Good Investing Talks - [Replay] Opportunities in small founder-led stocks? A talk with Andreas Aaen (Symmetry A/S)

Episode Date: July 31, 2021

With Andreas Aaen of Symmetry A/S I am happy to discuss his approach and the world of small founder-led companies.

Hey, Tillman here. This conversation is a replay of a conversation I had with Andreas Arn last year. I hope you enjoy getting to know Andreas and the whole conversation. If you like it, please leave a review on one of the podcast platforms you're listening to this podcast. Thank you. Hello, audience. Welcome back to our live stream sessions. This time I'm having a guest from Denmark here, Andreas.

Hi, very nice to meet you. Hi. I already asked you this question, but I want to ask it again publicly. How do I spell your last name? It's called Owen, so like a doubly, for the demographics is Adria's Owen. That's cool. Some like Germans might spell it differently and also English speaking might spell it. English speaking people might spell it differently. So it's good to know that.

They normally call me Ayan. Yeah. I want to show the disclaimer before we go into details that we are safe here on the legal side. The main message of the disclaimer is that you have to do your own research and do your own work. What we are doing here, even if we are mentioning certain stocks or securities, is just a qualified talk, it isn't a recommendation. So please do your own work. You will find a disclaimer if you want to read it below.

It's linked so you can read it. It's also on the website, good investing.net. But without further ado, I'm happy to get into our conversation and I'm happy to invite our audience as well to ask questions during our live stream. So if you have questions, please type them in in the chat and I will have a look and try to integrate them in our talk. maybe let's start with Denmark what is interesting to know about the Danish stock market and what are other interesting companies besides the well-known name Novo Nordisk yeah I think one of the main things with the Danish stock market is like it's it's normally like a little bit of a safe haven for some investors because it's there's a lot

of like mid tech companies medical companies and and stuff like that that is like producing really stable returns there so if you look back the last like one three five ten years it has actually been one of the main exchange that has performed the best in the whole world there so but that is also the cost because the safety and the good corporate governance there's in some of those cases um i would say on on the other side is that the danish stock exchange is mostly large companies there um The small cap space in Denmark is quite less sophisticated and developed there. There's not the same culture in Denmark for investing small caps like there is like in Sweden or Norway or some of the companies we compare us to.

How many small caps, small cap companies are in Denmark and how big is the universe? I'm not sure, but I would think a few hundred of them, at least what I will call real small companies. then there are some small property companies, football clubs and stuff like that. But a few hundred of what I'll call like normal small caps I could, I could invest them. And they're really different size and different sectors and stuff like that. We have a few like banks also and stuff like that. From the companies, I know you're talking about your more a global investor. Or do you have also, would you say you have a regional focus?

I would, you know, as most investors, you know, I started looking at my home market when it was, you know, a young investor when I started up. So, you know, basically when I launched the fund, we were maybe 50% Danish or something. And I think today it's 0% in Denmark. But we do, we have mostly been in Scandinavia, you know, throughout the fund. And I think still today it's between 40 and 50% is in Scandinavia. But we also, we do really hold the Europe and also U.S. So I would say that it develops over time, our comfort zone where to go. How did you find your way into investing?

Actually, I did like read books when I was younger and stuff like that. But I tried out, you know, back when I was like 14, 16 or something. But I tried different things that are also doing like technical. analysis and chart patterns and I really like I was into a different kind of options there and I could remember like when I was you know younger before I could trade myself I was like speaking to my father a little bit about my you know it's not like a trust fund like you have in US but like some some savings they put aside for children in Denmark a small amount but and then like what to do with them and but it was only like when I was started as a trainee and

in a big accounting firm that I really like I would say like hit it there you know I got the connection between what I learned from accounting to investing and I learned that okay I could actually use you those read the financial statements and stuff like that and use that to make money in the stock market so I was saying then that way I got introduced to yeah Warren Buffett and stuff like that and basically yeah develop myself from from there on how would you describe your investment style currently and how did it change over the years i think there also is some natural development there like most when i started up as was probably what people would call like a deep value guy

and it was a lot of quantitative stuff where i was like price to books and price to earnings and free cash for yields and and stuff like that that i i really looked at in in denmark there was a lot of those really small um like cheap stocks that on those metrics after the financial crisis that has not gotten up a lot so we made a lot of money on some of those smaller names but i would say like over time i've been more into like looking at you know stronger business model psychology and investing management teams and and stuff like that but you know it takes much more time to learn how to evaluate a management team than it does to how to read a financial statement so so that's something you need to be like comfortable with

and it has taken time and it's something i still keep a really try to develop uh still were there certain insights that made you shift your style to more qualitative approach um there you know there is sometimes when you hit like you know when you found like a cheap stock at like six times earnings i'd go to 10 times earning you made like 50 percent return there but i was you know i was hitting like some companies that also also grew a lot and i made like 10x returns on some of those stocks there and i was maybe lucky to get into some of those because they were both cheap and growing a lot so so i got both effects there but then i could really see okay the way you know i make a lot of money is not to do like multiple rapporteurs but more to to

to really find like what i call time arbitrage in good compounding stocks but then it was also more like what i read and what all the you know investors i i looked into and stuff so so in the beginning i i looked a lot at you know warren baffett and benjamin graham and then more you know the more i grew i get into like your green bed chalemonger and stuff like that so i think there was like a natural development there and in the approach i took i already saw that there are some questions coming in and i will work them in during our talk and thank you already for the questions to my audience and if you like the content to know you can also leave a like but back to our conversation you said that evaluating management teams is is something that isn't that

easy um how you're going forward with this and what how your way of evaluating management team changed during the years i think there's there's two aspects of it the the first one is just learning by you know mistakes like and you know i did plenty of mistakes you know early on it early on with the fund there you know even through the returns has quite consistently been good there was a lot of mistakes that i learned from uh what i would say what one one good example is like there was um a uk based company called global it was a greece origin uh that turned out to be like a total fraud um where you know i actually went to london like to visit the management team and I was asking them questions and you know the CFO just looked into my eyes and like

totally straight answered all my questions and then like three weeks later you know they put out a release that it was a fraud and the stock was worth zero so then I got back like okay look at what was the the red flags I should have looked at and and stuff like that so I think some of that is just like um like yeah experience building up what to look at and what to ask and stuff like that. And I would say the other important thing about evaluating management teams is like normally when I met or talked to management teams, I always came back like, wow, those guys are really good there. It was really seldom I came back to, okay, those are really, really bad management teams. So, so then I just learned that, you know, for me to, you know, the management

teams I think that is good is probably average. It's only the ones that I think is really, really, really good that is probably good there so so i just yeah hiding the bar for for what i think it should because you know you only become ceo if you're good at sales also so so even eras managers are quite good at talking to investors it's an interesting point i already heard this from an other investor that i would call a very good investor so it's i like the comparison that's a thing to take away i think uh management they really have to impress you to be very good and high quality. If you investors often compare themselves to other investors,

how would you describe your style in comparison to others? Or what do you do different? I would say, you know, in the beginning, as I said, I try to like do a little bit more above it. But one of the investors I was really into in his young days was David Einhorn, the way he meant is like a long short fund as I do. And I think a lot of what he did when he was, you know, a much smaller investor. And the early returns he had, there's, I think there's a lot of comparisons to what I do today.

So that's definitely one guy that I was really impressed. Of course, he had made a lot of mistakes the last few years. And I think one thing I tried to do differently was he, it seems like he got a little stubborn into this, you know, long value, short growth thing and got burned of it. where I try to be a little more, yeah, adaptable in the market situations we have there. But I say the way he structured it is definitely someone I respect a lot there. So you're shorting as well? Yeah, yeah, we do as well. Not to the same extent that we are wrong, but we do short and have, I would say, quite good success all the time.

It is hard to do, especially like in a market like we have the last few years. But it's something I do it to create alpha in the portfolio. and it's been quite good but i also say it just makes me a much bit the long investor like you know when you're short you need to be right on your research you you learn to cap your risk and you know do stop losses and like close positions when it doesn't work for you and you know you look for all the bad signals because like you know when you're short you can lose indefinitely so you need to be really really tight on on your risk control there so i definitely think that makes you better on the long side also what is your way to generate ideas for long and short positions

so long positions it's it's really like something i could call compound you know pound the rock invest like i just like turns a lot of rocks and there's not one source i would say that where i get all the ideas is like um i have a big network of other investors i talk to i'm at the early days i did a lot of like screens and stuff like that, but I mostly not do that anymore. I look at like Twitter and I talk to all investors. I like also sometimes like when I research one company, I asked them like, who's your greatest competitor? And if three of them mentioned the same company,

that's probably a company I should look more into. So there's not some source. I would say that I get most of their ideas. It's really just have your eyes open and be really good at like, of the noise and try to build, you know, a woodsliff of the of the greatest companies I can find. How much did you travel to research companies and how much do you take, talking to management into account? I would say the companies I'm able to travel to, I have tried to do so like in Scandinavia or like London or even some in Germany. like I have tried to travel there, meet them in person.

And of course, it's more easy when I can, like in London, I can set up like eight management meetings over three days or something and because everyone is close there. And also I could do that in Stockholm and Copenhagen and so forth. But, you know, when I'm like researching US companies or stuff like that, it's mostly, yeah, Zoom calls and something with management teams. But I can't, I probably can't think of them stuck that I haven't talked to them. management or maybe some of the bigger ones, it's not CEOs, but IR guys, but normally I would

have like at least a Zoom Corps or something with them. And normally I also follow companies like a minimum six, 12 months before I buy them. So I try to look for good companies, even when they are like overvalued and do some research on them, put them on the watch list, then just keep following them and then at some point I get comfortable owning them. Yeah, that's a good way to handle that. Yeah. How does the way you research companies in the six to 12 months, where you're following the look? I would say, of course, now, because of COVID, I just recently started traveling again to like Stockholm and that has been, yeah, Norway has been the only in Scandinavia.

But the next like six to 12 months, normally I try to do quite like intensive research when I learn about a new company. like maybe spend like two three whole days on it but then normally I will put it off a little bit because what I learned is what normally happens is when I look at something I get really excited about it and like oh this is so good company and I don't really care about the multiples I just want to own it but then like

when I just take like one week cooling off and take it back again I was like okay maybe it was not that crude maybe I got a little excited there when I was doing all the work and I wanted to like justify the hard work I did there. So normally it's good to do like tight research and then just follow it a little from the sideline like just sporadically for a few months.

They're talking to management maybe one time after the earnings call and then, and then, you know, when it becomes cheap or there is some time of event that makes people want to invest, I speed the process up again a little bit. There's one question from the chat coming that seems to be urgent. I will ask in a second. but before that i also invite invite others to ask questions they are welcome the question is what's your views on f ii and d i manipulation oh if i and d i i i hope it's f i i or it f ll or f one one i don't really understand that question sorry i i either maybe um the

person who asks can write out what these short names stand for. We also want to take a look at free ideas you currently find interesting. Maybe let's start with the most popular idea even for like four guys that hang out on Twitter and are interested in this thing. It's it's Kambi and it's somehow linked to Barstool Sports? What is the link there? Yeah, so what can be is they are the premium B2B sports provider. So they basically, like, is the technology supplier there, they do all the API integrations to, you know, an operator, do the trading, the odds compiling, you know, everything that's really the backbone of driving like a really good sports book. So what like Barstool does or Draft Kings or some of, you know, the big U.S. guys that, but also like in Europe, like Unibet and Leo Vegas and some of the guys we know here, what they do is like they build the front end themselves or Kambi can also help them do it. And then they integrate all the odds feeds and, you know, the lines there from Kambi and Kambi trades them for them. So they do all the customer acquisition and customer support and Kambi just really collects like a Rift share on, on the, you know, the lines there are from Kambi.

their part. So that's, I think it's like really good business model here because they have extremely network effects. They, they, they only have to trade the, for example, like the total francs. They only have to trade those ones. But if they have like eight or 12 operators, they do, they only need to do it one time. So they can really just invest all their money in building the best product. And then the more and more operators that connect to them, they just collect the revenue share on it. So while like draft kings or barstool are growing, can be growth with them that's interesting um maybe i i want to show some charts on this company

as well that we can get a certain idea um it's from the very interesting tool ticker if you want to try it out i will link it below um i think it's a very interesting tool for fundamental investors there we go um maybe you can if if you want to add something on the revenue and profitability development in the last years. Yeah. Company and maybe certain stages and why you came interesting in this company. Yes, you could see like it was already like a really good business over the past few years. Like I think the compounded the revenue at around like 25, 28% Kagra there, you know,

all the first five years after they spun out of Unibet. There was a spinner from Unibet there or what is called like Kindry Group now. But I think what's really interesting is the US story. now they are like they have been you know taking the first bit in the i think it's something like out 11 out of 12 states or something in the u.s and they they are just first moving all the states there they have like between really between like 80 and 30 percent market share in each state there between like you know all the operators really like in pennsylvania the power i think something like six out of nine operators something now so they have huge markets

yeah in the US because it they're so they're so strict regulatory requirements in the US compared to in Europe so operators they'll really really want to partner with the best the best teams so they have a good advantage there and what we see now is just state by state by state regulation so right more more states open up you know the the revenue we just expand and And it's really grown like exponentially now, like that, that 28% revenue growth that will just explode here, I think. There is, there will be some setbacks from time to time. But I think it's, it's a really good setup.

Is that one thing I would add, one thing and the last thing I think I should have there is that the, what we will see and what I don't think the market still realize this is the margin potential there. Like, like, we have seen with our company like, again, that went from like 10% to 50% and we saw a revolution that went from. 20 to 60 now or something so. So that margin expansion happens extremely quick in the companies like this. Is it found out of it? Yeah, it's still found a let here. Like as you know the way the background of it is that it was doing it was really the internal sportsbook for a Unibet that's owned by a Kindry group and but then at some point the the founder of a Uniped called Anna Strum and the the director of what's called Cambinau, Christian Nyland, they sat down to think, okay, how can we use this knowledge to get

external operators to come into this network and build like more scale to develop an even better product? So they decided to spin this company out of Kindry Group. And today, Anastrom still owns around 20% of it sit on the board. And Christian Nyland, still the CEO today and have, I think, three, four percent of the shares also. So that and all the other like executions. the CEO and CFO has been here for between 3 and 10 years. So it's definitely still led by the people that started. There's one question coming. I want to add to our conversation.

What kind of potential is there for Kambi in South America in terms of size versus the US? I would say both markets are still hard to quantify right now. One thing that is quite important, if you look at South America, is there is some of the same characteristics like in the U.S. Where, you know, they give land-based casinos, what they call skins, like some, they can partner with only a few people. So there's a limitation to how many brands that can come online. And the first market that introduced like regulation there was like Mexico, but then Colombia came in. And so far, I can be a saying they have taken like 60, 70% of the market in Colombia through the partnership with the core. that has the brand called BitPlay and through Ross David International has a brain called Ross Bed in the Colombian market.

So that's that's one example, how huge markets are they take there. And they think they can do the same thing, you know, in Brazil and Argentina and some of the bigger markets that will be rigue right now in Latam. So to help me understand better what they are doing because I have no clue about it. Yeah, yeah. They are some kind of the software for all this betting. Yeah, it's, it's, it's, it is a software, but it's really like people driven. Like so basically when you go to like in Germany, like you download like a Unibet app and you want to like play with Manchester through, you know, Liverpool against. And then you see like, oh, it's like a one point eight if you bet on Manchester like two point two if you bet on Liverpool and maybe a tree on the X.

But Unibet don't decide that that can be, that make those lines. But then it was, you know, if some players are trading a lot on Manchester United, they know, you know, should we change the line? Should we cut the people off? Maybe he has some insider knowledge. And so they both do set the lines, they move the lines and then do the trading on the back end on it. And this is something that requires both algorithms. It calls like manual traders that know, you know, because like if you have like

a second level football match in Denmark. It's good to have a good algorithm, but you need to know some of, you know, if the best player are sick at the match, like it tips the point a lot there. So you need some knowledge there and some traders that could do that. And Campi is, you know, by far the leader of it. So the operators, the brands that all that can be is not well known

because, you know, consumers don't see the company brand. They see the draft kings, the Unibet, et cetera. But I think it can be a more valuable part because that's really the engine that runs through this. So their mode is also legally protected because if they apply it to the legal standpoints, it's hard to get in. It's more like I recall the scale and experience advantage. So this has spent like 20 years to build the technology around it. And then they build the knowledge and all the people. around it. So they have thousand people now. And it's really, really hard to get in there because

you need the revenue to invest in the people. But you cannot get the revenue before you have the people to do that. So there is like little the chicken and the eggs thing there. So like if I wanted to start to compete, it can be tomorrow. Like I needed one guy that knows the total francs, one that knows basketball, one that, you know, they have 300, 400 odds compilers there. And then I need the revenue and the technology around it. So it's extremely hard to come in and compete with them there. It's interesting. There's another question in the chat. What sizable sports book operators could they win in the coming years? Is the pipeline strong enough to offset losing DK and G 888 EBITDA in 2022? Yeah. So what we have seen so far is that

that you know they do keep signing new operators like they signed some big ones in the Churchill Downs recently the Better America brand that migrated from one of their competitors called SB Tech then a big potential for them is also to sign the the tribes in the in the US they already signed three tribes there but in some states like California or Florida there could be actually the tribes that would get like a monopoly there so for for for Kambi to have a good spot with the tribes is really important. And then we still have to see how it turns out with A-D-D-8 and Draft Kings there. There is not a lot of precedence for a big one migrating off a platform.

So we will have to see how that turns out. And I was still like Barstool is still like a new brand. Even through the sign them, it's more than a year ago. It's still like some size of new brand because they just recently launched them and will now expand all through the for the u.s maybe as a last question on comey where do you see the company in five years i think um i think the it's really wide outcomes but i you know it's still it's actually still our largest position so you know we think it's uh every outcome is really good here it's just a matter of how good they would be but you know some estimates we see like

about the u.s market is that in like three four or years it would be between 15 and 30 billion dollars in revenue there. So if Kambi can just take a 3% of, sorry, like 10% of that market, and just to summarize, they have like between 40 and 60 now. So even if the market share declines to 10% and they keep like a 10% revenue share on it, then they will get like US revenue of around 300, 400 million there. And the current revenue run rate is around 130. So they could like triple of quarter of their revenue just in a three, four years still.

So I think there's a huge potential. And the margin will expand from 15, 20 to plus 40, I think. That sounds very interesting. And there are some arguments where you make this the largest position. Yeah, for sure. We also have naked wines and where food comes from on the list. As there are already some questions on naked wines, I want to start with that.

How are you thinking about the potential subscriber base Naked can get in 5 to 10 years? I think like there was already, I think what most people miss here is that they think that's just like a COVID-physiary and, you know, that will like turn away again. But what most people don't understand is they were already growing quite nice before COVID. They were growing between 15 and 25% a year for like, six, eight years before COVID. So it was not a bad business before COVID. They were growing like really high rates there. But now after COVID, they're growing the subscriptop a base at like 100% year or year, really.

So now it's just a matter of where will that kind of growth threaten now. But for me, I think they can grow the subscriber base still at like between, to be honest, I think it could be between 30 and 50% a year the next few years before it maybe turns to more normal levels. And I think there's just a huge potential for them to kind of build a higher retention and like more engagement on the platform and stuff like that that will give. There's a real network of Excel. Like, you know, the angels want to be where, you know, there's most winemakers and the winemakers want to come to the platform where there is like more bias there. Maybe you should take a step back and I would like to invite you to maybe define what Naked Wines is doing. what the advantage against other players in the spaces.

Yeah, so I think the biggest thing to understand when they go vines is it's not like an online shop to buy wine. That's what most people are missing. They are like. And it's not like a subscription club where you just like pay some money every month and get like a predefined cage of wine. Those subscription business as online wine shops, there are like thousands of them.

There is like a huge competitive. What naked winters is they're basically like a crowdfunding platform for independent winemakers. So they have what they call angels that every month they deposit between 20 pounds in the UK or 40 dollars in the US into what they call a piggy bank. So it's not a subscription where they lose the money, it's just like a deposit they put into like a bank account in their own name. And naked wines use those money to crowd fund independent winemakers. So they could basically, like, call a guy that makes some really good wines at a famous, you know, winemaker and ask, like, do you want to, like, have your own wine at some day?

And we can, like, help you with marketing and the bottling and everything stuff. And we also have the customers that want the wine. So they convince people to get out of their own and start producing real exclusive wine there. And there is really, really benefits here because, like, if you want to produce wine and you're good at that, what don't you want to do? you don't want to spend time selling it you don't want to spend time on marketing you don't want to spend time on like labeling corking bottling or logistics all that stuff so naked has that model that where they both have the customers in the angels that crowd fund you and then they have um you know all the logistics around it so that the winemakers should only concentrate in one thing that is

producing the best possible wine there and then then i think the real thing is like they are really creating like, you know, a engagement, like a community about the wine lovers here. So the people that go on to the naked size to buy wine, they don't get in on like a comparison side, spend like two minutes and then choose what's the cheapest wine. They spend like hours on the side, like reviewing wine doing virtual tastings,

corresponding with the wine merry girls, getting feedback. And so there is like real like connections here and a community they're building around it. I want to switch the topic for a second because there's someone urgently trying to ask the question again, we haven't, we couldn't answer. It's how you detect insider trading and take advantage of that. Ah, so I would say it was something I was a little more focused on in the past, like when you say inside things like, yeah, company insiders, you know, buying or selling a stock, that's how I interpret it, hate the question. So, of course, like, if I'm into a company and the CEO is

like dumping all his shares in the market, I pay attention to it. And vice versa, like, in the last few months, like, naked wines, but the CFO and the CEO has, like, bought more shares with their, like, the stock has doubled from the low here. And then they buy even more shares with their own already tax money. So, of course, I see that. as opposed to signal and, you know, vice versa, if Campi's CEO tomorrow would dump all his jars, I would be quite nervous, I would say. So I look into it, but it's not like, I would call it, as I would not call it a big factor. It's something that influenced me. Then let's go back to Naked Wines. You mentioned the customers. How happy are they?

I think the best way to measure it is like, as I say, like the truth is in like the potting there. you can look at the retention rates that have like it's it's really really good retention rate for a consumer company that's like trading online and the best thing to compare them to is you know food box companies or like clothing companies or something that you can like build cohorts online and you know they have constantly have like above 80% retention on their customers and even if you look at some of the more mature cohorts they are trending more to like plus 90% yearly retention there. So like if you buy a customer and they keep like 90% keep coming back year after year after year, that's basically like because they love the community then. They love what they get through it. So I think that that's the best way to look at it. And like, you know, they rate the wine.

They spend time on the side and stuff like that. So I think that's the best way to look at it. I want to take another question from the chat. And why would it not be obvious that the best place for consumers to buy a wine would be at Costco under the Kirtland house brand label? I think one of the things that, you know, I also get the same question a little bit related to Amazon and now it's Costco. And the thing is in the US, just to take that example, is there is this three-year distribution system that for most states, the US, like retailers in the U.S. and Amazon is a retailer because they own whole foods there.

So they have to buy their wine through the distribution system. So that's through independent distributors. So that's like a different line there that comes in there. So Amazon can sell it through the marketplace around it, but that's another question. So I think what difference with naked wines is that they fund independent wine. So it's exclusive wine that, you know, you can only buy it through naked.

And I think what like Costco and what Amazon, what they will come in and compete with over time, it is more like the comparison sides, the generic online wine shops where they sell all the same wine as everyone else. I think Amazon and to some extent Costco could take all that market. But I think there is really, really a room for like a niche player like naked that can like really attract the really strong wine lovers that want to like learn about. new exclusive wine that they cannot buy in amazon yeah it's interesting i want to combine two questions from the chat one is directly on naked wines what are your thoughts on the new ceo and nick devlin and another one is also related to this what are some of the questions you ask management to determine how good they are and maybe what question did you ask to the new So yeah, oh, two, that might not have good hate.

Yes. Yeah. So Nick is based in California. So I actually never met him in person, but I have had several phone calls and, you know, Skype calls with him. So I think, you know, the talks I have with Nick is mostly, I think, I think he understands the long-term play here. So he really understand what drive, you know, LTV, the lifetime value of the customer and how they can buy them. and how to generate more and more networks effect into the platform. So he understands that his job is not to please the EBIT numbers next quarter or something.

He understands how to build like something that is really, really valuable over time here. And I think even through he's a new CEO, he was CEO before. And even before that, he was in charge of the US business. So he got in the US business when there was in little, trouble, I think, was four or five years back. And then he quickly turned around the US business and make that the profit driver, the growth driver for the business. Then he became CEO for the whole business and now CEO. So he has a really, really long trackwork inside the business, even through he's a little new in the CEO position. But I have say one of the things about negative

is that they have a strong culture there and they have a really good model. So they don't need to change the model that much. So it's better to hire a guy that knows it. from scratch and can keep improving it and what are the questions you use to determine if management is good so of course one thing is not something you ask some one thing is what you track them do do they do what they say they do like if they say something on a conference call and the next conference call they say something else and you know you you track with track record both on the financial side but also just on what they're saying and but then sometimes i try to learn about you know management team a little bit also like where do they live what's their interest

outside business just to understand like what type of people there are and that's that's something i look into and then it's more like just to judge like how much do they understand the business are they more focused on selling me the stock or are they just like i really try to look at the passion they have for the business so like the times i have talked with nick he is like he just loved wine and you know finding new smart winemakers and you know he loved when he can see like hit the angels they crowd fund a new wine maker and have some interactions on the side and and it seems like he just enjoy building the community around it so i think i really like ceos that like burns more for the product and the customer than just for

you know the financial side but of course they need to understand how they also create value for shareholders but to my extent you only create value for shareholders or the long term if you create value for the customers so so to see how they kind of to see how they know the customer proposition is really important interesting i want to go back to naked wines because i think we've got still one question open um if the market for wines orcribers proves to be smaller than expected do you think naked could focus more on single transactions in addition to the core subscription offering um i think they really like the subscription offering and not so much the transaction side like if someone just buy with a voucher like a coupon or stuff like that um and

there's two reasons for it one one thing is like when people automatically put money into this piggy bank they have a tendency not to pull it out again so even through they don't use the money so I have seen examples of people that just like for a year without buying any wine, they just put 20 pounds into this piggy bank. And then suddenly remember, oh, I have this 240 pounds in my bank. Should I take them out? No, they go in to buy wine for all 240. So there is just, I can repeat retention in that element.

And the other thing is like, that's something that really separates, you know, naked wines from, you know, even if Amazon wants to compete with them over time. They have this negative working capital where they can use this funding from angels to fund the winemakers. Like if you look at Amazon's model, it's all about like extending payables to their suppliers. But here the suppliers need money up front. So it's a huge difference to the way that, you know, Amazon won't go in there, do it the other way there. So I think that's quite important for them to have this model. With the next question, we're doing something dangerous from mixing beer and wine.

but the question is if Naked could be successful in spirits or craft beer as well. I will not ruin it out, but I think they are so much into wine and the potential market in wine is so insanely big that I think they should just keep focus on what they're good at. But it's not something managed to have mentioned for me, and so I could not rule it out, it will happen at some point. But I think at least for now, like if you have a really good, business growing at you know 80% last quarter or at least look even if it's 20 or 30 you

should just keep your head straight and do what you're good at maybe to sum it up here and move on to food but to sum it up i have the question how big is the wine market so the wine market is insanely big but um but in the u.s you know also in europe still like most of the wine is still bought in supermarkets so like people still go to zoo market buy like a five dollar wine or something and that wine is just like the thing is that there's really no wine in that wine like because the bottles is there the taxes is the corks and label and distribution and logistics and all that stuff is in that bottle so when you go in Germany and pay like a five euro wine there's probably like less than one a euro of wine in it

and so what naked can do is like cut all the middlemen that actually create you know good wine there. So the market is like, and this is like the same for everyone else, like, you know, and all the industries, like it takes a long time for something to move online. So the share moving online will take a long time. So there's a huge market potential for seeing people. And think about it, like, why does people want like go to the local grocery store and like have like really heavy bottles of wine throwing that home? Like when they can have it delivered. to the front door. It doesn't make sense. So I think there is like, just like, and this is what we have seen over COVID there. And, you know, the neighbors are seeing those naked bottles stand in front of the front door for the neighbors. And then, oh, what is this? Can I also try that one? And so this, there's a lot of possibilities there. Does naked wines use labels of where food comes from? No, they don't like. Yeah, no. So we moved on.

to where food comes from what is interesting about the company and what is doing differently than other companies so what we like with where food comes from is really that they are just running with so many headwinds like um sorry tailwinds uh with them where like they're in like you know organic food they're in traceability they're in like antibiotics non-gmo you know, gluten-free, animal welfare, environmental welfare. Like, they're just into all those super trends and they are just really supporting all that. So for someone that does know what they're doing, they are really like an independent verifier of sustainable food. So basically, in Europe and in there is, it is mandated for like cows to have those ear tags so that you can trace how their age is.

and how they are like sourced and what the background is, and if they are moved, you can, so if they get sick or something, you can trace them back to the farm. That is not mandatory in the US. But what has happened all the last few years is that US want to export a lot of their beef to China and Europe, and they demand those traceability.

So what Naked Wines does is they both sell the ear tax, but they do the on-site farm audits. So basically they send people to go the farm and say oh they have different standards they test like do they treat antibiotics in the food do they you know if they say this is gluten free is it really that so i will compare it mostly with like an you know an order of a financial company like we have someone coming out you know once a year and checking that the you know the numbers are accurate and this is the things in here they are just the trusted party that does the i don't want to talk about

ear text favorably but how sticky is the business so actually like in they they sell your tax only for around between six and eight million dollars a year six eight million dollars and they have like 80% market share so that says a little bit how small the market is but the good thing is like when the markets are small and they have so big markets here it doesn't make sense for anyone to come in to compete with them because why would someone try to innovate this technology and go out and convince the farm to use their products and if they can only win like a two million dollar business so it's really good that is so sticky and still growing there that's the good thing with it and the logo business they have and they don't really do like logos that that should probably have an explanation what they do is they have where fruit comes from label so basically what the retailers are doing, they can put this label on the food and put it into the grocery store. And then all the people would look at the beef there and it can see the where food comes from label.

And then they would know that this food has been verified. This beast has a source and age verification. It's not treated with antibiotics and stuff like that. So they tried to build like a consumer brand here in the US where like we have this in Denmark. It's different brands there that we have something called like Sven America and stuff like that that we know like if you buy cleaning materials that it's not like something allergic in it and stuff like that. So they basically try to build that with food. But I think the biggest revenue driver for them now is that consumers want sustainable food. So what consumers want, when they go to Burger King, they want to have the.

you know the beef that's you know have good um sauce and a certification you know when in walmart it's doing covid all the the groceries like organic food and stuff that they were thrown out of the grocery they couldn't like get sobly enough so what am i sorry um walmart and you know tyson food some of those really really big chains what they're doing now is that they go to the farmer and say like we have huge demand for organic food can you please saw us some more organic food But Tyson's foods or Walmart, they need to know that, you know, when the producer saves the food is organic, it is really organic. So they need to come a middleman and where food comes from in. So they need to be the kind of the verifier and put a stamp on it that is also this way.

So there is just a lot of tailwinds there when big companies go to their suppliers and see you need to do this and you need to use where food comes from. then they will do it. I want to show the chart of the stock price through the last years because it somehow went nowhere in the last years. So is the question why you see an interesting point to be invested. I would say one thing is it was extremely overvalue at some point. Like can you try to take 10 year charts here? Sure. Then you can see how much it went up before that.

So basically the stock went from zero point three to three. So it was up like 10x in two years before that. So the revenue, sorry, the EBITAM multiple went from something like, you know, 8 to 80. So of course the stock was extremely over at that point. So we only bought it, I think last year we started buying it. So when the evaluation has come down a lot all the last few years. years. But now we are at the point where, you know, the valuation is actually quite cheap again. You know, it's not like a single-dipide earning. This is like really, really high-quality

company, but you're only paying, you know, 15 times free cash flow next year or eight times EBITA for a business that has, you know, compounded revenue and EBITDA at plus 20% a year for 12 years in a row without any down year. So it's really, really high-quality company with so many tailwinds that you buy for what I will say is quite a low multiple now and you know this is a stock that you know if you look at the stock market today it seems like every stock has just gone to the moon this this is a stock that has gone as you say really nowhere for last time so i think that a lot of it's really underappreciated still and that's probably because it's trace on the OTC market so you know it's not it's a little illiquid there's a big spread in the stock

and yeah the CEO was 30 percent of it so the family there yeah How do they grow? So they grow really by, you know, adding more farmers and selling more eel tax, the hardware, and then by upselling to existing customers. So if you have some customer that is already like doing non-GMO treated, then they can also add like, you know, animal welfare stamp on it or like environmental friendly grown stamp. So existing farmers add more stamps because you're more stamps. they have the higher price they could get for the foods and the more channels they can sell it into. So it's really about adding more farmers and upselling. And then they are building software solutions on top.

So like they do solutions so that like Walmart, they can track all the suppliers into a channel. And all this reporting is still done like manually. So basically the auditor comes out with, you know, 80 page PDF and that he has to fill out on site so they try to invent a lot of software solutions around this process they can upsell can they raise prices do you have pricing power and they do waste it a little bit but they also you know they know farmers in the u.s has not has um they don't you know most us farmers has not like killed it they made a lot of money all the last year so they have been a little protective not like squeezing money out of someone that you know have not made a lot of money

I think they have some untapped pricing power, but I think they will wait to use it until, you know, the farmers are making a lot of money again. Interesting. I had a conversation with another investor who was invested in the company a few years ago. Travis Widower and he said the management conversation is a bit tricky in this case. How do you see it? So I think the cash compensation is quite high for such a small company. The thing is like if you compare like total compensation to other companies, it's actually not that high.

But that's because like in other companies, the CEO and all the management get a lot of stock options. But here the management team don't get any options. So they only have the share price and they get as a cash and maybe a small. bonus. So yeah, I would say I think the compensation is maybe a little high compared to what I think I'm comfortable, but I do nothing. It's like accelerated or anything like that. And one thing is like one of the biggest shareholders is a hedge fund called Yorkmont Capital. They has something called Rayne Graham that sits on the boardroom and he's in the compensation committee. So it's like, you know, if the second largest shareholder is deciding the compensation. He runs a hedge fund. He is mandated to not pay too much to the CEO. So he probably decided what's fair for the CEO there. So it's not like the CEO just takes whatever he wants. There is some third party that have real money on the table that decides it. And also like the two big shout is the CEO and his wife, that is the president. So they work

together here really no maybe let me add two questions wouldn't it be better if they were paid in stocks because um yeah yeah but they still they own so much stock like they own 30 percent of the company and the stock is not that um you know liquid so like if they were only paid really low in cash they will have to constantly and they don't pay dividends because they grow so much so then they will they have to sell stock on their market to finance you and the personal spending so i will also say it would be quite bad if they kept selling stocks in the market to finance that then i would i would rather have they don't sell in stock as they hadn't done but then get a little more cash so that they can not sell stock yeah and how do you see the quality of management

and owners in this case um i will say the one word i would put on john is passionate like he you know He founded this company from the ground up while his wife, Leanne, was, you know, she was working in the industry, tried to, like, she made an income for the first three years so they could support the family while a company was making nothing. Then John just ramped this thing up from the ground up. And when Leanne joined the company, she already had a lot of connections in the industry that she could use to kind of push the, they didn't even more. So it is really like family driven. It's really what I would call like purpose driven. And it's a management team that understands that, you know, they should build a much, much bigger company in the end. And they have been quite good at capital allocation.

Like the acquisitions they have done has turned out quite well, I would say. Then it's been good at like bundling and investing in different stuff. But they do lack something also. I think it is not run that efficient the company. I think there is some cost that could be taken out. And I think they could do a little more like. communication and then they had some like internal control issue a few years back and so there's some place to improvement but i would say the thing we like is is you know they work a lot of hours

to create like a much bigger company and they burn for it so yeah where do you see the company in five to 10 years so the one thing i would say like much larger than today and one thing like people think here is also like this is like a small listed company they had like huge market potential as you said like there is like somehow high compensation to the management and to like office buildings and stuff like that that they need to keep and also just like the auditor stuff like that when you're such a small company that's a big expense but when you grow the revenue and the margins there so that there will be a lot higher scalability when they keep growing there so i think the margins will expand a lot and then you know they just have a lot of tailwinds there

so you know as long as consumers want to have more organic food and environmentally you know grown food that they will keep benefiting thank you very much on where food comes from i want to make a call to the audience if there are more questions please type them in now that I can ask them as well. There's one question on position sizing and selling and buying. How do you think about sizing and eventually trimming or selling your positions? So I would say about we normally try to build positions a little slower. So, you know, when you start buying, we normally don't go for zero to 15 or something.

It will be more gradually like as we get more comfortable with a store. And as we see events play out, we want to increase it more. So we're not we're not afraid of buying higher and higher and higher in a stock as long as they keep like doing well. So like it can be stock has been up a lot over the last, you know, year or so we actually kept buying on the whole way up as events paid out. And and we will you know decrease the company if it gets too too big in the portfolio. So we have sort of like really small positions and can be just to make the size, you know, inside what we think is being comfortable with. But it's still a largest position today, even through it, is up this much. So I think in the past, what I did too much was I sold the winners too early and then I came on to the losers.

And that is something I really learned from now that I think I have become much better than cutting the losers early and then the winners compound and grow. So I think that's quite a valuable point to make. What are some red flags that will make you avoid a stock completely? Something is just if it's outside my comfort zone. So if they do something I don't understand, like, you know, there could be industries that I don't understand. But then it's also like if there's a lot of like external factors, like if some companies like depending on only one customer or like if some

companies, you know, have a lot of like commodity risk. or interest risk or currency risk or something that can come from the outside and crunch the company. That is something I worry about a lot. And then, of course, I try to spot Rick Flats and the customer proposition. One thing I did in the past, but what I've tried to not do anymore is like I really look at, you know, does this product make sense to the consumer and does it actually create value to the consumer? And if the management are credible, then the business makes sense, then I think it's a go. I want to raise the last question that's highly awaited.

But before that, I would ask the audience to leave a like. If you like the content, this supports my work and helps me to get more viewers, which is also important. I can definitely support that. Thank you. it's the question is if there's if you currently find a very interesting stock that's too small or too illiquid for your fund not something i hadn't bought i think um i can mention one stock that i actually own that i can't buy more of because it's too small.

It's a UK company called Get Busy. So we own around 3% of the company already, just below 3 and we can't really buy more because then we have to flag it to the authorities and stuff like that. So it's sized as big as we can do. So I can mention it here. But that's a really nice company. It's like recovering revenue software,

growing at 25% a year, we're tweeting at like 2,000. times error on the aim in in london that i think is really really interesting company i think people should look at as you mentioned this another question from you came up how many positions do you hold and what is the rough split on sectors you're invested in um i normally held between 12 and 18 companies i would say um now i now i got my first employee few months ago. So I think we could go a little higher in position size now that we are two people. But that's my comfort zone that, you know, I would say around 20 is probably my comfort

zone there, I think. But as some is like really small company. So, you know, the biggest companies is like between 14 and 18 percent of the fund. So we are quite concentrated in the best ideas there. And what was the second question? What are sectors you invested in? Yeah. So we really do everything. So I would say we don't do, you know, bombs and pistols and, you know, something like I'm not too much into this EAST, whatever people talk about, but I would say like there is like some sectors I don't want to touch there. But mostly I try to avoid stuff that I can't understand like biotech or like even some shipping and oil and stuff. I think it's too volatile. I don't understand it. So I try to avoid that. But, you know, then everything is like really a go for me. But I would say like software is something I do a lot in. I do a lot of like what I call B2B suppliers to other companies that I can like track.

Where I can track like unit economics, I understand the customer proposition and stuff like that, I think is really interesting. Then for the end of our interview, you have the chance to add something we haven't discussed. I can't really think of anything, you know. I write the newsletter on my website. I think people should read them. There's interesting stuff there. And I think I try to really put out what I think is interesting topics when I write them.

Then I want to say thank you to you and as well to the audience for the good questions. Thank you very much for joining us tonight. I want to ask you to stay on for a second. and thank you for having me to say bye to the audience thank you very much for joining us thank you for listening bye-bye yep we are offline now