In this newsletter, I share the most intriguing investment ideas I've come across in the past week from a variety of sources, including Value Investors Club, various investing blogs, hedge fund letters, and more. I aim to present you with concise and easily digestible investment idea summaries that quickly capture the essence of the thesis.
This week's newsletter includes:
Warrior Met Coal (HCC) - Potential large special dividend.
Olympia Financial Group (OLY:TO) - Misunderstood trust and administration services provider.
Kaspi.kz (KSPI:L) - Cheap operator of Kazakhstan's super app.
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Warrior Met Coal (HCC, $2.7bn) - Potential large special dividend
Warrior Met Coal is a cheap pure-play metallurgical coal producer with a looming catalyst of a large special dividend. HCC has a strong track record of returning cash to equity holders, having distributed 12%, 38%, and 50% of the market caps from 2017 to 2019. Over the recent years, shareholder cash returns have fallen significantly due to temporarily suppressed coal production driven by a labor strike and operational issues related to HCC's main terminal. However, coal production is expected to finally normalize this year (a 30% increase compared to 2022) as the company has recently reached an agreement with a labor union while the previous operational issues have also been resolved. With production recovering and met coal prices remaining elevated, the company is well-positioned to distribute a significant portion of its net cash. HCC has indicated that it will evaluate the best use of excess cash by the end of 2023. Assuming that met coal prices revert to their 10-year average ($180/ton compared to the current $230/ton), HCC would likely boast over $15/share in excess cash by the end of 2024 (vs current price of $51/share). On top of the potential large dividend, shareholders also get a free call option on the successful development of the world-class Blue Creek coal mine which could add an incremental $30/share in value once fully operational. Full HCC write-up on Value Investors Club (free guest account is required).
Olympia Financial Group (OLY:TO, C$212m) - Misunderstood trust and administration services provider
Olympia Financial Group provides trust, administration and management services to tax-deferred/sheltered investment accounts in Canada, with a focus on alternative investments. A significant portion of company’s revenues come from interest income generated from cash held in client accounts. At current prices, investors can buy Olympia stock at 10x TTM P/E - a significant discount to the past ten-year average P/E multiple of 13x. The opportunity exists as the market is incorrectly assuming that the recent earnings jump (net income is expected to quadruple from 2021 to 2023) is a one-time windfall that will disappear as interest rates normalize. However, the company is expected to display 10-12% net income growth in the upcoming years. This growth is anticipated to be fueled by the increasing demand for alternative investments in Canada that is expected to double from 2021 to 2026. Olympia is set to disproportionally benefit from industry tailwinds as it is the leading player in the market for Canada’s equivalents of 401Ks and Roth IRAs, with a 95% market share. Additional earnings boost is also likely from non-core businesses (23% of revenues) as the company has successfully relaunched the CSS business and completed the digitization of the Private Health division. Collectively, these factors are expected to more than offset any negative impact from lower interest rates post-2023. If the multiple were to revert to the past ten-year average of 13x over the next year, OLY's share price would climb to C$135/share, implying a 53% upside. Full OLY:TO write-up on Value Investors Club (free guest account is required).
Kaspi.kz (KSPI:L, £15.1bn) - Cheap operator of Kazakhstan's super app
Kaspi runs Kazakhstan’s super app, providing a variety of essential payments/e-commerce/fintech services, such as paying utility bills. KSPI is a fast-growing (40-50% revenue growth historically) and high-margin (net income margins >40%) business with a significant growth runway. Despite solid fundamentals, KSPI is currently trading at a modest 11.3x 2023 net income. The opportunity exists as Kaspi seems to be overlooked by investors due to being a London-listed company with operations in Kazakhstan. However, shares are expected to re-rate with the anticipated NASDAQ or NYSE uplisting. Kaspi’s management has recently reiterated its commitment to completing a listing in the US before year-end and expects to provide an update shortly. Management’s language suggests that related filings with US regulators have already been submitted. Incentives are well-aligned here as the CEO and chairman collectively hold a 48% stake. Even in a bear case scenario with a 10x 2026 EPS, Kaspi shares would be worth $150/share, implying a 50%+ upside. At a more optimistic 15x P/E (the lower-end of historical valuation range), Kaspi would trade at $226/share (130%+ upside). Full KSPI:L write-up on Value Investors Club (free guest account is required).
Good report. Lucky you are there to keep an eye on the interesting article I should check! :)
Great report as always