The London Value Investor Conference was in May 2018. I had some friends who attended. Below are some of the ideas presented based on what I’ve been told and read. Don’t underestimate their potential because they were presented in May. Value investors have the tendency to get long too early so some of these may even be cheaper today or have not priced in their full potential.
My favorites from these are:
- HCA which I have owned for a while now and wrote about previously here. It’s one of those cases you wish you bought more of.
- BTU has a low valuation with a ridiculous FCF yield. It’s worth checking out but keep in mind there are a few other cheap coal-related stocks out there. The company ranks in the cheapest 11% according to my model.
- WBA is cheap and I agree that the whole Amazon threat is overstated. Analysts are expecting the company to continue to grow. I’ll be taking a look at this some more as it ranks in the cheapest 6% according to my model.
- 1852 JP – Multiples look very cheap but will have to do some reading to understand why this opportunity exists because its one of those that shouldn’t…
Company: Walgreens Boots Alliance
Bloomberg Ticker: WBA US
Presenter: Stephen Mitchell & Bryan Pilsworth (Foyston, Gordon & Payne)
P/E: 14x
EV/EBITDA: 11x
Story: 70% of prescriptions are recurring while 85% are generic. There is fear that customers may switch to Amazon delivery for recurring (if AMZN decides to compete against WBA). Loss of walk-in customers will impact their physical stores. The counterargument is that 70% of seniors find WBA more convenient compared to the mail and compliance (you really can’t be wrong with dosages, etc). Beauty products may provide additional sales growth and improve margins.
Company: HCA Healthcare
Bloomberg Ticker: HCA US
Presenter: Adrian Warner (Avenir Capital)
P/E: 17x
EV/EBITDA: 9.5x
Story: Private hospital provider with 179 hospitals, 38,000 staff and 47,000 beds. Strong growth and margins. The majority of the industry consists of not for profit or government-owned hospitals. Among the for-profit providers HCA has double the market share of its’ competition. HCA scale and geographic focus gives them its advantage.
Company: Peabody Energy
Bloomberg Ticker: BTU US
Presenter: Ben Preston (Orbis)
P/E: 10x
EV/EBITDA: 3.6x
Story: World’s largest listed provider of coal. Peabody’s coal is high quality which is more efficient and pollutes less. The company filed for bankruptcy in 2016 due to too much debt with shareholders wiped out. The company is not opening new mines and focusing on returns to shareholders. FCF yield is 25% with market worried that the price of coal will fall again.
Company: Asanuma
Bloomberg Ticker: 1852 JP
Presenter: Mark Pearson (Arcus Investment)
P/E: 6.4x
EV/EBITDA: 0.9x
Story: A Japanese construction company with no analyst coverage. The industry has been one of the slowest to recover.
Company: Kweichow Moutai
Bloomberg Ticker: 600519 CH
Presenter: Dawid Kringe (Cederberg Capital)
P/E: 27x
EV/EBITDA: 17x
Story: One of the world’s largest spirits company with 300+ years of history. Moutai is a Chinese national drink with the company holding a 70% share of spirits market. Margins and ROIC are higher than Diageo. The company has grown at 30%+ per year for last ten years but trades at a similar P/E to lower growth Diageo.
Company: Dong-E-E-Jiao
Bloomberg Ticker: 000423 CH
Presenter: Dawid Kringe (Cederberg Capital)
P/E: 15x
EV/EBITDA: 11x
Story: Chinese nutritional supplements company that doesn’t face regulation as products are from natural ingredients. 70% market share with 98% brand awareness.
Company: Kansai Electric
Bloomberg Ticker: 9503 JP
Presenter: Nigel Waller & Andrew Goodwin (Oldfield Partners)
P/E: 10x
EV/EBITDA: 9.5x
Story: Half of its energy production came from nuclear so the company was hit hard following 2011 Fukushima nuclear disaster as all reactors were taken offline. Prior to the event, nuclear serves 30% of Japan’s need. Japan is now slowly bringing its reactors back online. Shares are up but as more company reactors are brought back (estimated that eventually 7 /11 will be operating), operating profits could rise another 50%. The company is the lowest cost producer.
Company: E.ON
Bloomberg Ticker: EOAN GR
Presenter: Nigel Waller & Andrew Goodwin (Oldfield Partners)
P/E: 13x
EV/EBITDA: 5x
Story: In 2018 the company announced an asset swap with RWE where RWE will take E.ON’s renewables and E.ON will take RWE’s regulated business, thus E.ON. will have 80% regulated assets (from 65%). Synergies of the combined business are EUR 600-800m. The 5% dividend may grow.
Company: Pacific Textiles
Bloomberg Ticker: 1382 HK
Presenter: Mark Asquith (Somerset Capital Management)
P/E: 12x
EV/EBITDA: 9x
Story: Competition has driven down product prices. But barriers to entry have reduced the number of companies. These include quality, environmental regulations and lead time. Valuation reflects fears of tariffs, stronger currency, and growth.
Company: Sunny Friend
Bloomberg Ticker: 8341 TT
Presenter: Mark Asquith (Somerset Capital Management)
P/E: 32x
EV/EBITDA: 21x
Story: Waste management company in Taiwan with incineration and liquidation waste disposal facilities. 35% and 16% market share in medical and in industrial waste, respectively. Barriers to entry due to the nature of the business. China is a potential growth market. Compounder.
Company: Cia Hering
Bloomberg Ticker: HGTX3 BZ
Presenter: Mark Asquith (Somerset Capital Management)
P/E: 11x
EV/EBITDA: 10x
Story: Brazilian clothing brands company with new management that rebranded the product range and invest in POS systems. Catalyst is the restoration of consumer confidence.
Company: Pearson
Bloomberg Ticker: PSON LN
Presenter: Alex Wright (Fidelity Special Situations Fund)
P/E: 11x
EV/EBITDA: 8x
Story: Main business is selling textbooks and online resources for education. Education is shifting online and digital. Pearson has a competitive advantage as they are twice the size of the nearest competitor. As digital adoptions grow, cost savings of GBP 300 are expected by 2020. Company is misunderstood by the market.
Company: Bunzl
Bloomberg Ticker: BNZL LN
Presenter: Alex Wright (Fidelity Special Situations Fund)
P/E: 24x
EV/EBITDA: 16x
Story: Global distributor and outsourcer (items such as plastic utensils). Fear of disruption from Amazon. Customers prefer them because they are more reliable and over bespoke solutions. Walmart is their largest client. Costa Coffee is another client.
Company: Transcontinental
Bloomberg Ticker: TCN/A CN
Presenter: Stephen Mitchell & Bryan Pilsworth (Foyston, Gordon & Payne)
P/E: 7x
EV/EBITDA: 6.6x
Story: A leader in flexible packaging in North America and Canada’s largest printing company. A high-quality company that is expected to apply their printing knowledge to the higher growth packaging business.
Company: National Oilwell Varco
Bloomberg Ticker: NOV US
Presenter: Stephen Anness (Invesco Perpetual)
P/E: NA
EV/EBITDA: 29x
Story: Company is a provider of equipment and components used in the oil and gas industry. Company has a strong balance sheet with FCF in 14 out of 15 years that has grown on average 11% for that period, and 70% market share in certain areas. The market views the company as an off-shore business. That business has been revenues drop significantly, but now 2/3 of sales comes from on-shore. The market hasn’t yet recognized this change.
Company: Buenaventura
Bloomberg Ticker: BVN US
Presenter: Alvaro Guzman & Fernando Bernad (Az-Valor Asset Management)
P/E: 16x
EV/EBITDA: 8.6x
Story: Miner in Peru. The company has the third largest copper mine in the world. Its 20% stake in Cerro Verde mine is worth the entire enterprise value of the company!
Company: Axalta Coating Systems
Bloomberg Ticker: AXTA US
Presenter: Jonathan Boyar (Boyar Value Group)
P/E: 24x
EV/EBITDA: 11x
Story: World’s 5th largest coatings company. Buffett owns a stake. The company rejected 2 takeover offers and are buying back shares. Typical buyout price: 13-15x EBITDA.
Company: Acushnet Holdings
Bloomberg Ticker: GOLF US
Presenter: Jonathan Boyar (Boyar Value Group)
P/E: 18x
EV/EBITDA: 11x
Story: Takeover target of this producer of golf products. The company is not in any index and is not well covered.
Company: Madison Square Garden Networks
Bloomberg Ticker: MSGN US
Presenter: Jonathan Boyar (Boyar Value Group)
P/E: 10x
EV/EBITDA: 9x
Story: Broadcaster that was spin out of MSG. This could be acquired. Market fears that cable operators may drop the sports channel. Considered cheap at 7x FCF.
Company: Franklin Resources
Bloomberg Ticker: BEN US
Presenter: Jonathan Boyar (Boyar Value Group)
P/E: 10x
P/B: 1.7x
Story: Investment management business buying back stock. Family which owns 40% may consider going private at the right price.
Company: Howard Hughes
Bloomberg Ticker: HHC US
Presenter: Jonathan Boyar (Boyar Value Group)
P/FFO: 20x
Story: Not in an index and ignored by investors, but CEO bought a warrant for $50m. That warrant will expire worthless if the stock doesn’t rise…
