Value Investing Q3 Letter Recaps: CLAR, UD, TIGO

Our Value Investing Letter Recaps keep things simple. 

Each email focuses on three value investing hedge fund letters, three ideas, all digestible in roughly 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 Clarus Corporation (CLAR), Unidata SpA (UD.IT), and Millicom International Cellular (TIGO).

Alright, back to the investor letters!

Top 3 Value Investing Letters You Need To Know About

1. Maran Capital: Clarus Corporation (CLAR)

Dan Roller runs Maran Capital, a small-cap, value/special situation investment partnership. Maran appeared earlier this quarter when we covered APG

This week we discuss one of Dan’s longest-held ideas: CLAR. You can read his thoughts on the company in his letter here

Let’s get after it.

What does CLAR do? 

Via “CLAR develops, manufactures, and distributes outdoor equipment and lifestyle products focusing on the outdoor and consumer markets in the United States, Canada, Europe, the Middle East, Asia, Australia, New Zealand, Africa, and South America.”

Why is it a good bet? 

“Clarus is trading at around 7.5x EBITDA and at a double-digit normalized cash earnings yield. Given the valuation, the quality of the Clarus brands, the long-term growth outlook, the aligned management team, the recent insider purchases, the share repurchase authorization, the partly non fundamental set of events that led to the sell-off, and the continued high short interest (eight million shares, or almost one third of the float, at last check), I believe this is an attractive situation.”

Why does the opportunity exist? 

“Clarus is certainly facing several headwinds—including a promotional retail environment, a weak euro and Australian dollar, and weakness in new car volumes (which impacts its Rhino Rack business)—but I don’t believe that these headwinds justify the current stock price.”

What is the prize if you’re right? 

“Clarus’ enterprise value is around $600 million. If Rhino Rack is worth around $200 million (about 8x EBITDA) and Sierra/Barnes is worth around $200 million (5x EBITDA), the market is implying that the Black Diamond Equipment brand is worth just $200 million (under 0.8x sales and ~6x EBITDA). 

Another way of framing valuation is that the market is paying a reasonable price for Black Diamond and Rhino Rack and that we are getting Sierra and Barnes for free.”

Further Research Material

2. Alluvial Capital: Unidata SpA (UD.IT)

Dave Waters makes another appearance this quarter in the Value Letter Recap series. You can read his prior idea, PX, here.

This week we tackle another Alluvial idea, this time a little-known Italian telecom company, UD. Follow along in Alluvial’s Q3 letter here

What does UD do?

Via S.p.A. operates as an Internet service provider in Italy. It offers connectivity, integrated communication, cloud computing, Internet of Things, and professional services.”

Why is it a good bet? 

“First-half results saw Unidata’s customer count rise 29% year-over-year and its fiber network expand by 35% to 4,920 kilometers. EBITDA rose 53%. The company issued a €10 million bond to help finance the construction of a green data center in Rome. Most excitingly, the company announced two large new initiatives: the doubling of the scope of its “Unifiber” project installing fiber in unreached areas of Lazio, plus “Unitirreno,” a proposal to build an 890 kilometer submarine cable in the Tyrrhenian Sea connecting Sicily and Genoa.”

Why does the opportunity exist? 

“I see far too many small companies that are more or less cast in amber. They look the same and act the same year in, year out. Some are at least honest that they have no ideas and simply return profits to shareholders. Others hoard cash flow or piddle it away on immaterial initiatives, hoping to juice profits 2-3% over the next 18 months or achieve some other inconsequential goal. The dishonest ones, of course, find ways to divert shareholder wealth to insiders and related parties. Not good enough!”

What’s the prize if you’re right? 

“Unidata could not be more different. Management owns 70% of the company. They have built a profitable and dynamic operation and have enjoyed the rewards, becoming very wealthy in the process. But they see an opportunity in front of them to double or triple the value of Unidata shares, and they’re going after it.”

Further Research Material 

3. Bonhoeffer Capital: Millicom International Cellular (TIGO)

Keith Bonhoeffer has been a staple in the Q3 Value Letter Recap Series. Part of that is because he highlights so many ideas in his letters (greatly appreciated!). Another reason is we’re approaching the end of Q3 letter season, with Q4 letters right around the corner. 

Check out Keith’s Q3 letter here to follow along. 

This week, we highlight our second telecom company, TIGO. 

What does TIGO do? 

“TIGO is a Latin American telecommunications firm that provides high-speed internet, cable, and wireless to nine markets. The firm has a #1 or #2 positions in eight of these markets. TIGO is also in the process of separating both its towers business (about 10,000 towers) and its TIGO Money business for either sale or co-investment.”

Why is it a good bet? 

“Based upon historical tower sales by TIGO and comparable transactions and trading prices for Latin American tower businesses, we think the towers are worth about $1.4 billion or $8.00 per share. Given the current price of TIGO, the stub has an implied value of about 5.7x 2022 FCF or 1.5x projected 2026 FCF.”

Why does the opportunity exist? 

“Given the liquidity from recent rights offering, TIGO’s debt level is low, and the company will be in the position to buy back shares next year while continuing to invest in its fiber rollout. There is additional value outside the core business in TIGO’s data centers and TIGO Money.”

What is the prize if you’re right? 

“Given a conservative projected EPS growth of 10% per year (vs. the 25% projected FCF growth rate), TIGO should trade at 22x earnings using Graham’s formula of 8.5 + 2 * growth rate. Applying this multiple results in about a 2.5x return today and a 7x return in five years.”

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.

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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.


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