Giles Capital Weekly - Week 6
Welcome to another edition of Giles Capital Weekly. China's expanded export controls on critical minerals send ripples through global markets. While tech headlines continue to dominate mainstream discussion, compelling investment cases are emerging in all corners of the market, from Hong Kong stocks trading at GFC low valuations to resource companies quietly positioning themselves for potential supply constraints. The interplay between geopolitical tensions and market opportunities has rarely been more evident.
My top picks for this week spotlight two transformative companies reshaping their industries through digital evolution. From Rijnberk InvestInsights, Uber (UBER) emerges as a dominant force in mobility with impressive 18% revenue growth and rapidly expanding margins, while their unparalleled network of 171 million users positions them perfectly to benefit from the autonomous vehicle revolution. From Idea Hive, Thryv Holdings (THRY) emerges as a compelling SaaS transformation story, with their software segment delivering consistent 20%+ growth and 70%+ gross margins while successfully converting customers from their legacy Yellow Pages business. Their focused strategy targeting small and medium-sized businesses with essential management software has driven their SaaS revenue mix from 9% to 38% of total sales, with management projecting $1 billion in revenue by 2027 at 20% EBITDA margins.
Americas
Invariant on Philip Morris International (🇺🇸PM US - US$227 billion) Strong moat in tobacco with 18.4% EBITDA margins and successful IQOS expansion, trading at 7x PE with clear path to growth through smoke-free products.
Rijnberk InvestInsights on Uber (🇺🇸UBER US - $164 billion) Compelling argument for Uber's platform dominance and growing margins, with autonomous vehicles presenting an opportunity rather than threat. Trading at EV/EBITDA of 19x with declining customer acquisition costs and expanding margins.
MaxDividends on ONEOK Inc (🇺🇸OKE US - US$57.53 billion) Leading midstream energy company trading at 8x EV/EBITDA with $8 billion projected 2025 adjusted EBITDA. Recent acquisitions expected to deliver over $665 million in synergies.
Six Bravo on Texas Pacific Land (🇺🇸TPL US - $31 billion) Rebuttal to short thesis highlighting TPL's exclusive land rights and potential data center opportunities. Free cash flow yield of 8.25% with significant upside from potential data center developments.
Value Guinea on M&T Bank and Citizens Financial (🇺🇸MTB US & CFG US - US$32.78 billion & US$20.86 billion) Analysis of two undervalued regional banks: M&T trading at 1.2x tangible book with strong credit quality and history of prudent capital allocation, while Citizens trades at 0.86x tangible book with 10-12% ROTCE potential.
Kairos Research on International General Insurance (🇺🇸IGIC US - US$1.15 billion) Global niche specialty insurer with 41.4% insider ownership and presence in 200 countries. Historical 17% unlevered ROE and 85% combined ratio demonstrate strong underwriting performance.
Idea Hive on Thryv Holdings (🇺🇸THRY US - US$743 million) Transformation from legacy Yellow Pages business to high-growth SaaS platform. Trading at 2.2x 2025E revenue and 12.9x 2025E EBITDA with SaaS segment growing 20%+ annually and 70%+ gross margins.
Value Degen on TTEC Holdings (🇺🇸TTEC US - $166 million) Customer service outsourcing company trading at 0.07x sales with founder CEO offering to take private at $6.85 vs current $3.49 share price. Strong cash flow generation with trailing twelve month operating income of $79 million.
Value Degen on Almonty Industries & Fireweed Metals (🇨🇦AII.TO - C$620M EV | 🇨🇦FWZ.V - C$289M) Two miners positioned to benefit from tungsten export controls: Almonty projecting $300M annual revenue by 2027 from Sangdong mine, while Fireweed boasts 18% Lundin family ownership and double-grade tungsten deposits.
Europe, Middle East & Africa
Northwest Frontier Capital on SAP (🇩🇪SAP GR - €335.08 billion) Q4 update shows cloud backlog has grown from €8bn to €18bn while margins expand through AI-driven efficiencies. Trading at 30x 2025 P/E with 20%+ earnings growth expected over next several years.
The Finance Corner on L'Oréal (🇫🇷OR FP - €180 billion) Deep dive into the world's largest beauty company, highlighting robust operating margins around 20% and compelling growth in dermatological beauty segment. DCF analysis suggests fair value of €269/share.
Quality Investing with René Sellmann on Kering (🇫🇷KER FP - €31 billion) Analysis of luxury conglomerate trading at significant discount after 73% decline, with Gucci restructuring and expansion into beauty presenting turnaround potential. Trading at a PEG ratio below 1.
Saadiyat Capital on Salik PJSC (🇦🇪SALIK DU - AED 38.4 billion) Dubai's toll operator with exclusive concession rights until 2071 and strategic toll gate locations. Dynamic pricing implementation in 2025 expected to boost operating margins to 67% with 100% free cash flow conversion.
Schwar Capital on Evolution AB (🇸🇪EVO SS - SEK 165 billion) Leading B2B live casino solutions provider maintaining 75-80% global market share with 25% ROIC. Trading at 12.5x TTM P/E with 8.25% free cash flow yield.
Capitalist Letters on Pegasus Airlines (🇹🇷PGSUS TI - TRY117.60 billion) Turkish airline with duopoly position, 21.8% gross margins, and plans to triple fleet by 2034, trading at just 4x earnings with substantial growth runway.
Under-Followed-Stocks on ErreDue (🇮🇹RDUE IT - €44 million) Italian hydrogen and gas generator manufacturer with 20%+ EBIT margins and €24 million order backlog. Traditional business provides downside protection with 17% revenue CAGR from 2016-2023 while green hydrogen transition offers upside.
Asia-Pacific
Dragon Invest on China Mobile, Dickson Concepts, and Natural Food (ðŸ‡ðŸ‡°941 HK/113 HK/1837 HK - HKD 1.09B to HKD 1.71T) Analysis of three Hong Kong-listed value opportunities:
China Mobile: Trading at 2.43x EV/EBITDA with strong cloud growth
Dickson Concepts: Trading below net cash with 10% dividend yield
Natural Food International: 6x PE with 13.5% revenue growth and PepsiCo backing
Weighted Capital on CCID Consulting (ðŸ‡ðŸ‡°2176 HK - HKD 693 million) Chinese consulting firm owned by Ministry of Industry and Information Technology trading at 7-8x PE with 10% dividend yield. Strong growth in revenue and net profit with ROE >20% suggests potential for multiple expansion.
Altay Capital - Mostly Value Investing on Kaneshita Construction (🇯🇵1897 JP - US$38.3 million) Japanese construction company trading at 0.3x book value and 65% discount to NCAV + investment securities, with consistent profitability and net income between ¥45m-¥503m over last decade.
Kroker Equity Research - #73 Blackrock Comprehensive analysis of BlackRock's $11.6 trillion AUM business model and growth prospects. (20 min read)
GHGInvest - Why Trade Wars Break Markets—And How to Profit from the Chaos Timely analysis of trade war impacts on markets with practical strategies for investors. (15 min read)
Noah Smith - What's going to happen to Ukraine now? Thoughtful analysis of potential scenarios for Ukraine's future and implications for global markets under Trump's presidency. (15 min read)
Value Guinea - Resonating Cycles as a Potential Source of Alpha Academic yet practical exploration of market cycles and their potential for generating investment returns. (25 min read)
The Finance Corner - How Financial Models Trick Smart People Insightful piece on the dangers of over-complicating financial models and mistaking precision for accuracy. (10 min read)
Panda Perspectives - China Weekly Wrap Comprehensive analysis of Chinese markets, focusing on recent policy changes and their impact on various sectors. Essential reading for understanding the world's second-largest economy. (30 min read)
Memyselfandi007's Substack - Book review: "Gambling Man - The Wild Ride of Japan's Masayoshi Son" Engaging review of Lionel Barber's biography of SoftBank's founder, offering insights into one of tech's most controversial figures. Worth reading for understanding the intersection of vision and reckless risk-taking. (10 min read)
A Letter a Day - Letter #259: Jensen Huang and Mukesh Ambani Fascinating discussion between Nvidia's CEO and Reliance's Chairman about India's AI potential and the importance of building local AI infrastructure. Essential reading for understanding the future of AI development in emerging markets. (25 min read)
High Growth Investing - The Red Flags are Piling up. Time to go Short? Compelling bearish analysis of major tech names with specific concerns about valuations and business fundamentals. (15 min read)
Elliot's Musings - Can Mega Caps Turn Infrastructure Spend Into Profits Detailed analysis of big tech's AI infrastructure investments and the challenges of converting capex into software margins. Provides valuable framework for evaluating tech companies' capital allocation decisions. (20 min read)
Generative Value - Q4' 24 Hyperscaler Report: AI Supply & AI Demand Deep dive into hyperscaler CapEx trends and their implications for the AI ecosystem. (12 min read)
Investment Talk - Timing is not everything, but it still matters Thoughtful exploration of market timing and how to balance long-term investing with entry point optimization. Uses historical examples like Greggs PLC to illustrate the importance of valuation in long-term returns. (15 min read)
Kingswell - The Poem That Changed Charlie Munger's Life Fascinating look at how Kipling's "If" influenced Charlie Munger's investment philosophy and approach to mistakes. Particularly relevant given recent discussions about maintaining conviction through market volatility. (10 min read)
Rock & Turner - Rolling the Dice: The Leadership Gamble Fascinating exploration of how leadership changes impact long-term company value, using examples from Apple, IBM, and Intel. (15 min read)
Dirtcheapstocks - Accidental Entrepreneur Authentic account of building an investment research business focused on micro-cap value stocks. Offers valuable insights into both business building and investing in overlooked opportunities. (15 min read)
Noahpinion - When are tariffs good? Thoughtful exploration of legitimate economic arguments for tariffs, including national security, infant industries, and strategic trade policy. Essential reading for understanding current trade debates. (12 min read)
TQI Capital - The Power of Brand Thoughtful analysis of brand moats using Nike and Starbucks as case studies, exploring the psychology behind consumer loyalty. (15 min read)
Deep Value Returns - Portfolio Strategy: Lace Up Your Boots, Get Ready Insights on investment discipline and maintaining perspective during volatility. A must-read for value investors. (10 min read)
A continuation of Q4 2024 letters reveal themes of Trump election impacts, international vs. US market valuation disparities, and continued strength in specific sectors. Several managers note historically wide valuation gaps between growth and value stocks, while expressing concern about market concentration in mega-cap tech names and opportunities in real estate and small caps.
Greenlight Capital: Generated 7.2% return in 2024 vs S&P 500's 25.0%. Maintains cautious market view with focus on valuation disparities. Letter expresses concern about cryptocurrency speculation and market concentration. Letter discusses:
MicroStrategy (MSTR) - New arbitrage position: Shorting leveraged ETFs while holding underlying stock
Peloton (PTON) - New position: Turnaround opportunity at $4.07 average cost, ended year at $8.70
CNH Industrial (CNH) - New position: Agricultural equipment maker at 11x trough earnings
Centene (CNC) - New position: Managed Medicaid leader at 9x earnings
Capri Holdings (CPRI) - Increased position after merger break
Whitebrook Capital Partners: Middle-capitalization focused fund showing improved momentum entering 2025. Letter discusses:
Afya Limited (AFYA) - Existing position: Medical education company maintaining 100% seat fill rates
The Mosaic Company (MOS) - Existing position: Benefiting from strong phosphate pricing and Brazilian distribution
Portillo's (PTLO) - Existing position: Up 20% YTD on new store financing approach
Krispy Kreme (DNUT) - Existing position: Expanding McDonald's partnership despite cyber challenges
Builders FirstSource (BLDR) - Existing position: Generating $1.2B cash flow despite housing headwinds
East72 Dynasty Trust: Generated 17.89% return for 2024. Focus on family-controlled companies and financial exposures. Letter discusses detailed analysis of Viel et Cie and Laurent Perrier. Top holdings include:
Compagnie de L'Odet (ODET) - Leading position at 5.52% of portfolio
Lagardère (MMB) - Second largest position at 3.55% of portfolio
Virtu Financial (VIRT) - Trading firm position at 3.31% of portfolio
The Ithaka Group: Generated 30.2% return in 2024. Growth-focused strategy benefiting from AI theme. Letter discusses:
ServiceNow (NOW) - Leading cloud workflow provider monetizing AI capabilities
Amazon.com (AMZN) - Strong Q3 earnings with margin improvement
Palantir Technologies (PLTR) - Up 102.6% in Q4 on AI momentum
Advanced Micro Devices (AMD) - Detractor on weaker guidance
ASML Holding (ASML) - Detractor on lithography demand concerns
Third Avenue International Real Estate Value Fund: Generated -5.67% return in 2024. Focused on discounted real estate opportunities globally. Letter discusses:
TAG Immobilien (TEG) - New position: German/Polish residential developer at discount to NAV
Hong Kong Land Holdings (HKL) - New position: Mixed-use developer implementing value-creation strategy
Glenveagh Properties (GLV) - Existing position: Irish homebuilder benefiting from supply constraints
Third Avenue Real Estate Value Fund: Generated 14.37% return in 2024. Focused on well-capitalized real estate operating companies. Letter discusses:
Berkeley Group Holdings (BKG) - Increased position: Trading at 1.1x book value
Big Yellow Group (BYG) - Increased position: Self-storage platform at 0.7x book value
Accor SA (AC) - Increased position: Hotel operator at 40% discount to peers
Third Avenue Small-Cap Value Fund: Generated 3.55% return in 2024. Sees M&A opportunity given private equity dry powder. Letter discusses:
OceanFirst Financial (OCFC) - New position: Bank at 62% of book value
Ambac Financial Group (AMBC) - New position: Transitioning to specialty insurance
Five Point Holdings (FPH) - Re-established position: Land developer at 30% of book value
Third Avenue Value Fund: Generated -2.20% return in 2024. 86% non-US exposure given valuation disparities. Detailed analysis of auto sector. Letter discusses:
Bayerische Motoren Werke AG (BMW) - Trading at 6.4x earnings despite 13.7% ROE
Mercedes-Benz Group (MBG) - Benefiting from luxury positioning
Subaru Corporation (7270) - Protected from BEV disruption risk given geographic focus
Thanks to Letters & Reviews (lettersandreviews.blogspot.com) for compiling investment letters, which is where I sourced these letters.
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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.