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.

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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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. 
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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.
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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.
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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.
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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).
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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.
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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.
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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.
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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.
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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.
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May 19, 2022

Embecta (EMBC), mcap=$1.5bn, price $26.67 vs $30.5

Classic orphan spinoff - no index inclusion, small relative to the parent, post-spin price drop. #1 globally in pen needles and syringes, the market leader in single-use needles for insulin with 67% global share. Very stable business with 30%+ EBITDA margins. New mgtm plans to reinvest FCF to build out a pipeline of new medical devices targeting diabetes care - the most advanced product Type 2 diabetes patch pump in development since 2016 and with recent breakthrough device designation from FDA. Growing medical device companies targeting diabetes trade at dramatically higher EV/sales and EV/EBITDA multiples.
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May 17, 2022

Sage Group (SGE.LE), mcap=£6.9b, price £6.78 vs £7.18

Mission-critical accounting software company that is close to completing the transition to a subscription model. SMB and mid-mkt customers globally. Transition to a subscription model put pressure on EBITDA margins and these are expected to revert from 23% to previous 30%.
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May 17, 2022

Container Store Group (TCS), mcap=$366m, price $7.32 vs $8.12

Retail turnaround story with star management now in place. Leveraged retailer of storage containers and custom closet solutions. Despite being perceived as a melting ice-cube, the concept still resonates very well with customers and has been COVID over-earner. Multiple initiatives by new management are expected to push profitability back to COVID levels.
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May 17, 2022

Iron Mountain (IRM), mcap=$15.5bn, price $53.03 vs $55.41

Asymmetric large-cap short. Leader in physical document storage and related services - a melting ice cube with high leverage trading at all-time highs. The core business is in secular decline, so further pricing increases are unlikely (already 2-3x more expensive than private comps), with limited additional cost-cutting opportunities. New Data Centers business is unlikely to move the needle.
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May 17, 2022

Amplify Energy (AMPY), mcap=$279m, price $7.33 vs $5.60

Mash-up of O&G assets trading at a 65% discount to PV-10. The PV-10 itself is understated due to the recent move in energy strip and exclusion of some of the assets from it. The key asset Beta is still offline following an oil spill (not caused by the company). AMPY discount to PV-10 expected to close driven by Beta coming back online and cash flow generated at the current strip. M&A and disposal of assets might accelerate this process.
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May 16, 2022

Party City Holdco (PRTY), mcap=$153m, price $1.4 vs $3.65

Category leading retailer of party goods at a very cheap valuation but with high leverage. The key bullish argument rests on PRTY business being resistant to online competition because its low-price products and helium balloons make it "un-Amazonable". The company's turnaround has been slowed by Covid but is expected to bear fruits shortly. Recent sales weakness caused by temp factors that should be ending or reverting.
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May 16, 2022

Masonite International (DOOR), mcap=$2bn, price $85 vs $90

Interior and exterior door manufacturer with new management in place. A good business in a well-consolidated industry - the company should be able to offset the inflation pressures with price increases. Exposed to the new build (50%) and remodeling (50%) cycles. Under the new leadership, DOOR economics has structurally improved from one with poor ROIC of 10-12% and margins of 12% to one with ROIC approaching 20% and margins of 15-16%.
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May 16, 2022

General Electric (GE), mcap=$83bn, price $75 vs $92

Upside from recovery in the aviation industry as well as plans to break itself up into three pieces. Despite spin-off plans, the market continues to value GE much the way it always has: as a low-margin conglomerate with few high-value assets. This view will change significantly over the next two years.
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May 16, 2022

Ross Stores (ROST), $33bn, price $92.06 vs $93.70

Leader in the off-price apparel, together with TJX. Attractive business with high-frequency repeat customers, fast inventory turnover cycle, and strong entry barriers due to the required scale for vendor relations. The current opportunity rests on (1) incremental demand from economic uncertainty forcing customers to save more, (2) record retail store closures, and (3) inelasticity of demand for small price increases, positioning ROST for pricing growth. Set to compound for a decade with 4% store base growth, 3% comps, and 4-5% capital return.
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May 16, 2022

Occidental Petroleum (OXY), mcap=$64bn, price $64 vs. $58

thesis centers on the shift of capital return strategy from debt reduction to buybacks/dividends after the leverage target is reached this year. OXY’s capital return program is the last in the large-cap O&G space. OXY has a 22% FCF yield to the equity right now that is going almost 100% to debt paydown and now buybacks. A number of industry-wide as well as company-specific catalysts.
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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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