Adam Crocker, Metropolitan Capital

By Travis Johnson, Stock Gumshoe, September 8, 2014

Crocker is a comanager at the Metropolitan Capital hedge fund. His big question is figuring out

Groupe Fnac — European retailer and ticketing business (the “Ticketmaster of France). It’s priced as if disaster is around the corner, and it has a huge cash balance.

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Stores are mainly in France, Spain and Portugal, a few others. It was spun out last Summer.

He thinks the retail ticketing business is very valuable — the business is attractively valued at 6X EBIT, but if you back out cash and the ticketing business it trades for 1X EBIT.

Obvious risks in being a books/electronics retailer in France and Spain make it absurdly cheap, and it’s very small (under $1 billion)… THe best investmetns are usually “contrarian, challenging and uncomfortable” (Howard Marks quote).

Separate real from perceived risks:

Real risk — complete disintermediation by online or other competitors (Amazon, etc.)
Business erosion as core products are digitized.

Perceived risks — stock is volatile and illiquid, it’s embarrassing to be wrong about something that’s so obviously risky, and economic malaise in their core markets. The cash balance lets them withstand most of that.

Their customers and suppliers would care of the company disappeared, which is important. He did a store visit — stores were very crowded for a stock with low multiples. They have a membership program, and 56% of their sales are to members. They’re very well located in the best neighborhoods wherever they are, and they’re well maintained — these are not depressed locations that are starved for capital.

They are reorganizing to get new initiatives to grow revenue, consolidating back offices, renegotating rents — so they’ve cut costs and launched new growth areas like mobile phones, kids toys, stationery, etc.

They found fnac because they owned Ticketmaster and Live Nation, and that’s how they found Fnac — they have 50% market share in France. Competitors trade at 15X EBIT valuations and could be bought by Eventim (German equivalent), that division should be worth 224 million euros. They get some synergy between retail and ticketing, because it drives traffic to store and store provides marketing location. Strong brand.

They have 10 stores in Brazil, which they want to sell or spin off — too small to get good scale for them, and it has good net operating losses (NOL), they think it’s worth 25 ...

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