HVS 4Q21: ValueWorks’ Charles Lemonides On Tidewater And United Natural Foods

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Welcome to the December 2021 (Q4) issue of Hidden Value Stocks.
In this problem, we have our usual 2 interviews, an update from Charles Lemonides, CIO and founder of ValueWorks LLC, and extracts from letters of funds formerly profiled.
The very first interview is with Jim and Abigail Zimmerman of Lowell Capital. Between its starting in 2003 and 2015, Lowell Capital turned a financial investment of $10k into $38,779. After the launch of the Lowell Capital Value Partners fund in 2017, that financial investment has actually considering that grown to $58,883.
The second interview functions Lyrical Partners. The company explains itself as a deep worth financier that has actually always been “searching in the most affordable part of the market.” Since its beginning at the start of 2019, the Lyrical International fund has actually returned 17.6% per year after costs.
We hope you enjoy this issue of Hidden Value Stocks, and if you have any questions or remarks, please do not hesitate to contact us at [email protected] Sincerely,
Rupert Hargreaves & & Jacob Wolinsky.
Charles Lemonides: ValueWorks LLC
In the Q3 2020 concern of Hidden Value Stocks, Charles Lemonides, the founder of ValueWorks LLC chose Tidewater and United Natural Foods as his leading small-cap stocks. We just recently caught up with Charles to see if hes still bullish on these 2 firms.
Tidewater
The offshore oil and gas service appears to be getting close to an inflection point. If so, Tidewater Inc. (NYSE: TDW) ought to prove incredibly leveraged to such the share and an inflection rate could be revalued meaningfully higher in a matter of quarters.
The shares have had a solid return over the previous twelve months, touching a low of under $6 per share in November of 2020, and are now trading at approximately $12 per share. However we see this as a sharp bounce off an unsustainable low, and anticipate a more significant advance over the next numerous years. Our company believe there is a high possibility the shares trade in the mid-twenties in 2022 and then double from there as we reach a cyclical market top in the second half of the decade.

After the launch of the Lowell Capital Value Partners fund in 2017, that financial investment has considering that grown to $58,883.
The shares have had a solid return over the previous twelve months, touching a low of under $6 per share in November of 2020, and are now trading at roughly $12 per share. With 41 million shares exceptional and minimal net financial obligation, Tidewaters business worth today is approximately $500 million. We are numerous quarters into a revenues acceleration, yet the shares stay rather reasonably priced. The Evergrande bonds have declined to about 20% of face value as of September 30 (they were at 40% of face value on July 31, 2021, the last market-to-market assessment date for Asia Standards bond portfolio) while the Kaisa bonds have declined to 85% of face worth.

Hidden Worth Stocks issue for the 4th quarter ended December 31, 2021, featuring ValueWorks Charles Lemonides sharing his leading small-cap stocks, Tidewater Inc. (NYSE: TDW) and United Natural Foods Inc (NYSE: UNFI), and Bonhoeffer Funds Keith Smith discovers a concealed value opportunity in Asia Standard International Group Ltd. (HKG:0129).

Day rates for offshore support vessels have actually been trending greater as oil prices have actually remained above $50 per share for an extended duration. There has actually been a progressive however constant uptick in almost all locations of overseas energy activity for a variety of quarters. Current oil rates support that uptick. As the excess supply of actively marketed assistance vessels has actually been slowly taken in, day rates have advanced to rewarding levels. Additional boosts in activity will have the magnified impact of increasing the number of vessels running and increasing the typical rate, leading to much greater operating profits and free capital.
With 41 million shares very little and exceptional net debt, Tidewaters enterprise value today is approximately $500 million. For the quarter ending September 30, profits grew 6% sequentially to $92 million, producing EBITDA of $8.7 million. A mid case would be a continual 6% consecutive income development rate, slower cost growth and $22 million quarterly EBITDA reported 8 months from now, for an EBTIDA run rate of $88 million. Seriously, that would not represent a cyclical top but would be a base level from which money flow would accelerate.
United Natural Foods
United Natural Foods Inc (NYSE: UNFI) has actually likewise advanced dramatically considering that our last upgrade. We see this stock being a bit further along in its recovery, with an advance from under $5 per share in 2020 to $50 today.
Our expectation is that the shares will reach $100 over the next several years.
We are numerous quarters into a profits velocity, yet the shares stay quite fairly priced. The company has actually demonstrated a sustainable quarterly earnings run rate of much better than $1.00 per share. Our base case is for 15% profits development based on 5% leading line growth, modest margin expansion, debt decrease and lower interest spreads as credit quality improves. There is product upside from there should food/grocery inflation exceed managements projection 1%.
The combination of the 2018 acquisition of SuperValu has been finished and cross-selling opportunities and the advantages of scale are being realized. Management transition seems to have been carried out efficiently and financial obligation reduction has meaningfully decreased liquidity threat.
As investors concern comprehend that the transition to e-commerce represents not a threat, however an opportunity for this at-scale national distributor to get share, the equity needs to command a premium rather than an affordable several, offering more advantage to our $100 per share midcase rate target.
Keith Smith: Bonhoeffer Fund
Bonhoeffer Fund portfolio manager Keith Smith, who featured in the Q3 2018 concern of Hidden Value Stocks, profiled his latest hidden value opportunity, Asia Standard International Group Ltd. (HKG:0129) in his newest letter to financiers:
The Evergrande bonds have decreased to about 20% of face worth as of September 30 (they were at 40% of face worth on July 31, 2021, the last market-to-market appraisal date for Asia Standards bond portfolio) while the Kaisa bonds have decreased to 85% of face worth. I ran a tension test presuming a 25% decline in the bond portfolio from July 31, 2021. The September 30 stock price of $0.85 is at a 91% discount rate to the stressed out NAV and 92% to the July 31, 2021, NAV.
Upgraded on Jan 5, 2022, 12:34 pm

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