Fall 2023

Deciphera Pharmaceuticals has a promising pipeline of cancer therapies that could lead to significant revenue growth in the coming years. The company's focus on targeted therapies positions it well in the competitive oncology market.

AMETEK is well-positioned in the industrial sector with strong fundamentals and a history of consistent growth. The company's diverse product offerings and focus on innovation provide a solid foundation for future performance.

Copart operates in a niche market with a strong competitive advantage due to its technology-driven auction platform. The company's growth potential is bolstered by increasing vehicle salvage rates and expanding market share.

Limbach Holdings is positioned to benefit from the increasing demand for energy-efficient building solutions. The company's focus on sustainable practices aligns with market trends and regulatory changes favoring green building.

IWG is a leader in flexible workspace solutions, which are becoming increasingly popular in the post-pandemic world. The company's strong brand and global presence provide a competitive edge in a growing market.

The interview discusses a long thesis on Vertiv Holdings Co, indicating a positive outlook on the company's future performance.

Crescent Rock Capital holds a long position in Gerresheimer AG, suggesting a favorable view on its market prospects.

The investors from Crescent Rock Capital have a long position in Melrose Industries, indicating their belief in the company's value creation strategy.

Crescent Rock Capital's long position in Sanken Electric reflects their positive outlook on the company's performance in the market.

BWX Technologies is well-positioned in the nuclear energy sector, which is expected to see growth due to increasing demand for clean energy solutions. The company's strong fundamentals and strategic contracts provide a solid foundation for long-term value creation.

Casey’s General Stores has a robust business model with a strong presence in the convenience store sector. The company's focus on expanding its footprint and enhancing its product offerings positions it well for future growth.

Kirby Corporation operates in the marine transportation and diesel engine services sectors, which are expected to benefit from economic recovery and increased demand for energy. The company's operational efficiency and strategic acquisitions enhance its competitive advantage.

Lithia Motors is positioned to capitalize on the growing demand for online automotive transactions through its Driveway business model, which leverages existing dealership infrastructure. The company's captive finance business, Driveway Finance Corporation, is expected to significantly enhance earnings per share by 2025. With a current share price of $306 and a projected price of $608.50 by 2026, this represents a compelling investment opportunity with a 23% IRR.

PayPal's core checkout business is expected to maintain a strong competitive position due to its consumer trust and effective purchase protection services. Despite recent stock declines, the company continues to grow payment volumes and revenue, with a price target of $110 by FY28, representing a 112% upside and an IRR of approximately 15%.

The investor is considering owning PayPal due to its strong market position and growth potential despite recent challenges from competitors.

Vertiv Holdings Co is positioned to grow at 1.5 times the market rate due to sector consolidation and its leadership in the fast-growing liquid cooling segment. The company is actively pursuing strategic acquisitions and has a strong product range that meets the increasing demand for customized solutions. With expected margin expansion and a favorable valuation based on EV/EBITDA multiples, VRT presents a compelling investment opportunity.

KBR has successfully transitioned from a traditional engineering and construction company to a government services provider, which has led to increased earnings and cash flow growth. The company has a strong backlog of contracts, including a significant $20 billion contract with the DOD, which is expected to be very accretive to earnings despite some delays in implementation.

Gerresheimer, a pharmaceutical packaging manufacturer, has seen significant improvements in growth prospects under new management and is positioned to benefit from the emerging GLP-1 growth opportunity. Despite these advancements, the company still trades at a discount compared to its competitors in the pharmaceutical packaging industry.

Gerresheimer AG is positioned to benefit from the growing demand for biologics and GLP-1 drugs, which are expected to significantly increase their revenue and margins. The company has improved its financial metrics under new management, targeting a 15% blended pre-tax ROIC and a substantial increase in free cash flow as capex burdens ease. With a current trading multiple of 8-9 times EBITDA, there is potential for revaluation as they capture a larger share of the high-value solutions market.

The investor is considering Gerresheimer AG due to its strong position in the syringe market and the expected growth from GLP-1 contracts, which are projected to significantly increase revenue and margins over the next few years. The management's focus on improving cash flow and return metrics adds to the attractiveness of the investment.

Melrose is transitioning to a pure play aerospace company, which is well-timed given the current demand growth in the aerospace sector. The company is expected to achieve significant margin expansion over the next three years, driven by its involvement in long-term RRSPs that will yield high profitability as they enter the aftermarket service phase. Currently trading at about eight times EBITDA, which is below the typical 12 times for comparable high-quality businesses, presents a compelling investment opportunity.

Allegro MicroSystems is a well-positioned semiconductor design company with strong exposure to the electric vehicle market, growing its top line at over 20% and expanding margins. The company is trading at a significant discount through its parent company, Sanken, which presents a compelling investment opportunity.

Sanken Electric has a crown jewel asset in Allegro MicroSystems, and its shares are trading at a significant discount to the tax-affected value of this stake. With activist investors like Effissimo and Oasis involved, there is potential for value enhancement and a realization of this discount.

KEX is our largest position, close to 6%, reflecting our long-term comfort with the underlying business trends and competitive positioning. We have followed this business for many years and feel confident about its trajectory and fundamentals.

The investment in Hanesbrands was exited due to rising leverage and deteriorating fundamental results, with the stock trading around $4, highlighting the destructive impact of leverage on value.

Assured Guaranty is favored because it does not lend to consumers like banks do, making it less sensitive to deposit issues, which is crucial in the current banking environment.

Houlihan Lokey is considered due to its different business dynamics compared to traditional banks, making it a more attractive investment in the financial sector.

BWXT provides critical aspects of naval nuclear propulsion for the US Navy, which ensures high visibility and demand for its core business. The company is expected to benefit from increased defense spending and has promising growth areas in nuclear competencies, including microreactors and medical radioisotopes.

Casey's General Stores is the third-largest convenience store chain in the US, with strong customer satisfaction and a growing presence. The company has a favorable competitive position due to its scale and less reliance on volatile tobacco sales, and it is expected to benefit from improved fuel margins and a fragmented industry landscape.

Casey's is well positioned for the EV transition due to its strong balance sheet and ownership of real estate, which allows for flexibility in adapting to changes. The company could benefit from increased customer traffic due to EV charging stations, enhancing their food offerings.

Lithia Motors is positioned for significant growth due to its aggressive and disciplined acquisition strategy, which has allowed it to maintain a strong market presence and expand its operations. The company's eCommerce platform, Driveway.com, is strategically located to serve a large population, enhancing its competitive advantage. With a target price of $640, representing a 105% upside and an IRR of 25%, the current valuation does not fully recognize the company's earnings potential and growth opportunities.

PayPal is positioned for growth due to its scalable business model and recent management changes that support valuation. The new CEO, Alex Chriss, aims to make PayPal leaner and more cost-efficient, with significant share buybacks planned. The company is expected to achieve a modest revenue CAGR of 8% and an adjusted EPS CAGR of 13% through 2028, with an IRR of 15%.

Vertiv is expected to outperform the market with a projected revenue growth of 12% CAGR over the next three years, driven by increasing investments in data centers and strategic acquisitions. The company has a strong market position with 60% of its business being recurring, primarily from data centers, which are projected to grow at a 12% CAGR. The investment thesis is supported by robust spending on data center infrastructure and low vacancy rates.

dentalcorp is the largest dental service organization in Canada, benefiting from industry consolidation and consistent growth driven by a captive customer base. Despite recent challenges, including high acquisition multiples and inflationary pressures, the company is expected to grow free cash flow per share at attractive rates in 2024 and beyond, making it a compelling investment opportunity at current depressed multiples.

IWG operates flexible hybrid office spaces globally and is transitioning to a management fee model that will significantly enhance its business quality. With a low double-digit free cash flow multiple and the potential for substantial cash flow growth as management fees ramp up, IWG presents a strong investment opportunity as it shifts towards a less capital-intensive model.

AMETEK operates in niche industrial markets with critical components that have limited competition. Their disciplined acquisition strategy and efficient operations allow them to maintain strong pricing power and generate good returns, making them a solid long-term investment.

TransDigm is significantly invested in by the firm and exemplifies a successful strategy of focusing on high-value, differentiated products in the industrial sector. Their strong pricing power and customer captivity make them a compelling investment, although the firm chose not to highlight them as they are becoming more well-known.

Old Dominion Freight Line is mentioned as a company that has shown significant upside potential, indicating that the firm believes in its continued growth and ability to exceed initial estimates.

Apple is mentioned as a company that has exceeded initial estimates, indicating strong performance and potential for further upside, which aligns with the firm's investment philosophy of holding onto high-quality companies.

IAA was previously undervalued within its parent company, KAR, and has the potential to close the performance gap with Copart. However, despite management's claims of improvement, the company has struggled with market share and efficiency, leading to disappointing financial results.

Copart has a strong network effect and scale advantage in the auto salvage industry, making it difficult for competitors to break into the market. The company is expected to continue reinvesting its free cash flow wisely, which should lead to above-average growth. While there are risks associated with changing accident rates and new technologies, the long-term outlook remains positive due to Copart's market position and capital allocation strategy.