Value Investing Letter Recaps: Q3 2022

“When we find our treasure, we forget where we put our picks and shovels.” – Bert McCoy

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 analyze Manchester United (MANU), Lockheed Martin (LMT), Kelly Services (KELYA)/Manpower Group (MAN).

Let’s get after it.

Top 3 Value Investing Letters You Need To Know About


1. East72 Fund: Manchester United (MANU)

Andrew Brown runs East72, a long/short Australian-based hedge fund. East72 always writes unique and differentiated letters featuring ideas you wouldn’t find elsewhere. This quarter’s letter is no exception. Brown spends most of the letter discussing sports leagues and sports team valuations.

One of those teams being Manchester United (MANU). You can read his letter here (emphasis added).

What does MANU do?

Via MANU owns and operates a professional sports team in the United Kingdom. The company operates Manchester United Football Club, a professional football club.

Why is it a good bet?

“It is clear they see MANU as a (lucrative) financial asset, and have done relatively little – apart from pay excessive transfer fees for the wrong players and appoint the wrong managers since Sir Alex Ferguson23 retired – to satiate the desires of the hardcore MANU fan. Against this backdrop, and with eyes wide open, we have a small position in MANU, since the upside on a sale is significant. The probability of a sale, from every angle, is increasing.

As other clubs are now being acquired by far larger entities than was previously the case – viz the Noisy Neighbours24 and Newcastle – even the wealthy Glazers are starting to rethink the logic of controlling MANU.”

Why does the opportunity exist?

“MANU were floated seven years ago (August 2015) at US$14 per share – not far off the price today. There have been no stock splits, but the Glazer Family, which started with 124million “B” shares (10votes) out of 164million total shares, have watered this down to 110million through sales (B shares revert to “A” shares on sale).”

What is the prize if you’re right?

“Basically what the Glazers will sell it for. We don’t usually get our financial news from the (UK) “Daily Mirror” (formerly owned by the “Bouncing Czech”)27 but the morning edition of 5 September 2022, suggested “The Glazer family have slapped a minimum £3.75billion price tag on Manchester United amid increasing pressure to sell the club”.

Is the price realistic? Somewhat surprisingly, probably yes. The Silver Lake investment into City Football Group valuing it at $5billion (£4.4billion) is a reasonable lead, as is the equity value purchase of Chelsea in mid-2022 by the Todd Boehly consortium of £2.5billion plus required investment of £1.75billion in “infrastructure” mandated by UK Government, given the selling shareholder was Roman Abramovitch.

An equity value of £2.85billion equates to 4.9x revenues in the latest season of 2021-2022 (6.5x including debt) which is below the average noted for NBA teams.

Further Research Material

2. Vlata Fund: Lockheed Martin (LMT)

Daniel Gladiš runs Vlata Fund, a value-based global investment fund. According to Vlata Fund, a good investment is “based on regular cash flows from companies to their shareholders in the forms of dividends and share buy-backs and on re-invested retained earnings.”

Lockheed Martin (LMT) meets that criteria. You can read their latest letter here.

What does the business do?

“LMT is one of the world’s largest aerospace and defense companies.”

Why is it a good bet?

“The aerospace and defense industry in the USA is an established oligopoly. This means that a few large firms play a dominant role. While collectively they comprise an oligopoly, individually they often have monopoly positions in particular narrower segments.”

Why does the opportunity exist?

“In most NATO countries, which are LMT’s customers, defense outlays are based upon the size of GDP. This is currently growing very fast in nominal terms due to inflation in most countries.

A number of countries have also announced significant increases in defense budgets, whether it be Germany, which aims to get to the NATO-agreed 2% of GDP, or Poland, which wants to spend more than twice as much on defense.

Add to this the need for NATO countries to replenish stockpiles of weapons and ammunition provided to Ukraine for its defense, and the next few years can be expected to bring significantly higher defense spending by LMT’s main customers.”

What’s the prize if you’re right?

“LMT is a very stable and important company with high returns on capital and strong free cash flow. It is not one of the cheapest stocks in our portfolio, but we value the fact that, among other things, its business has a relatively low correlation with the main economic cycle and so LMT’s shares also provide advantageous diversification to our portfolio.

Further Research Material

3. Palm Valley Capital Management: Kelly Services (KELYA)/Manpower (MAN)

Palm Valley Capital Fund is a small-cap mutual fund run by Jayme Wiggins and Eric Cinnamond. The fund’s Q3 letter highlights two staffing company ideas: KELYA and MAN. You can read their letter here.

Let’s dig in.

What do the businesses do?

“Both companies serve the staffing industry [providing services to Professional & Industrial; Science, Engineering & Technology; Education; Outsourcing & Consulting; and International.]”

Why is it a good bet?

“In our judgment, during previous downturns, their operating performance was acceptable for a cyclical trough. We believe the valuations for Kelly and Manpower are becoming increasingly compelling.

The company’s net assets are primarily supported by a mountain of receivables. Neither Kelly nor Manpower experienced significant credit losses during the last recession.”

Why does the opportunity exist?

“Staffing is cyclical, and we expect results for these companies to deteriorate in a recession, even though margins haven’t fully recovered yet from the lockdowns.”

What is the prize if you’re right?

“Kelly trades at a 46% discount to tangible book value. ManpowerGroup’s $4 billion Enterprise Value is 6.7x its five-year average operating income before amortization, which includes a trough in 2020.”

Further Research Material

  • Latest Investor Presentation (KELYA) (MAN)
  • Latest Annual Report (KELYA) (MAN)
  • Latest Earnings Call (MAN)

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.

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Brandon Beylo

Value Investor

Brandon has been a professional investor focusing on value for over 13 years, spending his time in small to micro-cap companies, spin-offs, SPACs, and deep value liquidation situations. Over time, he’s developed a deeper understanding for what deep-value investing actually means, and refined his philosophy to include any business trading at a wild discount to what he thinks its worth in 3-5 years.

Brandon has a tenacious passion for investing, broad-based learning, and business. He previously worked for several leading investment firms before joining the team at Macro Ops. He lives by the famous Munger mantra of trying to get a little smarter each day.


Investing & Personal Finance

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With Macro Ops focused primarily on institutional clients, AK moved to servicing new investors just starting their journey. He takes the professional research and education produced at Macro Ops and breaks it down for beginners. The goal is to help clients find the best solution for their investing needs through effective education.

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He worked as a consultant to the family office’s in-house fund of funds in the areas of portfolio manager evaluation and capital allocation.

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