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 At VIC 2014 Pitches Long HLC And PMT
Source: Made with Photoshop

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)