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.

August 16, 2022

Intellicheck (IDN), mcap=$49m, price $2.61 vs $2.12

Global provider of digital identity services. Operating hiccups did not merit a 75% recent price decline. Pieces in place to grow revenues by several multiples. Multibagger return over a few years.
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August 15, 2022

VSE Corporation (VSEC), mcap=$524m, price $40.95 vs $36.50

Provider of after market-parts and MRO services for transportation assets - routine maintenance and upkeep of customers' assets. Poorly communicated, but necessary, long-term investments drove margin compression and limited FCF generation. These investments are beginning to dissipate and start bearing fruit, leading to expected improvement in profitability.
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August 15, 2022

Intercontinental Exchange (ICE), mcap=$60bn, price $107 vs $94

An exceptional business trading just slightly above market at 16.5x PE. Extremely high margins. High free cash flow conversion. Leading market share. Big moats around its businesses. History of exceptional capital allocation. Consistent 17% EPS CAGR. Market's concerns over mortgage business earnings are overexaggerated, as in a worst-case scenario that would only be a 10% hit on PE. Should deserve premium to the market multiple.
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August 15, 2022

Fennec Pharmaceuticals (FENC), mcap=$180m, price $6.75 vs $5.65

Small-cap pharma with its NDA was rejected 2x by the FDA due to deficiencies at the third-party manufacturer. No issues with the drug's safety or efficacy. The same manufacturer caused CRLs for other companies as well. NDA resubmitted referencing a new third-party manufacturer. High likelihood of FDA approval. Potential takeover candidate post-approval. PDUFA date on 23rd of Sep'22.
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August 15, 2022

Lamb Weston (LW), mcap=$11.6bn, price $80.63 vs $71.45

Global processor and supplier of french fries. Expected to return to pre-covid margin structure driven by normalized potato crop and easing of supply chain issues. Oligopolistic industry structure with rational pricing.
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August 14, 2022

Ovintiv (OVV), mcap=$12bn, price $45.63 vs $43.84

Macro bet on oil with OVV best positioned to outperform. At $125 WTI trades at a 70$ FCF yield. At $75 WTI trades at a 22% FCF yield. Pivoting to paying out 25-50% FCF in heavy share buybacks + modest dividend. Over a decade of inventory in core basins remaining.
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August 14, 2022

PAN AMERICAN SILVER (PAASF) CVR, mcap=$4.3bn, price $0.68 vs $0.70

Pan American Silver CVR that pays out when Escobal silver mine in Guatemala re-opens. 47% spread + additional upside from PAAS appreciation. The 2nd largest silver mine in the world and one of the key PAAS assets. The mine reopening seems very likely and just needs to pass certain bureaucratic steps in consultations with minority indigenous local populations. In a change of control scenario, CVR pays out instantly irrespective of the Escobal mine outcome. 
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August 13, 2022

UiPath (PATH), mcap=$11.6bn, price $21.29 vs $20.02

Automation software platform provider for enterprises. Growing at 30%+ with 98% gross retention. Low capital intensity and improving operating profile put the company on the path to profitable growth at scale. A sticky product that competitors were not able to commoditize. Upselling potential with adjacent product suite. Trade structured through Jan'23 puts provides downside protection and valuation of 4.7x FY24 ARR. The smaller and slower-growing competitor was taken out at 5x NTM ARR.
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August 13, 2022

Centaurus Metals (CTM.AX), mcap=A$427m, price A$1.00 vs A$0.93

Australia-listed miner with nickel mine under development in Brazil. Landmark asset. Projected to have the highest operating margins among nickel resources globally. 60% lower operating costs than in nickel sulfide mines owned by VALE and BHP. Exposure to increasing high-grade nickel demand for battery production - a market already in deficit for Class 1 nickel.
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August 13, 2022

Canterbury Park Holding Corporation (CPHC), mcap=$102m, price $21.16 vs $23.54

The operator of the horse racetrack and card casino in Minnesota. Gaming operations are consistently profitable with the company at 6.4x TTM EBITDA. Additional upside from sports betting expansion in Minnesota and development of underutilized land adjacent to the existing properties. Some of this land has already been sold or contracted for development. A strong balance sheet with a net cash position and land ownership.
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August 13, 2022

Morguard (MRC.TO), mcap=$1.2bn, price $113 vs $110

Developer of real estate projects in Canada and the U.S. Trades at 68% discount to NAV, well below historical levels. Paying C$2.1bn mcap for C$1.8bn of cash listed securities + C$2.1bn of directly-owned real estate. At 5.8x '22 FFO is significantly below peer valuations. Half of the portfolio is in multifamily residential and 23% in office space. Consistent historical financial results. The CEO owns 60% of the common. Resumption of buybacks, monetization of properties, and post-covid recovery are expected to act as catalysts.
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August 12, 2022

PayPal Holdings (PYPL), mcap=$113bn, price $97.92 vs $74.94

Attractive franchise with plenty of monetization opportunities and runway for growth. A bet on the continued growth of e-commerce - PYPL is well positioned to capture its share of its share. Unfairly sold off together with fintech and crypto stocks. The recent CFO's departure is not an indication of fundamental problems at PYPL. Additionally, the call option on PYPL had the potential to become a de-facto digital wallet as other wallet competitors $APPL and $GOOGL are likely to face antitrust scrutiny.
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August 11, 2022

Meta Platforms (META), mcap=$453bn, price $169 vs $170

Formidable business with a fortress balance sheet at a bargain price. Metaverse investments aim to create their own platform to gain independence from $APPL and $GOOG. Competition is not an issue as $META has a solid track record of adapting to changing environments and consumer preferences. Remains an effective platform for advertisers and will adapt to changes in $APPL privacy protocols. In a strong position to weather regulatory storms.
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August 11, 2022

Mullen Automotive (MULN) short, mcap=$441m, price $0.92 vs $1.46

Straight-up Electric Vehicle scam about to enter highly dilutive death spiral financing. Share count set to increase 4x-5x with ever cheaper shares getting issued via cash-less warrant exercise. Name well covered by @HindenburgRes. Egregious CEO compensation - e.g. 10% of market cap in case of termination. The shareholder meeting at the end of July is likely to be the start of significant dilution.
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August 11, 2022

Sunrun (RUN) short, mcap=$6.5bn, price $30.74 vs $25.22

Structurally unprofitable solar panel leasing and panel installation business. Terminal zero with 15% short interest. Generated ROIC is significantly below the cost of invested capital - only a 3% return for every $1 of CAPEX. High operating cash burn with near-term debt maturities. Negative exposure to rising interest rate environment. Interest expenses are 2x higher than the gross profit on solar panel leases. Survives only by the generosity of debt markets. Insiders are aggressively selling.
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August 11, 2022

Wise (WISE.L), mcap=£6.6bn, price £4.65 vs £3.81

World's largest non-bank operator of currency transfers at a low valuation. 20% larger than $WU. At 4% FY21 and 6% FY23 FCF yields trade below private round valuations and 55% below its 2021 IPO price. $WISE transfers are2x cheaper than digital competitors and 5-10x cheaper than traditional competitors. Growth reaccelerating to 40%+ pre-COVID levels with the possibility of gaining market share in a very large market for years to come. Good unit economics with 25% FCF margins. Strong corporate culture reinforced by the mission of low-cost international transfers helps create a flywheel effect. The founder owns 20% of the stock.
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August 10, 2022

Madison Square Garden Sports (MSGS), mcap=$3.8bn, price $155 vs $154

Owns stakes in the most valuable NBA and NHL teams - the New York Knicks and the New York Rangers. Trades at 50% discount to precedent sports franchise transactions. Revenue growth from recently signed multi-year sponsorship renewals. Further upside from approval of online sports gambling in NY with already signed advertising deals. Media rights renewal in '24/'25 set to improve NBA team valuations.
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August 10, 2022

Levi Strauss & Co. (LEVI), mcap=$7.7bn, price $19.38 vs $17.13

Revitalized denim brand and successful turnaround under 10-year tenure of current CEO. COVID beneficiary, but operational/margin improvements achieved before and during pandemic expected to be sustained going forward. Trades at 7.3xEBITDA, a discount to precedent branded apparel transaction, when a premium should be expected. Optionality from strong balance sheet with recent buyback authorization for 11% of market cap.
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August 9, 2022

Paramount Group (PGRE), mcap=$1.9bn, price $7.56 vs $7.68

Well located NY and SF office buildings at a 7.6% cap rate. Valued close to financial crisis lows. Self-managed REIT. 90% of properties are leased. Although leverage at 10xEBITDA is optically high, all debt is at the property level and non-recourse.
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August 9, 2022

Alamos Gold (AGI.TO), mcap=$3.9bn, price $10.12 vs $7.13

Mid-cap Canadian gold miner with the greatest odds of being acquired next. Ongoing consolidation in the Canadian gold mining industry. High-quality management team with 18 years track record of good capital allocation. Large enough to move the needle for senior miners in an acquisition. Rising production outlook. Partially a bet on gold prices to move upwards during the stagflationary period (as has historically happened).
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August 8, 2022

Barnes & Noble Education (BNED), mcap=$142m, price $2.73 vs $3.20

Textbook, edtech, and on-campus retail businesses were negatively affected by COVID college closures. All segments are set to continue fast growth. $100m/year earnings power (exp by '24 and '25) vs $170m market cap. Shares sell-off is mostly associated with index removal.
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August 8, 2022

Tempur Sealy (TPX), mcap=$4.8bn, price $27.48 vs $22.55

Category-leading mattresses retailer at <15x recession case FCF. Cyclical industry downturn now fully priced into equity. Earnings durability coming from, industry consolidation, improved balance sheet allowing material buybacks, reduced dependence on Mattress Firm, and fast-growing DTC business now accounting for 18% of sales.
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August 8, 2022

Ströer SE & Co. (SAX.DE), mcap=€2.4bn, price €42.42 vs €42.00

The largest out-of-home advertising business in Germany at a wide discount to fair value. 60% market share. Management owns 40% and aims to simplify the business over the next 2-3 years. Expected to generate more than the current market cap in cash over the next 5 years from earnings and asset sales. Shares are depressed due to structural/accounting complexity, Covid-related volatility, and recession fears.
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August 7, 2022

STRATA Skin Sciences (SSKN), mcap=$37m, price $1.07 vs $1.04

Microcap selling excimer laser systems for dermatologists at 3.8x fully ramped EBITDA. Monopoly position after last year's acquisition of main competitor (realization of full synergies still in process). Recovery of dermatology practices as COVID fades. High gross margin on recurring sales from its growing installed base. Despite the dramatic increase in scale and elimination of its only competitor, SSKN trades at an 18% discount to the 2015 purchase price of its key asset. 35% shareholder is likely positioning the company for sale.
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August 7, 2022

Celanese (CE), mcap=$12.3bn, price $113 vs $121

High-margin chemical company at 6x-7x current year earnings. One business undergoing transformational acquisition and another segment are in an unmatchable global low-cost position. Reasonable path to 25% FCF yield. Good capital allocation track record.
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August 5, 2022

Omega Flex (OFLX), mcap=$1.2bn, price $114 vs $115

Cyclical COVID beneficiary at 45x peak earnings. Manufacturer of flexible piping to connect gas to appliances. Old technology that stopped gaining market share 20 years ago. Only 4.5% revenue CAGR between 2007-2021. Historically traded at 20x multiple. Insiders own 68% and are selling stock. A hedge fund with 10% ownership is also reducing its position.
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August 5, 2022

International Money Express (IMXI), mcap=$917, price $23.86 vs $20.00

Money-transfer business at 12.5x PE while growing at 20% CAGR. Strategically focuses on the US to Mexico and US to Guatemala remittance corridors allowing it to take share from larger peers like $WU. Great CEO track record over a 10-year tenure. The recent acquisition brings $IMXI share to 20% in the top 5 US to Latin America remittance corridors.
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August 4, 2022

Seadrill (SDRL.OL), mcap=nok14bn, price nok280 vs nok320

Offshore drilling contractor. Recently emerged from Chapter 11. A significantly de-leveraged balance sheet with debt from $5bn to $0.4bn. Already contracted backlog indicates sharp growth in revenue and earnings. Expected NYSE relisting and index inclusions. 60%+ upside at peer valuations.
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August 2, 2022

ServiceNow (NOW), mcap=$90bn, price $447 vs $444

High moat business expected to deliver 21-30% IRR over the next 4 years. Cheap relative to historical multiples. Cloud computing platform for enterprise workflow management. Extremely high 98-99% retention rate. Good unit economics with CAC payback in 21 months. Tuck-in acquisition expands service offering. Previous customer cohorts drastically expand their spending with $NOW over the years - e.g. 2010 cohort spending is up 21x.
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August 2, 2022

Rogers Communications (RCI-B.TO) Arb, mcap=$23.4bn, price C$58.87 vs C$59.01

Merger arbitrage play via $RCI bonds. In Mar'21 Rogers agreed to acquire Shaw at C$40.5/share. Antitrust approval is still pending. Recently divestment increases the likelihood of merger closing. 3.75% 2029 Rogers bonds will be redeemed at $101 if the merger does not close before the end of 2022. Hedged pair trade with other bonds without redemption language creates an asymmetric bet with an upside/downside ratio of 6.2x.
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August 2, 2022

Ascend Wellness Holdings (AAWH), mcap=$461m, price $2.45 vs $2.35

A bet that early investments by cannabis multi-state operators into limited license markets will pay off significantly over time. AAWH is set up to be a multi-bagger over the next few years. The company's footprint was chosen to be in states with limited licenses, and larger upfront costs - thus deterring competition. Well-regarded management.
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August 2, 2022

Option Care Health (OPCH), mcap=$6.2bn, price $33.86 vs $26.85

Provider of home and alternate site infusion services with a 20% share. An attractive opportunity to play the shift to value-based care with reduced government reimbursement risk and a strong track record in navigating labor headwinds. Previously part of $WBA, which remains 21% shareholder. Strong position in the fragmented home infusion services market.
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August 2, 2022

Darling Ingredients (DAR), mcap=$11.4bn, price $70.33 vs $69.49

Renderer/repurposer of animal by-products with 15% global share and JV investment into Renewable Diesel refiner. High entry barrier business. EBITDA growth from the recently completed acquisition as well as investments in capacity expansion for the renewable diesel segment. Good inflation hedge as the price for its products moves in concert with oil and agriculture products.
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August 2, 2022

Grab Holdings (GRAB), mcap=$11bn, price $2.88 vs $2.35

Mobility/food delivery super-app with #1 dominant position across SE Asia. SE Asia is structurally more attractive vs. developed markets, due to large, young, mobile-first, and underbanked populations with the absence of established legacy habits and fast-growing GDP/Income. Digitization services are still in the early innings. GRAB is best positioned to win across its businesses with its super-app. Steady-rate margins at maturity are expected to be higher than for peers in developed markets.
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August 2, 2022

Enterprise Products Partners (EPD), mcap=$58bn, price $26.62 vs $24.15

Today US pipeline industry is undergoing a renaissance in cash generation. EPD due to increasing FCF from $1/share in '20 to $2.75 in '24, driven announced a slash in CAPEX. Limited new pipeline supply and inflation make the existing assets more valuable and allow operators to charge higher prices. Over the last decade, the industry has been rationalized. US producers are expected to drive incremental volumes due to the spike in hydrocarbon prices due to the Ukraine war. A third of EPD units are owned by the Duncan family, with significant buys recently.
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August 1, 2022

Ardagh Metal Packaging (AMBP), mcap=$4.1bn, price $6.76 vs $5.90

Aluminium beverage can packaging company. No.3 global player behind $BALL and $CCK. 7% dividend yield and buyback for 22% of the float. Cheap at 8.6x '22 and 6.8x '23 EBITDA. Trades at 3-4x turn discount to peers. Best growth prospects among peers with EBITDA projected to double by '24. Pre-sold and fully funded capacity expansion nearing completion. High revenue/EBITDA growth visibility from fully contracted 2022-2024, with further expansion plans beyond that. 75% owned by parents. Non-cyclical defensive staple with high FCF. The oligopolistic industry is exposed to ESG tailwinds as aluminum cans is infinitely recyclable. Contractual commodity input cost inflation pass-throughs, however, are reassessed annually. Under the radar / disliked as came public via SPAC and near term worries on cost pass through, especially energy.
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August 1, 2022

Cellnex Telecom (CLNX.MC), mcap=€29.6bn, price €43.68 vs €36.00

Largest telecom tower operator in Europe trading materially below US-listed peers. Attractively priced, growing, inflation-protected, non-cyclical business at a normalized high-single-digit FCF yield. Redeployment of excess capital (20% of market cap) to value-creating tower acquisitions or share repurchases will make cheap valuation apparent by FY24.
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August 1, 2022

Equifax (EFX), mcap=$25.6bn, price $209 vs $171

Consumer credit reporting agency at 20x '23 EPS. High-moat, high-quality business with reasonable organic growth. Significant barriers to entry from direct receipt of employment records. Competitors are unable to match network flywheel effects of $EFX. Pressures from lower mortgage issuance volumes and a weakening economy are already reflected in the price.
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July 31, 2022

Cathay General Bancorp (CATY), mcap=$3.1bn, price $41.70 vs $39.16

The regional mid-cap bank is expected to be a beneficiary of a higher interest rate environment. Tailwinds from unusually high exposure to NII. At 11x through EPS. Outperforms peers in terms on 5yr TBV CAGR, ROA, and efficiency ratios.
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July 31, 2022

Adobe (ADBE), mcap=$192bn, price $410 vs $377

High-quality business with a long-term IRR of 16-17%. 90% GMs and 42% cashflow margins. Around 20% growth over the last two years. High ROIC=30% and high ROE=50%. Currently trades below historical multiples at 26xFCF. Down 34% YTD as the market is concerned about a slowdown in growth.
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July 31, 2022

Orion Engineered Carbons (OEC), mcap=$1bn, price $17.29 vs $17.30

Producer of rubber black and specialty chemicals. FCF is at an inflection point as capital constraints unwind. Structurally improved pricing and profitability in commodity rubber black will increase margins and returns on capital. Expected to double EBITDA and generate more than half of mcap in cash over the next 3 years. Misperceived as a cyclical chemical commodity producer.
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July 31, 2022

AGNC Investment (AGNC) short, mcap=$6.6bn, price $12.61 vs $10.75

Third largest mortgage REIT behind $NLY and $STWD. Bet on rising interest rates and widening MBS spreads with subsequent reduction in book values of mortgage REITs. This is expected to lead to a capital raise or dividend cut for AGNC.
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July 29, 2022

Real Matters (REAL.TO) short, mcap=$388m, price $5.31 vs $5.40

Real estate appraisal services company. Threat from competitors $BKI and $CLGX expansion in this segment - with REAL already losing market share. Reduced need for in-person appraisal due to automation and changing regulatory requirements. Transaction-driven, non-recuring revenues. Lofty valuation benefitted from a small initial base and momentum for growth stocks.
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July 29, 2022

Lesaka Technologies (LSAK), mcap=$326m, price $5.51 vs $4.57

Payments company with the potential to become a fintech champion in South Africa (US listed). Primarily serves micro, small and medium enterprises, and underbanked consumers. Long-term growth asset at a discounted valuation. Through transformational acquisition is transitioning from mismanaged holdco into a growing operating company. Rockstar management and shareholders - controlled by Value Capital Partners – SA’s pre-eminent activist fund.
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July 29, 2022

Crocs (CROX), mcap=$4bn, price $65.99 vs $49.93

The thesis is mostly based on Crocs not being a 'fad' and the company's ability to at least partially sustain covid-driven revenue and margin gains. Consistent sales growth for 20 years, with only limited (-15%) drawdown during GFC. Increased scale permanently drove margins to higher levels due to strong operating leverage. Trades at only 5x PE on recently increased 2022 guidance. Large existing buyback authorization and history of large repurchases.
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July 28, 2022

Verano Holdings (VRNOF), mcap=$1.9bn, price $6.30 vs $9.63

The operator of cannabis dispensaries across multiple states (MSO). Top 5 MSO with one of the best footprints. Well positioned for recreational conversion in the North East. Cheaper vs peers despite better footprint and margins. A strong balance sheet with FCF-funded CAPEX and acquisitions. Insiders own 20%.
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July 28, 2022

Italmobiliare (ITM.MI), mcap=€1.1bn, price €26.85 vs €26.80

Italian holding company trading at 61% discount to fair value SOTP. Management with a great M&A track record resulting in 50% portfolio level IRR for core investments. Strong corporate governance and responsible overhead burden. Similar high-quality European peers at limited discounts to NAV. Upside from continued NAV growth and narrowing of the discount-driven by by recognition of the value of ITM.MI's investments.
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July 28, 2022

Vista Outdoor (VSTO) short, mcap=$1.7bn, price $29.78 vs $35.00

Covid beneficiary that is about to mean-revert. Retailer of ammunition and sporting goods. Might appear cheap trading at 5x fwd PE on peak earnings. But gross margins are in the mid-30s vs pre-pandemic at low 20s. Due to operating leverage, the falling GMs will have a disproportionately negative effect on the bottom line. Zero to negative earnings are not far away.
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July 28, 2022

ChampionX (CHX), mcap=$4bn, price $19.67 vs $24.33

Chicken energy play' with limited exposure to correction in oil prices. Set to benefit from higher global oil production. Oilfield service/equipment provider. Revenues are driven by oil production rather than new investment by O&Gs. Much more steady business than the more cyclical oilfield services such as pumping, drilling, etc.
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July 26, 2022

Flagstar Bancorp (FBC), mcap=$2bn, price $37.12 vs $35.00

Mid-cap bank merger that is expected to result in multiple re-rating from 0.9x to 1.5x TBV for the combined entity. $FCB shares are to be exchanged into $NYCB at 4.015 ratios. Regulatory approval is pending, but likely to be received. Limited expense synergies with merger benefits mostly coming from new markets for lending opportunities and $FBC's lower cost funding base. Protected downside: excess capital (>35% of mcap) expected to be returned as dividends/buybacks in case the merger fails.
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