Weekly Snack #32
Homebuliders, monopolies, industry leaders, and FTC complaints
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Investment Pitches
TL;DR:
shared their thoughts on Dream Finders Homes (DFH), a land light home building platform primarily in the southeast US. Given their land light model (which he breaks down in his post), the company has been able to deliver an average ROE of 38% over the last decade. Kairos believes that the opportunity for DFH lies in the supply demand imbalance in the market and their historic success in growth through acquisition. Given the authors breakdown of the opportunity and estimated financials, he believes the return could be upwards of 150% should the growth expectations play out.
TL;DR:
over at shared his thoughts on BQE Water (TSE: BQE), a specialist in water treatment in mining processing. BQE involves itself in every stage of the mine process which means that their contracts with partners should be able to run for 30 years. Jake’s thesis for BQE is simple, they have an extremely asset-light and scalable business model, competitive advantages from being mandated by regulation, stickiness of customer relationships, a pure lack of competition and patented technologies. Based on more in-depth analysis in the post, Jake thinks it could be worth up to $125/share, almost a 100% upside from current prices.
TL;DR:
Perimeter Solutions (PRM) is the sole company that sells fire retardant to the US Forest Service. Because PRM is in the business of providing fire fighting products, Ensemble believes that the stock ended up trading almost like a futures contract on estimated 2023 acres burned. Given the rise in utility companies lines causing wildfires, the risk is in PRM losing their monopoly status. This led to the government working with Fortress to minimize sole source vendor relationships. However, last month, the challenges of this industry because clear when the Forest Service announced that they would not be signing a contract with Fortress because further testing had shown that their product corroded the airtanker planes it was used in. Ensemble believes that PRM is one of those companies that does truly difficult things well and it’s poised to give them a rewarding competitive moat.
TL;DR:
With the recent exchange between Tapestry (TPR) and the FTC, the spread has almost been the widest since the FTC formally sued to block the deal back in April. The above post takes the FTC complaint and boils down point by point why the agency is wrong in suing to block the deal and why they are misunderstanding the marketplace. Each point the FTC brings up is followed by a genuine rebuttal backed with data and research of which I assign a low and high probability of “winning” in court. As an arb trade with a near 58% upside, having all the information necessary to make an informed decision is critical.
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
Friendly reminder in case people don't say it enough: i look forward to this post every week, so much value. I read all of it, don't stop!