George Athanassakos is the director of the Ben Graham Centre for Value Investing at the University of Western Ontario.Anne-Marie Jackson/The Globe and Mail
Norman Rothery is the value investor for Globe Investor's Strategy Lab. Follow his contributions here and view his model portfolio here.
Sabre Corp. was recently put through intensive screening by four teams of MBA students in the final round of the Ben Graham Centre's International Stock Picking Competition. They X-rayed the travel technology company and scrutinized its business in an effort to determine whether it passed muster as a value investment.
The contest is the creation of Dr. George Athanassakos, who runs the value investing program at the Ivey Business School, which is part of the University of Western Ontario. The event is designed to promote value investing to MBA students and to the world more generally.
This year, the competition started with 27 teams (each composed of two or three students) from across the globe with contestants hailing from Canada, the United States, Italy, France, Spain, Britain and China. In the first round, each team picked a company to analyze from a shortlist of firms.
For instance, the eventual winners studied TSX-listed Hammond Manufacturing Co., which has all of the outward appearances of being a deep value stock because it is profitable and trades at a sharp discount to tangible book value. The company is in the business of selling electrical enclosures, components and accessories from its home base in Guelph, Ont.
Hammond is a tiny firm with a market capitalization of $21-million. Its thinly traded shares recently changed hands at $1.84 and the students pegged their estimate of its intrinsic value at $3.77. They suggested buying at $1.25 per share, or less, to obtain a sufficiently large margin of safety to offset the risks involved.
The first-round reports were judged by a panel of experts and, because of a tie, four teams instead of the usual three were invited to Toronto for the final round of competition. The finalists represented Columbia University, Northwestern University, Saint Mary's University and the University of Western Ontario. They vied for $17,500 in cash prizes thanks to the sponsorship of Burgundy Asset Management, Bristol Gate Capital Partners, Peters MacGregor Capital Management and Foyston Gordon & Payne.
The finalists were given a week to research Sabre and submit their findings. They then presented, and defended, their results in front of a panel of distinguished value investors including Wayne Peters (Peters MacGregor Capital Management), Robert Robotti (Robotti & Company Advisors), Kim Shannon (Sionna Investment Managers), Jeff Stacey (Stacey Muirhead Capital Management), and Doug Winslow (Burgundy Asset Management).
Sabre is based in Southlake, Tex., and proved to be a complicated stock to analyze because it operates in a variety of jurisdictions across the world and has several different travel-related businesses.
Three of the teams decided to take a pass on the stock and cited different areas of concern. For instance, they were worried about increased competition and the selling pressure from large shareholders after the firm's initial public offering in 2014. Some also thought that the firm should have reinvested more money in its travel network business over the last few years.
On the other hand, one team figured that the worries were overblown and believed the business had staying power. Like many industry analysts, they pointed to the stock as a buy with a modest amount of near-term upside and some growth prospects.
Over all, I was impressed by the efforts of the students given the limited amount of time they were given. To get the flavour of their work, you can read the winning team's report, which they graciously allowed to be posted online.
Out of a starting field of 27 teams, the fourth-place prize went to the students from Northwestern's Kellogg School of Management. They won $1,250 thanks to a last-minute donation from Jeff Stacey. Columbia took home third place and $2,500. Ivey nabbed $5,000 for second place.
In a narrow victory, the team from Saint Mary's – and my personal favourite – got the top prize of $10,000. A big congratulation goes to Bill MacGregor, Morris MacLeod and Dev Jyoty Nath who earned the first-place award. Unfortunately for the bulls, they rated Sabre as a strong "no-buy."
Norman Rothery