Jeffrey D. Stacey and William R. Muirhead

Jeff Stacey, CFA, is the Founder and Portfolio Manager for Stacey Muirhead.

  • Investment Process
    • Global Reach
    • Independent research (stock pickers)
    • Concentrated (10-20 positions)
    • Unconstrained (sector, size, arbitrage, distressed debt)
    • Absolute return focus
    • Long term horizon (10 years)
    • Main emphasis on long term holdings
    • Secondary emphasis on arbitrage, high yield, cash
  • Long Term Holdings
    • Cigar Butts & Good Businesses (Buffett/Munger)
      • Outstanding business economy?
      • Honest & capable management?
      • Attractive price?
      • “Great people, Great business, Great price”
  • Example Reckitt Benckiser Group Plc (LON:RB)
    United Kingdom

    • Non-Core holdings (Frank’s Hot Dogs & French’s Mustard) potential spinoff/sell
    • Hi ROE 30%+
    • Strong Balance Sheet $6B equity/$1.7B debt
    • Attractive Operating & Net Margins
    • Significant brand recognition
    • Growing revenues & earnings power over time (double digits)
    • Consistent FCF generation
    • Solid record since merger in 1999
      • Revenue $3B to $9B (10% CAGR)
      • Net Income $200M to $1.8B (20% CAGR)
  • Solid Brands – Five #1’s worldwide
  • Management
    • Rakeesh Kapoor new CEO after Bart Becht stepped down in the past year
    • Management required to own certain amount of shares (over £100M currently)
    • Incentives linked to tangible performance targets based on EPS growth
  •  Price – £31 March 2011
    • P/E 12.5x after adjustments for acquisition
    • Dividend yield 3.7%
    • Substantial Food & Pharma Businesses that were non-core
    • Buy opportunity – down 16% in 3 months

 

  • Risks
    • Raw material cost increase
    • Retailer consolidation
    • Private label products (steady at 20% of category)
    • Margin expansion (continue?) – believe room in emerging markets
    • Ability to scale globally
    • Generic competition in Pharma business

 

  • Q&A
    • Risk with Canada & currencies?
      • Yes, Canada dollar high & has hurt for 5 years
  • R&D component?
    • More in system innovations than in new product development
  • Evaluating attractive vs. unattractive: tipping point?
    • Estimate fair value & look for more appealing options
    • Not exact – part art

 

Value Investor Conference: Omaha, Nebraska – May 4rd, 2012

Dustin Hunter, SunRift Capital Partners (www.sunriftcp.com)

 (These notes are to the best of my recollection and trusty ink pen. Discrepancies are due to my error in understanding & transcribing.)