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Transcript
Cara Denver Jacobsen, Nierenberg, D3 Family Funds– 10 Years in Micro Cap Land Value Investor Conference: Omaha, Nebraska – May 4th, 2012 Dustin Hunter, SunRift Capital Partners (www.sunriftcp.com) (These notes are to the best of my recollection and trusty ink pen. Discrepancies are due to my error in understanding & transcribing.) Cara Denver Jacobsen, Nierenberg, D3 Family Funds– 10 Years in Micro Cap Land Cara is a portfolio manager at the fund. D3 Funds o Typically hold 8-12 stocks o Typically hold 6-7 years o Seek growth – not cigar butts o 3 year lockup o Micro caps are least efficient; they look for ‘insight information’ o Pay attention to macro as well Micro Cap o Least Efficient capitalization o Historic small cap performance advantage o Liquidity as an investment style (Roger Ibbotson) o Ability to influence management and board Concentrated o Competitive advantage (know each idea better) o Diversification vs. Di-worsification (too many stocks dilute best ideas) o High Conviction (must be able to ‘move the needle’) o Ability to influence management and board (yes, intentionally here twice) General idea sources o Read… o Look at out of favor issues o Look at lots of issues o Look at multiple industry cycles o Look at lots of sources Home health care 08’-09’, Tech 02’, Gold mining 04’, Mortgage/Housing 08’-09’ 2012-13’ potential ideas Natural gas (more rational behavior), Solar, Western Europe, Tankers (scrap prices above ship values, order books low) Specific idea sources o 52 week lows o Daily price % decliners o Read a lot… o Screens o Spin outs o Busted IPO’s 1|Page Cara Denver Jacobsen, Nierenberg, D3 Family Funds– 10 Years in Micro Cap Land o 300 Limited partners and CEO’s of former invested companies o 13-F’s of smart people (issues may not be down long) Build high conviction o Pattern recognition in similar situations o Relative values of similar situations o Normalized operating and value metrics o Learn the specific industry o Dig for value creation opportunities o Look at multiple cycles for specific company Due diligence - in addition to typical items o Interview major shareholders o Focus on the people running the business – in a long term investment, they are your partners Ex. Multiplus (MPLU3.SA) Brazil o Loyalty Coalition Network – (TAM air frequent flier program) o Spin out from the airline business – Network effect (barrier to entry) in established relationship o Market share leader o Uses ‘points’ which are like float in insurance and have an expiration o Spun out 2-1/2 years ago & average ROE has been 37% o Cash flow machine Compare to toll road Negative working capital 10 month float Minimum fixed assets and little capex o Risk is poor use of cash o TAM merger could lead to additional business o Reasons for depressed prices Spin out IPO so parent is controlling shareholder Complicated accounting Only 1 comparable (Aeroplan, Canada) Potential TAM conflict of interest Q&A o Define micro-cap Up to $1.5B if not followed Average under $400M o How concentrated in a single name? Up to 20% 2|Page