Giles Capital Weekly - Week 46
Welcome to another edition of Giles Capital Weekly. Markets continue to digest the implications of Trump's return to the White House, with several sectors showing notable reactions. The nomination of Chris Wright as Secretary of Energy signals a potential shift in U.S. energy policy, while Chinese markets show signs of life as the government rolls out aggressive stimulus measures. In Asia, we're seeing fascinating shifts in consumer behavior, with Hong Kong restaurants facing pressure as diners seek better value across the border.
Turning to individual opportunities, my top picks this week come from two compelling UK companies flying under the radar. Rock & Turner’s write up on Melrose Industries highlights a pure-play aerospace business, with its engine components division generating exceptional 28% operating margins and £22 billion in contracted future cash flows through risk-sharing partnerships with major manufacturers. Meanwhile, Undervalued and undercovered covers Optima Health, a company which dominates the UK occupational health sector with 10% market share, leveraging rising NHS waiting lists and new corporate regulations to drive growth, while its tech solutions and 20% EBITDA margins provide a strong foundation for its ambitious expansion plans.
Americas
Idea Hive on Perma-Fix Environmental Services (🇺🇸PESI - US$210 million) Building on a previous thesis, Q3 results confirm Hanford site contracts remain on track, trading at 2x estimated EBITDA with new West Valley contract win providing upside.
Idea Hive on Summit Midstream Partners (🇺🇸SMC - US$380 million) Following earlier coverage, company shows continued progress with Double E asset ramp-up and trades at 7x pro-forma 2025E EBITDA versus peer multiples of 8-10x.
Kairos Research on API Group (🇺🇸APG US - US$32 billion) - Leading fire safety services provider with 80% free cash flow conversion. Trading at 9.7x FWD EV/EBIT with strong recurring revenue growth.
Rijnberk InvestInsights on Monday.com (🇺🇸MNDY - US$7.2 billion) Strong execution with 33% revenue growth and impressive Rule of 40 metrics. Trading at 14x sales with improving margins and strong retention rates.
Alluvial Capital on Summit Materials (🇺🇸SUM US - US$5.5 billion) - Cement and aggregates producer attracting acquisition interest from Quikrete. Share price at 13% premium to operating margins vs peers with potential near-term catalyst.
The Finance Corner on Cal-Maine Foods (🇺🇸CALM US - US$2.8 billion) - Largest US shell egg producer with significant market share and pricing power. Trading at 8.6x P/E with strong cash generation despite commodity price volatility.
The Finance Corner on eBay (🇺🇸EBAY US - US$24.5 billion) - Dominant player in second-hand e-commerce with strong network effects. Currently trading at 11.3x P/S with stable margins despite competitive pressures.
Prateek Malhotra on Academy Sports and Outdoors (🇺🇸ASO - US$3.57 billion) Expansion plan targeting 450 stores by 2030 with significant share buybacks ongoing. Currently trading at 7.8x PE with high-conviction growth runway.
Best Anchor Stocks on Constellation Software (🇨🇦CSU - US$66 billion) Strong Q3 results with 20% revenue growth and 32% YoY operating profit increase. Company continues to execute on M&A strategy while maintaining pricing discipline.
Wolf of Oakville on NTG Clarity Networks (🇨🇦NCI.V - C$53 million) Strong revenue growth of 109% YoY with improving margins. Trading at 1x sales with 15% net income margins and EV/EBITDA of 4x.
Europe, Middle East & Africa
Rock & Turner on Melrose Industries (🇬🇧MRO LN - US$8.4 billion) - Aerospace specialist with strong RRSP contracts. Current EV/EBITDA of 13.6x with operating margins targeted to reach 28% in Engines division by 2025.
Undervalued and undercovered on Optima Health (🇬🇧OPTIMA LN - US$750 million) - Leading UK occupational health provider with 10% market share and ambitious growth plans. Trading at 0.87x P/S with clear path to 25% market share.
Cockney's Substack on The Gym Group (🇬🇧GYM LN - US$420 million) - Leading UK low-cost gym operator with strong membership growth. Revenue up 12% YoY in H1 2024 with EBITDA margins expanding to 28%.
Asia-Pacific
Sweet Stocks on Shimano (🇯🇵7309 T - US$12 billion) Dominant bicycle components manufacturer trading at 23x 2025E earnings. Near-term headwinds from inventory destocking, but long-term market leadership remains intact.
The Great Wall Street on Tencent (ðŸ‡ðŸ‡°0700 - HKD 3.72T) Q3 shows 9% revenue growth with successful expansion into e-commerce through mini-shops initiative. Strong execution despite macro headwinds.
Weighted Capital on LH Group, Tam Jai, Fairwood (ðŸ‡ðŸ‡°Various - US$290-850 million) - Three leading Hong Kong restaurant operators facing significant headwinds from northbound traffic. All trading at multi-year valuation lows with EBIT margins ranging from negative (LH Group) to 8% (Fairwood).
Weighted Capital on China Tourism Group, TravelSky Technology and Fairfax India (🇨🇳601888 - CNY 380B), (ðŸ‡ðŸ‡°0696 - HKD 24B), (🇨🇦FIH.U - US$2.1B) Analysis of Asian travel recovery through key players: CTG Duty Free facing consumer spending headwinds, TravelSky maintaining 20% margins despite subdued international travel, and Fairfax India positioned for airport infrastructure growth.
Noahpinion - At least five interesting things: Trump aftermath edition - Sharp analysis of post-election implications, particularly regarding demographics and voting patterns. Essential reading for understanding the political-economic landscape ahead. (12 min read)
SILVER BULLETIN - Kamala Harris was a replacement-level candidate - Fascinating analysis of how Harris underperformed Senate candidates by an average of 2.6 points. Great data-driven insights into the election results. (15 min read)
Doomberg - In Praise of Chris Wright A thoughtful analysis of Trump's Energy Secretary nominee and implications for U.S. energy policy. Essential reading for energy investors. (15 min read)
Panda Perspectives - The New Leap Forward Deep dive into China's economic transformation and opportunities as GDP per capita approaches the critical $13,000 threshold. (20 min read)
UncoverAlpha - The hyperscaler - LLM provider relationships are starting to heat up - Deep dive into the complex dynamics between cloud providers and AI companies. Excellent analysis of business models and competitive positioning. (20 min read)
Value Degen's Substack - Crypto Thunderdome: FRMO vs KR1 Plc Comparative analysis of two approaches to crypto investing through public equities, particularly relevant given potential regulatory changes. (15 min read)
Dungeon Investing - Polish videogame companies analysis - Comprehensive overview of the Polish gaming sector, with detailed analysis of major players. Particularly strong on valuation metrics. (25 min read)
Quality Stocks - Tier List: Cosmetics Detailed analysis ranking 15 global cosmetics companies based on growth, margins, and competitive advantages. (18 min read)
Superfluous Value - Noteworthy UK Carnage Insightful analysis of recent UK market weakness, highlighting specific opportunities in beaten-down stocks including Churchill China, Burberry, and Close Brothers. (12 min read)
Capitalist Letters - How To Think About The PE Ratio Comprehensive breakdown of how size, growth, industry, and capital structure affect PE ratios, moving beyond simplistic rules of thumb. (20 min read)
Rock & Turner - The 4% of Companies Worth Holding - Thought-provoking piece on concentration in stock market returns. Essential reading for long-term investors. (18 min read)
Quality Investing with René Sellmann - One of My Most Underrated Tools for Investment Idea Generation: Fund Letters Excellent resource for finding under-the-radar investment ideas, with practical guidance on accessing and utilizing fund letters effectively. (15 min read)
Schwar Capital - How to Deal with and Exploit the Unpredictable Practical application of Taleb's uncertainty principles to investment strategy. Strong focus on positioning for both positive and negative Black Swan events. (12 min read)
Value Punks - Five Key Lessons from Hedge Fund Market Wizards Actionable insights from top fund managers on position sizing, risk management, and market timing. (15 min read)
Stock Picker's Corner - Let's Play a Game Called "What Comes Next" - Practical advice for navigating market uncertainty with specific investment ideas. Refreshingly straightforward approach. (10 min read)
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Disclaimer: This newsletter is for informational purposes only and does not constitute investment advice. All opinions expressed are those of the quoted authors and do not necessarily reflect the views of the newsletter creator. Always do your own research before making investment decisions.