Transcript Notes: December 2022
Blackstone thinks its asset-light business model is undervalued. Its stock is down significantly more since these comments were made.
So to me, we'll continue to be, I think, in the private markets, that's what we're going to be. We're going to continue to operate, as I said, asset-light, brand-heavy. We want to continue to pay out to shareholders our earnings because we don't really have use of capital. And when I look at our stock, I say -- I don't know, this is a company that's grown earnings and AUMs compounded 20-plus the last 5 years. I think earnings the last 3 years have been 36% annually compounded, even faster in the last 12 months.
I see this really powerful business model with healthy margins. I see a very large potential TAM in managing capital and still early penetration. I see us as the global leader in this space. And yet we trade today after the big selloff around the market multiple. We have a dividend yield that's double the market. I think on a trailing basis, maybe even higher. And the insiders at our firm own almost 50% of the company. So there's heavy alignment.
Hilton’s business is booming, surpassing 2019 levels on many key metrics. Cost cuts during COVID have proved sticky and elevated margins.
Occupancy reached more than 73%, only 4 points shy of 2019 levels.
ADR also continued to strengthen, improving quarter-over-quarter and up 11% versus 2019.
All of this translated into third quarter system-wide RevPAR growth of approximately 30% year-over-year and 5% compared to 2019 levels, with each month surpassing prior peaks.
For the full year, we continue to expect net unit growth of approximately 5%, and we expect mid-single-digit growth for the next couple of years before returning to our historical growth rate of 6% to 7%.
We're running our highest margins in our company's history and we're on track to generate our highest levels of free cash flow yet.
SS&C Technologies - October 27, 2022
I love it when management teams are crystal clear about capital allocation; it makes assessing forward returns substantially easier given the importance we place on return of shareholder capital in arriving at a likely range of prospective returns.
In Q3, we bought back 3.7 million shares for $214.5 million at an average price of $57.62. We have bought back 6 million shares to date in 2022. We are currently planning on allocating 50% of our cash flow to stock buybacks and 50% to debt paydown.
Additionally, the business details one of the attractive aspects of owning sticky software business; the ability to cross sell additional capabilities:
Now I will mention some key deals for Q3. A wealth manager with 260,000 accounts chose Black Diamond to offer best-in-class solution to their end clients and large employee base. An existing fund services client expanded their relationship with SS&C to include additional funds and loan servicing on their private book. A large real estate manager based in Singapore and New York chose SS&C's middle-office capabilities due to our real estate expertise and global operating model. An existing PORTIA client upgraded to our new Aloha solution, noting the enhanced fixed income functionality.
Kontoor Brands — November 3, 2022
Kontoor thinks supply chain problems are moderating.
The global supply chain challenges that have plagued the industry for the last year plus have begun to show signs of moderating from historic highs. Specifically, we have seen lead times from Asia moving closer to pre-pandemic levels in ocean freight, while still well above historic levels, has begun to moderate.
Perimeter Solutions - November 4, 2022
Perimeter has a high bar for allocating capital, and the best use of excess cash recently has been its own shares.
We continue to operate in a unique capital markets environment with highly restricted access to capital almost across the board, and therefore, where our available cash carries a significant premium. With this premium in mind, we repurchased approximately 300,000 shares in the third quarter for approximately USD2.6 million and repurchased another 4.9 million shares in October for approximately USD37 million. While we value the M&A-related flexibility that our cash balance affords us, we will continue to allocate our capital towards share repurchases when presented with a very compelling opportunities, as we have at various points this year. To that end, and given that we utilized approximately half of our initial USD100 million repurchase authorization, our Board has authorized a new USD100 million share repurchase authorization.
Lowe’s remains bullish on home remodeling.
The average age of homes in the U.S. is over 40 years old and roughly 3 million more homes built during the housing boom in the mid-2000s, will be entering prime remodeling years by which is a key inflection point for big ticket repairs. This is one of the key reasons why 2/3 of home improvement spend is nondiscretionary on repair or maintenance projects that cannot be delayed
There is a persistent $1.5 million to $2 million under supply of homes and 250,000 first-time millennial homebuyers are expected per year through 2025. This unique combination of factors is causing homeowners to trade up in place, preferring to invest in repairs and renovations to make their current homes meet their families evolving needs rather than buying a new home.
Copart truly thinks long term.
We make strategic decisions with a 20-year horizon. As a result, we own the vast majority of our real estate, ensuring its availability for our business and our customers for generations. We maintain a strong balance sheet to ensure that we have the flexibility to invest in our business and our customers' success, regardless of economic conditions at the time….
The currency is, in near term, it's a nudge in that direction but it's not a meaningful influence. We're buying this land for 10, 20 and 50-year use. So variations of 5%, 10%, 20%, 30% even, don't necessarily affect that calculus.
Alibaba IPO’d on the NYSE eight years ago. Since then the stock is about flat. But that belies the company’s growth.
During the 8 years from Alibaba's IPO in September 2014, the quality and the scale of our business has improved significantly. Alibaba's revenue today is 12x what it was during the same period in 2014. Adjusted EBITA is 4.5x, what it was during the same period in 2014.
Free cash flow is 4x that of what it was in 2014. Over the past 8 years, China's GDP has almost doubled from RMB 59 trillion in 2013 to RMB 114 trillion in 2021.
Meta — November 30, 2022
Meta still is spending the vast majority of its time and investment on social media.
About 80% of our investments – a little more – go towards the core business, what we call our family of apps, so that's Facebook, Instagram, WhatsApp Messenger, and the ads business associated with that. Then a little less than 20% of our investment goes towards Reality Labs -- So still the vast majority of what we're doing is, and will continue to be, going towards social media for quite some time until the metaverse becomes a larger thing -- You can debate whether 20% is too much for this bet, but it's not the majority of what we're doing. We're not going to be here in the 2030s communicating and using computing devices that are exactly the same as what we have today. If someone has to build that and invest in it and believe in it, there's a lot of new technology that needs to get invented to create that. So I'm still very optimistic about that.
So far, unlike many pandemic winners, AutoZone is not relinquishing a significant amount of new customer relationships it built during the pandemic.
While our ticket growth was similar to last quarter, of just over 7%, we are encouraged that our transaction count trends improved, decreasing by 4%. These results are very strong considering the difficult comparison, driven by the lingering effects of stimulus last year. From the data we have available, we continue to retain the vast majority of the enormous dollar share gains we built during the initial stages of the pandemic.
AutoZone’s industry has enjoyed years of rational pricing and competition, allowing players to exercise pricing power during times of inflation without giving back gains when inflation moderates.
I want to highlight that our industry has been disciplined about pricing for decades, and we expect that to continue. Most of the parts and products we sell in this industry have low price elasticity because purchases are driven by failure or routine maintenance. Historically, as costs have increased, the industry has increased pricing commensurately to maintain margin rates, thereby increasing margin dollars. It's also notable that following periods of higher inflation, our industry has historically not meaningfully reduced pricing to reflect lower costs.
The pandemic continues to make annual comparisons difficult. The world is normalizing, but that looks like a slowdown (because it is, relatively).
Obviously, normalization is deterioration on an absolute basis, but it's not accelerating, and we're not back at the pandemic levels. But that normalization is that ranking exactly how you would expect. Sort of higher risk, lower income, consumers normalizing faster.
Brookfield Asset Management — December 7, 2022
Brookfield thinks demand for private-market investments are driven more by their lack of mark-to-market volatility and than by interest rates.
And we've witnessed this for a long time, but the distractions of the public markets are terrible for people that have long-term wealth creation in mind. So through sovereign plans, if they need money for liquidity, they should have it in fixed income and liquid markets equities. If they don't need it for liquidity, it should all be in private because the problem with the public market is it distracts you from value -- there are two things. You all know this. There's the value of an asset and there's the price that it trades for. Sometimes it's higher, sometimes it's lower.
Once in a while, it's the same. But that price movement distracts from what really matters to wealth creation longer term. And therefore, the short answer is any -- these institutions for both return reasons and focus and distraction reasons, they continue to put more and more money into private and they will continue to -- even though rates are higher today.
Real estate market is strong. Sentiment is only poor because prices are down.
Most real estate is in pretty good hands. Look, retail malls were shut down. Their sales, if you have a good multi-day, it's 35% above 2019 sales, 35% above 2019. So like we had worse. Everyone went home and never went to an office building, remember, they were leased, so they're still paying the rent. Retail malls were shut down and hotels, nobody went like -- you couldn't have had anything worse 2.5 years ago, and the business survived and the cash flows are higher and it's growing. And we should just remember price and value. People for some weird reason today, price is lower than the value, they're unsure, so they price it here in the public market.
Roper Technologies — December 7, 2022
The private equity market is frozen while assets re-rate.
We're constantly looking for value opportunity. There appears to be more conceptually in the public markets today than the private markets. But our experience, both at the company and my personal experience is it takes 6 to 12 months for private valuations to reset the public. We're very much in that window right now.
There is no leverage loan market available to private equity. So there's just not a lot. We don't have a private equity bid. Private equity sellers aren't really selling at the market — at the moment. So there's very — there's activity, but it tends to be very bespoke and unique reasons for the activity right now because valuations haven't essentially reset to where they need to be in the — given the current interest rate environment.
Floor & Decor — December 7, 2022
Floor & Decor’s ability to keep a huge amount of diverse, bulky inventory in stock is widening their competitive advantage.
And it's getting bigger, right? Taller planks, wider planks, and hard for our competitors to show that. I think when you look at tile, you sort of see some of the same things where bigger tile is a trend that's continuing and our smaller competitors -- even our large competitor because they don't have the same square footage, really have trouble showing that type of product. And so that's a bigger competitive moat around our business.
If you would like to invest with Eagle Point Capital or connect with us, please email info@eaglepointcap.com. You can also find more information on our website. We recommend starting with our Fundamentals. Thank you for reading!
Disclosure: The author, Eagle Point Capital, or their affiliates may own the securities discussed. This blog is for informational purposes only. Nothing should be construed as investment advice. Please read our Terms and Conditions for further details.
These transcript highlights are great. I follow many of these companies and have read the transcripts, but this digest highlighting only the most unique call outs is invaluable for its holistic perspective. TY for sharing!
This is great. Thanks!