Jillian McIntyre’s presentation on Intelsat at the Kase Learning conf on short selling, 5/3/18
Video and informal transcript below
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Hi. Good morning. Good morning everyone. My name is Gillian McIntyre and I’m with 2 to 1 be I’m the founder and managing partner of two to be I’m sure half of you in the room thinking What the heck is that. Well the reference to Sherlock Holmes who resided a two one B Baker Street to be a good short seller. I think you have to be inquisitive. I think you have to be an independent thinker and you have to have a healthy dose of cynicism.
Who better than a detective from my hometown of London. We’ve been around since 2014 and we are primarily short sellers but we do invest in long longs and we typically look for those that get bought. So what is the scam going to put the disclaims up here for a second. So given the nature of the conference before I get onto my very actionable idea. I wanted to give you a little bit more information about us and I’ll be brief in the interest of time at the end. At the end of the presentation I’ll provide my contact information if you want to get a copy of a case study. We may oblige.
We typically give it only to our investors or under strict NDA. We are a fundamental long short equity event of who fund differentiation is our short ideas and I’ll get on to our philosophy there in a moment. Since the inception we’ve been running at about 20 percent in that short and on average we’ve made money every year except one and Alpha every year.
So we typically find between 3 to 5 high conviction event driven ideas. When we look across the globe but we tend to focus on regions that have very poor corporate governance that would include countries like Germany remember Steinhoff Avanti in the UK but also places like South Africa on Australia. Apologies if you come from any of those countries. So if I focus on the five. This is our philosophy you’ve probably heard of before. Well we like to think of the five M’s and this is how we approach short selling. So the first of the five M’s is management or as custom for the scummy management teams. Second is mendacity that really focuses on SCC correspondence accounting irregularities bad behavior all around. Model is on the whole business model. Mamia is really regarding the valuation and mediocrity.
Is it consensus or not. If a company has mendacity believe me we will size up I focus on shorting the model was working for Cristiane of the Children’s Fund.
More recently our apartment where the activists short seller and I’d like to credit the team for helping me put together this presentation. You see I was planning to present a different idea but I couldn’t resist the 300 percent move in the stock year to date. So that got me really really excited. I’d also like to mention the Pipher who brought it to my attention. The idea is Intelsat Intelsat has 50 percent downside in our opinion. The company is on its highs for the past two years and it only has 7 percent short interest. Let’s do the basic math.
The company has 14 billion of that market cap of one point four it has a billion dollar run rate of interest to pay every year. It has negative cash flow. Show of hands does anyone seem interested in owning a company like that. That question is not for any distressed investors in the room. If you’re a distressed investor you can’t answer that question really is not rocket science science. So if I can leave you with 5 points to take away from this presentation we believe Intelsat is a company that’s highly levered has negative cash flow.
It’s ripe for technology disruption it has a very bad business model and there is an immediate need for a capital raise. So what does the company do.
It’s in the satellite communications space. It provides a signal broadcasting to major networks government and media companies and most of the market share is in places that have historically been undiscovered like Africa and Latin America.
When I was doing the work on this there were some very shifts distinct similarities with sun Edison e-mail or some Edison is a solar company will go to do the satellite company. It’s the level of indebtedness that bad business model.
We were very contrarian on sun Edison pitching that back in 2015 as a short 30 dollars. It went bankrupt about six months later which was actually faster than we expected. So when we put together our case studies we like to think about the stages of the short that really helps us to think about the management what the management might do and how they would react to a worst case situation.
It also helps us consider the sizing in the portfolio. In the case of Intelsat we’re in stage 3 of 8.