road operations. Trades materially below peers. The business was mired in scandals and extra charges over the last few years, making the company/stock untouchable. But all the issues are now structurally resolved. The new CEO took the wheel and made drastic changes - SNC is fully out of the fixed price business (only 12% of revenue) and all the charges have been resolved. Expected to trade in line with these peers once all the dust has settled.
Read More
May 31, 2022

Vivint Smart Home (VVNT), mcap=$1.2bn, price $5.92 vs $5.36

The 2nd largest player in the US residential security / smart home market behind ADT. Expected to increase FCF 3x by 2026. Fully vertically integrated subs-based business model. 48% owned by BX. Partially a bullish bet on the whole industry which is in the early stages of smart home penetration - security penetration stuck at c. 20% for years. VVNT has a long runway to grow alongside competitors with the opportunity to deploy capital at mid-20 % returns. Somewhat orphaned stock due to low float, niche industry, and complex accounting.
Read More
May 31, 2022

Casey’s General Stores (CASY), mcap=$7.8bn, $210 vs $207

Fourth largest C-store chain operator. Owns substantially all of its real estate. Trades below replacement cost and only slightly above the value of its real estate. Multiple strategic and financial levers to pull in order to unlock value, including (1) monetization of real estate (2) re-franchising of its stores, and (3) outsourcing distribution. The New CASY management team has been more aggressive on the M&A front (>200 stores in FY2022). Potential take-out candidate in a consolidating industry.
Read More
May 31, 2022

Parker-Hannifin (PH), mcap=$35.7bn, price $273 vs $276

Manufacturer of motion control products for industrial applications at 14x NTM earnings. The thesis is mostly based on investor perception change as a company's portfolio transitions from short-cycle industrial to longer-cycle businesses with a significant portion of sales stemming from recurring aftermarket sales. Further growth drivers include recovery in auto and aerospace as well as exposure to clean technology and electrification applications.
Read More
May 26, 2022

Hemisphere Energy (HME.V), mcap=C$173m, price C$1.68 vs C$1.4

Oil producer with two pools in Alberta suited for polymer flooding, that is expected to result in incremental 25% recovery. Low production and transportation costs. Microscopic asset retirement obligations. Double-digit FCF yield even assuming $50 WTI. Management owns 15% of the company and seem to be good capital allocators - currently, they're using 50% or more of cash flow to pay down debt to zero.
Read More
May 26, 2022

Euronext N.V. (EUXTF), mcap=$8.9bn, $83 vs $85

Euronext’s current valuation is dislocated and does not reflect the compounding potential of the company as it continues to consolidate the European market infrastructure industry. Current prices present a great entry point to invest in a high-quality compounder led by a proven CEO and trading at 14.5x 2022 P/E. Given the relatively modest market cap compared to international peers, it is very possible that EUXTF could be sold to a larger buyer.
Read More
May 26, 2022

The Shyft Group (SHYF), mcap=$742m, price $21.21 vs $30.13

Commercial truck body assembler that has been transformed by its new CEO from an underperforming loser into high performing and market-leading powerhouse. Exposure to the fast-growing market of package delivery and EV trucks. High double-digit ROICs. Management’s goal to double revenues and increase EBITDA +170% by 2025 seems credible and achievable.
Read More
May 26, 2022

Cannae Holdings (CNNE), mcap=$1.7bn, price $19.11 vs $24.18

Private equity firm led by Bill Foley with 84% of NAV in 5 public companies - previous IPOs and SPACs carried out by CNNE, including $CDAY, $DNB, $SST, $ALIT, $PSFE. Despite 3 holdings coming from SPACs, all holdings are well-established businesses with meaningful revenues. Historically $CNNE traded at a premium to NAV vs at a 40% discount now.
Read More
May 24, 2022

SPAC Rights Basket

SPAC rights are an ideal way to play the sponsor's incentive to get a deal done. These rights are currently mispriced, trading at <$0.2 vs $0.64 fair value. The % of SPACs that haven't found targets and have been liquidated (i.e. rights expired worthless) is very low - since 2016 there have been 11 liquidations or only 2.9% of 360 closed SPACs. Given the chance of a right expiring worthless (in case of no-deal), the basket approach is the best way to play this. This basket includes selected rights on 20 stocks: $ENER, $IGTA, $DWAC, $KYCH, $SAGA, and + 15 others.
Read More
May 23, 2022

Griffin Mining (GFM.L), mcap=£185m, price £1 vs £1.5

Zinc miner in China posed to expand its production shortly as it has finally received a permit to extract ore from the adjacent zone. Earnings are expected to grow considerably after the company increases the mine rate to 2,000 tons of ore.
Read More
May 23, 2022

Primaris Real Estate Investment Trust (PMZ-UN.TO), mcap=C$1.4bn, price C$13.62 vs C$14.73

Classic “bad co” in a good co/bad co split. H&R REIT wanted to retain its higher quality real estate assets while spinning off its enclosed secondary/tertiary mall portfolio. Trades below peers at 7.7% cap rate. Minimal leverage with C$1.2bn of unencumbered assets and only 30% debt to value. Meaningful residential development potential is not yet reflected in NAV. Insiders are buying. Due to different mall market nuances in Canada, unlikely to become the CBL of the North.
Read More
May 23, 2022

Astronics (ATRO), mcap=$315m, price $10.15 vs $11.50

Small aero defense supplier with near-monopoly position in in-seat power distribution. The business is now extremely depressed due to exposure to new aircraft deliveries and discretionary retrofits. Overexposure to Boeing. ATRO is expected to ramp back to 2018 levels of revenue/margins by mid-decade driven by the commercial aero recovery.
Read More
May 23, 2022

ZIM Integrated Shipping Services (ZIM), mcap=$7.8bn, price $64.70 vs $57.44

A bet on elevated container shipping rates being sustained due to an insufficient amount of ships following years of underinvestment. ZIM is the cheapest (<1xEBITDA) among peers and is projected to end 2022 with more cash than the current market cap. Asset light business model, whereby most of ZIM 118 vessels are chartered through 1-5 year leases. Strong operating leverage.
Read More
May 21, 2022

Schindler Holding (SCHP.SW), mcap=chf20bn, chf187.2 vs chf195.10

Leading global maker of elevators/escalators - a high-quality business that is likely operating at around trough margin levels. 40% of revenues and 75% of operating profit comes from maintenance - the value of aftermarket business alone supports SCHP's current valuation. Margins are expected to inflect in '23 with the recent return of senior leadership from 2014-16, a time when the business expanded margins above trend and the stock outperformed peers. Schindler family controls c. 70% of the vote.
Read More
May 21, 2022

CPI Card Group (PMTS), mcap=$204m, price $17 vs $15

Payment card manufacturer trading at a deeply discounted 6xEBITDA and 6xFCF valuation. Left for dead by the investment community after some management missteps, which have been fixed. 40% market share of domestic cards - a reasonably good industry with moderate growth, 90% of demand from card replacement. Debt refinancing and a potential sale of the company could be catalysts. A number of competitors have been acquired over the years at higher multiples. 
Read More
May 21, 2022

Snap One Holdings (SNPO), mcap=$856m, price $10.84 vs $14.01

Leading distributor and manufacturer of products for the smart home industry - supplies 16,000 professional integrators who then install systems. Its widely used smart home software platform created significant lock-in with other constituents in the industry SNPO commands strong pricing power by sitting in the middle of the highly fragmented manufacturer as well as integrator/consumer markets. Expected to grow revenue and EBITDA at double-digit CAGRs. Current global supply chain challenges are likely to remain a modest headwind.
Read More
May 21, 2022

IAC/InterActiveCorp (IAC), mcap=$7.5bn, price $82.95 vs $88.12

Significantly misvalued long-term value creator. Compounded at 15.3% vs 10.4% for S&P. Mispriced due to orphaned asset status following recent spin-offs of MTCH and VMEO and the resulting obscure financials. Stub assets are worth multiples more than their implied market value. With a proven capital allocator Barry Diller at the wheel for 25 years, IAC is well-positioned to continue its success of growing and spinning-off undervalued assets.
Read More
May 20, 2022

Tyman (TYMN.L), mcap=£529m, price £2.71 vs £3.25

Partially a bet on the continuation of the upcycle in the US housing market. International supplier of engineered components for the door & window industry, with 45% market share in NA. The only US manufacturer of all components for doors and windows, except for the glass and frames. Strong TYMN.L moat from extended product life-cycle as well as existing client relationships who require serious credentials in production capabilities and efficient supply chain management.
Read More
May 20, 2022

Frontera Energy (FEC.TO), mcap=C$1.3bn, C$13.19 vs C$11.37

Canadian listed E&P with producing and infrastructure assets in Colombia, Ecuador, and Guyana. South American E&Ps should benefit from the rising cost of capital for O&G companies in the US (due to ESG and political pressures) and Russia (due to the Ukraine war).
Read More
May 20, 2022

Tate & Lyle (TATE.L), mcap=£3.4bn, price £7.4 vs £7.4

European specialty food ingredients company that has partially disposed one segment and intends to distribute cash to shareholders (c. 12% of market cap). The refocused remaining business is less cyclical and benefits from trends of healthy eating and focus on non-meat products, positioning the company as a takeover candidate. Freed up capital will provide flexibility to invest in operational revamp as well as take advantage of inorganic /organic growth opportunities.
Read More
May 20, 2022

Arco Platform (ARCE), mcap=$888m, price $15.57 vs $21.09

Provider of learning management systems to private schools in Brazil. Now trades significantly below historical multiples due to temporary headwinds. Set to grow by high double digits for multiple years driven by secular tailwinds of student shift from public to private education as well as textbooks' shift to online. CEO owns almost 50% of the stock and the original venture backer recently re-bought into the story.
Read More
May 20, 2022

Alibaba Group (BABA), mcap=$235bn, price $87 vs $117

The thesis centers on the premise that the Chinese gov is not aiming to overregulate BABA out of existence, as its core businesses are in no way antithetical to the goals of the party. Chinese tech sell-off has essentially treated all tech the same whereas regulatory risk varies from company to company. Substantial earnings growth and multiple exp in the years ahead with BABA's 55% share in online retail and 45% share in could computing.
Read More
May 19, 2022

Sherritt International (S.TO), mcap=C$242m, price C$0.61 vs C$0.76

A levered play on strong nickel/cobalt prices. S.TO mines in Cuba and refines in Canada, concessions are in 50/50 JV with Cuban gov company. Cheap at current commodity prices with more upside from production increases and removal of Cuba sanctions.
Read More
May 19, 2022

Tellurian (TELL), mcap=$2.4bn, price $4.62 vs $6.34

US is one of the lowest cost LNG exporters and TELL might be 1 of the next 3 LNG projects to get built in the US. TELL owns a land plot and LNG project, that has been fully permitted and ready to go except for financing, which is expected to be announced shortly.
Read More