Our Value Investing Letter Recaps keep things simple.
Each email focuses on three value investing hedge fund letters, three ideas, all digestible in three minutes.
Within each idea we answer four main questions:
- What does the business do?
- Why is it a good bet?
- Why does the opportunity exist?
- What is the prize if you’re right?
Quick housekeeping note that nothing you read is investment advice and please do your own due diligence before investing. Also, I do not own any of the below-mentioned securities as of this writing.
Finally, we get each investment letter from r/SecurityAnalysis, which you can find here.
This week we analyzed SSC Security Corp (SECU), SS&C Technologies Holdings (SSNC), and Meta Platforms (META).
Let’s get after it (as always, emphasis added).
Top 3 Value Investing Letters You Need To Know About
1.Donville Kent: SSC Security Corp (SECU)
JP Donville and Jesse Gamble run the Donville Kent Roe Reporter newsletter. This is their first appearance on the Value Investing Letter Recap series. You can read the November issue here.
We’ll focus on one of Donville’s ideas, SECU.
What does SECU do?
“SSC provides in-person security personnel for places like airports and shopping malls plus cross-sells higher margin cyber security solutions.”
Why is it a good bet?
“They recently completed the purchase of a competitor that now gives them national coverage and the ability to win much larger contracts.
The company is run by a proven management team with significant insider ownership who have started, grown, and sold a previous security business.”
Why does the opportunity exist?
“… Once SSC winds down an unrelated agricultural segment, we believe they will have more cash on the balance sheet than the entire market cap of the company.”
What is the prize if you’re right?
“They are currently buying back stock and paying a dividend that now yields 4%.”
Further Research Material
2. LVS Advisory: SS&C (SSNC)
Luis Sanchez runs LVS Advisory, a boutique investment firm out of NYC. I know Luiz is on Twitter somewhere, but his username escapes me. If you know it, please DM me so I can add a link to this post.
Anyways, Luiz profiles SS&C (SSNC) in this quarter’s letter, which you can read here.
Let’s dive into the name.
What does SSNC do?
“SS&C is a publicly traded acquisition platform led by its founder Bill Stone who is also the largest shareholder. SS&C’s platform focuses on investment fund services (accounting, administration, back-office tools) and enterprise software.
The company routinely makes large acquisitions in its target markets financed by debt and then quickly rationalizes the acquired companies and pays down debt.”
Why is it a good bet?
“Since becoming public in 2010, SSNC has compounded its earnings per share at 25% per year (over 11 years). Despite this impeccable track record, the stock is down more than 40% this year.”
Why does the opportunity exist?
“Investors are generally skeptical that an acquisition platform can generate strong investment returns given the current level of interest rates. Investors are also worried that SS&C’s customer base will be negatively impacted by the decline in asset prices …
While SS&C will face some near-term headwinds from the market’s volatility, its client base is largely composed of private equity funds and hedge funds which have fared relatively well during 2022.”
What’s the prize if you’re right?
“SS&C’s valuation multiple is the cheapest it has ever been since its IPO and the company is aggressively buying back stock. A well-timed transaction could also be in the cards.”
Further Research Material
3. Rowan Street Capital: Meta Platforms (META)
Rowan Street Capital was founded by Alex Kopel and Joe Maas. The firm takes a long-term, value-based approach to investing. You can read more about their 12 Guiding Principles here.
Their Q3 letter focuses on Meta Platforms (META), which you can read here.
Let’s dive in.
What does META do?
Via TIKR.com: META develops products that enable people to connect and share with friends and family through mobile devices, personal computers, virtual reality headsets, wearables, and in-home devices worldwide. It operates in two segments, Family of Apps and Reality Labs.
Why is it a good bet?
“Meta is estimated to make close to $120 billion in revenues this year. Gross profits are still around 80%. The core Family of Apps business generated $48 billion in operating profits over the past 12 months, and the entire market cap is currently $240 billion (5x core operating profits). Free cash flow over the past 12 months netted at $26 billion, even after the heavy capital expenditures we described above.”
Why does the opportunity exist?
“In our opinion, all Wall Street is currently focused on is the flattening of near-term revenues due to economic impact on digital downturn and a dramatic increase in expenses from $71 billion in 2021 to an estimated ~$99 billion in 2023, which will cause a drop in operating profits from $46.8 billion in 2021 to our estimate of $28 billion in 2023 (please note that even then, their operating margins are still expected to be above 20%).
Combine that with a dramatic increase in capital expenditures from $18.6 billion in 2021 to estimated $36.5 billion in 2023 and we have the herd selling and asking questions later.”
What is the prize if you’re right?
“Given his incredible track record, his unique ability to see where the world and technology is headed over the next 10-15 years and to execute against his vision, we would not bet against him.”
Further Research Material
Wrapping Up This Week’s Value Investing Letters: What To Read Next
Thanks for reading, and I hope you learned something. If you enjoy this series, let me know by shooting an email or retweeting on Twitter.
Also, please let me know if there’s an investor letter I should read that I didn’t cover here.
