4Q23 Investor Letters - Part 6

Holcim, NexGen, CTT, Bollore, Leonardo, CONSOL, Builders FirstSource etc.

Herens Quality

• Holcim

  • World’s largest cement producer

  • New CEO has divested complicated assets, bolting on higher margin/more resilient roofing and focused on higher cash conversion

  • Pivoted towards low carbon concrete/cement sales which come at a premium price

Greenwood Investors

• NexGen

  • Founder-led Canadian uranium miner -developing a large low/low cost project called Arrow

  • Once fully operational, NexGen will generate >$1.6bn of FCF w. a diluted mkt cap of $4.6bn today

  • Believe that NexGen will be an acquisition target once receives full mine approval from Canadian govt

• CTT

  • Trading at less than half of fair value. Stock trades 65% below 2016 levels despite posting record EBITDA

  • Taking market share w. e-commerce frequency in Iberian peninsula far below more mature areas.

  • Aggressive price competition (VC-funded Paack, government-funded Correos, and Royal Mailowned GLS) not sustainable and capacity has left the market.

• UMG/Bollore

  • UMG has world-class talent w. 70-80% of the top 10 charts and >50% of the top 50 music streams

  • Revenue growth to head >20% in coming years allowing operating income to double.

  • High quality/growth/margin w. limited economic exposure

  • Cheapest way to buy UMG is through Bollore. 92% Bollore’s equity is backed by a net cash position. Bollore trades at a 63% discount to NAV

• Leonardo

  • Cheapest European aero/defence company

  • New CEO very shareholder friendly. Focused on reducing cost/bureaucracy.

  • Products have top notch reputation

Black Bear Value Partners

• Builders FirstSource

  • Manufacturer and supplier of materials for resdential construction

  • Focused on growing value-add business which is now >40% of the top line and driving margins higher

  • Aggressive use of FCF to buyback 39% of stock over last 2 years

  • Stock trades a 9-10% FCF yield

• CONSOL Energy

  • NAM metallurgical coking coal company

  • Generating >$300m of annual FCF that is deployed in buying back stock

  • Cheap vs peers as technically classified as a thermal coal company

• Ashbury

  • Owner of US auto dealerships w. >50% of profits coming from parts/services

  • Cost of selling cars has been reduced by moving partly to online

  • Trades at a 13-18% annual yield w. $30-40 of FCF per share in a “normal” year

Cove Street Capital

• American Vanguard (AVD)

  • Agricultural chemical company - acquired un-loved/sun-setting product lines from majors

  • Industry went through destocking period in ‘23

  • AVD had issues with two key products (supply chain/regulatory issues) which hit sales by $50-60m

  • Meaningful upside on return to normal

River Oaks Capital

• Medical Facilities

  • Majority ownership in four surgical hospitals located in South Dakota, Oklahoma, and Arkansas, as well as one surgical center in California.

  • Tailwinds from procedure shift to surgical hospitals.

  • Activist campaign led to mgmt change, divestistures, debt/cost cuts and 25% buyback

  • Next leg of the story will be complete sale, sale of Arkansas and Oklahoma hosptials, Increase the dividend or sell to local buyers

  • 12-15% FCF yield and 6-8x P/E. Selling >20% below what assets were purchased at (large %age over 20 years ago)

Greystone Capital Management

• Thryv Holdings (THRY)

  • They have a cash cow (formerly known as Yellow Pages) that is funding a SaaS business that makes life easier and more efficient for SMBs

  • Mgmt target for the SaaS division is for $1bn in revs by ‘27 w. 20% EBITDA margins. Would imply Thryv trading at sub-4x EBITDA on the SaaS business alone

• Franklin Covey (FC)

  • Global performance improvement company to help with employee training

  • Has moved to a subscription model (sticky, high margin, recurring and high LTV) which caused short term pain (EBITDA declined 50% between 2015-18).

  • Now 60% of revenues on long term contracts and yet it trades at single digit EBITDA multiple. Management has bought $50m of stock

Giverny Capital

• Align (ALGN

  • Align is the inventor of Invisalign clear aligners which are an alternative to traditional wire and brackets that are used by orthodontists

  • Align has 15% share of the teen market but leading edge orthodontists are using Invisalign for 40-50% of their procedures.

  • Extremely strong brand that is backed up by patents. Dominant position with no competition.

• Kinsale

  • Kinsale is an insurance company that writes policies in the so-called Excess & Surplus market. These are risks that the standard market will not underwrite.

  • State of the art technology platform drives customer services (far quicker to quote than peers) and lowers costs (expense ratio 21%, well below peers)

  • Growth of mid to high teens likely for many years. Insurer with the lowest cost of operation is going to win and they only have 1.5% market share