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 is a long pitch from Adam Crocker.
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Adam Crocker, CFA is co-manager of Metropolitan Capital Advisors, a value oriented hedge fund founded in 1992. Prior to joining Metropolitan, he was an analyst at Morgan Stanley Investment Management conducting research on behalf of growth and value investment teams. Adam is a graduate of the Value Investing Program at Columbia Business School and has a degree in Economics from Columbia University.
Adam Crocker “Invert, Always Invert”
Invert – many complex problems could be clarified by expressing backwards.
Adam Crocker – Groupe FNAC (EPA:FNAC)
thesis:
okay business, facing tough challenges
large cash balance
spun out last 2013
own the largest ticketing business in France
high quality, cheap at 6x ebit, underfollowed, peers trade a lot higher
550m euro market cap
too small for most investors, recent spin off
Perceived risks:
volatility, embarrassment of being wrong on something obvious (amazon and the likes will eat their lunch), economic malaise
Real Risks:
complete disintermediation by online or other brick and mortar competitors
business erosion as core products are digitized
Suppliers and customers would def care if the company no longer existed
Retail overview:
56% of revenues came for FNAC loyalty customers
extremely well located
3rd most visited website
Focusing on new iniatives and cost saves
Ticketing franchise
the ticket seller of France, similar to ticket master in US
50% share in France, #2 is livenation
Valuation
225m Euro in ticketing value
approx 250m Euro in net cash
assume brazil assets, including tax loss carryforward of 25m euros
35 euros stock price implies 1.6x retail ev/ebit, with peers trading much higher
comps: BBY, BKS, DRTY, DXNS
mgmt has goals of 3% ebit margins, stabilize revenue, stabilize gorss margin, reduce inventories (2015 stated mgmt goals)
Conclusion — national retail leader
underappreciated ticketing business (lot of potential value here)
CHEAP!
Adam Crocker – Molina Healthcare, Inc. (NYSE:MOH)
Medicare and medicaid have unsustainable cost trends
Govt can utilize Molina Healthcare, Inc. (NYSE:MOH) to control costs and improve care
Medicaid managed care– insurers manage health benefits
the medicaid program is a growing progrma (projected at 8% a year)
MOH has proven ability to drive equal or better outcomes at lower cost than govt run alternatives
medicaid is the largest cost item on states P&L
Potential to grow in new states
dual eligible pilots and medicaid expansion states to double in coming years
9m citizens in US are elgible for duals (these dual citizens caused $350B in health care spending last year)
Molina Healthcare, Inc. (NYSE:MOH) coordinates everything dealing with care and health, and enable patients to live at home, saves taxpayers money
ACA rapidly expands role of medicaid managed care
if everyone already knows why revenue is set to double, why invest now?
Real risks:
managed care does not increase share of medicaid spend
inadequate reimbursement for new members
Perceived risks:
Difficult to predict short term cost trends
political/government is unreliable customer
dual population has never been managed before, costs uncertain
Molina Healthcare, Inc. (NYSE:MOH) is trading inline with peers, but should trade at a premium
thinks they can do $4.53 in 2015 EPS, with a share price of $63 (upside of 38%) –based on 94% cost ratio
2016 could see additional states expand medicaid plus continued growth of existing medicaid business
optionality: could be possibly acquired
WLP bought AGP in july 2012 for double the current valuation of Molina Healthcare, Inc. (NYSE:MOH)
interest income
expansion into new states
