Quality-Value Investing

Marc Melendez, CFA

Emerging Market Small and Mid Cap Equities

Reperio Capital

Reperio Capital Research was founded in 2013 with the goal of better serving the investment community with in-depth, high quality, value oriented research.

Reperio means to discover in latin. Using value investing principles, we aim to discover a minimum of 12 investment opportunities per year within the Emerging Markets Small and Mid Cap universe.

We take a business owners perspective with a long term investment horizon. We conduct bottom up, fundamental research. We focus on downside risks and require a significant margin of safety in any investment to prevent the permanent loss of capital. All factors differentiating our research from the short term, trading focus of traditional research providers.

Equity Bottom-Up

<a href="https://www.smartkarma.com/entities/1050" target="_blank" data-smartkarma-citation="entities:1050:1">Link Net Tbk Pt (LINK IJ)</a> is the second largest broadband and cable TV provider to affluent customers within Indonesia with a 19.4% subscriber share.  Size is a crucial strategic variable as there are a significant number of fixed costs (programming costs, selling expense, and depreciation expense) leading to economies of scale. Economies of scale typically lead to a small number of broadband and cable TV providers within a geographic area. There are also switching costs leading to low churn rates (2.3% Q1 2018). The strength of the company’s business is illustrated by a five-year average ROIC of 24.2%. Link Net is growing its network and subscriber base. The number of homes passed grew by 9.2% year on year (yoy) in Q1 2018 and by 16.5% per year from 2012 to 2017. The number of subscribers grew by 8.7% yoy and by 15.1% per year since 2012. Additionally, the company’s ARPU grew by 0.7% yoy in Q1 2018 and 1.6% per year since 2014. Strong subscriber growth and meager ARPU growth lead to revenue growth of 12.1% yoy and 19.5% since 2013. The strong competitive position and operating leverage in the business due to fixed cost structure of the business allowed the company to increase operating profit faster than revenue at 13.4% yoy and 22.8% since 2013.The company should continue to grow. It forecasts the number of homes passed in 2021 will reach 2.8 million representing an 8.8% CAGR. Penetration rates of high-speed broadband and cable TV are well below the rest of Asia and is expected to grow by 19.5% and 8.4% per year to 2021, respectively. Link Net has a net cash position, generated an 18.3% free cash flow margin in 2017, and its five-year average ROIC was 24.2% meaning the company has the financial capacity to continue to grow. Its strong competitive position should provide a buffer against competition. As of July 17, 2017, despite its competitive position, profitability, and growth potential, Link Net is trading on an EV/ttm EBITDA of 6.0 times compared to the average cable TV transaction EV/EBITDA of 9.1 times since 2004. Under the conservative base case scenario, there is 130% upside over the next five years and 225% upside over the next ten years.

Link Net Tbk Pt (LINK IJ) is the second largest broadband and cable TV provider to affluent customers within Indonesia with a 19.4% subscriber share.  Size is a crucial strategic variable as there are a significant number of fixed costs (programming costs, selling expense, and depreciation expense) leading to economies of scale. Economies of scale typically lead to a small number of broadband and cable TV providers within a geographic area. There are also switching costs leading to low churn rates (2.3% Q1 2018). The strength of the company’s business is illustrated by a five-year average ROIC of 24.2%. Link Net is growing its network and subscriber base. The number of homes passed grew by 9.2% year on year (yoy) in Q1 2018 and by 16.5% per year from 2012 to 2017. The number of subscribers grew by 8.7% yoy and by 15.1% per year since 2012. Additionally, the company’s ARPU grew by 0.7% yoy in Q1 2018 and 1.6% per year since 2014. Strong subscriber growth and meager ARPU growth lead to revenue growth of 12.1% yoy and 19.5% since 2013. The strong competitive position and operating leverage in the business due to fixed cost structure of the business allowed the company to increase operating profit faster than revenue at 13.4% yoy and 22.8% since 2013.The company should continue to grow. It forecasts the number of homes passed in 2021 will reach 2.8 million representing an 8.8% CAGR. Penetration rates of high-speed broadband and cable TV are well below the rest of Asia and is expected to grow by 19.5% and 8.4% per year to 2021, respectively. Link Net has a net cash position, generated an 18.3% free cash flow margin in 2017, and its five-year average ROIC was 24.2% meaning the company has the financial capacity to continue to grow. Its strong competitive position should provide a buffer against competition. As of July 17, 2017, despite its competitive position, profitability, and growth potential, Link Net is trading on an EV/ttm EBITDA of 6.0 times compared to the average cable TV transaction EV/EBITDA of 9.1 times since 2004. Under the conservative base case scenario, there is 130% upside over the next five years and 225% upside over the next ten years.

Link Net- Quality Growth at a Reasonable Price

Indonesia

PT First Media Tbk provides television and broadband access services to residential and commercial areas using its hybrid fiber optic coaxial (HFC) networks.

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First Media (KBLV IJ)

Link Net- Quality Growth at a Reasonable Price

Link Net Tbk Pt (LINK IJ) is the second largest broadband and cable TV provider to affluent customers within Indonesia with a 19.4% subscriber...

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