Latticework Investor

Value Investing

Value Investing Congress

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Here are a summary of the notes from Value Investing Congress by Manual of Ideas. It shows a wide variety of possible investments, most interesting ones for me are Move and Raffles Education.

T2 Partners

Wells Fargo

  • US$4.00/share in earnings power.
  • Implies a US$40 – US$50 stock price at 10-12x earnings.
  • Wachovia portfolio already significantly marked down. Buffett recently touted the stock and said he would have been willing to put 100% of his net worth in WFC when it was trading at lower levels earlier in the year.

M3 Funds

First of Long Island

  • US$1.25 billion asset bank headquartered in Glen Head, NY.
  • 140% of tangible book value and 11x LTM earnings. Hidden value in branch ownership would increase TBV by 15%.
  • Excess capital: 8.5% common tangible equity/assets.
  • 68.5% loan to deposit ratio—very disciplined underwriter. US$1 billion of high quality deposits with a 1% cost. Pristine credit quality: very low non-performing assets at March 2009.
  • Near term catalyst: Russell 2000 addition requires 400,000 shares.

Kirkwood Capital

Lancashire Holdings

  • Four year old Bermuda based insurance company (specialty insurer) trading at book value.
  • LRE is not “part hedge fund” 85% of investment book is “risk-free.” LRE has a very conservatively run investment portfolio.
  • CEO Richard Brindle has a very successful track record. The CEO cares more about underwriting, maintaining a strong balance sheet, managing capital through the cycle, and staying nimble. They’re not trying to rule the insurance world.
  • Management ROE goal = 13% plus risk free rate.
  • Valuation: Believes it could trade between 1.5x – 2x book value (profits made in the mean time are being returned to shareholders).
  • Bases this multiple on:
  1. Reserve additions being highly unlikely
  2. Investment book is not at risk
  3. Bermuda taxation
  4. Conservative management

Aquamarine Capital

Estacio De SA

  • Largest player in the private post-secondary education sector in Brazil.
  • GP Investments is involved with Estacio.
  • The founding family acquired many “mom and pop” education companies.
  • Trades at a single digit to EBITDA, has low EBITDA margins (room for improvement), management is intent on creating a lot of value.
  • Thesis relies on: Developing duopoly in Brazil for post secondary education, low penetration, no community colleges, undeveloped consumer finance sector, natural resource based economy. This is an investment that Guy plans on holding for the next 20 years.

Raffles Education

  • Headquartered in Singapore.
  • They are different than other education companies in China in that they turn out English-speaking graduates.
  • The company is cheap and has a dividend yield of 5-6%. Company is trading at a single digit multiple to EBITDA.

Passport Capital

Springhouse Capital

ModusLink Global Solutions

  • Company is a supply chain management provider.
  • Main products are consumer electronics (Sandisk, AMD, and HP are largest customers).
  • Company does not take ownership of customer inventory.
  • Largest player in outsourced space. The industry still has a large number of players who want to outsource for either strategic or legacy reasons. Several competitors are distressed, versus a strong balance sheet at MLNK.
  • Largest risks here are management acquisition risk (company has a huge NOL), operational cash burn, and complete unwind of global growth and consumer electronics business.
  • Company has been good at managing costs, running positive EBITDA (US$9+mil EBITDA last quarter).
  • Valuation: Low = US$4.00/share (downside protection: there’s US$4.70/share of liquid net working capital), Base $7.00/share, Homerun is $20/share. He only gives the NOL value in the “homerun” scenario.

Market Leader

  • They have a site called
  • Stock price is US$1.90, cash/share is US$2.40, cash burn = breakeven, views the business as a legacy in wind-down and small upcoming spend on option.
  • Made US$20 million in EBITDA when the market was good. Thinks it could do US$5 million – US$7 million in EBITDA and could be worth more than US$5.00/share.


  • Brokerage agency, operates mainly online.
  • Gives you a 20% kickback if you buy through ZIPR.
  • Stock price is US$2.80, cash/share is US$2.32, losing US$10 million – US$12 million (US$0.50 cents per share).
  • A high risk/high reward opportunity.

International Value Advisers


  • If you strip out stake in L’Oreal and other stakes, you pay 9x EBIT for food business.
  • Good balance sheet.
  • Accused of overpaying for acquisitions.
  • The company appears cheap and safe.

Centaur Capital


  • Holding company that operates primarily in the specialty and property & causualty insurance industry.
  • Long term track record of value creation by building, acquiring, and selling businesses particular expertise in the insurance, investment management, and natural resource areas.
  • Investment results are in high teens. Alleghany uses a “total return” approach to investing its float and has a good investment track record. Over the past five years, the company has produced a 10.6% annualized return vs. a -2.2% annualized return for the S&P 500 Index.
  • The company has a $4.1 billion investment portfolio and has a portfolio of valuable assets.
  • Valuation: Sum of Parts: RSUI (insurance with 80% combined ration in 2008) 1.5x book = US$1.65 billion, Capitol Transamerica – 1.2x book = US$360 million, EDC 0.75x book = US$125 million, cash and investments at parent = US$800 million.

Odyssey Re

  • Globally diversified insurance and reinsurance company, one of the top 20 reinsurance companies in the world.
  • 71% owned by FFH, investment portfolio managed by Prem Watsa.
  • Grown BV/share by more than 20% annually since going public in 2001.
  • Buying back a ton of stock below book value. ORH spent US$351 million on share buybacks in 2008, ~13% of shares outstanding in 2008.
  • Bottom Line: ORH is classified as a medium risk stock. Current book value is about US$43.80/share (as of Mar. 31), thinks BV/share should increase to $47-$48. At 1.3x book, company would be worth upwards of US$55+/share.

D3 Family of Funds


  • Leading online network of websites for residential real estate search, with the most comprehensive and up to date database of existing homes for sale on the web. Largest shareholder of the company.
  • Main asset is
  • Serves three primary constituents:
  1. Consumers, 8.1 million average users/month
  2. Real estate agents and brokers
  3. General advertisers
  • Online ad penetration has not penetrated the real estate brokerage industry compared to other industries. D3 believes that this trend is not likely to last. Dollar advertising by US real estate agents in newspapers is down 71% over the past few years. Believes this represents a great opportunity for web based advertising and will benefit MOVE. Revenues have remained stable from 2006-2009, the most visited website for real estate brokerage advertising.
  • Recent Changes: Company has closed underperforming businesses, took $20 million out of annualized operating costs, New CEO Steve Berkowitz named CEO in JAN 2009, currently searching for a new CEO.
  • D3 has a “punch list” for MOVE
  1. Continue to improve product and grow site traffic
  2. Hire new CFO
  3. Continue expense reduction
  4. Monetize ARS
  5. Establish relationship with “The Street”
  6. Eliminate 100 million shares to drive EPS, EPS growth and ROE.
  • Bottom Line: MOVE basically has no leverage, ~US$1.00/share in net cash. Believes that 2013 EPS could grow to US$0.58/share. Thinks it could appreciate 5x based on a 17.5x to 20x multiple.

Written by latticework01

May 12, 2009 at 10:38 am

Posted in picks

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