Future Generation Investment Forum - 16 May 2017 12.30pm - 3.00pm Wesley Centre Auditorium
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Future Generation
Investment Forum
16 May 2017
12.30pm – 3.00pm
Wesley Centre Auditorium
220 Pitt Street Sydney
Disclaimer
This presentation has been prepared for use in conjunction with a verbal presentation and should be read in that context. The information in this presentation is
only intended for Australian residents. The purpose of this presentation is to provide information only and the contents of the presentation does not purport to
provide investment advice. We strongly suggest that investors consult a financial adviser prior to making any investment decision. The presentation does not take
into account the investment objectives, financial situation or particular needs of any person and should not be used as the basis for making investment, financial or
other decisions. The information is selective and may not be complete or accurate for your particular purposes and should not be construed as a recommendation
to invest in Future Generation Investment Company Limited, Future Generation Global Investment Company Limited Eley Griffiths Group Pty Ltd, Noni B Limited,
PWR Holdings Limited, Telstra Corporation Limited, Morphic Asset Management Pty Ltd, Haseko Corporation Co Limited, Iluka Resource Limited, Mineral
Deposits Limited, Zayo Group International Limited, Ellerston Capital Limited, Office Depot International Limited, Apple Inc, Magellan Asset Management Limited,
Australian Printing Industry Association, DiaSorin Limited, Cooper Investors Pty Limited, Nextstar Media Group, Avenir Capital Pty Ltd, Whole Foods Market Inc,
Jd Sports Fashion Plc, Neuberger Berman Australia Pty Limited, Reckon Limited, Wilson Asset Management Limited. The information provided in the presentation
is given in good faith and is believed to be accurate at the time of compilation. Neither Future Generation Investment Company Limited, Future Generation Global
Investment Company Limited nor its directors or employees make any representation or warranty as to the accuracy, reliability, timeliness or completeness of the
information. To the extent permissible by law, Future Generation Investment Company Limited, Future Generation Global Investment Company Limited and its
directors and employees disclaim all liability (whether arising in contract, tort, negligence or otherwise) for any error, omission, loss or damage (whether direct,
indirect, consequential or otherwise). Neither Future Generation Investment Company Limited, Future Generation Global Investment Company Limited nor its
directors or employees guarantee or make any representation as to the performance of Future Generation Investment Company Limited, Future Generation Global
Investment Company Limited, the maintenance or repayment of capital, the price at which shares may trade or any particular rate of return.
2
Noni B Limited
From Swansea Belmont to >600 Stores
Revered woman's fashion retailer in metamorphosis
Noni B / Rockmans / W. Lane / BeME brands
New CEO Scott Evans (retail ‘toe cutter’, ex Blundy lieutenant)
CODB overhaul:
Integration / synergies
Supply chain refinements
Organic Growth (online growth)
Amazon Impact:
Discerning client service, value conscious customers, big
regional presence, ‘touch and feel’ retailer
3
PWR Holdings Limited
QLD based designer / manufacturer of world leading car cooling
systems / radiators for:
Formula 1
NASCAR
V8 Supercars
World Rally Championships
OEM’s (eg. Ford)
NPAT -30% FY17 but reflects opex investment in business and GBP
weakness
Upside ~ OEM contract wins, US aftermarket sales channel and
stabilisation / bottoming of GBP.
4
Future Generation Investment Forum
Telstra
Some significant challenges Upside exists
NBN Even if dividends are cut, there will still
Margin collapses as they become a be a solid fully franked dividend which
reseller will be defensive in a market downturn
Cost to reconnect customer NBN payments can be used to buy back
stock and minimise the necessary
Do receive significant payments from dividend cut
the government
Cost out opportunity
Mobile competition Significant investment in the mobile
Lead over Optus and Vodafone has network will help to maintain its strong
shrunk as they have reinvested in position and good margins
their network
Entry of TPG as a fourth operator
Dividends
May need to be cut
This is known and is largely in the price
6
Future Generation Investment Forum
Haseko Corporation – Too cheap even for zero growth
Context Haseko Share price
In JPY, between Feb 2012 and May 2017
Largest Tokyo condo builder with
30% market share - has built one
1880
tenth of all Japanese condos in
history 1680
Low risk business model 1480
Strong brand value
1280
Change Drivers 1080
Rerating from present 6x PE
880
Continued population and
economic growth in Tokyo 680
Recognition rent is 3x higher than 480
home loan interest
280
Global Insight edge 80
Tokyo a very cheap city
May 13
Jul 12
Dec 12
Oct 13
Mar 14
Jan 15
Nov 15
Aug 14
Jun 15
Apr 16
Feb 12
Sep 16
Feb 17
2% p.a. condo price rise since Source: Bloomberg
2010 not a “bubble”
Focussed | Vigilant | Agile 8
Future Generation Investment Forum
Iluka Resources (ASX: ILU)
A major global producer of mineral sands – cycle is turning
Owns an iron ore royalty associated with BHP Billiton’s Mining Area C
BHP announcements suggest royalty might double in value in next decade
Sandon Capital believes the royalty is undervalued by the market
ILU should consider a spin off
Value
Excess working capital 450.0 562.5
Iron ore royalty (ex-South Flank) 1,661.7 1,869.4
Enterprise Value 2,111.7 2,431.9
Implied value of mineral sands 'stub' 1,662.3 1,342.1
CY17 'stub' EBITDA 309.9 309.9
Implied EV / EBITDA multiple 5.4x 4.3x
Source: Sandon Capital analysis, BHP Billiton
10Mineral Deposits (ASX: MDL)
Mineral Deposits Ltd owns 50% of TiZir,
TiZir is a mineral sands company with a mine in Senegal and a titanium slag furnace in
Norway
MDL’s Book Value of US$272m1 compares favourably to its current market
capitalisation of US$80m (Market price ~A$0.54)
1. Pro forma for the equity raising undertaken in March 2017
11Future Generation Investment Forum
Zayo Group – Today’s World Runs on Fiber
North America Internet Traffic
70000
Petabytes (PB) per Month
60000
50000
40000
30000
20000
10000
0
2015 2016 2017 2018 2019 2020
Zayo Fiber Map
2
www.ellerstoncapital.comFuture Generation Investment Forum
Office Depot
Low growth duopoly priced for extinction
Multi-year cost reductions
Irrational extrapolation $250m+ $1b+
1000
• Fears of disruption by Amazon 950
900
• Paper industry in decline (3-5% p.a.) 850
800
$750m+
$m
750
Multiple ways of winning 700
• 9th largest U.S. online retailer; ~65% of sales online 650
600
• Ongoing store closure and supply chain rationalisation 550
500
saving US$1bn p.a. OfficeMax Add'l Cost Potential Total
Integration Saving Programs Benefits
• Duopoly with ~1,400 points of presence across the Source: Office Depot
country 45 1.6x
40
EV/EBITDA vs.
1.4x
• Amazon’s buying power in office products ~10% of Office 35
World (R)
1.2x
Depot’s and will remain sub-scale 30
1.0x
• Category expansion to leverage platform 25
0.8x
20
• Management buying back shares with excess FCF 15
0.6x
0.4x
• M&A optionality in Staples merger 10
5 0.2x
Price (L)
Margin of safety 0 0.0x
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
• Office Depot price matches Amazon, i.e. Amazon effect Source: Factset
largely in the profits
EV/Sales
•Confidential / 15
0.25x, PE 7x, 12.5% FCF YieldFuture Generation
Investment Forum
Session 2Apple [17]
Gross Margin Mix, FY16 iPhone Volumes
Other 300
Products
Services
250
iPad 200
Mac 150
100
50
0
iPhone FY11 FY12 FY13 FY14 FY15 FY16 FY17E FY18E FY19E FY20E
iPhones Sold to New Users* Replacement iPhones Sold*
The iPhone price is akin to a recurring subscription payment to access the iOS ecosystem of apps and services
Source: Left - Company reports, Magellan Asset Management Limited estimates. Apple has a September year end.
Apple generates most of its earnings from the iPhone ecosystem (replacement iPhones and Services). The iPhone installed base continues to
grow, while its popularity and engagement remain high, and the expanding middle class globally is expected to benefit Apple over the long term.
Source: Right - Apple filings, Magellan Asset Management Limited estimates.
* iPhone volumes are disclosed by Apple while iPhones Sold to New Users and Replacement iPhones Sold are Magellan Asset Management
estimates.Future Generation Investment Forum
Australian Printing Industry
PMP Limited 2019F
Current Share price $ 0.64
Market Capitalisation ($m) $ 321
Debt ($m) $ -
Enterprise Value ($m) $ 321
EBITDA ($m) $ 95
Free cash flow ($m) $ 83
EV/EBITDA 3.4x
Free cash flow yield 25.8%
PE 7.4x
Dividend yield (fully franked) 13.5%
Source : Company forecasts / Lanyon
STRICTLY PRIVATE AND CONFIDENTIALFuture Generation Investment Forum
Future Generation Investment Forum
Nexstar Media (NXST:US)
Current Price: US$60 Market Cap: US$2.9 billion
Why we like it:
• Traditional revenue = stable; critical to ‘skinny
• Misunderstood business bundle’
• Hugely cash generative • Every $1 revenue generates $0.20 free cash flow
• Dominant market share • Covers 39% of all households in the US
• Improving quality of business • 45% of revenue is recurring and growing double
• History of shareholder value digits
creation • 30% annualised shareholder return over past 10
• Regulatory relief years
• Trump!
What is it worth:
Current Price $60 5x free cash flow
Target Price $120 10x free cash flowFuture Generation Investment Forum
WHOLE FOODS MARKET INC (‘WFM’)
COMPANY OVERVIEW
• Mid Cap: US$11.6 billion STOCK PRICE – LAST 5 YEARS
• WFM is the largest natural and organics U.S. supermarket $70.00
with 464 stores, with an estimate of 87,000 team members $60.00
• WFM has over 460 stores with greatest concentration in the $50.00
states of California (~20% of mix) and Texas (~7% of mix)
$40.00
• Customer base that over indexes to higher education and
higher income. $30.00
• Headwinds: increased competition, slowing store sales $20.00
• Opportunities: activist engagement, management $10.00
restructure, exceptional brand awareness, improved data $0.00
driven decision making; potential acquisition target
Source: Bloomberg. All information as of May 2017. For illustrative purposes only. The inclusion of any individual security in this document does not constitute a recommendation to
invest..
25
FUTURE GENERATION INVESTMENT FORUM For Future Generation Investment Forum Use OnlyJD SPORTS FASHION PLC (“JD”)
COMPANY OVERVIEW INVESTMENT THESIS
• Market Capitalization: GBP4.4billion • Quality - High
• JD operates retail stores selling brand • Momentum – High
name sports and leisure wear
• Over 800 stores across the UK • Value - low
• Just opened first Australian store
STOCK PRICE – LAST 5 YEARS NB QUANTITATIVE SCORING
£500
10
£400 8
6
£300 4
2
£200
0
£100
£0
Quality Value Momentum
Source: Neuberger Berman, Bloomberg. All information as of May 2017. For illustrative purposes only. The inclusion of any individual security in this document does not constitute a
recommendation to invest.
26
FUTURE GENERATION INVESTMENT FORUM For Future Generation Investment Forum Use OnlyFuture Generation Investment Forum
Reckon (ASX: RKN)
Contact us
E: info@futuregeninvest.com.au
T: (02) 9247 9202
F: (02) 9247 6855
www.futuregeninvest.com.au
Facebook: facebook.com/futuregenerationFGXFGG
Twitter: @FutureGenInvest
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