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Intrepid's Travis Likes: Fenner, Corus, Oaktree Capital (Audio) · Bloomberg Intelligence

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  Speaker 1: ETF report. I'm Katherine Cowdery. You're listening to are taking
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  Speaker 1: stuff with Kathleen and Gim Fox on Bloomberg Radio. His
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  Speaker 1: Intrepid Capital Fund is up more than twelve percent so
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  Speaker 1: far this year. That's nearly double the six and a
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  Speaker 1: half percent increase for the S and P five hundred.
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  Speaker 1: Mark Travis is the president and lead manager for the
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  Speaker 1: Intrepid Capital Fund, and he joins us now from Jacksonville, Florida. Mark,
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  Speaker 1: thanks very much for being with us. Hell, I'm glad
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  Speaker 1: to be here. Tell people the strategy that you employ
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  Speaker 1: at a Trepid Capital well PIM. I like to think
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  Speaker 1: of it as classical security analysis. We have a seven
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  Speaker 1: person analytical team and we try to discern long term
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  Speaker 1: business value in relation to where the shares trade in
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  Speaker 1: the market. Um. Some people use the term private market value,
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  Speaker 1: some people who use the term intrinsic value. We're trying
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  Speaker 1: to first ascertain the values and conservative assumptions about growth
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  Speaker 1: and margins and sales um. And then we we we
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  Speaker 1: use some what some people consider to be kind of
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  Speaker 1: punitive discount rates, which helps adjust to the risk and
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  Speaker 1: growth um and then we try to buy those business
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  Speaker 1: values in a discount in the stock market. Sometimes those
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  Speaker 1: are one off, sometimes those are more you know macro events. UM.
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  Speaker 1: We haven't had many kind of macro events really in
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  Speaker 1: the last five years. On the fixed income side, we
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  Speaker 1: want to find a credit where we know how we'll
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  Speaker 1: get our money back USUS there's a collateral or the
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  Speaker 1: free cash flows, and we don't want to make any
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  Speaker 1: assumptions about interest rates, so we try to take little
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  Speaker 1: of any interest rate risk, and we want a reasonable
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  Speaker 1: spread to treasuries UM. So we tend to focus in
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  Speaker 1: smaller cap equity where the markets are less efficient, not
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  Speaker 1: only in the US but across the globe. And we
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  Speaker 1: tend to focus in shorter duration, high yield debts somewhere
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  Speaker 1: in the you know double B single B of five
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  Speaker 1: year maturity or less fixed income Okay, Mark, A lot
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  Speaker 1: of people, of course, are shortening up duration, not uncertainty
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  Speaker 1: over the FED and the economy and so much more.
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  Speaker 1: I'd like to get into some of your the stocks
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  Speaker 1: you like, But I have to ask you about e
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  Speaker 1: T s and you're concerned that the inflows, and they've
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  Speaker 1: been huge, are actually laying the seeds for not only
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  Speaker 1: heightened volatility, but value destruction. Why well, Kathleen, I think
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  Speaker 1: we've got some assets that are probably not as well
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  Speaker 1: suited to something that has to provide liquidity daily. I mean,
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  Speaker 1: we've had a few, you little hiccups. We haven't had
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  Speaker 1: many in the market's really in the last five years.
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  Speaker 1: To me, it goes back to the debt downgrade kind
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  Speaker 1: of early August of eleven. We saw a little bit
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  Speaker 1: of action with the currency devaluation in China last August,
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  Speaker 1: and all of a sudden, you couldn't price I believe
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  Speaker 1: some ET s. We we had a problem with the
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  Speaker 1: open ended Third Avenue Fund late in the year. But
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  Speaker 1: my take on ets is the conceptually their low cost
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  Speaker 1: and they make sense long term, but I think the
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  Speaker 1: reality is they're traded quite rapidly, and at some point
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  Speaker 1: that may be problematic. I think that um, you know so,
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  Speaker 1: I think that will be a source of opportunity for
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  Speaker 1: a firm like in Trepid Capital at some point in
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  Speaker 1: the future. Mark, I want to take you north to
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  Speaker 1: to to Canada, and I want you to give us
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  Speaker 1: the case for Chorus Entertainment. They have television, radio, as
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  Speaker 1: well as digital and content businesses. This is a Canadian
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  Speaker 1: entertainment company that pays a dividend of over nine well
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  Speaker 1: if nothing else, UM PIM. It's what I like to say,
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  Speaker 1: you're paid to wait um. And this environment is certainly attractive,
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  Speaker 1: but that's really not how we got there. Honestly, I
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  Speaker 1: think that UM. The business in Canada, the cable TV
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  Speaker 1: business has gone through what we might call the States
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  Speaker 1: pick or pay, where they're going to allow cable TV
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  Speaker 1: subscribers to decide whether they want ESPN in their package
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  Speaker 1: or HCTV or what have you. Chorus has been very
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  Speaker 1: dominant in women's and children's programming. Heathershaw is h this
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  Speaker 1: chairman of Chorus and Shaw Communications. They've just brought those
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  Speaker 1: two business together, so they've levered up somewhat, but it's
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  Speaker 1: a very dominant provider of those that program They also
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  Speaker 1: have radio uh uh radio stations as well. So it's
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  Speaker 1: a business that generates right at two hundred million in
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  Speaker 1: free cash for a lot of it comes out to
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  Speaker 1: us as a dividend. And when we did the business valuation,
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  Speaker 1: we came up with twenty dollars Canadians. As I like
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  Speaker 1: to tell readers or listeners or viewers, shadow and us
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  Speaker 1: can be painful, um, And a lot of times things
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  Speaker 1: go down in price after we first initiate a purchase.
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  Speaker 1: So you know today those shares are where are they Canadian? Yeah?
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  Speaker 1: And so you multiply that today as the dollars dropping, Um,
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  Speaker 1: it's a point seven and seven. We think they're worth
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  Speaker 1: right at twenty dollars Canadians. So if I get the
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  Speaker 1: nine of security in form of the dividend, and I've
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  Speaker 1: got it a discount, Um, I'm going to just sit
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  Speaker 1: and wait till that discount has breached. Okay, let's take
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  Speaker 1: a look at another company that you like, and that
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  Speaker 1: would be Center. They make conveyor belts and services for
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  Speaker 1: the coal mining industry. Well, Kathleen, I think at least
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  Speaker 1: in the US, it seems like coal mine is a
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  Speaker 1: dirty word. Uh no pun intended. Um, Yeah, I would
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  Speaker 1: point out to Elon musk at Tesla that coal mine
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  Speaker 1: is probably generating a lot of electricity for the model
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  Speaker 1: s UM. You know it's somewhere in the range, but
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  Speaker 1: Fentners of British company. UM. Again, it has attractive dynamics
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  Speaker 1: that we like, UM, attractive dividend, and it's really a
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  Speaker 1: long tenure business and it's a service model. I don't
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  Speaker 1: know if you've ever looked at businesses that' say service elevators, UM,
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  Speaker 1: but it's some of the similar properties and it's gotten
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  Speaker 1: beat up with what's happening in the coal mine business.
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  Speaker 1: So that's what attracted us to it. What attracted you
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  Speaker 1: to oak Tree Capital Group? The co chairman and the
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  Speaker 1: co founder, of course, Howard Marks, an often frequent guest
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  Speaker 1: on Bloomberg. Oak Tree Capital paying about a five and
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  Speaker 1: a quarter percent dividend. Well, it's interesting um him. You've
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  Speaker 1: probably read as many people in the investment industry, Howard
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  Speaker 1: Marks um misses that come out quarterly, and I think
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  Speaker 1: they're eagerly anticipated by a lot of the stafford in
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  Speaker 1: TREPI Capital and I'm sure many places across the globe
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  Speaker 1: and Howard's insights. I think that one is a pretty
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  Speaker 1: complex security due to all the different partnerships they hold
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  Speaker 1: um and people look at the dividend that again I
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  Speaker 1: would caution listeners. It's not what I call a ratable dividend,
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  Speaker 1: but it is one that they're committed to pay and
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  Speaker 1: dependent on the realizations of the underlying partnerships. So I
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  Speaker 1: think to me, one of the more interesting things is
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  Speaker 1: what they carry double on capital for on their books.
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  Speaker 1: They carry it for about twenty million dollars. They helped you,
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  Speaker 1: Jeff Gunlock, leave TCW to form Double Line. Today that
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  Speaker 1: firm Double lines about a hundred billion dollars. So I've
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  Speaker 1: got a very well known distressed investor, which we haven't
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  Speaker 1: had a lot of distress recently in terms of Howard Marks,
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  Speaker 1: with about a hundred billion dollars worth of separate accounts
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  Speaker 1: and partnerships with an incentive fee I embedded in them.
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  Speaker 1: Couple with a rapidly growing well known fixed income manager,
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  Speaker 1: and again I'm paid to wait. I wouldn't. I wouldn't. Uh,
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  Speaker 1: I wouldn't annualize the five percent dividend. It could be higher,
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  Speaker 1: it could be lower, But I think the free cash
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  Speaker 1: flow generation properties of an asset management business one that
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  Speaker 1: I'm very familiar with. Frankly Um, leave me to think
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  Speaker 1: that those shares are worth probably around sixty sixty dollars
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  Speaker 1: versus where they are today in the mid forties. Okay,
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  Speaker 1: Mark Travis, thanks so much for joining us, President lead
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  Speaker 1: manager for the Intrepid Capital Fund I C M b X.
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  Speaker 1: He likes Finner, he likes Chorus, he likes oak Tree
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  Speaker 1: Capital and more. I'm Kathleen Haze, along with pim Fox,
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  Speaker 1: Dave Wilson, coming back to look at the market close
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  Speaker 1: with us. This is Bloomberg