The 10th Annual New York Value Investing Congress takes place in New York on September 8th and September 9th 2014. ValueWalk will be providing coverage of the event- below are two long ideas from Guy Gottfried.
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Guy Gottfried is the Founder and Manager of Rational Investment Group, a value-oriented investment fund. Rational employs a risk-averse, research-intensive value methodology to uncover securities exhibiting material upside potential along with minimal risk of capital impairment.
Guy Gottfried’s Idea 1: Holloway Lodging Corporation (TSE:HLC)
Pitched this idea in omaha at VIC 2012…stock has not moved since he pitched
says he doesn’t like to pitch the same stock twice.
just completed an acquisition of Royal Host
pro forma combined company trading at 7.7 FCF (comps at 11x)
On a normalized, adjustable basis, it trades at 5x FCF
substantial insider buying
several near term catalysts
considerable runway for continued growth
why is it cheap: tiny, closely held
underfollowed, no conf calls
lot of investors burned by debt recap
Royal host has been mismanaged for decades, paid little attention to costs, unerinvested in key assets
3 CEO’s from 2006-2013
tremendous cost cutting opportunity
exited external property mgmt contracts
Royal host owns a travelodge near toronto airpot, not producing great NOI, but could be sold for $15m bc of considerable real estate value
Master franchiser for Travelodge and Thriftlodge
most valuable assets could generate significantly more with a small investment (london hilton – Ontario)
6 insiders have bought nearly 10% of the company on the open market since May 2014
TPH trades at 11x FCF
INN trades at 12.3x FCF
HLC trades at 7x unadjusted FCF
Even without the acqusition of Royal Host, holloway alone trade at a 12% FCF yield
catalysts:
inclusion of royal host results –takeover just closed in july
divestiture of under earning hotels
Huge opportunity for continued acquisitions
opportunistic share repurchase
Guy Gottfried’s Idea 2: Perpetual Energy Inc. (TSE:PMT)
market cap 316m, ev of 664m
heavily weighted to natural gas
valued at 3.7x and 2.6x estimated 2014 and 2015 funds flow
asset sale done at 8x recently
EV/flowing barrel is $34,00, compares to 84,000 for comps, asset sale was at 105k
strong mgmt, excellent capital allocation
multiple near term catalysts
cheap valuation despite 45% growth expected in 2014
why is it cheap
mistakenly viewed as being over-leveraged
small size
hidden assets
Mgmt
Controlled by Riddell Family
insider buying, CEO bot 2.2m shares at avg price of 2.86 (2008-2013)
balance sheet, fears overdone, serious drag on stock price
when gas prices collapsed, CF dropped, but debt stayed the said
dramatically reduced leverage ratios
debt to funds flow at 3.8, and should come down to 2.7 in 2015
valuation
Price to Fund flows — trading at a 54% discount to comps for 2014
EV to flowing BOE — trading at a 59% discount to comps for 2014
East Edson JV recent transaction imply’s upside of 115% and 209% based on 2014 and 2015 take out value
catalysts
significant additional asset sales
sizable reserve growth
retirement of 2015 debentures, well ahead of maturity (Dec 31, 2015)
Off the Radar More Underfollowed Gems GutGottfried ValueInvestingCongress 9-8-14 (2)
