Eric Andersen, “Focusing Where Others Aren’t”

By Travis Johnson, Stock Gumshoe, April 3, 2014

These are my notes and instant reactions from a presentation at the Value Investing Congress, the notes below might contain errors, paraphrases, incorrect quotes, or misinterpretations.

Eric Andersen is a hedge fund manager at Western Standard, long-short, with a long term focus. They focus on small cap companies, below $500 million, with no analyst coverage and few published insights. They focus most of their work on the downside to avoid losses — he thinks you should focus more on the money you have at risk rather than the amount of money you might make.

Always ask yourself, “Why are you so lucky to have this investment opportunity” — is it complexity, or corporate change, or company distress, or your patience?

Ideas:

Forrester (FORR): high quality, high recurring revenue, growing market, secular growth.

Sales force restructuring will drive earnings growth.

Leading technology research and advisory company, 70% recurring revenues, 60% incremental margins, diversified customer basis.

They’re mostly focused on business technology, selling tech research to CTOs and CIOs, and on marketing and strategy — the marketing/strategy stuff is where FORR apparently stands out.

Gartner and Forrester each have 10-15% market share.

Tech research grows twice as fast as tech spending, and FORR has said they can’t hire fast enough to keep up with demand.

So why is it cheap:

New leadership. New sales force structure, restructured compensation structure to complex and unpopular plan that penalized mature sales force. Then they moved HQ and people left because the commute was worse. There was a lot of churn and flat growth, while Gardner continued to grow — they failed to keep their best salespeople. Lost half their people in last two years.

New sales officer came in from Gartner and is apparently fixing it, they think they can get bookings to grow at 10%+ in second half of the year.

He thinks they can get 30% earnings growth in both 2015 and 2016.

Downside protected by aggressive share repurchase, and they have $9 in cash per share. He thinks it’s worth $48 at peer multiple. Currently $37.

Risks? Sales transition might not work or might take longer. There’s more free information, and more competition, and the float is limited because the founder owns 42% of the company (I’d call that a positive, not a risk, because he’s motivated to do buybacks).

Next idea: OFS Capital (OFS)

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