| NZ/AU Another quiet day in the NZ market – we enjoyed Jenny Ruth’s article about Infratil’s data centre revaluation — she notes that the value has increased ~12% since it was last valued at March 31. We don’t think it’s an unreasonable valuation given the clip of growth that CDC is experiencing – ebitdaf up +25% in 2021 and +60% in 2020. Again, we like data centres as a theme – NextDC across the ditch and the data centres that Microsoft and Amazon own in their cloud segments. The cloud is not an abstract concept – it is real, and all that data needs to go somewhere. Liking Mainfreight (MFT) sitting around the ~$62 mark – the biggest thing we were impressed by is that the co has P&L screens in every single cafeteria and that employees are given bonuses on a branch-by-branch basis. Like Charlie Munger says – show me the incentive and I will show you the outcome. Liking NZX at $1.04 per share (8% gross divvy!). Noting Duratec is sitting back at the $1.10 mark (15x earnings). We think there could be some good buying there. Noting that Australia’s biggest private hospital operator, Ramsay Health Care, has lobbed a first-round offer for Cura Day Hospitals – the price is rumored to be around ~$500mn. It’s only an indicative bid, and we wouldn’t get too excited about it at the moment – Ramsay’s share price has crashed ~40% since its all-time high, and its current price of ~$50 per share is miles away from what KKR offered — $88 per share. US Dollar General A story: back in the Pandemic-times, we missed out on Dollar General (and Dollar Tree) and had a case of FOMO as we watched their stock prices rise and rise. We read a lot about both – Dollar General famously has more stores than Walmart, and they are located throughout “rural” America. Then we read a Bloomberg article about the conditions at DG, and we found the whole thing a lot less savoury. Anyway. We found this write-up from Scuttleblurb to be an interesting contra, particularly this story about popcorn: “A story from Cal Jr.’s memoir, My Father’s Business, illustrates this point. Dollar General once replaced a 3-pack of microwave popcorn that sold for $1 with an 8-pack that sold for $2. Cal recounts: “We figured customers couldn’t resist the added value, and we’d be generating a $2 sale instead of a $1 sale. The problem was that popcorn sales fell. Nobody could figure out why it wasn’t a big success. We finally went into the stores and asked, and our people there told us our customers could only afford to spend $1 at a time for something like popcorn”. A Wall Street analyst cannot comprehend this.” The bull case for DG is basically: this thing is trading at 10x earnings, the middle class will trade down to the cheapest option, and DG’s core demographic will still buy $1 packets of popcorn. The bear case is: this thing is uninvestable because it is a massive lawsuit waiting to happen and the company is practically a development centre for health and safety violations. We are neutral, but we keep looking at it anyway. Ozepmic |
Yesterday we noted that Coca Cola, Brown-Forman, Kraft-Heinz are all sitting around 52 week lows. Could the rockstar drug Ozempic be behind it? The figures above are quite interesting — high carb products, soft drinks and snacks are all impacted by +10%. It could be a cause for concern for those in the snack industry. Interestingly, alcohol seems to be mostly unaffected — we remain bullish on alcohol – Diageo trades at 18x earnings and you get Johnny Walker, Guinness, etc.
Disney/Peltz
Long-time readers of this newsletter could be forgiven for thinking that it’s groundhog day. Nelson Peltz’s Trian is holding a $2.5bn position in shares of Disney (it did the same in Jan) and is looking for at least a couple of board seats, including one for himself.
It’s no surprise Peltz is back in there — Bob Iger came back to Disney full of vim and vigor and yet the stock has languished, sitting at almost 10 year lows. Partially the issue is a string of flops (how many spin-offs of Star Wars can you make?) but the larger issue is the uneasy embrace of the media industry to streaming — they haven’t been able to make the model work yet. Our long view is that the consolidation of the media industry is inevitable — there are smaller players strewn around (Paramount, etc) who seem ripe for the picking, whilst a Comcast-WarnerBrothersDiscovery merger becomes feasible in 2024 as lock-up agreements expire. It’s a hard position for Iger to be in, though. His first run at Disney was marked by acquisition of “star” assets — Marvel, Star Wars, Fox’s media assets — now there is marked audience “burn out” of a lot of those said “star” assets. The question is — how does Disney revive the magic of old? We find it hard to not be buying Disney at this kind of valuation — we love media, and we think a lot of that core IP is very valuable — but we think seeing a revival in the stk price is a 2 year play at least. Streaming needs to consolidate.