Bonus Writeup On My Thoughts, Notes and Takeaways from the Artisan Value International Stock Pitch Competition at Columbia Business School
Hello and good morning to all of you. This is a bonus writeup about my thoughts, notes and takeaways from the Artisan Value International Stock Pitch Competition at Columbia Business School a little over a month ago. I thought about including this with my mid-year writeup but decided against it because the post would’ve been ~8,000 words. Do enjoy and have a stellar day.
Notes Before the Stock Pitches
Got here right on time.
The event took place at Geffen Hall which was really nice on the outside. It’s that “gentrified” nice though. Lots of glass and very modern looking.
I thought the presentation room would be nicer considering the tuition alone for a Columbia Business School MBA is $80,000.
Some of the floorboards were ripping up. The building is less than two years old.
Reinforced that you’re paying for the status associated with the MBA and future job opportunities.
Tom Gayner was there. I wondered what he was doing in town. Maybe hunting for deals?
I found out shortly after that he was a guest judge and will be speaking at the event tomorrow.
I met a super nice guy named Raymond on the elevator.
David Samra introduced the event. He is the International Value Fund manager at Artisan Value.
Gayner led off with a short speech. Seemed like a super nice guy who was happy to be in attendance.
James Pan was there. I saw him at the Graham and Dodd Breakfast in October. I should talk to him again. He’s also one of the judges.
A girl in attendance brought her dog and couldn’t stop taking pictures of it. I wonder what her family’s net worth is. Gotta be eight figures, right?
First thirty minutes were a history of the Value Investing Program at Columbia Business School.
First pitch was Autodesk (ADSK)
SaaS offering that sells software to construction businesses and the like.
Per the presentation, AutoDesk is “the global leader in 3D design and make software with products serving customers in architecture, engineering and construction (AEC), manufacturing and media.”
Blew through his 10-minute presentation time.
First growth driver was its algorithm.
Its service platform integrates of all its products in to one place.
Large TAM with room to grow. He claimed that AutoDesk has only penetrated 10.4% of its TAM of 62,000,000 users.
Second growth driver was pricing power.
Its software is mission critical to its users.
Very high switching costs.
Products are integrated with customers workflows.
Margin expansion was the third growth driver.
Fourth growth driver was the CEO.
He got qualitative information and feedback on the CEO which I liked.
Said it’s a long-term compounder with high FCF conversion.
The presenter was good. He talked quickly but had confidence.
First question was about customer growth and why it’ll achieve it in the future.
Gave kind of a long-worded answer that revolved around AutoDesk being able to track its users better because of its SaaS based model.
Second question was about how he got to a future EBIT number.
His answer was based on Non-GAAP Operating Income which was kind of a red flag.
Third question was about pricing.
Said average price was $880 per subscriber.
There were other questions, but they were rapid fire. He handled them well. Kept his composure.
He sees 80% upside by the end of 2024. The stock trades at ~10x 2022 revenue which is an eyewatering multiple. Not sure how the stock price gets there.
I wouldn’t buy a business at that kind of sales multiple unless I was convinced it was the next Apple, Google, Amazon, Facebook, etc. When I say convinced, I mean I would have to be 100% sure about the business’ prospects because you need everything to go right at that price.
Here is a link to AutoDesk’s Investor Relations site if you’re interested in learning more about the business: https://investors.autodesk.com/
The presentation starts at the 25:00 mark of the video. Questions start at the 33:10 mark:
Second pitch was Cal-Maine Foods (CALM)
Per the presentation, Cal-Maine supplies about 15% of all eggs in the United States.
Short idea with ~40% downside.
Record outbreak of bird flu caused a spike in egg prices.
The primary point of his thesis was that the business has been overearning. Made a good case for it. A similar event happened in 2015.
Presenter did a great job. Had great composure and made a joke about egg prices “cracking”.
The other reason why it has significant downside is because of laws on the books banning caged eggs. Cage-free eggs are just more expensive, but the unit economics aren’t any better.
~40% of its sales are to Kroger and Wal-Mart.
His valuation model was simple and easy to understand.
There weren’t any “Non-GAAP” or “adjusted” line items.
Tom Gayner asked about Cal-Maine hedging the price of eggs.
The presenter stated that you cannot buy futures on eggs, but you can on soybean and cornmeal. However, they’re at historically high prices because of the war in Ukraine and bad weather in the United States.
Mr. Gayner also asked if management was working on anything to improve the business.
Presenter wasn’t crazy about management. He doesn’t think they’re trying to make the company any better or more sophisticated.
Next question was about capital allocation.
Presenter didn’t think management could do anything with the excess cash in the business because the economics are so bad.
Following question was about the business getting acquired.
Presenter said it could be taken out, but he doesn’t think so because there aren’t a lot of barriers to entry.
There was a question about its ROIC, but the presenter didn’t calculate it.
Here is a link to Cal-Main Foods Investor Relations site if you’re interested in learning more about the business: https://www.calmainefoods.com/investors/
The presentation starts at the 44:45 mark of the video. Questions start at the 54:20 mark:
Third pitch was MGP Ingredients (MGPI)
Short position with ~35% downside.
MGP offers distilling solutions, ingredient solutions and branded spirits.
Distilling solutions is 56% of sales.
Increase in whiskey consumption has led to its stock price growth.
First risk was glut of aged whiskey.
Demand follows supply by 3 – 6 years and supply was in excess over the last few years.
A lot of large distilleries opened a few years ago and their products are coming to market.
Investors also bought whiskey and aged it themselves a few years ago. Their products are at the sweet spot, so they’ll need to sell to realize maximum profits.
I thought this risk was well thought out and presented.
Second risk was that key customers will launch their own products which will take revenue away from MGP Ingredients.
MGP was the only contract distiller for a long time, but that is no longer the case.
It’s also located in Indiana and not Kentucky. Bourbon producers want to work with contractors in the Bluegrass State.
Third risk was a downturn in consumption.
Business over-earned during COVID.
Fourth risk was that the business has sub-par brand portfolio.
Biggest product is Everclear. Yikes. Avoid that stuff. It’s basically jet fuel.
Fifth risk was that commodity inflation would be a drag on the business.
Pretty good point.
Business trades at a higher multiple than Diageo and Constellation Brands.
One of the questions was about how he expects his catalyst to play out since this doesn’t seem like a fraud.
I thought this was a great question.
The presenter indicated that it might be a slower burn. I’m glad he was honest about this and didn’t try to come up with a half-assed, rushed answer.
Here is a link to MGP Ingredients Investor Relations site if you’re interested in learning more about the business: https://ir.mgpingredients.com/
The presentation starts at the 1:06:40 mark of the video. Questions start at the 1:16:10 mark:
Fourth presentation was Simpson Manufacturing (SSD)
The presenter believed that the market expectations of gross margin compression were overblown, that the business could grow for the next couple of years versus consensus estimates and that its valuation was attractive given its operating performance.
Major product is the Simpson Strong-Tie.
Barriers to entry:
Mission critical, regulated product.
Architects use Simpson’s products because of its brand.
There’s a ton of regulation around building codes.
Complex customer needs.
Building codes vary.
Simpson sells 14,000 SKUs.
Simpson understands its customers. It has a network of 750 customer support engineers that can answer questions on building codes.
For builders, it has built out a logistics network that ensures 98% of products can be delivered in 48 hours or less.
Believed gross margin declines were overblown because steel prices hit their peak. Simpson has been able to respond by raising prices.
Consensus expectations regarding gross margins are overblown as they are anticipating a 9% decrease in gross margins even though gross margins fell only 5% during the Great Recession.
The screencaps below shows his earnings growth estimates. It was taken from the video linked below at the 1:34:30 mark. I used a screencap because trying to explain them would be way too complicated.
A key macro related tailwind is that people are moving to the Southeastern part of the United States which is more prone to natural disasters.
He spent about a minute on his valuation and kind of blew through it.
A key driver is housing starts. Accounts for 67% of exposure.
Next driver is GDP growth.
Next driver is pricing power.
His presentation revolved a lot around numbers, more so than the other presentations.
Simpson has been able to gain market share over time.
Mentioned ROIC briefly.
Here is a link to Simpson Manufacturing’s Investor Relations site if you’re interested in learning more about the business: https://ir.simpsonmfg.com/home/default.aspx
The presentation starts at the 1:27:40 mark of the video. Questions start at the 1:38:10 mark:
Takeaways From the Reception
I don’t have an “in”. Need one.
Gayner showed up to the reception. I should’ve tried talk to him.
Had a beer for the first time in almost two weeks.
Simpson Manufacturing was the winning pitch. I thought it and Cal-Maine were the best presentations.
One of the attendees I met at the reception was from Kazakhstan and previously worked as a consultant for McKinsey there. He’s still from Kazakhstan and is currently enrolled in the Columbia MBA program.
Spoke to a guy I met at the Graham and Dodd breakfast for 15 minutes or so. That’s one networking connection that’s worked out so far.
Gayner snuck out before I could talk to him.
Heilbrunn Center has a tight knit group. This event, like the Graham and Dodd breakfast, was very well done.
I looked over at the girl with the dog from time to time during the presentations and she didn’t seem very interested. That made me think her family’s net worth was possibly nine figures. She had enough decency to stop taking pictures of her dog at some point during the event which was nice.
Interesting fact: Columbia is the largest landowner in New York City by number of addresses.
Columbia has student nameplates with their pronouns on it.
I wonder if this is mandatory of not.
Sign of the times.
Each presenter had a definitive price target.
Why? Why? Why?
I’ve never understood the obsession with price targets. It reeks of hubris and false precision.
Presentations were dense.
The presenters had to blow through each slide.
For future events, they should be given more time to present or there should be less presentations.
It is impossible for anyone to comprehend that much information in ten minutes or less.
I wondered how the judges had such good questions and then I saw that each presentation had been sent to them beforehand.
Only the judges were allowed to ask questions. Kind of annoying.
I thought the Cal-Maine presentation was the best one because the thesis, presentation and presenter were on point. He drove home simple, understandable points in an easy, concise manner. Props to that guy.
These were the top four presentations out of nine that were presented.
I’d really like to know what the other five ideas were and what the presentations looked like.
I thought the presentations would be better quite frankly. Columbia Business School is always in the top 10 of business schools and often the top 5, so I had high hopes. I can say that I wouldn’t invest in any of the business that were presented and the ideas weren’t as high caliber as I’d hoped. I don’t write this to be critical, but if you’re reading this, understand that this is who you’re competing against out there in the market. It should give you some solace that these ideas weren’t earth shattering or very convincing. It doesn’t guarantee success, but don’t think you cannot compete with these guys in terms of your own personal investment performance.
That’s all I’ve got for today. Thanks again as always for reading. If you liked this writeup then please feel free to share it and subscribe!
Please reach out to me at email@example.com, @PossibleValue on Twitter and @Heshy on MicroCapClub with any comments, concerns or questions. Lastly, don’t forget to tell someone that you love them.
*** Remember that this isn’t investing advice. Consult a trusted financial or investment advisor before making any kind of investment decision. ***
Disclosure: I do not own shares in any of the securities mentioned in this writeup.