Weekly Snack #27
Fallen angels, quick service food, second-hand growth and a few short takes
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Investment Pitches
TL;DR:
Tesla (TSLA) is by no means anything new when it comes to an investment. However, with what’s going on in the EV space recently, it’s hard not to talk about it.
shared a quick piece on the recent Q1 deliveries and what they believe was said (without actually being said) in that report. They make points on the excuses that were given (Red Sea and German arson), as well as building in excess of demand over the last few years. The author believes that with headwinds for demand in the EV space, that Tesla will have to do an equity offering of at least 15% in order to survive the winter that’s coming. Have a look.
TL;DR:
It’s interesting when you see someone pitch a long idea from a large cap considering that most large caps are often covered but
highlighted Restaurant Brands (QSR) as a large cap that really no one talks about. In his post, Andrew goes over what got him interseted in the name, how the company plans on growing given its franchising model, why the franchising model is great and why the current management are the right one’s to get the job done. Trading at just under 25x EPS, the future prospects of the company with franchsing out Carroll’s once the deal closes puts it in the GARP-y category as Andrew puts it with >8% FCF yield.
TL;DR:
Bleeker Street Research put out a short report on Sealed Air (SEE) the other day on what they label as a 3-pronged assault on the entire business. SEE’s whole business is providing thin-firm plastics that are widly used for e-commerce packaging. With scrutiny coming down from regulatory pressures, public pressure, and its largest customers slowly moving away from single-use plastics, Bleecker believes that it’s a business on it’s way down the tubes. Given that the post-COVID era has made e-commerce businesses more concious of costs and public perception on packaging, SEE’s current offerings for online are the first to get hit with its food packaging products next in the crosshairs. The author does well to point out these structural shifts to support their claims and I really enjoyed this detailed read.
TL;DR:
A unique kind of company that I’m sure most of us are unfamailiar with is Mandarake Inc. (2652.T), a second-hand shop of manga and related collectibles.
recently shared thier thoughts on the company which has seen its market cap grow by 4x, profits growing by 3.5x and operating leverage helping profits grow by 26% in the last quarter. What’s really interesting to learn is that because of the nature of the second-hand business, inventory is key. Mandarake typically carries more than 150% of their inventory costs on the BS but the author explains that this is critical because the stores themselves are actually tourist attractions and entertainment places. The author believes that the 2 real drivers of their future success will be the continuation of opening new stores tied with international expansion. I thoroughly enjoyed this one and I hope you do too.
TL;DR:
published their thoughts on a company called Altri (ELI: ALTR), a company that specializes in forest management, cellulose production and renewable energy. The company went public in 2005 and has since delievered an over 1,800% return since then. Interestingly enough, a small company such as Altri has been able to increase their net profits by 51% over the last 10 years (35% CAGR over the last 5 years) while maintaining an operating margin of 16%. This is better than its competitors at 10% while just trading at 3x earnings. There are risks to the business that the author highlights but given their calculations of a DCF/multiple valuation, they believe the company is worth nearly 85% more than it’s currently trading.
TL;DR:
A recent short report on Doximity (DOCS) by Jehoshaphat Research claims that the business is actually shrinking and not growing like Wall Street believes it is. They believe that the business is shrinking by about 3-6% a year while having questionable accounting figures from how they report contract revenue. User engagement on the platform appears to be declining, Doximity’s customer ROIs seem to be far less than what they claim and key management have left the company in just the last year (Chief Revenue Officer, Controller, Co-Founder). This a very long but very detailed read for those that are interested.
TL;DR:
Spruce Point Management put out another short report, this time on WSP Global (WSP), a Montreal-based engineering and professional services firm. Spruce Point believes that the underlying company is not what it seems since WSP is using aggressive, non-standard financial reporting along with reduced transparency. The company claims that 2023 FCF conversion is ~110% but Spruce Point actually marks it closer to 38%, again, under the guise of ‘non-standard reporting’. They believe there are multiple instances of misclassifcations and that investors should put little faith in the board to hold management accountable. They suggest the stock is on its way to a serious decline in equity value.
Tweets of the Week
General Research
Podcasts & Interviews
Appreciate you taking the time to read Weekly Snacks. I hope you have found at least some of these links to be interesting enough to dive into yourself.
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Until next week,
Paul Cerro
🫡🦉