Francisco Garcia Parames At The London Value Investor Conference

Francisco Garcia Parames is one of Spain’s – and arguably one of the world’s – best investors.

Prior to his retirement, his fund at Bestinver (which he ran for 25 years) produced average annual returns of 16% for investors, giving a total return over his tenure of 1,688.62%.

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To achieve this return Parames used a value approach, buying companies at a deep discount to market value and then riding their return to health. In most years this strategy helped him achieve a return of 20% or more. During his 2½ decades at the head of the fund, there were only two years in which he reported negative returns – 1999 and 2008.

Francisco Garcia Parames At The London Value Investor Conference
Image source: YouTube Video Screenshot

Parames was blocked from starting another fund by his previous employer for two years when he left in 2014. As soon as this agreement ended, he returned to the markets setting up a new fund management office called Cobas Asset Management last year.

The London Value Investor Conference 2017, was lucky enough to have Parames come an speak to its audience and he didn’t disappoint.

Francisco Garcia Parames At The London Value Investor Conference

Parames pitched two ideas at the conference (attended by ValueWalk) both of which conform to his value investing style, but are extremely contrarian positions.

During his talk, Parames stated that he believes the market is currently on the expensive side, but it is not in a bubble. That’s why Parames and his team are still happy to go out searching for bargains rather than going to cash. In fact, Parames notes that he almost never goes to cash instead favoring to only sell when there is something better to buy.

The first investment pitched is Teekay Corporation, the star fund manager’s first shipping investment in 27 years. Still, while it’s Parames’ first shipping investment in nearly 3 decades, it is a high conviction holding being the main investment in the Corbas fund accounting for 9% of the portfolio.

Teekay has some impressive qualities. The company is still majority family-owned, (Parames notes that around 80% of the investments he has made over his career have been family-owned) has a strong cash flow and is severely undervalued. Thanks to the drop in the price of oil and gas, the income from Teekay’s subsidiaries, specifically Teekay LNG Partners, has dropped by more than half from the pre-crash level of $100 million.

A key part of this thesis is the success of Teekay LNG, which is primed for growth over the next 10 years. The company’s business model means that unlike most shipping businesses, revenues are tied to long-term contracts with internationally recognizable big oil companies such as Shell and Total. This means income is almost guaranteed. Parames believes that the company can increase free cash flow every year for the next 10 years giving an internal rate of return of 18% per annum. Based on these productions, the company’s cash returns to its parent (Teekay Corporation) look set to return to pre-oil crash levels of around $100 million per annum supporting the Teekay thesis.