VIC Idea Summaries

Below are summaries of ideas posted on Value Investor 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.

May 14, 2022

Spotify Technology (SPOT), mcap=$20bn, price $106 vs. $151

Strong moat from 40% market share, network effects, and efficient development of tech stack. Plenty of expansion and monetization opportunities within its core DTC business as well as adjacent markets. Favorable industry backdrop with streaming audio still in its early days and grow assured for decades to come. SPOT will continue growing at 15%+ revenue CAGR and will be able to achieve 10% margins over time.
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May 13, 2022

Shoe Zone (SHOE.L), mcap=£69m, price £1.37 vs. £1.20

A good business at a low valuation. Shoe Zone is an omni-channel footwear retailer in the UK that is expected to at least partially sustain the elevated COVID period margins. Moat results from a low-cost business structure wide network of carefully chosen retail locations, and strong management. Insiders own 55% of the stock.
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May 13, 2022

Basic-Fit (BFIT.AS), mcap=€2.5bn, price €37.3 vs. €40.7

Leading gym operator in Europe expected to triple gym count to 3,500 in a decade and compound revenues at >15% CAGR. Low-cost gym model (similar to PLNT, just not franchised) with a strong scale of economics. Attractive unit-level economics with ROIC=30%.
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May 13, 2022

Hibbett (HIBB), mcap=$573m, price $44 vs. $45

Athletic fashion retailer at a low valuation. A beneficiary of the recent Nike strategy to rationalize distribution partner network (i.e. cutting out third-tier partners). Potential short squeeze candidate.
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May 12, 2022

Halyk Savings Bank of Kazakhstan (HSBK.LI), mcap=$2.6bn, price $9.76 vs. $9.38

Halyk Bank is the largest bank in Kazachstan partially controlled by an oligarch family. The bank is 4x to 5x larger than its next competitor. Also partially a macro bet on Kazachstan on a premise that rich people need banks.
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May 12, 2022

Odyssey Marine Exploration (OMEX), mcap=$74m, price $5.15 vs. $6.6

Litigation case relating to permit for world-class phosphate deposit. The permit was denied with no reasonable grounds and now OMEX is seeing a $2.7bn award. A review of court fillings suggests OMEX has a strong case. NAFTA trial held in Jan’22, a decision expected soon.
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May 9, 2022

Thunderbird Entertainment (TBRD.V), mcap=C$162m, price C$3.3 vs. C$3.8

Studio specializing in unscripted shows and cartoons. Thesis is based on increasing competition among streamers and in turn ever higher value being attached to quality content. Revenue grew 41% in fiscal 2020 and 37% in fiscal 2021.
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May 9, 2022

Indivior (INDV.L), mcap=£2.1bn, price £2.91 vs. £2.69

Pharma company with a number of drugs on the market and with ⅓ of the market cap in net cash. The upside scenario is mostly based on one of its drugs continuing to gain traction and reaching blockbuster status. Shares are down due to legacy DOJ fines and key drug going generic. 
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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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