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Ira Sohn 2016 Next Wave Speaker Notes

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Notes from the IRA Sohn Next Wave speakers. Thanks to a regular reader for sending this.

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2016 IRA Sohn Conference

Ira Sohn 2016 Next Wave - David D'Alessandro

Founder and Chief Investment Officer 

CMDTY Capital Management, LP

Good news if you're an energy investor: David D'Alessandro of CMDTY Capital Management says the oil lows are behind us.

And there may be reason to listen to D'Alessandro; as a long-time energy investor, he has said that he's been through seven of Dante's nine circles of hell.

As for his bullish outlook on oil, D'Alessandro tackles what he calls "varying perceptions," or what his team sees differently than what the rest of the market sees. Two of his three contrarian views have already been affirmed, and the third will come to pass soon after oil passes $50 a barrel.

First, D'Alessandro refutes the notion that there is going to be a continued oversupply of oil. Workers have been laid off and -- at least in the U.S. -- there's evidence that they have found other work. Rigs have been laid down, which is no small feat. Also, despite expected increased production from Iran due to the lifting of sanctions, other oil-rich nations, such as Nigeria and Venezuela, are facing trouble. (Also, D'Alessandro notes that while Saudi Arabia may have the capability to produce more, it may lack the will.)

Second, worries about declining consumer demand for oil are overstated. While China's infrastructure spending may be on the way down as the country moves to a more consumer-driven economy, oil will still be needed, D'Alessandro says. After all, consumers drive cars and need oil to heat their homes and offices. Meanwhile, for any decline in Chinese consumption, D'Alessandro points out that India is where China was in the mid-1990s in terms of development, which will keep consumption steady at the very least. Finally, in terms of consumption, D'Alessandro notes that the U.S. driver is back, citing increased auto sales and a lower unemployment rate.

D'Alessandro's third point is one that has not fully materialized yet. He refutes the notion that there will be a massive increase in production once oil hits $50 a barrel. In the U.S. there is increasing regulatory burden from the Environmental Protection Agency and similar groups, which will make more investment unlikely. Laid-off oil workers have found other work, as evidenced by the U.S.'s declining unemployment rate, so they are unlikely to return to the industry.

Finally D'Alessandro says that talk of 900 million barrels of a stored oil surplus is overstated as nearly a third of that surplus is slated for government use and working inventory for oil companies.

Ira Sohn 2016 Next Wave - Nicholas Danaher

Founder and Portfolio Manager 

Domando Capital Management LP

Nick Danaher, founder of Domando Capital, was next to unveil his sunny outlook on TripAdvisor, highlighting a "game changer" in new payment technology. By "closing the monetization gap," which now allows customers of the travel website to register credit cards -- only once across the entire vacation experience -- TripAdvisor is well poised to profit on an increasing shift to mobile, Danaher said.

"We believe that TripAdvisor has the potential to be the tollbooth for the global travel market," Danaher noted in his presentation, highlighting attractive growth in online users. TripAdvisor is currently the "world's largest travel site," according to Danaher, with 350 million mobile-active users and 320 million reviews.

"These engaged users ... draw more and more sellers," Danaher said of what he calls a "virtuous circle" that has consistently pulled in more Web advertising from restaurants, hotels and entertainment venues.

TRIP shares are down 24% so far on the year and the company is well poised for a spike in prices, Danaher said, especially given a robust traffic base that can be transitioned into the short-term rental market.

TripAdvisor is set to report its first-quarter earnings before the opening bell Thursday

Ira Sohn 2016 Next Wave - Genevieve Kahr

Founder and Managing Partner 

Ailanthus Capital Management, LP

The first short idea of the Sohn Next Wave conference was just presented by Genevieve Kahr of Ailanthus Capital Management and it's one business travelers may agree with: Gogo, the company behind passengers' sometimes faulty airline Internet experience. The company was the only online service provider for flights in 2010 with 94% market share; today it faces challenges from at least four other deep-pocketed competitors and its market share has fallen to 60% and shows signs of falling further.

Gogo claims that it has a 74% "win share" on new business, but Kahr found that those figures were misleading, as many of its so-called wins were not contracted. Making matters worse, the company has lost several high-profile clients. Virgin America (VA) no longer uses the service, American Airlines (AAL) is suing them, and Kahr suspectsUnited Continental (UAL) has defected as well.

For a company that has been in business since 2008, Kahr points out that they are still cash-flow negative, highly levered at 5.6X and they have a significant debt maturity coming due in 2018.

But perhaps Kahr's thesis can be summed up a by a tweet from a disgruntled customer, shared in her presentation. The angry user compared Gogo's service to lighting $15 on fire and unplugging their router.

Ira Sohn 2016 Next Wave - Davide Leone


Davide Leone and Partners Investment Company LLP

David Leone, founder of David Leone and Partners Investment Co., discussed the troubled banking system in Italy, and risks facing the euro as next month's so-called "Brexit" referendum looms. Leone supports the role that can be played by Atlante, a fund designed last month as a form of bailout mechanism to support regional Italian banks.

The fund, named after Greek titan Atlas, is "burdened with a very difficult mandate," Leone said, but can help solve the country's troubled banking segment through "demutualization," or splitting apart banks into a "good banks" and "bad banks." Atlante could help in the "recapitulation of the weakest members," highlighting troubles at marginal Italian banks such as Monte Dei Paschi Di Siena, one of the world's oldest banks.

He also highlighted the troubles of UBI Banca, which could be cured with a support system, as it is "relatively well capitalized" with 89 billion euros of gross loans and a market cap of 3.4 billion euros.

Next, Leone said euro investors should be wary as the currency is facing a number of headwinds in the coming months, especially the Brexit referendum next month, which will determine if the U.K. will stay a member of the eurozone.

"Most likely scenario is U.K. will stay in" and there will be a "leap of faith for more integration" that could place Europe at a crossroads.

But this could spell difficulties for some of Europe's more challenged economies, so short-sellers would be wise to consider risks that will face countries whose financial systems have become pressured by onerous debt loads, especially in southern Europe, which utilize the euro and could revert to currencies such as Greece's drachma and the Italian lira.

"Once core Europe gets together, you have to watch the peripheries," Leone said.

Ira Sohn 2016 Next Wave - David Rosen

Portfolio Manager 

Rubric Capital Management, LLC

David Rosen, a former investor with SAC Capital, opened with his bullish take on Kraton Performance Polymers (KRA), noting expectations for healthy cash flow. In presenting Kraton, Rosen is highlighting a company whose stock could go as high as $97 a share in his upside case. His baseline case assumes a share price of $65, which is impressive if you consider the stock currently trades around $23. The reasons for the stock's relatively low share price are twofold in Rosen's summation. First, he argues that GAAP accounting masks the company's true earnings, (while acknowledging that investors are usually suspicious of relying on adjusted earnings.)

By using adjusted figures, Rosen shows that EBITDA has grown 7% over the last few years. Second, Rosen says the company is perceived as a company that produces standard low margin products, when it is increasingly shifting its portfolio to specialized high-margin products. Even so, Rosen highlights the fact that the company's products are used in households daily -- from the rubberized handle on toothbrushes to condoms -- which is something the father of four cited as very important.

Ira Sohn 2016 Next Wave - Nick Tiller

Founder and Portfolio Manager 

Precocity Capital LP

  • Spoke on how to invest in energy at the end of the oil age
  • Pitched Royal Dutch Shell (RDS.A)
  • "With oil price gains, now a compelling case can be made to own Shell equity, especially compared to other oil stocks
  • "We believe that vols will grow at 10% compounded annual rate for next 3 years at Shell"
  • Pays 7% dividend, Tiller says this is "good for discipline going forward" and is sustainable
  • At Shell, there's value in the LNG business not only where contracts are rolling over, but possibly also in spot market: Tiller
  • US E&P being the world's swing producer in oil "is not a good thing" per Tiller
  • Tiller: Greenhouse gas emissions do matter - in US we tend to think they don't - but Shell well positioned due to nat gas biz

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