Takeaways from the MicroCap Leadership Summit
This writeup is a departure from my usual dealings. You should file it under the “Interesting Financial Topics” that I said I may come across in my investing journey. The writeup will cover my notes from the MicroCap Leadership Summit back in mid-September. I am also working on a second part of the writeup, but it is taking longer than expected so this will have to do for now.
MicroCap Leadership Summit
Even though it was virtual, this was the first investment conference I had ever attended so I was a little nervous. Like the Berkshire meeting, I had no idea what to expect so I went in with as open of a mind as I could. Below are my notes and takeaways from both days of the conference.
Day 1 – Thursday 9/15/2022
The first day featured fund managers presenting one of their best current ideas. I was very excited to hear them because the managers were labeled as “some of the best that MicroCapClub could find”. I also wanted to see if there was anything I could learn from them regarding how they pitched their respective ideas that I didn’t already know.
Each presentation was about 15-25 minutes long with the manager talking about themselves, their fund and their strategy for the first half and pitching a stock for the second half.
I wasn’t aware that this was the format, so I was a bit confused as to what was going on initially. It wasn’t until I read the emails from MicroCapClub about the event that I realized each manager would be allotted time to discuss themselves and their strategy.
There was a good mix of industries represented in the pitches on Day 1. I counted one real estate brokage, a Polish IT business, two biotechs, a Nordic pool supply business, a waste management brokerage business, an envelope manufacturer, a very indebted car wheel and rim business, an agronomy-consulting business, a marketing and branding business that’s shifting their model towards data analytics, a content producer for kids, a B2B gaming Saas business, a newspaper, a business that produces Alzheimer’s tests, a turnaround, a mining services business which I will talk about later and a few oil and gas businesses.
For all the analysis and information that was presented, I felt like there was a lack of discussion about free cash flow (FCF) and returns on invested capital (ROIC). Per my notes, none of the presenters mentioned free cash flow in their pitches. Three managers did mention returns on invested capital: Jason Hirschman of Hudson 215 Capital, Jordan Salim of the Pinnacle Family Office and Matt Joass of Maven Funds Management.
Jason and Matt each mentioned ROIC as a core part of their presentations. Jordan was asked about the ROIC of the business that he pitched and mentioned that the business has infinite ROIC because it’s asset light, which made me laugh, but that wasn’t a core part of his thesis.
The oil and gas presentations raised my eyebrow because they all seemed to rely on sustained high oil prices which is something I could never hope to gauge.
The four best ideas of the day were Spyrosoft (WSE: SPR), Gullberg and Jansson (GJAB.SS and 9D7.F), Lee Enterprises (NASDAQGS: LEE) and Mader Group (ASX: MAD). The rest of the businesses that were presented were either outside of my circle of competence or didn’t have high returns on capital. Businesses that fall in to either of those camps are automatically off my radar.
Spyrosoft (WSE: SPR) was presented by Tom Bachrach of PFH Capital. My notes on his presentation are shown in the bullet points below.
Business is in Poland.
Offers outsourced software development.
Huge revenue growth and high returns on equity. Per TIKR, ROIC is high too.
Thesis seemed to revolve around having cheap labor in Poland and reselling the product in high income countries.
Management posted a strategic plan and thinks revenue growth through ’27 will CAGR at 25-35%.
Management also thinks EPS can CAGR at 24% over the next 4 – 5 years.
Not one mention of ROIC or free cash flow in his presentation.
Biggest concern seems to be wage growth IMO. Tom mentioned expanding employee base to other countries like Argentina and Romania which will help mitigate this concern.
A related risk to the one above; I’m a little concerned about a business that relies on cheap labor when its employee’s skills are in demand in other high-income countries. I’m not sure what’s stopping its clients from hiring employees away from Spyrosoft. Mr. Bachrach mentioned that the business is engineer driven and has a decentralized culture, but that wasn’t enough to alleviate my worries.
The political situation in Poland was another reason why I passed on this business.
Insiders own 85% of the business.
Link to Tom’s full presentation in case you’re interested in learning more about Spyrosoft; his pitch starts at the 2:25 mark:
Disclosure: I do not own stock in Spyrosoft.
Gullberg and Jansson (GJAB.SS and 9D7.F) was presented by Jason Hirschman of Hudson 215 Capital. My notes on his presentation are shown in the bullet points below.
Wow. Actually mentioned ROIC in one of his opening slides.
Business sells pool accessories and upscale home and garden products.
#1 player in Swedish pool heat pump market.
Pool heat pumps and pool roof enclosures are 2/3’s of the business.
Nomaco Nordic is the growth part of the business. It is the leading distributor of electric “light work” vehicles in the Nordics
Thinks 3 – 5 year return is a 24 – 25% CAGR; roughly a 3.5x of the current price before currency effects
Liked his presentation a lot.
Screens well.
None of Gullberg and Jansson’s investor presentations are in English :/.
What is it with all these Nordic/Scandinavian businesses having high returns on capital?
Link to Jason’s full presentation in case you’re interested in learning more about Gullberg and Jansson; his pitch starts at the 8:34 mark:
Disclosure: I do not own stock in Gullberg and Jansson.
Lee Enterprises (NASDAQGS: LEE) was presented by Harris Kupperman of Praetorian Capital Management. My notes on his presentation are shown in the bullet points below.
I used to follow this guy on Twitter @hkuppy.
He focuses on inflection investing. Seems more like a trader.
I felt like he was pretty honest about who he is as a trader/investor and how he manages his portfolio which I appreciated.
He took some pretty good shots at the hedge fund industry and how most managers run marketing campaigns instead of trying to outperform.
I liked when he mentioned that investors should be interested in any good business regardless of size or industry.
In his presentation he said, “Huge upside comes from when a situation goes from completely fucked to sorta shitty.” This was without question the quote of the day.
This business was on my radar for a while. I stayed away because of how much debt it had and still has on its balance sheet.
Buffett sold Berkshire’s newspaper unit to Lee Enterprises in 2020. The transaction included his beloved Omaha World-Herald and The Buffalo News.
It has more than doubled its digital subscribers to 500,000+ over the last two years.
The business is pivoting to a mostly online, subscription-based model which I do like.
Didn’t mention ROIC or free cash flow.
Link to Harris’ full presentation in case you’re interested in learning more about Lee Enterprises; his pitch starts at the 6:24 mark:
Disclosure: I do not own stock in Lee Enterprises.
Mader Group (ASX: MAD) was presented by Matt Joass of Maven Funds Management. My notes on his presentation are shown in the bullet points below.
Matt thinks of business as organisms in a dynamic environment. I have the exact same belief.
This business is on my personal watchlist and I plan to do a writeup on it by the end of the year or beginning of next year.
This is the mining services business that I mentioned above.
75% insider ownership.
Crucial shortage of labor in their market.
Mader provides mechanics that perform maintenance on mining equipment.
Advantage is its business model. They’re cheaper than OEMs, but they’re more reliable than cheaper, smaller competitors.
Luke Mader, founder and executive director, owns 56% of the stock.
Matt talked about scaled repetition: Mader took its idea and scaled it in to larger, faster growing and higher margin markets.
Mader’s Moat:
Trusted reputation
Culture
Scale - over 10x its nearest competitor
Systems - has better systems than its competitors (admin, billing, recruitment, etc.)
Mader is less cyclical because its tied to the mining equipment, not mining itself. The mining companies need to maintain their equipment and face huge costs if they shut them down.
Has high returns on incremental capital. Only presentation to mention this.
Huge shoutout to Matt for waking up before dawn to do his presentation. He’s based in Australia.
Best presentation of the day. Overtook Jason Hirschman’s presentation.
Link to Matt’s full presentation in case you’re interested in learning more about Mader Group; his pitch starts at the 5:32 mark:
Disclosure: I do not own stock in Mader Group.
Closing Thoughts from Day 1
I was mentally wiped out when the presentations were over as there were almost 20 in total. The amount of concentration required to pay attention to all of them was kind of exhausting. I didn’t expect that.
There weren’t as many people attending as I thought there would be. I believe there were less than 200 people in total who watched the Day 1 Presentations.
I mentioned it above, but the lack of discussion about free cash flow and/or ROIC was noticeable. I might be harping on this too much because I think both are vital for a good investment thesis, but I thought they would’ve been mentioned more throughout the day.
The cherry on top was the virtual happy hour where we were thrown into random Zoom groups by Ian Cassel to interact with other attendees at the Leadership Summit. I was lucky enough to meet Sam Namiri of Ridgewood Investments. He was donning a shirt featuring the RCI Hospitality Holdings (NASDAQ: RICK) logo which I instantly recognized and started laughing at. Hilarious. Kudos to Sam and thanks again for the laugh and conversation if you ever end up reading this.
Day 2 – Friday 9/16/2022
Started around 8:15 AM. So early. Didn’t have time for breakfast.
Day 2 featured presentations from individual businesses.
Presentations ranged from 30-45 minutes in length and seemed a bit more polished than the Day 1 presentations.
Like Day 1, there was an interesting mix of businesses that were presented. I counted one Nordic serial acquirer, a wound healing business, a cybersecurity firm, a mobile car servicer, a company that produces cancer screens for dogs, a startup cargo airline, a very high-end dog food business, a specialty pharmaceutical business, a home renovation software business, a technology and software driven diagnostic company, a neuroscience technology business and a supply management platform catered to retailers and wholesalers.
I was only interested in two ideas: Boreo (HLSE: BOREO) and Onmicar (NGM: OMNI). Like Day 1, the rest of the businesses that were presented were either outside of my circle of competence or didn’t have high returns on capital. Businesses that fall in to either of those camps are automatically off my radar.
The first presentation was from Boreo (HLSE: BOREO) and was also the most interesting idea of Day 2.
Kari Nerg, the CEO, was the presenter.
Business is based in Finland and labels itself as a “serial acquirer”.
He said all the right things that any potential shareholder would want to hear. Boreo’s business model is to own and acquire great entrepreneurial companies —> enable earnings growth by offering support and coaching —> reinvest capital with attractive returns —> ultimate objective to increase shareholder value creation.
Two additional things to be aware of:
Kari said management doesn’t focus on synergies when making acquisitions. Boreo wants the leaders of the acquired business to keep doing their own thing.
He also said managers of operating units have read The Outsiders to get a concept of capital allocation which I found interesting.
Posted below are slides that I screencapped from his presentation that I think are worth looking at. I feel like they give weight to what I said about Mr. Nerg “saying the right things”.
You can find a link to his entire presentation here:
Disclosure: I do not own stock in Boreo.
The second interesting presentation was from Onmicar (NGM: OMNI).
Mobile car servicing, maintenance and repair business based in Denmark. My previous research into Valvoline showed me how good of a business oil changes and car maintenance can be so I thought this could be a good idea.
Important note: Omnicar services both gas powered and electric vehicles.
Mikkel Christensen, the CEO, and Claus Hansen, the founder and Chairman, did the presentation.
It is the only business in the country doing this. There is a business called Wrench that does this in the United States, but it isn’t publicly traded :/.
The business has another segment that sells electric vehicles, but I think the mobile servicing is the more interesting portion of the overall business.
Omnicar’s selling point for its mobile servicing customers is the convenience that it offers. Mechanics go to the customer instead of them spending time making appointments and taking time of their day(s) to go to and from repair shops and waiting on their vehicles to be fixed.
Mr. Christensen estimates that 65% of all service can be performed without going to a repair shop, but these make up 90% of all jobs performed by the technicians and mechanics.
Posted below are slides that I screencapped from the presentation that I think are worth looking at.
You can find a link to his entire presentation here:
Disclosure: I do not own stock in Omnicar.
There were two other businesses, Biosyent (TSXV: RX) and Semler Scientific (NASDAQ: SMLR), that I found interesting and screened well, but they’re both outside of my circle of competence.
Per TIKR, Biosyent is a “specialty pharmaceutical company, sources, acquires or in-licenses, develops, and sells pharmaceutical and other healthcare products in Canada and internationally.”
Semler Scientific’s QuantaFlo product helps in identifying Peripheral Artery Disease (PAD) and other cardiovascular disease.
There were only twelve presentations, but Day 2 was more exhausting than the previous day. Presentations went until almost 6 PM.
Closing Thoughts from Day 2
Given how mentally drained I was afterwards, I have a newfound respect for investment conference attendees who stay for the entirety of them no matter where or how long they are.
The virtual happy hour was better than the previous day. I don’t know how or why this happened, but the conversations with other attendees just flowed better. I did notice that there were significantly less people at the end of Day 2 and a good amount of them knew each other so that probably had something to do with it.
Overall, I enjoyed the MicroCapClub Leadership Summit and hope to attend it in the future. I went into it with minimal expectations and hoped to find only one interesting business. Instead, I found several and one that might even meet my investment criteria. I even managed to meet and network with some other investors which was an unexpected bonus.
I do think it would’ve been more fun in person so I’m looking forward to doing that in the next year or so.
If you’re thinking of attending the event in the future, make sure your calendar is clear for the duration of it because it will take a lot of energy and concentration to get through it.
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 possiblevalueresearch@gmail.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 businesses mentioned in this writeup.