Eric Jensen

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Quick Update on Special Situations: DESP, MIK

Despite our ongoing focus on the identification of profitable ideas for our clients' short book, Antrim continues to believe that opportunities exist on the long side in certain special situations and otherwise unique opportunities. We maintain coverage of two long ideas - DESP, which is a deeply undervalued and misunderstood, high quality, emerging market e-Commerce business, and MIK, which is an e-Commerce resistant (though not immune) specialty retailer that is currently benefitting from a coronavirus related improvement in the Arts & Crafts category, and putting investors through a "short squeeze." Since we initiated coverage on these names earlier this summer, both have been in the news. You can find our thoughts on these developments using the link below:

Quick Update on Long Ideas under our coverage >


Short Shrift – A Monthly update on short ideas under our coverage

Click the image or the link below for the first installment of "Short Shrift," which is Antrim's monthly update note on the short ideas under our coverage. In this issue, we discuss QSR, which has reported earnings since our 8/2 initiation, and KNSL, which has reported earnings, raised equity, and lost a chief claims officer since our initiation on July 26th.

Short Shrift - Volume 1, Issue 1, September 2020


Re-formatting Initiations

We've learned some lessons as we've rolled out coverage at Antrim. Some of our constructive feedback has been easy to implement. Like, why on earth don't Antrim Initiations include an "Issuer Info" section on the very first page? Well now they do. With this post, I'm re-publishing Antrim's previous initiations on Shorts: KNSL, QSR, and TDG with a little formatting change, and the new issuer info section, to make them slightly more accessible. There has been no change to substance or content of the reports.

Download our KNSL Initiation >>

Download our QSR Initiation >>

Download our TDG Initiation >>


Initiating Coverage of Snap On Inc. (NYSE:SNA) with a Critical Analysis of company fundamentals, reserve accounting, and equity valuation

Snap On Inc. is a 100 year old American manufacturer of hand and power tools used primarily by the automotive maintenance and repair end market. The company has developed a reputation for premium priced, high quality, reliable parts, and excellent customer service, provided by its franchised network of mobile “tool truck” product showrooms. Over the last two decades, however, the company has grown increasingly reliant on issuing sub prime dealer credit to its customers in order to finance increasingly expensive tool purchases. Snap On has adopted aggressive accounting policies that disguise lax underwriting standards and elevated credit risk within its credit portfolio. In addition, we believe the company faces competition from lower priced tool offerings, and disruption in its end market as a result of the coronavirus pandemic, and the impact lockdowns have had on miles driven in the United States.

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Initiating Coverage of TransDigm Group (NYSE:TDG) with a Critical Analysis of Fundamentals, Leverage, and Valuation

TransDigm Group, Inc. is a manufacturer of engineered parts and components for aircraft original equipment manufacturers (“OEM’s”), as well as for maintenance and replacement in the aerospace aftermarket parts and services business. The company has generated compound EBITDA growth of over 22% annually for the past decade, and now trades at over 18x trailing, “peak” EBITDA, despite severe distress resulting from the coronavirus pandemic and the impact it has had on the air travel industry, as well as the extreme levels of financial leverage and overall indebtedness besetting the company as a result of their pursuit of an aggressive, M&A driven growth strategy. Antrim believes investors have become complacent as it regards the risks to TDG’s business model, and that the company’s M&A strategy and pricing practices are unsustainable.

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An Update on Kinsale Capital Group (Nasdaq:KNSL) Post-Q2 Earnings

On Thursday, July 30th, after market close, KNSL reported Q2 EPS of $0.84 per share, $0.15 better than consensus’ (and Antrim’s) estimate of $0.69, on a 41% y/y increase in GWP.

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Initiating Coverage of Short: Restaurant Brands International (NYSE:QSR) with a SELL Rating

Restaurant Brands International (“RBI” – NYSE:QSR) is a franchisor of quick service restaurants under the Tim Horton’s, Burger King, and Popeye’s Louisiana Kitchen banners globally that was formed in 2014, when Burger King, led by its private equity sponsor, 3G Capital, entered into a merger with the Canadian coffee chain, Tim Horton’s. Since that time, the company has executed on an aggressive turnaround strategy by increasing menu prices to support rental rate increases on franchisees. These increases, coupled with significant financial leverage at the parent and significant leverage at the franchisees, have resulted in strong returns on equity for common shareholders, but leave the company with little margin for error to navigate the economic disruption of the coronavirus pandemic and associated global recession.

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Initiating Coverage of Kinsale Capital Group (Nasdaq:KNSL) – SHORT / SELL

Kinsale Capital Group is a mid-cap specialty insurer operating in the Excess and Surplus (“E&S”) lines subsegment of the broader Property and Casualty (“P&C”) insurance industry. The company has generated an ample, “mid-teens” return on equity, and grown revenue at an annual CAGR of 34% over the past three years. That success, together with a float-limiting insider ownership of 7.31% of the outstanding shares,  has engendered a committed shareholder base of long-only, “true believers” who have held Kinsale as it has earned inclusion in the S&P Small Cap 600 Index, and rocketed to a valuation in excess of 9x tangible book on the back of new passive shareholder ownership amounting to 27% of the float. This “single stock valuation bubble” has come about just as the coronavirus pandemic and lockdown-induced recession threaten to produce decelerating revenue growth, adverse reserve development, and investment portfolio losses.

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An Update on Antrim Investment Research: More Wood to Chop

December 31st, 2019 seems a disproportionately long time ago. When David McCullough and Ken Burns finally get together to decide just exactly what happened over the past six months, I doubt that the formation of Antrim Investment Research, LLC or the publication of my coverage initiation on Despegar.com will rank among the defining events of the first half of the year. Nor will I merit a musical number in Lin-Manuel Miranda's next production. Nevertheless, Antrim has taken over a tremendous amount of my energy and focus over the past six months, and the developments of the past few weeks have been significant milestones for myself, and for the company. In progress, then, is an update for my readers on where Antrim stands today, and where we're going (for now).

In June, I completed the process of registering Antrim as an Investment Advisory in the State of Virginia. Despite a growing number of blogs, newsletters and podcasts that disclaim, "nothing you read in these pages constitutes investment advice, even the investment advice," and despite that RobinHood "Snacks" has ushered in a new era of "broker-produced-blogs-not-research," (admittedly, they're not researched) I interpret that the ethics of my profession require me to call my content what it is, which is to say: I publish security recommendations, dated and timed to coincide with specific market events and meant to provide professional investors with actionable, diligently researched, and independently formulated ideas. Despite delays brought about by the novel coronavirus pandemic, the efforts of my attorneys and Virginia state regulators bore fruit early last month, and Antrim is now legally able to accept payment in exchange for my work. Prospective clients and subscribers can find Antrim's Form ADV part 2A and 2B "Brochure" as they sign up for my research (you're required to read it, actually, despite that it's boring) and linked in the footer of my website, next to the Privacy Policy disclosures.

In June, the broker research division of Refinitiv (formerly Thompson Reuters Financial & Risk division) approved Antrim Investment Research to distribute its work on the Refinitiv broker research platform, and on Friday, July 3rd, my coverage initiations for Michaels Companies (Nasdaq:MIK) and Despegar.com (NYSE:DESP) were published for subscribers to Refinitiv's research feed.

In June, I discovered that it was actually equally difficult to get Antrim set up with a merchant account and payment gateway so that I might accept credit card payments in exchange for research access for my subscribers. As it turns out, web-based subscription services with recurring credit card payments are considered the highest risk category of payments for payment processors, and Antrim's request for a new merchant account coincided with Fed Stress tests that indicated to a number of banks reviewing Antrim's application that they didn't have enough regulatory capital set aside to weather the ongoing economic impact of the coronavirus. Antrim's application for a merchant account was auto-denied by most.

It turns out that Stripe is an excellent solution for web-based start ups. Their prices are lower (at least in the high risk payments category I find myself in), they offer a useful dashboard for payments and subscriber analytics that's modern and intuitive, and their sales team and customer support people work on weekends. I learned all that because I needed them to get my application approved on the weekend of June 27-28, and the Stripe people came through. I've covered merchant acquirers in the past but I've never really seen the business from this angle. It was an illuminating process. But as a result, Antrim's payment gateway is live, as of the evening of June 30, and my subscription based equity research product is now LIVE, for $100/month, or an annual subscription of $1,000/year.

Currently, Antrim finds itself in something of a "soft launch" mode - currently accepting payment from subscribers, but also still in process of building out my coverage universe. Initiations on long positions: Michaels and Despegar have already been published. Initiations on Cabot Oil & Gas, AGNC Investment Corp., Annaly Capital Management, PNC Financial Services, and Lemonade Inc. are in process. Initiations of short positions in Kinsale Capital Group, Skyworks Solutions, Transdigm Group, Tesla, GSX, Restaurant Brands International, Micron, and Lancaster Colony are in process. I hope to publish many, or all, of those initiations for subscribers over the coming months.

So too are changes coming for the monthly newsletter, Idiosyncratic Risk. While it still comes out on the first of every month, and it's still offered for free, I do plan to start charging for Idiosyncratic Risk subscriptions. At some point in the fall/winter, IR will become a subscription based newsletter, offered at the price of $20/month or $200/year. Ultimately, the "Antrim Vision" is to provide, for $1,200 annually, a compelling investment newsletter PLUS ongoing institutional coverage of the ideas contained within its pages. Antrim seeks to differentiate its coverage by focusing on special situations and short idea generation, and all for less than the annual cost of a subscription to Grant's. (Don't cancel Grant's though, they're great, too.)

This post is intended to be somewhat of an announcement to my readers about where we are and where we're going. Also a bit of a celebration of what I've accomplished with Antrim over the past weeks and months. But it's also a reminder that I'm going to be very busy over the next few months, and that there's a lot of wood left to chop. For those of you that are interested, sign up on the equity research tab. For those of you who are curious, get in touch! I can be reached by email at ejensen@antrimresearch.com and I'm happy to talk stocks, talk Antrim, or just make new friends.

The first six months of 2020 have been interesting, to say the least. I'm an optimist at heart, and I'm excited, despite it all, for what the next six months could bring. If you've made it this far, thanks. If you're still here for radical common sense and thoughtful, independent stock analysis, like, share and subscribe!


Initiating Coverage of Despegar.com (NYSE:DESP) – BUY / ACCUMULATE

Since coming public in 2017, Despegar shares have been under near constant pressure due to a variety of exogenous shocks and macroeconomic factors outside of the company’s control. Lackluster GDP growth in Latin America has pressured demand, dramatic currency devaluations have destroyed customer purchasing power and hampered translation of Despegar’s results into U.S. Dollars. Sharply increased interbank lending rates have restricted profitability, and the coronavirus pandemic has resulted in government-imposed lockdown and the restriction of non-essential travel. For these reasons, DESP has been summarily ignored by the market, and presently offers investors who can tolerate elevated volatility the opportunity to purchase an extremely high ROIC business with local currency bookings growth in excess of 20%, negative working capital, and a fragmented base of local competitors and suppliers, all at a bargain basement valuation.

Download our Report »


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