Hedge funds' best ideas #16
Hedge funds' best ideas #16
35 pitches found in hedge fund reports this week
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Aristotle on American International Group $AIG US
Thesis: AIG’s transformation under its current CEO and focus on divesting non-core divisions position it for improved profitability, making it an attractive investment.
Extract from their Q3 letter, link here
Analysis: "Established in 1919 and headquartered in New York, American International Group (AIG) is one of the largest global insurance companies. AIG provides a comprehensive range of property and casualty (P&C) insurance to businesses and individuals in over 190 countries. The company has also a 48% stake in Corebridge Financial (Corebridge), AIG’s old Life & Retirement segment.
AIG’s government bailout following the 2008 global financial crisis left the company on a 10+-year journey to transform its business (including five CEOs) by streamlining operations and attempting to improve its image with the public and investor community. Since taking over the General Insurance business in 2017 and assuming the role of CEO in 2021, Peter Zaffino has restructured underwriting and increased levels of insurance to reduce risk and control volatility, implemented a new structure for its High Net Worth business, divested non-core divisions such as crop risk and personal travel, and separated its Life & Retirement segment into the independently publicly traded company Corebridge. Following these actions, AIG will be a purely General Insurance focused business, with roughly 75% of its premiums tied to commercial and 25% to personal policies. We believe with Mr. Zaffino’s emphasis on risk-adjusted returns, AIG has become a stronger, more focused organization."
Check here for the latest results, quarterly call and analysts' estimates.
Clearbridge on Broadcom $AVGO US
Thesis: Broadcom’s custom silicon business and acquisition of VMware provide durable growth opportunities, making it a strong investment in the AI sector with a favorable risk/reward profile.
Extract from their Q3 letter, link here
Analysis: "In IT, we bought Broadcom as we believe the company has a long runway for growth with its custom silicon business, which should be more durable and less volatile than other components within the AI food chain. We also believe the acquisition of VMware creates another opportunity for steady, subscription-based durable growth that is still in its early innings. We believe the stock has an attractive risk/reward profile given the reasonable visibility toward mid-teens EPS growth at a low-20s P/E multiple. We made room for Broadcom by exiting Lam Research, whose shares we believed priced in a full recovery, while we grew increasingly concerned that China exposure might create an air pocket."
Check here for the latest results, quarterly call and analysts' estimates.
Appalaches Capital on Canadian National Railway Company $CNI US
Thesis: Canadian National and CSX are positioned to benefit from recent improvements in service metrics and scheduled railroading, making them solid long-term investments with potential for high returns.
Extract from their Q3 letter, link here
Analysis: "During the quarter, we established core positions in two railroads: Canadian National Railway Company (CNI) and CSX Corporation (CSX). The investment thesis is simple. Domestic railroads have not seen volume growth over the last 20 years despite being the cheapest, cleanest, and safest form of freight transportation. The lack of volume growth and related share losses to trucking is due to the poor reliability of the networks. However, there is strong evidence to believe that this may not be the case going forward. It seems that investors are overweighting historical characteristics of the industry and not giving credit to recent and sustainable improvements in service metrics. If the rails are able to show any sign of sustained volume growth, our investment should perform very well."
Check here for the latest results, quarterly call and analysts' estimates.
Appalaches Capital on CME Group $CME US
Thesis: CME Group’s dominance in the futures market, coupled with significant competitive advantages, positions it well against emerging challengers like FMX, making it a high-quality, defensive investment.
Extract from their Q3 letter, link here
Analysis: "While the rest of the world appeared worried about new competition threatening CME Group Inc. (CME) and their dominant position in interest rate futures, I took the opposite view and added it to the portfolio. CME Group is best known for operating the Chicago Mercantile Exchange, which enables futures and futures-based derivatives trading worldwide. CME has an overwhelming share of the interest rates market with 99% share of U.S. treasury futures. Exchanges tend to be very high-quality businesses with natural and defensive competitive advantages. At the time of our purchase, CME traded at the 4th and 26th percentile of its 10- and 20-year historical valuation range on concerns of increasing competition.
BGC Group, headed by Howard Lutnick, is attempting to launch a new treasury futures exchange, FMX, to compete with CME. With CME having nearly all of the market share, it is easy to see why this could be enticing. As an incentive, BGC is waiving all trading fees on the platform and providing other financial incentives for large anchor trading firms. These firms include large banks, Citadel, Tower Research, and Jump. With this lineup and incentive structure, the challenge became newsworthy, and I believe that it was weighing on CME’s stock price.
Despite the interesting story, the new exchange has the odds stacked against it. Trading fees comprise a very small portion of the trading costs that market participants incur. The largest cost is the spread, which is lowest where the most liquidity resides. CME clearly wins in this regard, making it difficult to displace them as the incumbent exchange. Additionally, broad exchanges that act as a clearing house can provide cross-margining, which allows for a minimized capital outlay for trades with offsetting legs. The more products that an exchange provides, the more benefits can be realized from cross-margining. CME offers one of the most diverse platforms in terms of products offered, further cementing its value to customers."
Check here for the latest results, quarterly call and analysts' estimates.
Appalaches Capital on Coupang $CPNG US
Thesis: Coupang’s dominant position in South Korean e-commerce, combined with its growing user base and long-term revenue growth potential, makes it a strong investment despite short-term volatility and low profitability.
Extract from their Q3 letter, link here
Analysis: "A new core holding of the portfolio that may appear confusing is Coupang (CPNG). Coupang mainly provides a first-party marketplace in South Korea and Taiwan that is similar to Amazon here in the U.S. Coupang additionally has other digital services such as Coupang Play (streaming), Coupang Eats (food delivery), and Coupang Pay (payments). Coupang has a dominant position in South Korean e-commerce, with nearly half of the population represented as an active customer on the platform. At first glance, the company appears marginally profitable and very expensive against current earnings, so it certainly appears to be an outlier against the rest of the portfolio."
Check here for the latest results, quarterly call and analysts' estimates.
Patient Capital Management on Dave & Buster’s Entertainment $PLAY US
Thesis: Dave & Buster’s ongoing transformation efforts and share buybacks position it for significant growth once consumer spending rebounds.
Extract from their Q3 letter, link here
Analysis: "We started a position in Dave & Buster’s Entertainment Inc. (PLAY) during the quarter, a leading dining and entertainment venue in the United States. Founded in 1982 in Dallas, Texas the company has expanded to over 200 venues in North America across two brands (Dave & Busters, and Main Event). The company is in the middle of a multi-year transformation focused on reinvigorating growth through store remodels, store expansions, and technology upgrades while improving the margin profile of the business through cost optimizations and synergies. All the hard work has not shown up in the numbers yet as the macro environment continues to weigh on consumer expenditures. As the company continues to deliver against their plan, we believe the effort will lead to a drastically improved business model as consumer spending returns. In the meantime, the company continues to return cash to shareholders buying back 19% of shares since 2023."
Check here for the latest results, quarterly call and analysts' estimates.
Kingdom Capital Advisors on ECC Capital $ECRO US
Thesis: Despite terminal value risks, ECRO presents a low-market-cap opportunity with strong cash flow from local power sales and local initiatives supporting margins.
Extract from their Q3 letter, link here
Analysis: "In the 'oddball' bucket, we bought shares in ECC Capital (ECRO) during Q3. This funny little shell acquired a coal mine in Wyoming back in April, which upon further digging revealed an operation that historically has generated healthy margins from sales to a local power plant. Based on public data, we think this mine might still be generating close to $20m of annual cash flow, despite ECRO trading below a $10m market cap. The local power plant has announced plans to convert from coal to natural gas by 2026, which introduces terminal value questions for the coal mine. However, there are two local initiatives, a cosmetics plant and an ammonia plant, which could provide ongoing offtake to protect the mining jobs and maintain margins. Given the valuation, we’re willing to come along for the ride. An ownership limitation exists preventing us from going over 2.5% ownership, or we would have invested more."
Check here for the latest results, quarterly call and analysts' estimates.
Aristotle on Eli Lilly $LLY US
Thesis: Eli Lilly’s leading drug pipeline and potential for expanding Mounjaro’s indications beyond Type 2 diabetes support its growth and premium valuation.
Extract from their Q3 letter, link here
Analysis: "Eli Lilly is a leading pharmaceutical company that develops diabetes, oncology, immunology, and neuroscience medicines. The company generates over half of its revenue in the U.S. from its leading drugs Trulicity, Verzenio, and Taltz. The company operates in a single business segment: human pharmaceutical products.
Eli Lilly has a deep pipeline in treatment areas focused on metabolic disorders, oncology, immunology, and central nervous system disorders. Currently, there are two phase-three assets: orforglipron, an oral GLP-1, and retatrutide, a triple incretin agonist, which could possibly expand upon the potential success of Mounjaro. We believe that Mounjaro has the potential to commercialize beyond Type 2 diabetes and obesity, potentially in the areas mentioned above of heart disease, sleep apnea, fatty liver disease, and chronic kidney disease. We believe the premium valuation is supported by this outsized growth profile."
Check here for the latest results, quarterly call and analysts' estimates.
Patient Capital Management on Expedia Group $EXPE US
Thesis: Expedia’s successful transformation efforts, undervalued B2C business, and consistent share buybacks offer strong potential for long-term growth.
Extract from their Q3 letter, link here
Analysis: "Expedia Group Inc. (EXPE) is a leader in the online travel space. Despite travel demand remaining strong in 2024, Expedia has remained under pressure for most of the year as investors feared a hard landing. Those fears seemed to give way in the third quarter with Expedia returning as a top contributor. With a new management team, new single tech platform, and new marketing strategy, the company has experienced a lot of change. Having successfully navigated these transitions, we see the company as well set up to gain market share in a very large industry while continuing to improve the margin profile of the business. At today’s valuation, the company is receiving little credit for their B2C business which is still generating ~54% of their corporate EBITDA (excluding VRBO). While the market is overly focused on near-term dynamics, the company continues to return cash to shareholders buying back 20% of outstanding shares since 2021."
Check here for the latest results, quarterly call and analysts' estimates.
Patient Capital Management on Kosmos Energy $KOS US
Thesis: Kosmos Energy’s inflecting free cash flow, combined with undervaluation and strong reserves, presents a significant growth opportunity and potential acquisition appeal.
Extract from their Q3 letter, link here
Analysis: "Kosmos Energy (KOS) is an exploration and production services company with assets in Africa. The company is nearing the point where their free cash flow generation will inflect meaningfully higher as new production comes online and CAPEX spend returns to a more normalized maintenance level. We see this as a classic case of time arbitrage where the market is myopically focused on the current year’s high level of investment while ignoring the strong free cash flow generation on the other side. At the current commodity curve, the company will generate its market cap in FCF from 2025-2028. With the combination of gas-heavy reserves and inflecting cash flow generation, we think Kosmos is significantly undervalued and a potential acquisition target."
Check here for the latest results, quarterly call and analysts' estimates.
Clearbridge on Light and Wonder $LNW US
Thesis: Light and Wonder’s focus on expanding its gaming equipment leasing and its entry into online gaming position it well for growth, particularly as more U.S. states approve online gambling.
Extract from their Q3 letter, link here
Analysis: "We also initiated a new position in Light and Wonder, in the consumer discretionary sector, which operates as a cross-platform games company. With Light and Wonder largely known for its physical slot machines, the company’s new management team has made research and development and improving capital allocation a priority, accelerating market share gains and greater recurring revenue due to its focus on expanding its leasing options for gaming equipment. Additionally, the company has assembled a well-qualified team to expand its growing footprint within video and online casino gaming markets, which we believe are poised to accelerate as more U.S. states approve online gambling."
Check here for the latest results, quarterly call and analysts' estimates.
Aristotle on Linde $LIN US
Thesis: Linde’s market leadership in industrial gases, combined with its defensive business model and exposure to growth markets like hydrogen, makes it a strong player with opportunities in decarbonization.
Extract from their Q3 letter, link here
Analysis: "Linde is the largest industrial gas company worldwide and a major technological innovator in the industry. The company produces atmospheric gases like oxygen, nitrogen, argon, and rare gases through air separation processes, with cryogenic air separation being the most prevalent. It also has technologies to produce blue and green hydrogen, which are considered clean energy. Linde uses three basic distribution methods for industrial gases: on-site or tonnage, merchant or bulk liquid, and packaged or cylinder gases. These methods are often integrated, with products from all three supply modes coming from the same plant. The method of supply is determined by the lowest cost means of meeting the customer's needs.
Linde holds a leading market share in a consolidated industry, with expected revenues of approximately $34 billion in 2024. The company has consistently grown its earnings throughout economic cycles due to its exposure to both cyclical and defensive end markets. The operating model also benefits from defensive characteristics that include long-term supply agreements signed with customers, with over 70% of the business having contracts of at least 3 years, providing defensive characteristics to its operating model. We see a robust backlog and pipeline driven by attractive growth end markets and significant decarbonization opportunities with operational discipline from management."
Check here for the latest results, quarterly call and analysts' estimates.
Kingdom Capital Advisors on Net Lease Office Properties $NLOP US
Thesis: NLOP is nearing debt payoff and dividend returns, presenting an undervalued liquidation opportunity with future upside from property sales and lease extensions.
Extract from their Q3 letter, link here
Analysis: "Our largest position remains Net Lease Office Properties (NLOP). The company continues to sell properties and extend leases, executing on the orderly liquidation they promised. We invested in NLOP confident the stock was undervalued, EVEN IF leases were not extended and the current properties were only worth the present value of their remaining rent payments. Yet, NLOP extended four leases in Q2 alone, and their most recent property sale (a CVS campus in Arizona) sold for less than a 6% cap rate—far above our estimate of value. NLOP appears very close to paying off their remaining debt and returning cash via dividends, which we expect will be the next catalyst to move the stock higher. I had the opportunity to present the idea at the annual MicroCapClub conference, a private investors forum where I first profiled the stock before the initial sales announcements."
Check here for the latest results, quarterly call and analysts' estimates.
Heartland Advisors on New Gold $NGD US
Thesis: New Gold's improved production efficiency, reduced costs, and strong financial flexibility position it for significant growth, supported by insider buying and attractive valuation.
Extract from their Q3 letter, link here
Analysis: "For example, our research indicated the outlook for New Gold (NGD), a pure Canadian gold and copper producer, was steadily improving. NGD has met guidance for eight consecutive quarters, as both of its mines are hitting their production stride. The company is forecast to tap approximately 600,000 ounces of gold equivalent in FY2026, up 42% compared with last year’s output. Excellent drilling results coupled with better efficiencies have reduced New Gold's all-in sustaining costs (AISC) to $1,381 per ounce of gold, down from a recent high of $1,657. The company is on track to slash AISC’s more than 50% by 2026.
Under new management headed by CEO Patrick Godin, who joined in 2022, NGD is enjoying financial flexibility that allows for exploration to grow reserves and extend the life of mines. The team continues to execute significantly increasing production, cutting costs, and posting exceptionally strong free cash flows. Our research process was validated by strong insider buying in the company. Yet despite doubling in value, NGD was priced at 8x our estimated 2025 earnings, less than 6.5x free cash flow and scored 8/10 on our research grid. We added to the position."
Check here for the latest results, quarterly call and analysts' estimates.
Platinium on Nice $NICE US
Thesis: Nice Ltd offers an essential SaaS solution for call centers, and despite concerns over AI, its strong position and discounted valuation make it a solid investment.
Extract from their Q3 letter, link here
Analysis: "We also bought a 4% position in Nice Ltd, the leading SaaS provider of enterprise-grade call center software. We like the business as call center software is mission-critical, complex to execute, and customers stay with one vendor for 8 to 10 years. Nice is down ~35% from March highs and trades on a meaningful discount to its future growth prospects amidst concerns that AI agents will disintermediate call center software. We believe that generative AI will be sold as an add-on to make human agents more efficient, and further strengthen the position of market leaders as opposed to disrupting them."
Check here for the latest results, quarterly call and analysts' estimates.
Clearbridge on O’Reilly $ORLY US
Thesis: O'Reilly’s strong execution, high returns on capital, and countercyclical nature of the auto parts industry make it a compelling investment in a challenging retail environment.
Extract from their Q3 letter, link here
Analysis: "While we have been cautious on retailers for quite some time, auto parts retailer O'Reilly is a best-in-class, high-quality operator with high returns on invested capital and a solid history of consistent execution and sustainable share gain, and it enjoys rational competitive dynamics in the broader industry. In addition, auto parts retailing carries some countercyclicality as consumers tend to hold on to their cars longer, requiring more repair and maintenance, during softer economic environments. We think a high-quality franchise like O'Reilly trading at a reasonable valuation in an otherwise expensive market is worth our attention, and we initiated a starter position."
Check here for the latest results, quarterly call and analysts' estimates.
Patient Capital Management on Precigen $PGEN US
Thesis: Precigen's PRGN-2012 program offers promising therapeutic potential, with strong leadership and clinical progress, positioning the company for significant growth in the gene therapy space.
Extract from their Q3 letter, link here
Analysis: "Precigen Inc. (PGEN) is an early-stage biopharmaceutical company focused on next-generation cell and gene therapies. The company’s PRGN-2012 program in recurrent respiratory papillomatosis (RRP) has the potential to be the first-in-class “off-the-shelf” immunotherapy in a patient population with limited options. The company expects a BLA submission by year-end with a planned launch in 2025. In August, the company raised an additional $31M in equity, which is expected to fund operations into early 2025. The company is run by Dr. Helen Sabzevari, who has extensive expertise in research and development of immunotherapy-based therapeutics, having founded and served as Chief Scientific Officer of Compass Therapeutics. She has driven amazing clinical progress at PGEN over the past few years, and we believe that PRGN-2012 is well positioned to be a best-in-class therapeutic for RRP."
Check here for the latest results, quarterly call and analysts' estimates.
Patient Capital Management on QXO Inc $QXO US
Thesis: With a strong founder and management team, QXO is set to leverage its roll-up strategy and achieve significant long-term growth, aiming for a 25% IRR and $50B in revenue.
Extract from their Q3 letter, link here
Analysis: "This quarter we entered two new positions, while exiting two positions. We entered QXO Inc. (QXO), a newly formed entity headed up by serial Founder and CEO, Brad Jacobs, and focused on the $800B building products distribution industry. The company has +$5B ready to deploy against their roll-up strategy in a highly fragmented industry. The management team plans to implement their proven playbook of bringing scale, and technology infrastructure to an inefficient market. We participated in their last PIPE (private investment in publicly traded entity) transaction in mid-July where the company raised capital at $9.14. Management set the price to provide investors with a ~25% IRR over a ten-year investment horizon, one of the most investor friendly capital raises we have ever seen. While no deals have been announced, the company is targeting >$50B of annual revenue in ten years. We have high conviction in Brad Jacobs’ proven track record and believe QXO is set up well to become a long-term compounder."
Check here for the latest results, quarterly call and analysts' estimates.
Plural Investing on Seaport Entertainment $SEG US
Thesis: Seaport's undervalued assets, including Pier 17 and prime Manhattan land, combined with management's plans to redevelop, offer strong potential for recovery and growth.
Extract from their Q3 letter, link here
Analysis: "We agree that Seaport is attractively valued. Post rights offering, the company will have a market cap of $330mm at today’s prices and net cash of $50mm. For context, Howard Hughes invested at least $1.3bn into these assets, and likely closer to $1.5bn once various JVs and opaque assets are included. While the company is loss making, we believe it is trading for 25 cents on every dollar invested and that a new and well incentivized management team can recover a significant portion of this value.
We think that Seaport has three key assets. The first is a fully entitled block of land at 250 Water St in New York, next to the historic and cobblestoned Seaport district, 5 minutes’ walk from the East River waterfront and 9 minutes’ walk from Wall St. The land cost $180mm and another $63mm was spent on legal fees and preparing it for development. As a result, the land is now fully approved for a 27-story building with ~547,000 sqft, including apartments overlooking the water and Brooklyn Bridge. We believe that it is very rare to find fully approved land in this area of Manhattan and that the economics work for a developer to purchase it relatively soon for around $180mm. If true, this asset alone offers substantial downside protection at today’s $330mm market cap."
Check here for the latest results, quarterly call and analysts' estimates.
Platinium on Shinhan $SHG US
Thesis: Shinhan’s shareholder-friendly reforms, including increased payouts and stock buybacks, make it an attractive investment with a low valuation and strong return potential.
Extract from their Q3 letter, link here
Analysis: "The interest in Shinhan resulted from the Government’s ‘value up’ program, which is similar to the corporate reform push in Japan. Unlike many other Korean firms, the big two banks (Shinhan and KB Financial) have long sought to increase shareholder returns, but were prevented by the regulator, who preferred the banks to constantly hold more capital for a ‘rainy day.’ This had the dual effect of lowering Returns on Equity and ironically, leading the banks to enter marginal business lines to do something with all the excess capital they were forced to hold.
This situation has now been flipped under value-up, with the banks encouraged to increase shareholder returns and close their discount to book value. Shinhan has upped its payout ratio to 50% and plans to buy back a considerable portion of its shares. That should be very favourable for shareholders given the stock trades at only 6x earnings and 0.6x of book respectively."
Check here for the latest results, quarterly call and analysts' estimates.
O'Keefe Stevens on Southwest Gas Corporation $SWX US
Thesis: Southwest Gas is well-positioned for rate-based growth driven by population increase in key regions and proposed rate filings, enhancing earnings potential.
Extract from their Q3 letter, link here
Analysis: "In our income portfolio, we initiated a position in Southwest Gas Corporation, a utility provider in Nevada, Arizona, California, and Utah. Florida has become less affordable due to higher insurance costs (in parts, unable to get) and rising HOA fees. The likelihood of future retirees opting for locations where they do not have to worry about their house getting destroyed or moving into a residential complex that could become unaffordable on a fixed income will result in a generation no longer retiring in the southeast—instead, the West. Population growth will drive incremental power demand in Southwest’s regions.
Southwest submitted rate case filings to each respective state in the near term, proposing significant rate base increases that would drive near-term EPS growth."
Check here for the latest results, quarterly call and analysts' estimates.
Clearbridge on Starbucks $SBUX US
Thesis: Starbucks’ brand strength and new leadership under CEO Brian Niccol present a solid turnaround opportunity despite recent challenges in U.S. store operations.
Extract from their Q3 letter, link here
Analysis: "Similarly, we took advantage of a business reset at Starbucks in the third quarter to initiate a position in the global coffee retailer. A confluence of factors, including degraded store-level operations and long consumer wait times, consumer fatigue with high prices, and weakening engagement among occasional Starbucks customers has led to declining U.S. same-store sales growth. While the path ahead will likely require reinvestment back into the business, there are many merits to Starbucks’ business including its strong brand name and category-leading market position. In response to recent challenges, Starbucks has appointed change-agent CEO Brian Niccol, who we know from the Strategy’s ownership of Chipotle Mexican Grill during its turnaround. Niccol has a successful track record of investing in product innovation and fixing execution issues, which we believe are the primary challenges facing Starbucks today."
Check here for the latest results, quarterly call and analysts' estimates.
Kingdom Capital Advisors on United Natural Foods $UNFI US
Thesis: UNFI shows signs of recovery with rebounding sales and strong focus on cash flow generation, positioning itself well after a period of disappointing results.
Extract from their Q3 letter, link here
Analysis: "We established a new position in United Natural Foods (UNFI) during Q3. This stock is new to the fund; however, it was a substantial winner for me in 2019/2020 as the demand for grocery into Covid shutdowns significantly accelerated their earnings. I have watched this stock waiting for a good re-entry, and I believe they are turning a corner after several quarters of disappointing results. The company validated our trust on the first day of Q4, posting improved margins, rebounding sales volumes, and providing a roadmap to further bolster their balance sheet. We particularly like the new CFO and his focus on cash flow generation, a theme we expect to play out in the coming quarters."
Check here for the latest results, quarterly call and analysts' estimates.
Aristotle on Verizon Communications $VZ US
Thesis: Verizon’s leading position in wireless services, combined with its focus on fiber expansion, makes it well-positioned for long-term growth and profitability.
Extract from their Q3 letter, link here
Analysis: "Verizon Communications Inc. is headquartered in New York and is one of the largest telecommunications companies in the U.S. The company was formed in 2000 with the combination of Bell Atlantic Corp. and GTE Corp., businesses with roots dating back to the late 19th century and the beginning of the telephone business. Over the years, Verizon has expanded through strategic acquisitions and innovations, particularly in wireless technology, which has become the cornerstone of its business. Unlike its competitor AT&T’s strategy of vertical integration through the acquisition of media and entertainment companies, Verizon has instead focused on expanding its fiber networks in major cities and acquiring wireless spectrum to increase network capacity and performance. Today, Verizon’s wireless services account for approximately 70% of its revenue, serving over 90 million postpaid and 20 million prepaid phone customers, making it the country’s largest wireless carrier."
Check here for the latest results, quarterly call and analysts' estimates.
Infuse AM on Intellego $INT SS
Thesis: Intellego has a significant runway for growth, with strong potential for profitability at a low valuation, making it a highly attractive opportunity.
Extract from their Q3 letter, link here
Analysis: "I don’t think it’s unreasonable to believe that the company could do $20 million in EBIT over the next 18 months. With $6 million in cash build, that would be a little bit more than 3x ‘25 EV/EBIT. For a company that could continue growing over 30%, with no customer concentration, a founder at the helm, a huge runway, and repeat customer behavior, that is far too cheap."
Check here for the latest results, quarterly call and analysts' estimates.
Patient Capital Management on Seadrill Limited $SDRL NO
Thesis: Seadrill’s strategic position in deepwater drilling and commitment to shareholder returns make it an attractive investment, with potential for consolidation or acquisition.
Extract from their Q3 letter, link here
Analysis: "Seadrill Limited ($SDRL) is the fourth largest pure play deepwater drilling specialist. The company emerged from bankruptcy in February 2022 with a net cash position. The company is set to benefit from limited supply and increasing demand in the deepwater drilling rig market. Nearly half of all deepwater drilling rigs in the world were scrapped during the last decade. In addition, player consolidation puts the industry in a more rational position than we have seen historically. As land-based oil production growth comes under pressure, offshore production is receiving renewed interest. With a highly specialized rig base, the company is benefiting from increasing prices which are leading to strong FCF yields given the limited need for CAPEX. The company has committed to returning 50% of free cash flow to shareholders via dividends and buybacks. Over the last 12 months, the company has reduced shares outstanding by 17%. As old contracts roll-over and new contracts are signed at the higher day rates, operating profit and FCF are expected to expand dramatically. Seadrill could either consolidate the space or be acquired."
Check here for the latest results, quarterly call and analysts' estimates.
Plural Investing on Watches of Switzerland $WOSG LN
Thesis: Watches of Switzerland’s strong relationship with Rolex and expanding service capabilities position it for double-digit growth, with potential to double its value in three years.
Extract from their Q3 letter, link here
Analysis: "Watches of Switzerland is a retailer and partner to Rolex and other luxury watch brands. We believe most of the company’s value lies in its relationship with Rolex, which only sells through authorized retailers like WoS who act as gatekeepers to the Rolex universe. That relationship gives WoS far superior economics to a typical retailer, a result of lengthy customer waiting lists, no online competition, and no inventory risk. WoS’s management are competent, experienced, and well incentivized, with CEO Brian Duffy owning nearly £40mm worth of stock. We first bought shares around £3.5 (see our report here), it trades at £4.8 today and on 12x this year’s FCF despite double-digit growth. We think intrinsic value in three years will be around double today’s price."
Check here for the latest results, quarterly call and analysts' estimates.
Platinium on JINS $3046 JP
Thesis: JINS benefits from strong consumer demand and premium pricing, with same-store sales growth and an attractive valuation compared to its sector.
Extract from their Q3 letter, link here
Analysis: "JINS is a value-oriented eyewear retailer. They operate 495 stores across Japan, and are looking to expand internationally. Strong execution in their own-label products and a low-cost supply chain positions them to benefit from higher consumer spending and capture that strength through higher average selling prices and the sale of more premium lens options. We are seeing double digit same store sales growth while the stock is now better value vs its sector (historically a 35X multiple but now 25X). That’s slightly above the TOPIX retail sector average of 2025X."
Check here for the latest results, quarterly call and analysts' estimates.
Platinium on Marui $8252 JP
Thesis: Marui’s shift toward non-retail tenants and strong fintech business positions it for growth as consumer spending rebounds and rent levels recover.
Extract from their Q3 letter, link here
Analysis: "Marui is a hybrid fintech/mall operator focused on central Tokyo shopping locations. Some 75% of Operating Profit comes from fintech, largely credit card installments and revolving credit. Marui is shifting its mall business from traditional apparel retail tenants to non-retail tenants which have better operating metrics. We should see rent levels recovering to pre-COVID levels and falling vacancies as consumer spending picks up. This also benefits the fintech business through rising transaction volumes."
Check here for the latest results, quarterly call and analysts' estimates.
Platinium on Rakuten $4755 JP
Thesis: Rakuten’s mobile business shows signs of a turnaround with improving metrics and potential for EBITDA breakeven in FY25, while pricing advantages position it for market share growth.
Extract from their Q3 letter, link here
Analysis: "Rakuten is a leading diversified business-to-consumer tech conglomerate that operates e-commerce and fintech businesses. In 2020 it diversified into mobile telephony but despite initial hopes, poor network quality, higher churn rates, and a rising investment burden resulted in significant operating losses. The stock subsequently derated, more than halving from its 2021 peak. However it appears they have now turned a corner, with sequential quarterly improvement in metrics, particularly a drop in churn rates and healthy subscriber growth. Losses in their mobile business have shrunk considerably and they could see breakeven on an EBITDA basis in FY25. Their network quality is also expected to improve as they rollout a 700Hz band this year. Given their more appealing pricing versus Softbank, KDDI & Docomo we think they are in a strong position to capture share."
Check here for the latest results, quarterly call and analysts' estimates.
Timesquare CM on Timee $215A JP
Thesis: Timee’s efficient platform for short-term job seekers and gig workers has made it a market leader in Japan, positioning it well for growth.
Extract from their Q3 letter, link here
Analysis: "During the quarter, we participated in the IPO of Timee, a Japanese job platform specializing in short-term job postings. Timee offers a unique and flexible solution for both job seekers and employers. The company's core operations center around its digital platform, which connects job seekers with employers seeking short-term and gig workers. With an average work length of four hours, Timee has established itself as a clear market leader by providing streamlined services that traditional HR companies have struggled to match efficiently."
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Platinium on Meitu $1357 HK
Thesis: Meitu offers value through its core photo app, with additional upside potential from promising new ventures like its Canva-like software suite.
Extract from their Q3 letter, link here
Analysis: "While we haven’t made major changes to our Chinese holdings, there were small adjustments. We re-initiated a modest-sized position in Meitu, the entrepreneurial company behind a popular photo editing app. In our estimation, the core asset more than underpins the value we paid, allowing us to essentially get the other promising assets within the group for free. Some of these emerging businesses look quite promising, for example a Canva-like software suite targeting small businesses' image creation and editing needs, which has rapidly gained traction in China. We sold out of our stake in the business less than a year ago simply because the share price moved up sharply and we felt it was no longer such a compelling risk-reward proposition. We are pleased to have been able to get back in at a reasonable price, while the business itself has been delivering on our expectations."
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Pernas Research on Enterprise Group $E CN
Thesis: Enterprise Group's growth potential in clean energy and mining sectors, combined with new gas turbine deployments, positions it for strong profit generation in the next five years.
Extract from their Q3 letter, link here
Analysis: "Enterprise Group (OTCQB) — market cap $140mm; Price $2.41; EV/EBITDA 10. We typically avoid companies with significant commodity exposure; however, we are making an exception with Enterprise Group. E.TO/ETOLF (dual listing) is a profitable oilfield services company based in Canada that has recently signed an exclusive agreement with FlexEnergy to be a provider of their modular natural gas turbines. These turbines, deployed at well sites, generate energy for operators with nearly zero emissions, offering a cleaner alternative to the widely-used diesel generators, which are substantially more expensive and emit substantial pollutants. Enterprise Group has strong growth potential, with opportunities to expand into sectors such as mining and edge data centers. The turbines have a payback period of approximately 16 months, and Enterprise Group has already deployed about thirty of them at well sites."
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Palm Harbour Capital on M Dias Branco $MDIA3 BZ
Thesis: M Dias is positioned to improve margins and benefit from market consolidation, offering a strong cash flow yield with potential for dividend growth.
Extract from their Q3 letter, link here
Analysis: "The balancing act of price and volumes post inflation, the introduction of a complicated tax scheme and some ERP implementation challenges (we have never heard of an ERP implementation going according to plan) offered an interesting entry point for an otherwise good business. As cost pressure is cooling off on top of management’s initiatives to simplify the business, adjust prices, and improve utilization, we expect to see EBITDA margins moving back to 15-16% range in line with history and likely above. In our view, M Dias trades at a mid to high-teens free cash flow yield, half the enterprise to EBIT multiple pre-crisis (7.5x vs 15x) and now has net cash on its balance sheet. We think the company will have room to continue to consolidate the market and increase the dividend substantially."
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Sandon Capital on Fleetwood Ltd $FWD AU
Thesis: Fleetwood’s recovery in its core businesses, coupled with strong demand in key sectors, positions it for significant growth in earnings and cash flow in the coming years.
Extract from their Q3 letter, link here
Analysis: "FWD has three business units: (i) Building Solutions is Australia’s largest modular builder, (ii) Community Solutions owns and manages accommodation facilities in Karratha (Searipple) and Port Hedland (Osprey) in Western Australia, and (iii) RV Solutions supplies parts, accessories, and services to the recreational vehicle market.
After returning to profitability at the Group level in FY23, FWD continued to build upon the solid foundations that have been put in place. The Building Solutions business returned to profitability in FY24 following two years of losses arising from legacy contracts entered into under previous management. It signed some important contracts with various state government agencies towards the end of the fiscal year that should help deliver continued earnings growth for the foreseeable future. We expect FWD to be a significant beneficiary as the cost, efficiency, and environmental benefits of modular construction become better known and the building technique is adopted more broadly."
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Here are some additional Q2 letters :
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