Isaac Schwartz, “Hidden in Plain Sight”

By Travis Johnson, Stock Gumshoe, April 4, 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.

Isaac Schwartz is from Robotti and company, and he started by updating us on Kazakhstan and the bank he recommended there last year. Which climbed in price nicely last year, but then collapsed on the Russia/Crimea crisis.

The original argument was that the bank was cheap because Kazakhstan was booming and it brought a bubble that burst — but the fundamentals were excellent.

He thinks that stock is more timely than it was last year (my notes on last year’s presentation are here). Why? Because local Kazakh buyers have been buying back the banks. The biggest bankruptcy in Kazakhstan was sold earlier this year for a billion dollars (cash) to a wealthy investor.

But Halyk is a company you can buy today for 1X book that has a ROE of 20%, it trades in London at HSBK and it has traded down to book — no longer a premium, and it’s still one of the fastest growing countries in the world (projected 12% GDP growth) and has very low banking penetration.

But his new idea is a company “on the ground floor of global growth.”

It’s an old European company, family owned, with good business selling to emerging markets. Global leader, overlooked, at discount to peers, he thinks it can double in five years.

Company is Tarkett (TKTT in Paris), which went public last fall. one of the leading companies in the global flooring industry, the IPO has not done well and it’s smallish, market cap around $4 billion. Price is down by about 20%.

A strong business controlled by a family is a great kind of investment — and they also have private equity involvement, they brought KKR in to provide liquidity to some owners who wanted to sell many years ago but it never put on crazy leverage or lost family control.

The company sells all kinds of flooring, including vinyl and linoleum floors as well as wood, laminate, carpet and specialty sports flooring. They’re not in tile, but are otherwise the most global and diversified flooring company.

Flooring is highly consolidated globally, segmented for different climates and cultures. It has low price elasticity, pricing is muddied by contractors, and it’s an every-ten-years purchase for people.

He says there ...

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