What can't you live without?

During the past week I had the opportunity to listen to UnderArmour's investor day and read Comscore's recent mobile app report. I was surprised to see that they had a lot in common. Comscore always talks about the mobile opportunity but so did UnderArmour. They included this slide from Ofcom showing that the smartphone is the centre of our lives. Note the newspaper at zero.

http://investor.underarmour.com/eventdetail.cfm?EventID=164183

We know more about our cars than our bodies
23% of media time spent is on the mobile phone. UnderAmour believes the mobile opportunity for tracking fitness data is huge commenting that we check and monitor our car more than we understand and monitor our health. UnderAmour understands the growth opportunity in mobile  they own two of the top three digital health and fitness apps the number 1 MyFitnessPal and number 3 Map My Run. Going forward UnderAmour believes that every piece of clothing will have a chip in it to track our data and better coordinate this information to our smartphone.

http://investor.underarmour.com/eventdetail.cfm?EventID=164183

Social and gaming still dominate app usage
Unfortunately fitness is not yet top of mind. According to Comscore the top mobile usage is still social networking and entertainment. Millennials spend an average of two hours per day on social and entertainment apps. Of the top 10 apps every app fits these two categories except for Google search. Youtube users spend nearly 9 hours a month double the usage a year ago. Half of all time spent on smartphones occurs in the users favourite app. This is benefiting Facebook it's in the top 3 for 80% of its users.

http://www.comscore.com/Insights/Presentations-and-Whitepapers/2015/The-2015-US-Mobile-App-Report?

You know you're getting old when...
Also enjoyed this slide you know you're getting older when you use your smartphone with two hands. Though I can understand it with the bigger screen iPhone, thumb reach just got that much harder. I must be getting older....

http://www.comscore.com/Insights/Presentations-and-Whitepapers/2015/The-2015-US-Mobile-App-Report?

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Comscore (SCOR) and no position in UnderArmour (UA).The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

CEO to worker pay

CEO to worker pay is a controversial topic. It's becoming even more so with the wealth gap between those that own assets and those that rely on income widening. We believe the best companies are those that balance the needs of employees, customers and shareholders. Glassdoor a favorite site of ours shares insights into the intangible qualities of companies with employees rating their firms and CEOs. Last month Glassdoor released their estimate of CEO to worker pay. The numbers are staggering the average CEO earns 204 times the median worker pay. Retailers rank highly as the gap between CEO and staff earning minimum wage is large, surprisingly Discovery Communications topped the list. Another surprise was that the median pay at Microsoft was $137,000 (they will probably have a few more resumes sent their way). The chart can be seen below.

https://www.glassdoor.com/research/ceo-pay-ratio/

Typically the greater responsibility you have the greater the pay, technology seems to be the exception to this rule. I'm always impressed by CEO's who take a small salary and align themselves with shareholders by focusing on options and shares. It's a big trend in technology with Larry Page (Google) and Mark Zuckerberg (Facebook) famously earning $1 in salary. Also joining them is Kosta Kartsotis the founder of fashion brand Fossil and Richard Kinder from the pipeline company Kinder Morgan.

As always Glassdoor is only a sample beginning 2017 public companies will be required to disclose their ratio of CEO to worker pay. It will be interesting to see if CEO pay rises ahead of this deadline and just as likely falls after the disclosure.

Jason

http://www.decisiveassetmanagement.com/

The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

MSG the world's greatest arena

Everyone knows Madison Square Garden it's the world's greatest arena. But what many don't know is that the stadium is listed along with the New York Knicks, Rangers and its cable network. They are all unique must have assets in the world's biggest media market. Being a conglomerate Madison Square Garden trades at a discount to its underlying values luckily for us it will separate into two companies in a spin-off next month.

Spin kings
Madison Square Garden (MSG) as we know it will separate into MSG networks and The Madison Square Garden Company. This later company will own the Knicks (NBA), Rangers (NHL) and their associated womens and development teams. Alongside The Garden, The theatre at Madison Square Garden, the Forum, the no1 and 2 highest grossing stadiums in the US. Leases on Radio City Music Hall (the Rockettes), the Beacon Theatre, Wang Theatre and Chicago (owned outright.)

Source: MSG investor presentation

This split optimises the capital structure and highlights the MSG cable network which tends to get forgotten when you own The Garden, Knicks and Rangers. The companies have two different strategies the network will be run for cash flow while the spun-off Garden will be run for growth. The network will distribute $1.46 billion in cash to the Garden using $525m for a share buyback while using the remaining for growth.

The companies have entered into long term media right agreements. MSG Networks agreed to 20 year terms paying the Garden company $100m for the Knicks and $30m for the Rangers with annual escalators. Note this number is up from the $80m calculation for internal purposes. When this term expires the network has rights to match third party offers.

The Knicks even when they're bad they're good
The great thing about sports is the fans will pay nearly anything to watch their team. Unlike most companies they have pricing power. In a world where people are concerned about the outlook for media sports retains its value because its live people still watch the advertising. Steve Ballmer famously paid $2 billion for the Clippers. Forbes values the Knicks and Rangers at $2.5 billion and $1.1 billion worth $3.6 billion together. Though this number needs to be discounted because it includes some value for the sports network. Even with their poor performance last year the Knicks ranked the top three in ticket receipts in the NBA the fifth consecutive year season tickets have sold out. Add in the value of the Garden and other properties gets another $2 billion compared to the current market value of $5.3 billion you essentially get the network for free. Normally I don't like sum of the part valuations but MSG has a catalyst with the spin-off taking place next month. If the market doesn't recognise the value someone will. It's hard to tell what the network is worth but Fox bought a controlling stake in the Yankee's Yes network last year at an implied valuation of $3.9 billion providing a possible comp for MSG.

You've haven't made it until you've played there
We haven't even talked about the Garden yet with a 136 year history it is one of the most valuable properties in the world over 2 million sport fans visit each year. As a performer you haven't made it until you've played there. Billy Joel has the record for performances at the World's most famous arena with 65 shows extending his record to 19 consecutive sold out shows. If you do a gig at the Garden it's reported around the world. MSG own the complex, the platform its built on and air development rights above the property. Though they would need approval from the city as they sit atop Pennsylvania Station. The company just spent $1 billion on redeveloping the stadium so capex going forward is minimal. The company is controlled by the Dolans with super voting rights but they have had a good track record for creating value for shareholders. Past spin-offs include AMCX networks from Cablevision and Madison Square Garden itself before this split.

Live, local, iconic
Unique venues, legendary sports teams and exclusive entertainment production. It's very unusual to have properties like this listed but trading at a discount to private market value with a near term catalysts (spin-off) to drive value is even more unusual. If the market doesn't recognise the value with a spin-off it is likely someone will.

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in Madison Square Garden (MSG).The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.

Active performance with WisdomTree

WisdomTree (WETF) is an exchange traded fund (ETF) manager. They are the pioneers behind fundamentally weighted ETF's that weigh stocks based on fundamentals like dividends and earnings rather than market value. Their most popular products are international ETFs that hedge out currency movements. Their European and Japanese ETFs have been extremely popular with investors making them the 5th largest ETF provider in the US with nearly $60 billion under management. WETF have received the third largest inflows year to date behind only traditional market weighted indexes like Vanguard and Blackrock's iShares.

Source: WisdomTree investor presentation

Unique among fund managers 
WETF is the only listed pure play ETF manager it's a scarce asset with a superior business model to traditional managers. There is no key person risk and because they construct the indexes have little chance of sustained under performance. ETF's also benefit from first mover advantage once an ETF gains mindshare for their ticker the volume and liquidity this generates makes it very difficult for new indexes to gain traction. Also unlike other fund managers there are little concerns over capacity an index is much more scaleable than other investment strategies.

No key person risk
WETF have only 124 employees there are no expensive fund managers and analysts to pay bonuses out to. The employees they do have are exceptional. The chairman and largest shareholder is Michael Steinhardt a legend in the hedge fund world who returned 24% per annum over a 28 year period. Jeremy Siegel the Wharton professor and author of stocks for the long run is their investment strategy advisor.

ETF's are the new mutual funds
There are $2.1 trillion in ETFs in the US with $1.4 trillion in inflows since 2007 (see below.) WETF has taken 4% of those inflows. This ETF trend is likely to continue with advisor moves to fee for service. The US ETF market grew at 18% last year. If market share continues to grow (only 13% see below) assuming that ETF inflows total $3 trillion over the next 10 years and WETF continues to take 4% of these inflows. WETF will eventually have hundreds of billions of funds under management. As funds under management triple the stock should follow. Note these assumptions do not include the growth opportunities in Europe and the rest of the world who prefer the liquidity of ETFs based in the US. Their margins should also expand rapidly with this growth. It's interesting to see that WETF is not only one of the fastest growing fund managers but also already one of the most profitable.

Source: WisdomTree investor presentation

The balance sheet is nice and simple. WETF is asset lite with $189 million in cash, free cash flow is very attractive due to tax losses. It's also paying a 1.9% dividend with a $100m share buyback authorisation in place. The risk is a weaker dollar and poor performance from the European and Japanese markets that will impact inflows. This is the key risk but hedging is still low as a % of international ETF's being 15% of the international market. WETF have shown themselves to be innovative in coming up with new products, starting with a focus on dividends, emerging markets and currency hedging. Given their track record we believe they can come up with more fundamental products that the market needs.

Outperforming with a passive investment
WETF is the only listed pureplay ETF provider. Traditional funds management businesses are good businesses as they scale easily with very little people required. ETF providers have a even better business model. There is no key fund manager risk, it's hard to underperform when you create your own benchmark and indexes have few capacity constraints in how much capital they can manage. As advisers move to fee for service the move to passive ETF's is a trend that will likely continue. WETF now has scale but it's also small enough to keep growing. As an active manager it's a little ironic buying an ETF provider but their superior business model should help it to outperform the market.

Jason

http://www.decisiveassetmanagement.com/

Decisive has a long position in WisdomTree (WETF).The material in this article is for informational purposes only and in no way constitutes a solicitation of business or investment advice. The material has been prepared without regard to any client's or other person's investment objectives. Before making an investment decision you should consider the assistance of a financial adviser and whether any investment or service is appropriate in light of your particular investment needs.