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WOAPIC Fall 2014 Annual Portfolio Review

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by

Lorne Porayko

on 6 August 2014

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Transcript of WOAPIC Fall 2014 Annual Portfolio Review

2013/14 Annual Portfolio Review
Top 5 Holdings
8 Potential Core Positions
Portfolio
Fundamentals

Performance
The Top 5
The Minor Players
The Contenders
Important Disclaimer/Legal Stuff

FLEXIBILITY

DISCIPLINE

Serial Compounding Machines

Event Driven Special Situations

Cigar Butts

3 Value Themes

L. Porayko, MD
D. Wingnean, MD
simple but not easy
Discipline
Flexibility
Feedback/Inquiries:

lorne.porayko@williamoslercapital.com

david.wingnean@williamoslercapital.com

www.williamoslercapital.com


Absolute Performance

Relative performance

5 Dimensions of Value
Transformative Energy Themes (35%)
Transformative Media Themes
Hard Assets that produce $ flow

3 Broad Economic Foci




Net Long Equity + Cash USD Exposure:

60% USD – 40% CDN$ =
20%


THE PORTFOLIO:
Cash Management

AUM =  $1,543,177 CDN

Cash 39% total portfolio





10-15% LT Goal
Portfolio Concentration

Total Current Positions = 21
LT Goal: 15

Ex Cash Top 5 positions = 40% total
LT Goal: 50%

Performance
BYD-UN.TO
PSD.TO
NTS
NOV
SPE
8 Minor Players
ReHo
CFW.TO
BOBS.PK
CTMMB.PK
BPY-UN.TO
LUK
SAEX
STRA
SWZ-EWL Pair
ACFN
VIVHY.PK
MIC
INFU

SCHW
TEVA
CKH
Boyd Income Fund:
pricey serial consolidator

Allocation 5.5%
Total Return 138%
Annualized 70%

Mispriced? Nosebleed valuation: P/E 57x P/B 6x!

But…
impressive book value growth 12-18%/yr
organic growth: SSS up 8%
Acquisition run rate 6-10%
--> Not cheap!


Boyd Income Fund

Orientation of owner/operators?
Single open market buy in 2013
No selling
Directors/Execs own 3%



BYD-UN

Durable Competitive Advantage?

Yes:
Network effect
Barriers to entry: DRP contracts
PPG prepayment of rebates: subsidize acquisitions
Local efficient scale


BYD-UN

↑Leverage: Net debt rising D:E 1
FCF negative: dividend growth decelerating
Pipeline drying up
Customer concentration

BYD-UN: Threats

Strong–
solid business plan and execution
Massive $30B TAM
Increasing economies of scale
Edge: small cap, odd listing, prior governance

Extreme valuation stretch: plan is to incrementally bleed out our cost basis


Conviction

Pulse Seismic:
Riding the shale boom

Allocation 7.6%
Total Return 98%
Annualized 31%

Mispriced?
4.8x 2012 FCF cash yield of 22%
Earnings obscured by D&A non-cash charges
Lumpy revenues– Q2 was very weak

Normalized FCF $0.60-$1/share:
-->remains cheap

MOATS Discipline:
Pulse Seismic Data

Operators = owners (17%)
Consistent open market insider purchases
Consistent share buybacks ($2.5MM in 2013 Q1)
New Chairman = R. Robotti




PSD: Orientation


Reproduction value in the billions
$100K/km2 x 28,300 km ≅ $3B
vs. EV = $0.26B
By far lowest cost (1/5th new shoot)
Efficient scale: no competing 3D data!
Sticky contracts
New owners pay when land changes hands


PSD: Durable Competitive Advantage

Indirect effect of NG/Oil market pricing
Disruptive technologic change
Lumpy income obscures earnings visibility
Difficult to value

PSD: Threats to thesis

Very Strong:
Great business—80% operating margins
Macro tailwinds
NA NG renaissance– M&A/JV fee triggers
export terminal effect?
Asset base increasing in value
historic IRRs of 32%
Capital-light + strong balance sheet

Edge: small cap, listing, obfuscated accounting

PSD: Conviction

NTS: Nascent Cash Cow?

Allocation 5.3%
Total Return 36%

MOATS Discipline: NTS Inc.

Mispriced?
Subscriber CAGR 36%/yr over 3 years
Reproduction value >> 100% EV
Prima Facie metrics overshadowed
Secular revenue profile





CEO is largest shareholder (16% OS)
20% owned by 3 small value funds
13D filed by activists: change in BOD
Continuous buying by Lone Star Value Managers/Jeff Eberwein

NTS: Orientation

Natural oligopoly due to efficient scale
Massive capital barrier to entry
ARRA-RUS distortion in Texas
$100MM asset base
$46MM non-reimb loan (!)
$54MM loan amort 20-30 yrs <<< market yields
Non-recourse and fixed rate
FTTP infrastructure
No peer for broadband

NTS: Competitive Advantages

Unexpected high customer churn
Unexpected high MCapex
Regional economic downturn
Execution problems with remaining rollout

NTS: Threats to Thesis

Very Strong
Attractive business plan/Barriers to entry
MOS/limited downside
Free call options
Ultra-high margin backhaul opportunity (ground to tower)
CLEC rev run-off – 10%/yr est. $1MM EBIDTA/yr
Cash tax shield/NOLs
Consolidation trend (PE)

Edge: small cap, obfuscated accounting, non-promotional



NTS: Conviction

Introduction
Full transcript