We attended the Value Investor Conference in London, which took place on May 22nd 2014. Below are notes from the presentation by David Samra of Artisan Partners (note: These notes are what the presenter said to the best of our knowledge, but there may be some inaccuracies). Also see: Andrew Cormie At London Value Conference: Value in Asia and Mason Hawkins on The Importance of Terrific Partners and Mason Morfit, ValueAct Capital – Shareholders in the Boardroom
David Samra, Artisan Partners – Points of Leverage
Ideas:
Cash:
- 15% portfolio is in cash, highest their mandate allows
David Samra: Samsung Electronics Co. Ltd. (LON:BC94) (KRX:0059935)
- V cheap on any statistical measure, obvious undervaluation even versus Apple Inc. (NASDAQ:AAPL) is glaring.
- Valuation @ KRW 1,343,000/share: 0.7x FY13 Rev, 4.2x FY13 Op income, 4.1x FY14 Op income, 6.6x P/E 2013
- Strong balance sheet with significant net cash (FY13 cash represented 24% of mkt cap)
- Business Quality:
o Global leader smartphones, semi’s and other electronic components
o Operates in 3 main areas – Smartphones (68% FY13 Op income), Semi’s (19% FY13 OI), Panels (8% FY13 OI)
o Smartphone value proposition of hardware + software + processor = high margins
o Other businesses give enough comfort even if smartphones go horribly wrong over next few yrs
- Mgmt:
o Highly thorough l-t thinkers
o Committed to growing and preserving shareholder value
David Samra: Aker Solutions ASA (FRA:KY7) (OTCMKTS:AKKVF)
- Provides equipment to large oil and gas co.s
- Long-standing history mainly in the North-Sea
- Valuation @ Nokia Corporation (ADR) (NYSE:NOK) (BIT:NOK1V) (HEL:NOK1V) 93.50/share: 0.6x FY13 Rev, 11.6x FY13 Op income, 8.4x FY14 Op income
- Very strong balance sheet, FY14 ending debt net of cash and financial assets 54% of EBIT (pro forma for announced divestments
- Thesis:
o It hasn’t been v well managed but now it’s starting to be v well managed.
o Mgmt is streamlining the co. to focus on lower capital intensity businesses, which will get the rtn on cptl up
o Since preparing the presentation mgmt. has announced a demerger of 4 of its high cptl intensity assets
o Significant margin expansion opportunity – when compared with competitiors (NOV, FMC, Wood Group), segment margins are lower
o High barriers to entry industry given the products they provide in the deepwater environment
o Think the assets are extremenly valuable
- Management:
o From a corp governance standpoint, there is high insider ownership
o Significant insider buying above today’s share price
David Samra: The Chubb Corporation (NYSE:CB)
- Leading provider of property and casualty insurance worldwide.
- Key Metrics @ USD 89.30/share: 1.5x 2013 TBV, 10.7x 2013 P/E, 2013 Premiums Earned 12,066M, Shareholder Equity of 16,097M
- Balance Sheet – Premiums to Equity of 0.75x
- Investors might say the investment has already played out having benefitted not only from a revaluation of PB multiple, but also significant PB growth
- Business Quality:
o Strong reputation as one of the most trusted brands giving them pricing power
o Average 10 year ROE of 14.9%
- Mgmt:
o Long track record of underwriting discipline, balance sheet prudence and shareholder value creation
o Periodically return excess capital to shareholders via share repurchases
- Thesis:
o Highly profitable and disciplined underwriting co.
o Key here is to look at shareholder equity vs premiums earned – sort of a short hand measure of financial strength.
o Given the lines of business the co. is in, this level is v high, meaning the co. is under levered and will be slowly but surely returning cptl to shareholders.
o More importantly when the insurance environment returns to a place where the co. can employ this capital aggressively = see a significant growth in amt of premiums written
o Thinks co. should trade above 2x book value
