EP99: 7 Stocks With Big Upside—Luxury, Cement, Roll-Ups & a Buffett-Style Bargain
Stock Ideas From Investment Professionals
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We’re back with another batch of new ideas. We have an eclectic mix of special situations, forgotten growth companies, and beaten down value stocks. Hope you enjoy them!
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This week, we present 7 new stocks, including:
A high-end luxury marketplace that just pulled off a transformative acquisition, adding major brands and potential upside of over 100%.
A European cement producer that’s significantly undervalued relative to its American peers, with a U.S. IPO catalyst on the horizon.
A newly public roll-up targeting an $800 billion industry, led by one of the most successful capital allocators of the last 30 years.
A commercial real estate owner/operator with strong assets, unencumbered properties generating cash flow, and minimal downside risk.
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Let’s get to it.
Minot Light Capital Partners outlined their thesis in MyTheresa (MYTE). They believe the recent acquisition of Yoox Net-a-Porter from luxury company Richemont represents a transformative deal for MYTE. Minot Light sees upside in excess of 100%. We include their thoughts below.
MyTheresa (MYTE)
MyTheresa (MYTE) is currently our partnership’s largest holding and is poised to become a leading curated digital platform for high-end luxury fashion. The company has executed in a consistent and thoughtful manner throughout a meaningful consumer and luxury downturn over the past few years, which has led to a more rational competitive environment. However, the stock has become our largest position due to a game-changing acquisition of YOOX NET-A-PORTER (YNAP) from Richemont (SWX: CFR). For a variety of reasons, Richemont was highly motivated to divest YNAP, and MyTheresa was the only logical and willing acquirer due to the substantial synergies it could bring to the transaction. When the deal was announced, we had a small position in MYTE and it’s market cap was about $340mm (85mm S/O at $4.00/share) with about $15mm of net debt on it’s balance sheet. In exchange for taking on YNAP, Richemont put a cash position of 550mm Euros and no debt on YNAP’s balance sheet, provided a 100mm Euro revolving credit facility to YNAP/MyTheresa, and took a 33% equity stake in the pro-forma combined company.
Hence, in exchange for the issuance of about 42mm shares to Richemont ($172mm of value at the time of deal announcement), MYTE was able to acquire the highly synergistic Net-a-Porter and Mr. Porter luxury marketplaces that had a combined 1.2bln Euros of GMV (vs MYTE’s GMV of about 900mm Euros), the 900mm Euro GMV Yoox and Outnet discount marketplaces, and 550mm Euros of cash. The Net-a-Porter and Mr. Porter brands are currently profitable and should become even more so postsynergies when combined with MyTheresa. The outlet brands (Yoox & Outnet) are currently burning cash, which is the main reason Richemont provided MYTE with 550mm Euros on the transaction. We believe management will determine relatively quickly whether it can turn around the outlet business. If not, we think MyTheresa will shut down that entire business and can likely do so well before burning the 550mm Euro cash position.
We believe this transaction will create substantial shareholder value for MYTE going forward and firmly establish it as a leading online luxury marketplace. We estimate the combined legacy MYTE and Mr. Porter brands should be able to do around $2.2bln in revenues in 2025. If we assign a legacy MYTE trough multiple of roughly 0.3x EV/Sales multiple to that business (MYTE had an average EBITDA margin of 7% from FY19-FY24), assume $165mm of net cash on the balance sheet at the end of 2025 and assign no value to the outlet businesses (the company shuts them down due to cash burn), we believe shares of MYTE have a trough valuation of around $6.50/share. On the upside, we believe the combined MYTE/Mr. Porter brands could do around $3.1bln of revenues and north of $200mm of EBITDA in 2028 and could have around $250mm of net cash at that time. A 12x EV/EBITDA multiple on $200mm EBITDA at the time would imply a price target of around $20.00/share. Again, this assigns no value to outlet brands. In our opinion, there is substantial upside above $20.00/share if the outlet business becomes a success and/or the market assigns a higher free cash multiple to the minimally capital intensive core luxury business. Either way, with the stock now trading at about $7.50/share, we think the risk/reward on MYTE is attractive. MYTE’s current market cap, before the transaction closes, is around $640mm.
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