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.

Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Aug 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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Jul 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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Jul 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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Jul 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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Jul 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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Jul 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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Jul 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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Jul 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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Jul 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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Jul 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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Jul 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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Jul 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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Jul 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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Jul 26, 2022

CymaBay Therapeutics (CBAY), mcap=$266, price $3.14 vs $2.29

Sub $200m biotech with a best-in-class Phase 3 asset for primary biliary cholangitis. Existing cash provides runway till early '24. Near-term catalyst - phase 3 readout expected in Q3'23. Steady commercial ramp-up starting in 2025. Unjustifiably sold off with the rest of the $XBI index.
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Jul 25, 2022

Northrop Grumman (NOC), mcap=$71bn, price $457 vs $460

A bet on the defense industry with NOC being one of the best-positioned players. The thesis is based on the expectation that China will invade Taiwan, which coupled with the current war in Ukraine will escalate the stand-off between China/Russia and the Western world. This will cause generational step change with multiyear increases in defense budgets. The defense industry is characterized by stable and predictable economics due to cost plus contract structures for primary contractors. NOC is best positioned within the two largest areas of spending - space and nuclear deterrence.
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Jul 25, 2022

Kohl’s (KSS), mcap=$3.8bn, price $29.60 vs $46.6

Merger arbitrage that is best played with 2031 notes rather than equity - bonds have a much more attractive upside/downside ratio. Very poorly executed strategic review with management wanting to stay independent, but there is a good probability deal is announced shortly. Equity offers 20% upside vs 25% downside in case of failure. 2031 notes trade at $91 and have a $101 change of control language. In the deal break scenario bonds would trade down to $87, or 5.3% yield, where similar BBB- 10-years sit.
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Jul 25, 2022

Unit Corporation (UNTC), mcap=$542m, price $53.90 vs $64.00

Small-cap O&G has launched a process of selling up all of its oil & gas properties and reserves (c. 75% of all asset value). Contract drilling business and 50% JV interest in the pipeline will remain. Value of to-be-disposed properties is based on PV-10s done at much lower strip pricing (year-end 2021 and Jan'22). Media reports suggest disposals might be more lucrative than indicated by PV-10s.
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Jul 24, 2022

Iteris (ITI), mcap=$120m, price $2.82 vs $3.00

Provider of products and services for traffic monitoring and optimization at intersections. Cheap on 2025 revenue and earnings projections. Large fragmented TAM with $ITI ahead of the competition in terms of dept of the breadth of products and services. ARR at 25% of total revenues and rising. Exposed to positive secular trends from increased use of traffic data for non-public applications, autonomous vehicles, and infrastructure bills. Margins are temporarily suboptimal due to supply chain issues.
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Jul 24, 2022

ProFrac Holding (PFHC), mcap=$666m, price $16.14 vs $22.75

Pure-play vertically integrated pressure pumper across multiple basins. Set to benefit from the expected multi-year upcycle in N.A. fracking activity. Fracking services capacity is constrained after years of rationalization due to weak commodity prices. Orphaned by investors and at a signific discount to peers due to its IPO (at $18/share) taking place during May'22 stock market lows. PFHC relatively new fleet ranks favorably among peers adding a source of competitive advantage. Insiders have 65% economic and 96.5% voting interest. A good way to gain exposure to the N.A. energy cycle.
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Jul 24, 2022

Hanover Bancorp (HNVR), mcap=$139m, price $19.11 vs $21.13

Community bank at 1.07x TBV and 6.4x PE. Cheaper than peers. The market was recently disrupted by a wave of M&A of other community banks. Branch-lite bank. Focuses on specialty niches - deposits from municipalities, SBA program, PPPl lending and etc. TBV CAGR of 10%. Loan-to-value of the mortgage portfolio stands at 55%.
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Jul 23, 2022

Synchronoss Technologies (SNCR) short, mcap=$114m, price $1.29 vs $1.53

On a verge of restructuring and shares are worthless. The recent $12.5m settlement with SEC compares with a $20m cash balance as of Q1'22. Topline is stagnant, the balance sheet is over-levered and the business burns cash at $5m per quarter. Reported EBITDA is accounting fiction and the company does not generate any FCF. Likely unable to raise fresh funds in the capital markets.
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Jul 22, 2022

NFI Group (NFI.TO), mcap=C$1bn, price C$13.18 vs C$13.30

Canadian bus manufacturer. The company went from trading at 15x normalized EBITDA in 2018 to 5.5x today. In the near term facing supply chain challenges due to covid. Pent up demand after 2 years of industry volumes at cyclical lows. Governments in the US, Canada, and the UK provide municipalities with record levels of funding to make diesel to electric transition. EVs have gone from 5% of the market in 2018 to >40% of the current bid universe. Industry shaping up to have the most positive demand backdrop seen in 30+ years. The competitive environment improved with effectively $BYD banned from the market and $PTRA diversifying away from transit buses. CFO and NFI's largest shareholder have been buying in the open market.
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Jul 22, 2022

Axalta Coating Systems (AXTA), mcap=$5.3bn, price $24.13 vs $28.00

Industrial coating company under-earning due to auto weakness and raw material inflation. #1 or #2 player in its markets. Earnings are set to double to $3.0/share by 2025. Recovery in the auto OEM industry to pre-covid levels will add $0.5/share to earnings. Already taken pricing increases to offset cost inflation (mostly oil-based inputs) will bring EBIT margins back to 15% from depressed 10% levels today. Strong industry-wide pricing power, but tends to lag on pricing during inflationary periods.
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