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Jacob Wolinsky
Jacob Wolinsky
Articles  | Author's Website |

Ira Sohn Conference: Robert Howard Likes WABCO and HSN

May 26, 2011 | About:
Robert Howard joined KKR in 2011 and is head of the equity strategies group of KKR’s asset management segment where he is leading the build-out of an equities-focused public market alternative investment effort. Prior to joining KKR, he spent over 15 years at Goldman, Sachs & Co. where he recently was the global chief operating officer and Head of Goldman Sachs Principal Strategies Americas equities/credit investment business. Mr. Howard holds an A.B., magna cum laude, in applied mathematics in economics from Harvard College and an M.B.A. from Harvard Business School, the latter where he graduated as a Baker Scholar and received the John Loeb Award for academic achievement in finance. In addition, he is a CFA charterholder.

From his talk:

Two long equity ideas that are misunderstood, because they have history or lack thereof. They also have strong tail winds.

WABCO $4.5b supply electrical parts worldwide. They invented anti-lock brakes. They make a lot of car products that are required by law for safety regulations.

Three major trends

1. Auto sector is picking up

2. Tightening safety regulations

3. Growth in China and India

WABCO should have 30-50% upside. WABCO has only been public for 4 years and during crisis because of covenants, the company was forced to cut dividend and suspend buy backs.

They also had legal legacy costs which were paid out already.

60% exposure to Western Germany but half of that is Germany. Overall, the last ten years China has become one of the big players. EM make up 2/3rds of market.

China’s content per vehicle is only 1/10 that of West Europe. China is now mandating anti-lock brakes; this could be huge growth for company. And anti-lock brakes are only a segment of WABCO’s business.

WABCO should be worth $100. 60% cyclical and 40% secular. ROC is more than double industry. WABCO is much more capital efficient than peers, however, it trades at same levels as other competitors. EBITDA growth margins have been much higher over past 5 years than competitors.

WABCO is less cyclical and should trade much higher than cylical

CEO owns $200m of company.

HSN (NASDAQ:HSNI) 1.8b market cap. 32% owned by Liberty (John Malone’s company). It gets under-covered by most media analysts for larger players/ There is an opportunity from valuation, re-leveraging, acquisition.

Home Shopping Network has 70%+ of home shopping network. HSN is 30-55 year old women who make over 65K are the biggest buyers. The new online site is growing share with more than a third of sale.

Home Shopping is strong. The company has had 6% CAGR growth since 1994, much higher than other discretionary.

EV/EBITDA is only 5.7x, which is much lower than retail stores, which are much more capital intensive

Removing some sub debt, HSNI is trading at 12x earnings, lower than the average. We also think the company could take on more debt without putting company in danger.

Liberty which owns HSNI also owns QVC. Liberty could merge them.

We see 40% upside and 65-90% upside depending on synergy if there is a merger.

Disclosure: I am long Liberty Media


About the author:

Jacob Wolinsky
My investment ideas have been inspired by many of value investors including Benjamin Graham, Charles Royce, John Neff, Joel Greenblatt, Peter Lynch, Seth Klarman,Martin Whitman and Bruce Greenwald. .I live with my wife and daughter in Monsey, NY. I can be contacted jacobwolinsky(AT)gmail.com and my blog is www.valuewalk.com

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