 Good day, fellow investors. We are here today back with Sven Lorenz for those who watch this channel for a longer term. He discussed Gazprom with us a few months ago and TomTom. Gazprom is up 20% since we made the video. The links for the videos will be in the description below. And we discussed TomTom with Sven Lorenz from undervalueshares.com, also the links to his page and everything will be in the description below. And TomTom is up, I think, also 40-50%. So today Sven is with us with a new stock and let's see whether he can make it free out of free. And from what he has been telling me, he is most convinced about this UK investment. Sven, welcome. Hi Sven. How are you doing? Great to be here again. Thank you Sven. So let me just give you an introduction to our viewers. How are we going to discuss this? The stock is a UK stock. It's been beaten down because of Brexit, because of the pound, because of fears, let's say, in Europe and related to the UK. But that's the macro view. But then again, you always have those individual stocks and knowing a stock, following a stock over years like Sven has done with Mensys, which is also what I do within my research on the stock market. And then you see how all these pieces of puzzle fall into place and Sven has written a 50-page report on the company, on its history. And it really gives you excellent insight on how to analyze a stock, how to value a company over time, how to find the right catalyst, what is the perfect information. And then when you come to such a great report, so much knowledge in a few pages, 50 pages is a few pages. That's why I love having Sven on this channel, because it's extreme value that we get out of this. So I'll let Sven discuss the company and then of course ask him questions and why he thinks this is the best investment at this moment in time. Sven, the word for you. Thank you for the very kind introduction. As you mentioned, and we had this quick chat before, if anyone asked me right now, what's your best conviction play? What's the stock that you have the most believe in in terms of it's going to be a great investment for the next couple of months? That's definitely the one that I've written this report about that you mentioned. And I think I should probably start that it ties into a bigger subject. So Brexit, the B word has to be mentioned since it's a British company. But I would want to mention that in a very different context. The reporting, I think, especially abroad in the media about Brexit has not really mentioned one thing yet. And that's the current wave of takeovers among British companies. There has been an almost unprecedented number of takeovers on the public markets in London recently, driven by basically two factors. One, the pound is very low now for all the reasons we know. As I always tell my friends in a somewhat joking way, if you fly to London now and you go shopping, you'll notice everything is very cheap. Oh, no, I just hope that my wife doesn't hear that he's flying to London on Friday. OK, that's going to cost me a lot. OK, but it's all going to be bargains. And I can give you a bit of a feeling for how much of a bargain this is. There is the Big Mac index, which is published by the economist, and that's been around for a couple of decades. And it describes, relatively speaking, how cheap or how expensive is a Big Mac in any location around the world? McDonald's being a fairly standardized product and service around the world. And based on the Big Mac index, the pound is currently 30% undervalued, 3-0. So it's just simply dirt cheap. And that is driving interest in corporate takeovers. And the other factor that's driving, which you briefly touched on already, is the British stock market as a whole is down. And especially among smaller mid-cap companies, it's down a lot and there are a lot of good opportunities to be found. And in recent months, this led to takeover bids emerging one after another, often overnight, quite often very surprising. And investors made 30%, 50%, 70% literally overnight because the share price was just trading on a depressed valuation yesterday. And then overnight, a bid came in and up went the share price to nearly the bid price. And that's pretty much what I'm speculating on and betting on with regards to the company that I've brought to you today, which is John Menzies, John Menzies PLC, which is a Scottish company that's traded on the London Stock Exchange. It has a market valuation of about 330 million pounds right now. So it's not exactly a tiny company. And it has actually been around for well over 100 years. It's a very traditional company. John Menzies is a widely known name in the United Kingdom. And as I write in my report, I think it's destined to become a takeover target in the next 6 to 12 months, possibly even faster than that. All right, but now why it is so underrated? If we look at the stock price, it has been beaten down over the last year and further. So what happened there? What is the difference between what is the sentiment that's pushing the stock down in relation to the fundamentals and in relation to the possibility of this being a takeover target? And when we discuss the stock price, then we'll discuss what is it actually that the company does. Because I think in the sector that Menzies operates, which is the aviation sector, there is a very, very strong tailwind. No. Yes. And the first thing we really need to look at is the last couple of years in the company's history and how the company was driven by corporate action, which was the catalyst for which were shareholder activists who bought into the company with significant stakes and who wanted to shake up the company. And that's where a lot has been happening since 2015, 2016. So in 2015, to just very briefly look at that history, a Swiss shareholder turned up an institutional investor called Lake Street Capital. That's an activist investor with German management and backing from a number of other investors, including one very wealthy European family. They brought up an 8% stake and started to lobby for change and very publicly lobby for change. So the management of Menzies one day basically woke up and found newspaper reports where that new investor was criticizing the management for a number of issues that the company should deal with and opportunities that it should make use of. But which that investor thought the company was was not doing enough about. This obviously led to the usual clash between the board of directors and the activist shareholder. And in the meantime, other shareholders had joined that conversation on both sides. And it ended with the activist shareholders getting the upper hand. So in 2016, you saw the activist shareholders installing a new chairman and the chairman was tasked with basically two matters, one of which was to sell off one of the two divisions. The company has two divisions and to then use the remaining division to carry out acquisitions and basically generate a lot more growth. And that worked in the sense that the the the less attractive division did get sold for a nice amount of money. And the remaining division, which we'll talk about in some detail briefly, they carried out a major acquisition for that and then another smaller acquisition. And that has moved the company much closer to achieving its goal of becoming a bigger unit in its market and also making itself attractive for being taken over in turn. But it has also caused quite a lot of work when it comes to integrating these companies. There recently has been some headway in one small part of its operating business. And then I think, crucially, when it comes to the share price having gone down, what happened is that we currently have five shareholders who control 40 percent of the votes separately through different stakes. And these five shareholders are basically all value investors and investment funds and value investing has had its issues in recent years. It's basically been outpaced by growth investing. So these value investors, some of which are funds also have to deal with investors being impatient money being pulled out of their funds. So it's not like they have unlimited amounts of money to just basically buy more shares because the stock price was a bit weak. And some of them might have had, you know, outflows of funds where they in turn had to reduce their stake a little bit and then simply a lack of interest in UK small caps and Brexit. It all conspired to the share price going down from off the top of my head, 650 pence to now it's just trading at 400 pence. What is always incredible for me, the company paid 20 pence dividend, then it's I think it's lower to 18 or 17.9 pence. So it's just the 10 percent decline in the dividend in all the Brexit headway and everything that's going. The company is profitable making money, but the stock price falls 50 percent. That's always something incredible. And of course, if those funds are forced to sell the stock because of the negative sentiments towards value investing, then that creates for us opportunities. If we want to invest in such value investment stocks, that also have a catalyst. And let's talk a little bit about let's first talk about the company, what the company does. And then we'll talk about the catalysts. If not, we can talk about these things for hours without mentioning what the company does. So what does the company do? Yes, so whenever you go to an airport or any of your viewers go to an airport and you look out the window of the plane that you're on, basically everything that you see going on around the plane, that's the kind of stuff that Menzies does. It's a so-called ground handling agent. And as the name sort of gives away, they handle everything that needs to be done at an airport to turn an airplane around. So an airplane lands, it has to be towed into position. There needs to be this person who sort of like waves it into position as we've all seen. It needs to be cleaned. The toilets need to be serviced. The luggage needs to be carried to the hall where the passengers pick it up or to the connecting flight. Repairs might have to be carried out at an airplane. The icing needs to be done before the airplane takes off. There's a long list of individual tasks that have to be done at an airport. And that's what Menzies is doing. It's their business nowadays. And it's doing that as an outsourced service for airlines. So airlines can either do this themselves and historically a lot of airlines have done it themselves or they can outsource it to one of the ground handling agents. And Menzies in this particular market, and I know it sounds very, very unglamorous, but it's one of the most fascinating businesses that I've looked into recently. Menzies is one of the world's leading providers in that space. They are sharing the second, in terms of market share, they are the second largest one together with one other provider that is the same size. They operate mostly in Europe and in the United States and actually have 32,000 employees. So it's a fairly large company. And they've been in this business for decades. It's not a new business for them. They've been growing a lot recently, but they've been in the ground handling business for a long time and are actually the only publicly listed major ground handling company in the world. There's no other one. There's a small one in Turkey, but Menzies is the only one which contributes to its difficulties as a publicly listed company because no one has ever heard of that business. You know, there's no one waking up saying, oh, let me analyze the five interesting publicly listed ground-handing agents because I want to invest into that industry. There's only one you can buy into you, which is why this has completely fallen off the radar screen of the investor community. All right. So we have now a company that I think 50% of revenue is from the UK and 50% is from Europe and the US. I remember when I was waiting for a luggage that was late in Amsterdam and I remember it now operated by Menzies. So I was... You see them everywhere. Yeah. If your viewers now keep their eyes open, you see them everywhere at airports. And let's say the tailwinds, people will fry a little bit less, a little bit more if you have a recession, but actually the tailwinds for the whole sector, globally, more tourism, more flying, more traveling. So there will be more and more work for them on the same or other airports. There was just one question when it comes to their business model. I looked into their margins. The gross margin is pretty strong, 40%, 45%. But their operating margin is really, really small. I think it was 2% to 5% depending on the year. So of course, if they get more work, then that will be a very big positive because if their operating margin goes from 2%, 3% to 6%, that's a double in net income. But why is that margin so low? Is there too much competition? Have there been investing in growth or what's going on there? It's historically been the case. So this is not new and it's not specific to Menzies. This industry has always had very thin margins and one of the reasons for that basically has consisted of the lack of scale, the lack of economies of scale. So you have a lot of very small operators. They're fighting with each other over the business. And there's not anyone in this industry right now that has a dominant market share and that has prevented these companies from doing what you'd normally do in a situation like that. If you have a market that has very, very low margins and too much competition, you consolidate a couple of the smaller players and then you basically create economies of scale on your cost side and you also create a company that is much better at signing up and retaining customers. For example, through global coverage for your clients. Right now you have this situation of airlines wanting to outsource their ground handling because for them it's really a nuisance having to do this. Imagine you're an airline, you fly to 200 airports and in every airport you kind of have to have your own ground handling staff and they're not busy the entire time because you might send three aircrafts to that airport that day but for the other hours they're just basically twiddling their thumbs. So what you do naturally is you outsource. But to outsource you need a company that can service you ideally in as many of these locations as possible. And so far there have not been any, except one competitor. There have been no players who could offer you that global package and say, any airport you're at, we have the ground handling facilities there and we can offer you very competitive prices. We can give you a long term contract and these are some of the factors that have really been playing into what you described. It's very thin margins so far. So you have to have a lot of business to earn relatively little bits of money and that has further contributed to investors so far not being that interested in this industry, but that's so far. Too bad because it actually would be a great business for Buffett but I don't think 300 million moves the needle for him. But thinking on a global large scale of growth over the next decade, two decades, three decades it would be a very, very nice business for someone who has, let's say, the view to keep it long term. But let's get back on the short term. So now we have Manzis ready to be sold. Yes, and what you just jokingly mentioned with Buffett actually has an element of truth to it. I wouldn't think of Buffett himself, but the investors who are currently looking at the ground handling industry a lot are private equity because what ground handling will become in those now foreseeable next couple of years of industry consolidation. And that's very much the theme of my report. Industry consolidation is now set to happen for a number of reasons and it will probably happen quite quickly. What this is going to lead to are one or two market leading companies that are very big, that have long term contracts with airlines. So that's reliable revenue. They will have much better margins. So there is an element of margin uplift that can be exploited over the next couple of years. And it's in a growing market. So historically the airline industry, the aviation industry has been doubling in size about every 10, 12, 15 years. That's been very reliable. It's always been growing at twice the rate of GDP globally. People just fly more and then there is more cargo being flown around as well. So the opportunity to now buy undervalued companies, then combine them to stronger units that have higher margins and that are backed or built on the back of long term contracts with a very large scale. I mean, this is a global industry with about $30 billion in revenue globally. That is a very attractive proposition for private equity and that's what has started to happen in recent years. So a number of private equity companies, including major private equity companies, have started buying ground handling companies, mostly in private transactions because they're not listed and they've started to put them together to bigger units and that has been very successful. So there is one company in France, PIA Partners. They did this and made 300% for the investors. There's another company called Platinum Equity, private equity based on the west coast of the States. They bought a couple of these ground-handing agents, combined them and sold them on and that also made the investors 300%. And they actually sold onto Cerberus, the private equity giant, who now own the company that is the number two globally together with Menzies and they have basically bought it with the explicit target to say, we have all the money in the world basically, putting it somewhat bluntly, to buy up other providers and we will aim to create that industry giant that we now need to have in the ground-handling industry. And Cerberus is under pressure to purchase, they need to find acquisition targets and Low and Behold, there's one company listed on the London Stock Exchange that is cheap. It has no major shareholder, instead it has a number of financial investors who are looking to generate returns and that has basically turned itself into a pretty large unit already, they have a 5% global market share and a number two and they could be taken over, even in an unsolicited bid. Although I think it will become a coordinated bid of some kind, I think there will be a coordinated sales process for the company. But if Cerberus really wanted, it could probably make a bid for Menzies tomorrow and it would succeed. All right, so that's the investment thesis, what would be as always as we discussed, what would be the risks, what if it gets more time, if it doesn't happen in the next six to 12 months, so what would be the investors that buy Menzies now left holding? So I think there are two risks to look at, one is on the level of the operating company and one is on the level of being a shareholder. So on the operating company, it's important to know that the vast majority of Menzies business is based on handling passenger planes and passengers, literally, which is a fairly steady business because airlines don't very quickly change their routes. So if a route to a city becomes less busy, it's not like the airline then pulls an airplane out of that route the following week, it's more like usually a six month cycle. So it needs to go pretty badly for a pretty long time before an airline says, okay, we have three flights a day to Cape Town, we're not only doing two flights. So it's a fairly steady business, but Menzies also has an element of cargo transport, servicing cargo planes, and that is much more cyclical. So if the economy tanks tomorrow, then cargo immediately drops and you will basically see that in the, you will see that having a negative effect on Menzies, literally like overnight or next week. That has contributed to the weak share price because there have been concerns about recession and there have been some publications from companies like FedEx and I think Deutsche Post and a few others who are in that business who've already been saying that, we see volumes going down right now and that's definitely a factor for Menzies, but it's predominantly passengers. So it's not going to drag the company underwater. But still, even if everything slows down a little bit, the companies will still be cash flow profitable, I think. They don't have crazy amounts of debt. They didn't do anything crazy in the past to jeopardize their position over the long term. And as you say, they have been doing this over a lot of crisis, especially aviation crisis and they have survived easily. Absolutely. And I think the bigger story for Menzies to stick to the operative company for a moment is really cost cutting and exploiting the economies of scale. So in 2016, after the activists gained control over the board situation, Menzies bought a large company in the ground handling space in the United States and integrating these companies is extraordinarily interesting because there are immediate synergies to be exploited, but that does take time and effort and takes away capacity for management. And that has definitely been a factor in the recent share price weakness that basically slows things down a bit on the Menzies front. But Menzies has done two dozen acquisitions in the past and they've become one of the world's leading providers in that space. So they know how to handle an acquisition and after doing the work, I'm sure that'll all work out fine. And what did you say about the risk on the shareholder perspective? On the shareholder perspective, it is a company that has very little coverage from analysts. It's not widely known in the investor community because it's a ground handling agent. It's very exotic. It's not a business that people look at. And in a weak market, small and mid caps are generally not doing very well. So there is an obvious risk that if we get a really weak period of the stock market or if I'm wrong with my thesis that the company will be taking over, then there could be continued weakness in the share price. I don't think it would go down that dramatically because even right now, and even after the recent dip in earnings, it has a roughly 5% dividend yield, which is pretty attractive. The company also recently, or the share price, recently dipped below 400 and you immediately saw considerable insider purchases. So all the clues are there that this is probably very near the bottom. I don't think there's anything dramatic in terms of risks. For me, it's really focusing on what is the value catalyst that will make this share price move from where it is right now, ideally very quickly to a significantly higher level where we can then sell again. And that's where I think a bit will come in very helpful for us shareholders. All right. So to summarize, I think I took this from my shelf here. I think this would be a perfect company for this guy because it's obscure, but doing a business that's necessary, that will grow, it is growing, doing acquisitions. The market doesn't see it yet, but we all know what happened to the stocks this guy was buying when the market recognizes that. And you know what's fascinating in this case, and I just think this is a wonderful case study for anyone to learn from and to also see how markets are really not efficient. I mean, we're having this conversation on an ongoing basis. I don't think markets are nearly as efficient as people think. So the lead activist investor from that group that I mentioned was recently, he recently joined the board of directors of this company. And not only did he become a board member, but he then became chairman of the newly created committee to carry out a strategic review of the company, which puts him into an extremely powerful position. So you have an activist investor who's basically achieved the goal to create a certain size of the business with a long-term view to probably sell it because that's what activist investors and financial investors do. And he's now also chairman of the strategic, the committee for a strategic review. I think look up the exact term, but it's something like that, which is basically code for, we're looking at how can we best sell the company? That's my personal interpretation at least. And this was publicly disclosed by the company and all the clues are there, but no one does any of that research. Admittedly, it takes a lot of effort to pull all the different facts together and create a coherent and complete picture for yourself, which is what I do when I write. I mean, I always like to write about investment cases because it forces you to build your logical argument from beginning to end. You can run it past people, see what they say, and it also pulls you to do very in-depth research. But bottom line, I think all the clues are there. You have private equity bidders or private equity investors that want to buy, even the Financial Times has reported about it already that the private equity industry is really looking at the ground-handing industry right now. You have specific players like Cerberus who are under pressure to buy. You have one publicly listed company where you could even make an unsolicited bid and it's currently cheap as chips. It doesn't take that much to figure it out. It's just a lot of work and that's where it always boils down to someone's got to do all that research. And I usually enjoy it and then I'm fascinated how you can often get a very clear image in advance and benefit from that. Perfect, so you have done extremely well with Gazprom and TomTom that you presented here on this channel. So from the story you just told and from the report that I read, I have the feeling it will be free out of free. So very nice of that. And I really urge all those interested to read your 50 page report. They can find it on your website. I'm also a subscriber to your service. I think what it is, 49 bucks and I get about seven to 12 in- A year, a year. Yeah, 49 bucks a year and I get seven to 10 in-depth investment reports. I bought Gazprom also thanks to your report back at the beginning of the year. So we are up what 50% on that. And I think that's a cup of coffee for a month of work put into a report plus experience. And as we have seen on this channel, the reports work. So and I'll leave you to you the closing word. Well, I think as a closing word, I really invite any one of you who actually ends up reading the report to also send me an email and poke holes into my investment thesis. If you find anything that you think doesn't stack up, I'm more than happy always to have conversations and discussions with my readers. And I've had some very interesting emails, especially from your readers because they take such a deep interest. I do this as a, it's almost like a club. It's a platform where I discuss ideas. So, you know, never hesitate to also personally get in touch and run your thoughts past me. I reply to every email myself. Perfect. Thank you Sven. Thanks everybody for watching. Looking forward to your comments. As always, all the links will be in the description below. I hope you have enjoyed this. Subscribe to the channel as now we are getting into fall. So it will be a little bit less traveling for Sven and he will be here more often, hopefully, to share great investment ideas as he has done in the past. Thank you and I'll see you in the next video. See you.