Special Situation Investments

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.

Jun 26, 2022

Plains All American Pipeline (PAA), mcap=$6.9bn, price $9.92 vs $10.32

Macro oil and political bet that Permian basin will run out of effective takeaway capacity by YE24 due to ressurgence in US oil production, resulting inland oil differentials. Midstream MLP $PAA is well positioned to benefit from this, with half of EBITDA derived from Permian pipelines.

Jun 25, 2022

Charter Communications (CHTR), mcap=$77.7bn, price $463 vs $470

Charter is the 2nd largest internet provider in the U.S. Charter can continue adding internet subscribers despite challenges from fiber and fixed wireless. EBITDA marins are expected to continue expanding further as video subscribers drop and wireless MVNO offerings scale up.

Jun 24, 2022

Perimeter Solutions (PRM), mcap=$1.9bn, price $11.50 vs $8.00

Industry leader in fire retardant chemicals used in forest fires. Previous SPAC with all star board. Industry very attractive as fire ratardant is a 'must have' product, entry barriers are high and product is a small portion of overall value chain. Given capital allocators involved, embedded optionality from future M&A.

Jun 24, 2022

HDFC Bank (HDB), mcap=$103bn, price $55.65 vs $52.00

Indian bank with 20% EPS CAGR since 2012 and similarly high gowth in loan book and deposits, far ahead of the Indian banking industry credit growth. 11% market share. Merger with the parent expected to generate additional synergies.

Jun 23, 2022

Coursera (COUR), mcap=$2.2bn, price $15.58 vs $17.00

Provider of online education courses facing multiple headwinds. Highly competitive industry with low barriers to entry. Real FCF/earnings losses are widening from pressures of (1) costly constant refresh/update on content, (2) increasing customer acquisition costs, (3) increased scrutiny by enterprise customers on learning spend, (4) fade-out of COVID demand spike. Scuttlebut suggestss peer $UDMY with a unique marketplace model is much better positioned.

Jun 23, 2022

Silver Spike Investment (SSIC), mcap=$51m, price $8.17 vs $8.85

Buying $1 for $0.65. Recently IPOed externally managed BDC with focus on cannabis industry. Trades at 35% discount to NAV, comprised almost 100% of cash. Perfect timing - raised fresh funds for invesment when the cannabis industry $MSOS is down 70%. External manager owns 72% of shares (largest investor in IPO). In better times 1.25x P/NAV can be expected.

Jun 22, 2022

Weibo (WB), mcap=$5.5bn, price $22.91 vs $20.80

Chinese version of $TWTR. High growth business with 35% FCF margins. Low valuation of 4xEBIT more than accounts for a lot of negatives/sentiment. Unique asset at <1/10th of $TWTR's EV. Sold off in line with the rest of the Chinese internet stocks. Owned 45% by Sina and 30% by $BABA. Newly announced buyback program for almost half of the float.

Jun 22, 2022

Lightspeed Commerce (LSPD), mcap=$3.4bn, price $22.28 vs $19.66

Cloud-base PoS terminals and software to SMB restaurants and retailers. Long growth run-away from SMBs replasing legacy PoS systems. Expected to be one of the winners in the industry, especially in international markets with limited competition. Trades significantly below peers despite posting 50-70% organic growth. Long-term FCF margins expected in 30%+ in 5 years and 50% in 10 years.

Jun 22, 2022

Avalara (AVLR), mcap=$6.2bn, price $70.80 vs $77.00

Tax compliance SaaS. Dominant in US mid-market segment. Sharetaker with high retention and long-term 20% CAGR growth prospects. Further upside from enterprise and int. businesses. Shares are down due to a general sell-off in growth stocks and e-comm worries.

Jun 22, 2022

Capri Holdings (CPRI), mcap=$6.4bn, price $44.87 vs $44.98

Owner of Versace, Michael Kors, and Jimmy Choo brands. Trades as a subpar retailer at 6x NTM PE. Belongs in the luxury retailer category with LVMH and should garner a much higher multiple. Luxury accounts for 35% of sales with the remaining 65% being 'affordable luxury'. Excellent execution by management with a demonstrated ability to navigate through challenging times. Stock is expected to quadruple in two years.

Jun 22, 2022

Spirit Airlines (SAVE), mcap=$2.5bn, price $22.97 vs $20.88

Traded below unaffected price with two merger offers. ULCC offer at 1.91 shares + $2.13 cash (3% spread). JBLU offer at $33 in cash (60% spread). Mgmt reluctant to engage with JBLU stating risks DOJ approval. Limited downside if both mergers fail.

Jun 22, 2022

Kontoor Brands (KTB), mcap=$1.8bn, price $32.62 vs $40.80

Global jeans brands Wrangler and Lee. Underinvested by the previous parent, which treated KTB as a cash cow only. Spinned-off three years ago. New management brought clear performance improvements. Expected margin improvement over the next few years. Trades at 8.6x '22 EPS and 4.5% dividend yield. Little risk of permanent capital loss. Potential take-out target.

Jun 18, 2022

Pair trade: UPWK long and FVRR short

Market misunderstands the differences in medium-term margin structures of both businesses. FVRR take rate is already 2x higher vs UPWK. FVRR's future SG&A needs to build out the Business segment are understated. UPWK has already invested into the sales force required to attract larger accounts. UPWK is expected to inflect over the next 36 months. Author is generally bullish on the long-term potential of outsourced freelance work.

Jun 18, 2022

First Horizon (FHN), mcap=$11.4bn, price $21.22 vs $22.25

Large-cap bank merger with 18% spread. Getting acquired by TD at $25/share. Expected closing in early 2023, similar recent mergers took 6-13 months to close. Regulatory approval/delay is a key risk. Merger would create the 6th largest U.S. bank.

Jun 18, 2022

Sonos (SONO), mcap=$2.4bn, price $19.07 vs $23.35

Seller of audio products for home entertainment. COVID beneficiary that has seen significant demand pull-forward, especially in high-margin products. Business expected to revert to pre-COVID levels, but so far trades at a premium to hist. valuations. Management's guidance for FY'22 is still optimistic, but back-end loaded. Expected to miss 2022 guidance. Insiders aggressively selling stock.

Jun 18, 2022

The Walt Disney (DIS), mcap=$172bn, price $94.34 vs $113.50

Disney is in the early innings of transitioning away from pure production towards a hybrid production/distribution model with the launch of Disney+. Structurally attractive business able to monetize a vast entertainment IP portfolio through diverse channels. DTC business is expected to double revenues by 2024 driving material uplift to company-wide profitability vs being a loss-making segment today.

Jun 18, 2022

Quipt Home Medical (QIPT), mcap=$161m, price $4.8 vs $4.32

Provider of in-home respiratory devices and consumables. Growing fast through roll-up strategy. Similar roll-up peer Apria was just acquired at 7x EBITDA vs 4x 2023 for QIPT. Razor and blades business model, with consumables accounting for 28% of sales.

Jun 18, 2022

Catalent (CTLT), mcap=$18.4bn, price $102.51 vs $90.56

Contract manufacturer for biopharma. Reliable industry partner with strong competitive positioning and track record of FDA compliance. Recent investments in cell and gene therapies will propel growth for 10+ years. Business is getting more weighted towards higher margin and faster-growing biologicals. 28-39% IRR over the next 3-4 years.

Jun 16, 2022

Full Truck Alliance (YMM), mcap=$8.9bn, price $8 vs $6

China's largest digital freight platform with an 80% market share. 1.5m shippers and 3.5m monthly truckers. Unjustifiably sold off together with the rest of the Chinese internet names. Healthy growth prospects in a huge market. $4bn net cash vs $5.5bn mcap.

Jun 16, 2022

Athira Pharma (ATHA), mcap=$310m, price $8.22 vs $10.29

Biopharma with pending Phase 2 results for one of its drugs is expected shortly. If positive - 10x return. Proprietary DD on the likelihood of success. Involvement of activists with a lower cost basis. Could have exited profitably instead of starting a proxy fight.

Jun 16, 2022

AppHarvest (APPH), mcap=$300m, price $2.97 vs $4.11

Structurally unprofitable greenhouse builder. Went public through a SPAC with very aggressive projections. These have already been cut in half but remain too aggressive. No scale benefits as unit economics of facilities don't work. Cash burn over next two years equal to current market cap. Expected significant dilution from new capital required to fund operations. Eventual bankruptcy.

Jun 16, 2022

SurgePays (SURG), mcap=$60m, price $4.93 vs $3.33

Microcap MVNO sells broadband to low-income HH through govt subsidized program. Attractive unit econs. Transitioning from losses to profits with increased scale. Growing at 130% and forecasted to deliver bottom-line profits this year. The CEO owns 40%.

Jun 16, 2022

Wheeler Real Estate Investment Trust (WHLRD), mcap=$13m, price $13.59 vs $14.00

REIT preferreds trading at a 60% discount to liquidation value. Puttable by holders on Sep'23. Preferreds are in the money at a 6.5% cap rate. The company might attempt to tender for Series D preferreds before Sep'23 Otherwise, holders will convert to common.

Jun 14, 2022

MSC Industrial Direct (MSM), mcap=$4.4bn, price $79.2 vs $82.86

Leader in fragmented industry positioned to continue increasing market share and improve margins. Trades at a steep discount to peers. Distributor servicing maintenance and repair industry in N.A. About 2m SKUs, 80% focused on heavy manufacturing. Closely exposed to the industrial production cycle. Expected to benefit from onshoring and customers' desire to reduce supply chain risk.

Jun 14, 2022

ZoomInfo Technologies (ZI), mcap=$12.5bn, price $31.05 vs $47.50

Enterprise software provider with a go-to-market platform for sales reps. Sports accelerating 50%+ growth with no peers at scale. ZI multiple has come down from 26x ARR to 15x today Author believes current ZI growth rates are durable due to: (1) secular trend of sales org transitioning to data-driven selling (2) high net revenue retention (3) strong growth of high value and international accounts (4) no remotely comparable peers.

Jun 14, 2022

PubMatic (PBM), mcap=$1.3bn, price $17.51 vs $23.6

Sell-side advertising platform enabling publishers to monetize ad space inventory. Reasonably valued at 15x EBITDA given 30%+ historic growth and 25% forward growth. Continues to gain market share. Strong GMs in the 70%+ range indicate pricing power.

Jun 14, 2022

Knorr Bremse (KBX), mcap=9.6bn eur, price eur59.0 vs eur68.3

Manufacturer of braking systems for rail and commercial vehicles. Trades at lowest 8x fwd. EBITDA since 2018 IPO, below peers as well as recent transactions. Strong FCF generator through the cycle with 30%-45% in aftermarket/services sales. Newly appointed Chairman and to be appointed CEO are expected to revitalize the company. Rumors of a strategic break-up if shares continue to languish. Thiele family owns 59% of shares.

Jun 13, 2022

The Liberty Braves (BATRK), mcap=$1.4bn, price $25.43 vs $25.33

Tracking stock for Liberty's ownership of Atlanta Braves. A bet on the number of billionaires going up while the number of major sports teams in the U.S (that these billionaires want to own as trophies) remains fixed. This is expected to drive the sports team valuations only up. Trades under 20x EV/OBITDA with a hidden asset in the form of developed land worth a quarter of today's market cap.

Jun 13, 2022

The TJX Companies (TJX), mcap=$69bn, price $59 vs $63

Established compounder selling at a market multiple. Leading off-price apparel retailer with 4.7k stores and 25% ROIC. 10% expected growth with unit count projected to increase +30% over the longer term. The business is seemingly immune to AMZN and e-tailer competition.

Jun 13, 2022

Olaplex Holdings (OLPX), mcap=$9.9bn, price $15.24 vs $14.20

DTC haircare brand in hyper-growth mode (+112% in '21 and exp. +34% in '22), yet trading below more stagnant and far larger peers. 80% GM and 60%+ EBITDA margins mainly due to reliance on social media rather than paid media. Market concerns over the durability of growth and sustainability of high margins are driving comparably lower valuation - the author believes both are sustainable. Stock is down 50% since its IPO in Fall'21.

Jun 13, 2022

Callaway Golf (ELY), mcap=$4bn, price $21.85 vs $22.38

Manufacturer of golf equipment/apparel and owner of TopGolf. Legacy equipment business now only 38% of revenues and the main upside comes from TopGolf. The value of TopGolf is obscured as the business was acquired during Covid (at $2.5bn) and investors have limited understanding of the concept. TopGolf has a long growth runaway due to gamified golfing experience. ELY Unit count is projected to increase from 70 today to 400+ at 40% cash on cash returns. CEO has a history of under-promising and over-delivering.

Jun 13, 2022

Camping World Holdings (CWH), mcap=$1.1bn, price $26.77 vs $25.18

Largest RV dealer at 5.7x normalized mid-cycle FCF. Strong track record of revenue and EBITDA growth. FCF per share is expected to grow at 20% CAGR over the next 5-6 years. The market underestimates the long-term prospects of the business by overly focusing on the ST post-covid effects. The company continues to grow across all segments: RV dealership, aftermarket, and RV insurance business. Additionally, CWH is investing in P2P RV rental and used RV sale platforms, which provide further optionality and growth potential.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

Jun 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.

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