Magnetic Position Sensors $MELE, Promo Market $FOUR and Ingles $INMKT with Gwen Hofmeyr | S07 E26
Summary
Melexis (MLE): Pitched as a dominant player in automotive magnetic sensors, with deep specialization in three-axis position sensing and strong distributor share, supporting superior returns on capital versus peers.
Competitive Moat: Focus on higher-reliability three-wire and three-axis sensors underpins product quality and OEM relationships, while niche scale and 20 years of TriAxis R&D create defensibility.
Valuation & Cycle: Shares remain well below prior highs amid elevated inventories; management buybacks near €50–€65 signal confidence, and cyclical conditions may offer attractive entry as fundamentals normalize.
China & EV Exposure: Growing China presence with design/testing localization mitigates sanction risk; EVs use more sensors, and robotics could be a longer-term upside option.
4imprint Group (FOUR): Presented as a capital-light e-commerce intermediary for promotional products with no debt, significant cash, and cross-cycle returns exceeding mega-cap tech, yet trading near 2019 levels.
Ingles Markets (IMKTA): Regional grocer pitched at roughly half adjusted book with substantial unrecorded property value; resilient leasing business (high FFO margins) supports margin expansion as storm impacts fade.
Market Context: Discussion highlights cyclical opportunities amid inventory gluts and industry-specific recessions, favoring deep research over macro calls and passive crowding.
Risks & Considerations: Sensor demand tied to autos; inventory normalization timing, China geopolitics, and sector cyclicality remain key variables.
Transcript
Don't waste all the good stuff. >> You'll just hear it again. It's fine. >> A hamster is running as hard as he can. I think we're live. Hang on. >> Hot start. >> We're live. Yeah. This is Value After Hours. I'm Tobias Carlile joined as always by my co-host Jake Taylor. Our special guest today is Gwen Hoffmire from Maiden Financial. How are you, Gwen? Good to see you again. Good to be back. It's uh feels very full circle. You you inspired me to start my first ever blog eight years ago. So, it's uh it's a pleasure. >> Oh, I'm glad. >> Do you have a voodoo doll that your stab of Toby now for? >> You caught me. That's that's exactly what I was doing before this. >> I I've been feeling pain. Don't worry. >> Yeah. Is that why your back hurts too? Yeah. >> Um, tell us a little bit about Maiden Financial and then let's talk about Malaxisus uh your most recent uh report. So, let's talk talk about Maiden Financial first. >> Yeah. So, Maiden Financial is my my research company. Um, I started it because I published a couple reports last year. one on a regional bank in the US called Hangingham Institution for Savings and another one on Engles Markets and both reports took about 300 to 400 hours and the market response was pretty overwhelming and I think it affirmed this kind of theory that I had that there's a lot of volume uh there's a lot of research volume today but there's not a lot of of research depth, especially on the cell side. Um, and that's typically because cellside research is viewed as a bridge um to kind of capture the economics of other financial services. It's sort of seen as a means to an end. So, a lot of it is surface level, a lot of it stays at the rapport level. And I sort of identified that need to go beyond and to do the work that managers just don't have the time to do because they're wrapped up in the minutia of running their fund. Um so yeah, we do in-depth research on companies across the developed world. Our reports average about 50 pages or longer. Um, and we research the way that we do with the intention of acquiring an owner-like understanding of the companies that we research. Um, I find in my eighth year now being in the industry that the more that I know about a company, the better that I behave. And so I think that instead of you know looking at the forest um and forgetting about you know the few diseased trees that are within the forest I feel more inclined to go inside the forest and to analyze every tree inside the forest and to say truly you know I know which areas are healthy which areas are not. And I find it very behaviorally grounding when the tide pulls out to stay focused on business characteristics and and not on the movement of of their respective share price movements. >> Well, tell us a little bit about your most recent research report, which is in a firm called Mlexus, which I confess I had not heard of before and know nothing about. So, yeah, >> you'll start from the start. >> Toby Toby knows more than I do. So, >> yeah. Yeah. So, it's one of the more recent reports um um technically second most recent that I published. It's on a Belgian sensor producer. So, Alexis is a a Belgian sensor producer mostly for automotive applications. So, about 90% of the sensors that they make um are for automotive and the rest kind of go into white goods, um robotics, various other kind of consumer goods. Um, >> and Quinn, can you give the ticker for people so they can >> Yes. So, um, it tra it trades on the Euronext exchange under the ticker MLE. >> Okay. Thank you. And so um what drew me to the company is uh earlier in the year especially around the announcement of liberation day tariffs um industrial inventories were quite high at the OEM level and also at the supplier level and they remain fairly elevated. So a lot of OEMs as well as their suppliers were seeing quite notable declines in in the share prices of their stocks. And so I I am fairly interested in analog sensors just because it's kind of a lagging edge technology that I can wrap my head around. You know, there's sensors that are just taking data about some kind of physical characteristic of the environment, whether that's heat or um current, electrical current or pressure, and they're transforming that into a digital signal um that can be used for various applications across many different mechanical um wares, whether that's a car or a blow dryer. They're they're in everything basically uh that we used um that require micro electronics um to assist their function. And one company that I noticed in particular, so one thing that that we do at Maiden is when we're thinking about analyzing an industry, we just take every company in that industry, put it into a spreadsheet and figure out uh just kind of almost chart like an archaeological dig site around the whole industry. like what have the economics of each respective company been on a 20-year basis and how has that changed over time and what where are the difference in the capital structure and ownership etc etc um and Malaxus really stood out because Malaxus produces returns on capital and returns on capital employed that are um about double the average of its named competitors and the only company that bests it on a return on equity basis over the past 10 years and the firm has about 45% debt to equity. So I think it's relevant to cite that figure um is Texas Instruments. So Texas Instruments slightly best them but return in terms of return on capital employed. So, capital efficiency, Alexexas bests Texas, which is really surprising because Texas is one of the better companies in the world in my opinion. And that was particularly odd because Alexis generates about a tenth of the revenue of its named competitors. So that you know begs the question how is it that a company that generates a tenth of its you know revenue of its peers and those peers are 10 times larger and it's generating you know returns on capital that are double that peer average. I mean you know economies and scale blah blah blah why isn't that showing up in those in those larger peers? And so in my experience, when you get a smaller player or even a larger player that shows really high profitability, it's typically because they have a niche um they're focused on one particular area of the market. They might dominate that that area of the market or they might just be optimized in a way that other firms are not and there's just a lot of inertia and there's maybe not the incentive to streamline in the same way. And so, um, immediately I developed the theory that, uh, Malaxus was very likely focused on the production of just a few types of sensors. But you would be misled to be thinking that because when you look at the company's website, um, they offer 13 different types of integrated circuits. And so, from the face of it, you would think, oh, they're kind of a diversified player. They're offering a bunch of different products. But there are over two dozen different types of sensors that are sensing completely different environmental phenomena. And so if it was the case that they were focused on just a couple different types of sensors, um it would be explanatory for their upper profitability um if they're dominating smaller markets. And so we looked at all 991 of Malaxus's products. And if you do that, um, you'll notice that about 45% of their products are magnetic position sensors. And so that was a big kind of aha moment where it's like, okay, yes, it seems to be that our thesis is correct. Uh, another 25 30% or so are magnetic latch and switch sensors. So 75% of the product inventory that they offer are just magnetic sensors. And so this is like, okay, well, this is significant. Um the next question that follows is how many of these things um are being sold by competitors on major distributor websites. So we went on uh to distributors like LCSC which is the largest micro electronics distributor in Asia and Mouser Europe which is a top five distributor in Europe. And we basically just filtered for these types of sensors to figure out what share of distributor inventory did Alexis hold. And so on Mouser Europe, Malaxus uh dominates um position sensors. They have 85% of listed inventory on that distributor site and about 67% on LCSC. On LCSC, it's likely higher. And it's the reason why I say that is a lot of the fact sheets that are on LCSC are in Chinese. And so we didn't have the time to go through unfortunately thousands of fact sheets to translate them all to kind of figure it out. But a lot of named competitors of Alexis it turns out are really doing completely different things. So, in the case of, for example, um, latch and switch sensors, which I'll get into the details of what they are and what they do, um, over 50% of Texas instruments um, latch and switch sensors on LCSC are not slated for automotive applications. So even though a firm might list a magnetic position sensor or a magnetic collagen switch sensor, it doesn't mean that it's being used for the same um applications that axle sensor would be used for. So um confirmed that the magnetic position sensor um dominance was real. Then when we looked at latch and switch sensors um on Mouser Europe, Malaxus has about 3540% of the inventory and has the number one position. Algro Micros systemystems is the next largest kind of pie of that. Both of those have over 50%. But on LCSC, um, Algro Microsystems had a higher share and it was really Algro Microsystems, um, Malaxus and Texas Instruments. And so they have 13 or 14 named competitors and those were the three that really had any kind of material share of uh, of product that Millexus produces. So the next question was okay well micros systemystems is also producing a bunch of these magnetic latch and switch sensors um are there differences between some latch and switch sensors and other latch and switch sensors and the answer is yes. So um Alexis mostly produces what are known as three wire latch and switch sensors whereas micros systems produces two wire latch and switch sensors. So a two-wire um latch and switch sensor basically the signal input line and the signal output line. So the the lines that power the sensor share the same line as the signal transmission line. And so any variation in the voltage of the current that's passing through that sensor can disrupt signal quality and um can reduce the sensitivity of of the reaction time of of you know that signal being sent to an electronic control unit. and um and an action taken in response to that to that signal. Whereas a three-wire sensor segregates the signal input outline input line from the signal output line. Uh so you you have your power input line, you have your power output line and you have the signal line. So all three are kind of separated from each other. So you get faster response time, higher reliability and no risk of of kind of disruption of the signal quality. So automatically um that kind of raises a suspicion that Malaxus is more focused on producing a higherend product. Um and that seems to be the case from Allegro's disclosure. They do produce sophisticated sensors, but it seems to be that they're more focused on producing a kind of just good enough sensor. So, lower-end automotive applications, I don't know if you've ever driven a higherend car versus a lower-end car, but the responsiveness of the steering, of the the shifter, of um windows going up and down can be quite different. And so, those are some of the applications of of where magnetic sensors are used. Um, another distinguishing qu charact characteristic is that Molexus uh really dominates three axis mag uh magnetic latch and switch sensors whereas Algro is mostly focused on two axis uh latch and switch sensors. And really the only firm that has a kind of material share of threeaxis sensors is Infinine. Um but Infineon largely is doing completely different things. So it's it's like 10% of a much larger pile that Malaxisus is totally dominating. And so they came out with this sensing technology in 2005 called Triacis. So they've been focused on it for 20 years. And basically what it is is um a magnetic sensor senses the presence absence or variations in the flux of a magnetic field. So if you have a magnet has a north and a south pole um naturally that creates a magnetic field and lines of flux create that magnetic field. So if you take one magnet and you push it against another magnet you create resistance and what's happening is is the one magnetic field is is interacting with another magnetic field. And so an application where a three-dimensional sensor would be helpful. So that's what three axis means. It means that the sensor can sense changes in the flux of a magnetic field in threedimensional space whereas a two axis sensor would only be able to measure it in a two dimension on a two dimensional plane. So for things like ride stability where you need to be sensing the distance of a vehicle's suspension from the road in threedimensional space to ensure that your vehicle doesn't, you know, go off the road or fall over, tip over or something, that's where a three-axis uh position sensor would be used. They're also used in steer by wire technology, which is basically instead of having your steering wheel attached directly to the rack of your vehicle. It's actually separated. It kind of faces an actuator um with a magnet attached to it. And so when you move the steering wheel, um it it interferes with the flux of of that magnetic field and sends that positional data to electronic control unit and you turn the wheels of the car and it's just safer. you can just add um more sensors. You can add a lot of redundancy to make sure that steering doesn't fail. Um a two axis sensor is used for kind of north pole south pole applications. So, you know, putting a vehicle from park into neutral and putting it from neutral into park. It's kind of measuring simply measuring the presence or absence of a magnetic field. Um, another good example would be um pressing your window button up and down. You know, you press it down for a second, it goes all the way down. You pull it up for a second, it goes all the way up. And that would be, you know, it would be programmed to be, okay, north pole, window goes down, south pole, window goes up. And there would be some kind of time delay on that, too. So, if you only pulled the button up for a second, it might just go up a little bit. And so, those are the differences. And I'm pontificating, so you know, feel free to to interrupt me. >> How much how much does one of those units cost? Out of curiosity. >> Yeah, so Alexis sells about two billion sensors per year. They're they cost 50 cents on average. So they're a very very low cost in terms of um when uh for for OEMs. Um so it's typically something that doesn't see a lot of price cuts. It's pretty easy to have price stability and to increase prices when demand is present. Um and um >> it's pretty amazing that as a species we've figured out how to like have something measure, you know, those types of things for for 50 cents. I mean >> Yeah, exactly. Yeah. Yeah. It's pretty awesome. And and it's um they're getting quite involved in China. though um which is quite different compared to uh like a Texas Instruments which is kind of seeing like a almost like a pull out of China in favor of the US. um which is unfortunate because EVs have m much more sensors in them and so Alexis has kind of really been taking that market >> in recent years. Um and they have been sort of positioning design testing of their sensors to be self-sufficient within China as well. And they haven't said this verbatim, but that would protect the company from sanction risk if China were to invade Taiwan. they could effectively just, you know, um have the entity function independently, source materials domestically, and they'd still probably be able to keep the subsidiary. They just wouldn't be able to invest in it from Europe, which is what they don't want to do anyways. They're very they're very utilitarian people. Um they're very either want decisions to be going from Belgium to China. they want decisions to be made in China um to have speed to market and yeah so all that to say is Alexis is kind of the dominant player uh in the magnetic sensing space for automotive applications and those two markets together are worth about 1.6 6 billion. And so it makes sense um when you look at Alexis's sales, which are just under a billion um that that kind of verifies that that is the case. But if you look at market share disclosures, um like if you look at Infinion's investor presentation, they'll rank Malax's fourth or fifth in the industry because they're measuring, you know, um sensor revenue as a percentage of total sensor industry revenue. even though there's literally over a dozen sensors doing different things and yeah. >> So do then do you think you know they listed 13 or whatever competitors and maybe only two real ones and do you think that there is there a reason that they might be obiscating you know what the competitive dynamics actually look like? Is this a you know is it like Peter Teal said about you want to hide a monopoly? You know, I spoke to the IR rep and because interviews is something that I like I like doing just after I research a company. It's great to get the executive on the phone and to share that with members. Um, but I spoke with the IR rep and it seems that they ended up sharing their report with management just because it's I don't know if they were necessarily fully aware the extent of the dominance that they have. I think they're just so focused on well this is what we do and this is what we do well. You know, we don't need some kind of like high-end strategy to do well in the market. We can just be a pick and a shovel and we can do it better than everyone else and we can maintain strong relationships with tier one suppliers and make sure that they have what they need when they need it and stand out in that way. And it's just so I think I don't think that they've necessarily I don't think that they're necessarily trying to obuscate their competitive position. I think that they're just so busy that um they haven't had time because otherwise the the IRF was grateful for the report and I don't think management would want to read it if they didn't have anything to gain from it. So you're welcome Alexis for the free consultancy work. Um you can send my bill to me >> at a later date. Um but no it's I I'm not sure. I think there there is evidence of companies that I have analyzed where that was obvious that they were trying to I think not draw attention to their competitive position. I don't know if that's the case with Alexis because you know what's the point of Infinine with the company's whatever 10 billion plus euros in annual sales going after a small little niche market where there's a really strong incumbent. it doesn't make any sense, you know, why why spend all that money and do all that R&D just for a small slice of the pie that's barely going to move the needle. So, I think there's a lot of business to go around and the industry is very fragmented in terms of the types of technologies that you can look at. And >> how do you think about that trade-off between uh disclosure and transparency to investors versus revealing, you know, corporate strategy perhaps uh to competitors that might hamstring yourself? >> Yeah. I mean, I think that I think that it's a good thing. I think that the the less that that companies disclose in terms of their competitive position, the better. And the reason why I say that is twofold. I think for one the amount of work required to verify what we did was you know a 300 hour plus project and on the buy side you definitely see that level of work being done at some firms but on the sell side it's it's not as common and so I think with the advent of AI and I think um with global funds shifting to passive in a majority way I think it's an advantage to investors who are more active um to do the really deep work that is increasingly not being done to to become a shark uh in in an industry where sharks are facing endangerment. Um, so I selfishly I think it's a great thing and I and I and I it might even be better in a way, you know, if there's less people doing that work to verify the competitiveness of of various companies, then it could also benefit the companies themselves. Um, >> so Gwen, just two two quick questions. One is, so these guys make a small a reasonably inexpensive component in a much bigger, more expensive end product. >> Yeah. uh how hard is it to copy this and to compete with them directly and then after that let's let's talk about the valuation a little bit. >> Yeah. So um I think like China would be a good example. So their team in China it's it's 100% Chinese except for one token Belgian. And the reason the token Belgian is there is because the Chinese actually don't have a lot of knowhow for um sensor technology and they they currently you know like not to be demeaning or anything they're just not in a place where they're really self-sufficient with understanding the technology and understanding how to develop and design the technology to be better. Um so I think that I think that it it is certainly it is certainly easier than Leading Edge. It's not that it's not horribly complex, right? Like you're you pretty much have a magnet, you know, with micro electronic components that are just collecting data. And I would I feel like the knowhow is limited in China mostly because China just isn't particularly interested in investing in leading edge technology. There's not a lot of that happening. And a big reason for that is um is academic institutions are simply not sponsoring it. Like they're basically taking it out of they're taking electrical engineering and that micro electronic sense out of the academic curriculum. So that's a problem in Europe and it's also a problem in China. Um the jobs don't pay as well. They're not sexy. Um it's not something that it's exciting to talk about. like it's pretty much, you know, I don't know. It's it's like um >> I want I wanted to say something that was maybe controversial to say, but it's maybe appeals to a a mind that has a specific interest in in the particular mechanics of niche devices. Um, so yeah, I think I think there there are barriers to techn to the technology being understood and developed on the academic side. Um, and I think that that's showing up with their for into China. So it's I would say there are barriers there and there's even a concern within Europe itself and within Mlexus itself. Um the um I always forget her name. It's it's Francois Shambar Franis Duchal. There's a lot of lot of Belgian names going on at that company at the executive level. But she's the chairwoman. Frantois is the chairwoman and she goes on road shows all year trying to encourage people to get into STEM specifically uh on the micro electronic side of the business just because they're starved for for talent. Um and so even within Europe I think there's just not a lot of desire to go and compete with the incumbents. Um, so I think that their position is relatively insulated and and um yeah, >> how about valuation? >> So valuation, yeah, I mean they're I haven't looked at the I think they're trading at about 67. So their for last high was around €110. So I guess they're about 40% off their prior high. Um, it's in a position where it is higher than when we published it at we published at about454, but I think that it's still in a position where you can probably beat it up and get a satisfactory rate of return. In fact, I'm looking at it every single day. um because I have uncharacteristically cash on my in my portfolio right now and that always makes me sweat because I I don't like cash um on the books and so looking at it every day and thinking about the valuation for sure um but I would say yeah base has probably gone from 12% to around 10% and so that's something to consider um and the upper end's probably gone from about 25% % to about maybe 20%. But there is this kind of there is this potential for um I guess a bird in the bush to be captured um in the sense that they're kind of in the same position as they were with autos 25 years ago where there was this real opportunity to carve out a niche within um magnetic sensors but specifically speifically with robotics. So robotics in terms of articulated hand functions and things like that would be using threedimensional um position sensors which is Alexis's specialty >> and they have a lot of interest from China and they have prototypes that they're developing and so they really want to be in that industry. Um and I think that that's a potential boon for them over the long run. It's not something that I have put any thought into because I don't know, but it is um you know, you're kind of getting the cake, but you also might you also might get the cherry as well. So, it could be it's kind of a position where you know, heads you make a satisfactory return, tails, you make a a really exceptional return. But, um but in the end term, I mean, the shares shares have effectively gone nowhere for 10 years. like it's very compelling. The firm is being discounted relative to peers where in the past it would have a premium over peers um just in terms of their upper profitability. the IR spokesperson um described it as what he's been calling the tyranny of the few where if you're not a large company um you know you basically just don't matter uh in terms of sponsored research and he's just he's kind of beside himself at at why the business is being valued the way that it is. Um, but there are inventory issues still and and that will probably take I don't know maybe 12 or 18 months to to kind of even out and and that's the great that's a great time to get interested in cyclicals in my opinion is is when you see that supply blowout and you see demand that kind of supply demand mismatch because um the market fears lower forward earnings and naturally sells off the stocks and um That's kind of like the equivalent of rain, you know. And I think I think cyclicals, some almost every company is cyclical to some degree, just some are more cyclical and some are less cyclical. Most of Warren's businesses have periods where they overearn and under earn. Um, you know, there's very few Microsofts in the world. Um, and so with a kind of more cyclical business, um, like Malaxisus where it's tied to to autos, um, I kind of I kind of picture it as when they experience that supply demand mismatch as it being as it being raining outside. So, um, the cyclical can almost be thought of as like an umbrella. Um, when it's raining outside, umbrellas are valuable and uh and when the sun comes out, they it's time to put the umbrella away. And that's how I feel about cyclicals is is the value is is when they're in a period of of um opacity with regards to for future earnings. Um and the attention kind of shifts away from okay well what are earnings going to be you know next quarter or next year or whatever and towards okay well this is a product that is driven by necessary demand which means that it's very likely that demand will be higher in the future or at least as strong and that kind of almost makes it easier for an investor in the sense that they can shift their attention away from what is broadly unknowable which is forecasting the economics, future economics of a business and they can shift their attention towards the balance sheet which is you know asking questions like can this company survive? And with cyclicals a lot of them if you survive you get free market share for the most for the most part because um a lot of firms are short-term oriented. They will lever up, acquire, mimic the herd mindlessly in a way that ultimately um detracts from their ability to invest in those kind of downturns. Um Alexis is one of those companies that continues investing throughout the cycle. And they actually they the last repurchase they did was at 65 per share, but they initiated buybacks between about €50 to €65 per share. And the company's majority owned by by the the founders and this is the first time that they've done that since the Euro zone crisis. So when share prices were significantly lower. Um so that's a huge huge buy signal. they have stopped which suggests they're not willing to purchase at a price above 65 but um I don't know I mean I think it's it's up for an investor's interpretation but it's an excellent company to to learn about and um I think a lot of a lot of the opportunity comes from doing preparatory work in investing um you often don't have time to do the work when the opportunity presents itself. So even just learning about companies with without any kind of expectation of immediate reward can be very very valuable over a long time horizon. >> Let me do a quick shout out to the folks at home and then JT you want to do some vegetables? >> Sure. >> Peditikva Israel what's up? Winter Park Florida. Tallahassee Valareereeso what's up Mac Belleview Boisey Cromwell New Zealand. Savland of Finland, Cincinnati, Ohio, Tampa, Florida, Jupiter, Florida, Andrew Pradesh, India, Austin, Texas, Monique, Jamaica, Breton, and Toronto, Snomish, JT, what have you got for us? Goththingberg, Sweden. Last one in the house. >> Uh, yeah, today's going to be a little bit more artistic than normal, so buckle your seat belts. Yeah, this could be this could blow up on the launchpad or maybe it's fun. We'll see. But uh this is a um a friend of mine, Adam, recommended that I read this book called The Screw Tape Letters, which is quite an odd title for a book, but um it was this it's written in 1942, and it's really like a satirical masterpiece by CS Lewis. And you know he was CL his Clive Staples Lewis better known as CS Lewis was a scholar of medieval and Renaissance literature and a professor at Oxford and Cambridge and he was quite a prolific author uh as well and he's perhaps best known for the Chronicles of Narnia which a lot of lot of everyone read when they were a kid but he had a lot of non-fiction things he wrote as well especially in in like around Christianity and that it remains often a bridge for a lot of readers today between reason and faith uh at at once one point he was an avowed atheist and then he underwent a profound conversion in his early 30s and was really heavily influenced by one of his close friends who was uh JRR Tolken who wrote the Lord of the Rings. So uh the premise of the Screw Tape Letters is both very simple and quite brilliant the way that it's inverted. Uh the book convict is a bunch of letters written by Screw Tape who's a senior demon in hell and he's they're written to his young nephew this uh demon named Wormwood and he's a junior demon who's just getting started on learning how to corrupt human souls and you know it's very Charlie Mungerlike in the in its inversion of you know showing how to create a miserable life. Uh and that's really what what makes the book really powerful is its voice. Uh, and you know, they're written entirely from the demon's perspective, and it really flips good and evil on its head. So, you know, God is referred to as the enemy, and hell is this like very bureaucratic place. You know, it's kind of like dry and corporate almost. Uh, but you know, it's great satire. Uh, but it's also a bit of a mirror mirror like spiritually. Um, and each letter off offers tips on how to exploit human weaknesses. you know, distract the subject with small pleasures, cultivate spiritual pride, distort love into possessiveness, encourage vague anxieties. Uh, and the brilliance is not really in like demonizing sin in the usual sense. It's it's much more about like he's not like encouraging them to turn them into murderers. It's rather more about like become this like loop lukewarm, complacent, you know, too busy to be thoughtful. Uh, and really like kind of losing your mortal soul from that. Oh, in an act of profound hubris, I attempted to rewrite a Screw Tape letter in a financial context. So, uh, the following is a letter from Abyismus, who's a senior financial demon, to his eager nephew, Tickworm. So, uh, away we go. Uh, my dearest Tickworm, I read your latest report with something approaching satisfaction. Your patient, I gather, has opened a brokerage account, downloaded two trading apps, opened a crypto wallet, and started referring to himself, without irony, as early stage capital. Excellent. You now stand at the edge of your first real assignment. Not merely to ruin him, but to ruin him in the most elegant way possible through the rituals of self-diluted financial sophistication. We do not wish to keep away from keep him away from markets. That's outdated thinking. The more delicious path is to let him in fully but wrongly. Let him study enough to be confident but never enough to be correct. Begin with speculation disguised as investment. Encourage him to chase stories, not actual financial statements, momentum stocks, spacks with vaporists forecasts, hot tips that feel like privileged information. Anything trending on social feeds. He must believe he's early to the next wave, though he's simply the inevitable bag holder arriving for the rugpull. Let him believe risk is merely a byproduct of cowardice. Caution, you'll whisper to him, is attacks on ambition. You only need to get rich once, so why not do it quickly, boldly, and with an extra helping of excitement. A man of his caliber deserves good stories to woo the opposite sex, not boring business fundamentals and monk-like patience. Next, initiate him into the cult of macro obsession. Whisper to him that every CPI release, every Fed meeting and dotplot, and every unemployment print is a tactical moment. He must trade on this data. Let him believe he's interpreting signals that even the professionals misread. Was that a twitch in Pal's eyebrow that only he saw? The market isn't ignoring him. It's simply not enlightened yet. He's ahead of the curve. And now the algorithm will deliver him to one of our favorite weapons, the Tik Tok financial influencer. Let him follow 21-year-old prophets who preach conviction while leaning against rented sports cars. This coin will 10x, they declare, and your patient obeys. He's not reading. He is scrolling. He's not evaluating. He's imitating. This is what we call user generated misfortune. And it's a favorite of our dark fathers. From here, elevate him into options trading where ignorance and leverage embrace in holy combustion. He he will say gamma and theta as incantations while sacrificing premiums weekly. When he wins, let him feel chosen and smarter than all the other dumb money neopights. When he loses, tell him he was simply early. We want him addicted to the idea of mastery while remaining functionally confused. Finally, when he grows weary, offer him the false comfort of diversification. He must not know what he really owns as he scatters his holdings across crypto, uranium, distressed real estate, leverage ETFs, money losing spacks, pointless NFTts, and vintage wine startups. This, he will say, is strategy, but it is clutter, and it is our free lunch to his torment. The high fee burdens and of these complex instruments help ensure his road to ruin. Let him spend a decade in motion and call it growth. Let him perform diligence without discipline, conviction without clarity, and action without understanding. The delicious tragedy is not that he will eventually be financially devastated. It is that he will think he was smarter than average the whole time. That eventual bitterness of his broken spirit is the sweetest fruit for a financial demon. And by all means, never let him write anything down, lest he learn from his mistakes. Steer him away from systemization that will lead to self-awareness and ine inevitable improvement. Keep the idea of a business-like approach far from his mind. That is too boring and pedestrian for someone as smart as our man. Yours in infinite churn. Abysmas. >> Bravo. >> Amazing. >> Thanks. >> Wow. I feel honored to be to to have just borne w bear witness to that. That's uh >> I think that's one of your better better uh better segments. Jake shake. Clearly, I have too much time on my hands is I think the takeaway have >> Is that your Is that your commentary, JT? On the state of the markets currently? >> Uh there it's a touch autobiographical perhaps? Uh I'm a little skeptical of uh some of the current behavior that I see. Yes. >> What do you think, Gwen? Do you feel does it feel a little bit toppy to you or what where are you at? I mean, I I guess this is where I'm sort of disappointing because I don't think about the market at all. I really don't, you know, it it has no bearing on, you know, my understanding of companies. So, it's just it's just, you know, we've had industries that have gone through multiple recessions over the past few years that were completely disjointed from the market. and it would have been a complete waste of time to be thinking about oh well the market is is at a P of X. Um but to comment on the behavior of that I'm observing in the market yet it's very concerning. It's concerning um on multiple levels. Um >> I was h happy to see that we checked the box on hot IPO uh you know which is always a telltale sign of every bubble we have which we with Figma. Yeah. which we haven't had that really in this most recent uh rehash of of uh you know financial mania, >> right? You know, is it because the assets already exist to spur the mania and that IPOs are maybe not as sufficient. I mean, you've got Bitcoin, um, you've got crypto, you've got things that are maybe, um, >> yeah, there is outlets for that. I think there's also something to be said about, um, you know, the indexation, like where did that money come from really, like who's gotten fired in the course of this transition? And a lot of it is small and midcap managers and who bought IPOs. It was small and midcap managers. Um, so it's quite difficult I think to get an IPO interest in an IPO going because they're simply like the indexes aren't that's not really their business. Um, so it's it's kind of an interesting dynamic there and and you know there's what is it 12,000 plus private companies at this point in private equities hands. Um, which is a huge number compared to Russell 2000 or you know S&P 500. These are really big numbers. Um, and they they're they tend to be much much much smaller. Like I think the average PE company is like onetenth the size of the Russell 2000 average company, >> right? >> So who's going to buy if you tried to IPO one of your private equity of those 12,000 private equity companies? Like who's left to buy this? It's it's not clear. >> Yeah. I mean it's do you think that there's going to be some kind of you know um end to the kind of like Pavlovian dog >> paradigm that we are in where the overarching thesis that is driving markets is basically just give up and get rich. um which is a very powerful um a very powerful sales pitch and I think I don't know if passive funds can be compared to the mortgage back security but you know the mortgage back security was a one of the better financial inventions you know in financial history. It was just abused until it became malignant and and not good. And I wonder if that's where passive is headed as well is there's this very attractive, easy sales pitch. Um I wonder if there's an end date to that. I wonder if there's a way where that can be abused to the point where it actually becomes harmful. >> What do you seek when that that uh concerns you? Um, I think I I think I am concerned about AI to some degree, which may be controversial. And I'm concerned about AI from um, I guess for a few different reasons. So, recently I have been just researching industrials and I don't like Inquisitive companies. I really don't like them. I don't like them because it just creates a lot of opacity in the financial statements in a way that makes understanding an inquisitive company's true profitability very difficult. And so I kind of going through this list of 412 industrials um above 400 million market caps in North America. And so many of them were inquisitive. I was just on Capq looking at the M&A history and I was like I was like okay you know I'm just going to ask chat GBD and I'm just going to say how like of all industrial categorized companies in North America with 400 million market capitalizations or more have made at least three acquisitions since 2017 and Chat GBTA Gemini Perplexity none of them had the answer which is really interesting because all of that information is public. And so I went through all 412 companies manually and just figured it out. About 75% of them have made more than three acquisitions uh since 2017. About 25% of them have not. And so the 25% bucket is what I would be interested in because it's really difficult to ignore the herd. It's really difficult to ignore social proof bias. Um, and >> I'm surprised I'm surprised the AI didn't write you a haik coup but with the wrong answer in it. >> Yeah. Yeah. You know, me too. But, uh, maybe next time. Um but uh it's um yeah it was uh just kind of made me realize that AI might have the unfortunate consequence of incentivizing research that might not necessarily be proprietary be proprietary um becoming proprietary. So becoming private and becoming increasingly captive um because there are just so many AI platforms that use information that Maiden has shared publicly for profit. So they're selling a subscription and part of what powers that um that platform is information that's been scraped from the web. And so I think that there's the potential negative consequence that the most thoughtful um investors in the market, not saying that I'm one of them, um may become increasingly private with the information that they produce, not wanting it to be kind of swept away into some kind of large AI uh database or whatever. Um I guess the other area that I worry about is um passive investing I think is reducing the incentive to work hard. Um and I think that AI might serve to compound that trend. And I think that the most valuable characteristic that an investor can acquire is self-reliance. um an ability to analyze a company from A to Z without reading any analyst report without getting you know any kind of prior information and from that A to Z method acquiring an understanding where they can determine on their own if a company is or or isn't worth investing in. So, I'm picturing the scene from like demolition, man, where like you have the AI powered, you know, fancy everything and then you got the people like living under the bridges and, you know, in their old clothes and they're like, you know, doing actual real work around companies. >> Yeah. Yeah. I mean, it's uh I I I worry I worry dependency is not a good skill. It is not a good >> trait >> trait in investing. And I think being dependent on AI models without verifying is a concern. And there's a lot of in almost every study that I conduct, there will be maybe a dozen or so data points where it's just not necessarily clear and you have to kind of interpret a little bit. And those data points might be significant. They might have a material impact on the overall visualization of the end uh data set. And so, and I think there's also just this there's this urgency to kind of latch on to speed in the in the market. >> And I and investing is is not a race, it's a waltz. So, I just don't think that it's necessary to I don't know to I don't think it's necessary to kind of give up the old school manual way of just reading through every line of accounting and discovering the nuance because at least with my use of it so far, it's been mostly unhelpful um in terms of the type of work that I want to do. So, you don't need to find all the opportunities immediately. If you can acquire information that's high quality and you can use that over time, you're going to do just fine. Um, >> Toby, what are you seeing that's uh anything concerns you? >> Uh, general overvaluation. M >> just before we we go on to get too deep in my macro thoughts though. >> Do you want to give us two updates Gwen on for imprint and Engles market which I think we discussed last time. So just maybe >> a quick update on where we're at with those two. >> Yeah. So for imprint group um last time I talked about it probably irresponsible. >> What's the ticker on for imprint? Just >> uh so it's it's on traded on the on the London stock exchange. So LSC4 fur. >> Oh f. Okay. >> Yeah. Good one. >> Yeah. And um so basically last time I talked about I hadn't analyzed the company since 2019. So maybe a bit irresponsible of me, but share prices declined uh in the wake of the liberation day tariffs to um 2019 prices. And so I did a full expose of the company and um it's a pretty special business. I definitely suggest people take a close look at it. um I analyzed it's it's kind of I almost want to call it an intermediation platform because its e-commerce platform is just an intermediary um entity that just connects suppliers with uh with customers for print doesn't actually really hold any inventory uh but the company is trading at 2019 prices and the business generates higher cross cycle returns on capital than the mag 7. So, it's an extremely profitable business, no debt, 150 million cash on the books, and that cash position is maintained specifically to position the company to take advantage of downturns in the market because promotional products is a cyclical business. And when you have a management that optimizes their balance sheet to invest across the cycle, um it's unsurprising that foreign print has grown at 20 times the rate of the overall market organically over the past 10 years. >> Wow. >> So, um really well-run company, very thoughtfully well-run company. Um you don't pay withholding taxes on UK dividends. That's a nice thing as well. So when you look at the dividend, um I would normalize it because their profitability doubled in the wake of of the pandemic just because um the average selling price of their products went up above the rate of new orders. So, um, but normalizing that completely back to pre- pandemic and assuming effectively no growth, um, you're looking at a pretty decent return. I think um, in my view, a at least a 10% return base. Um, assuming like pretty abysmal performance over the next 5 years or so, which is what I like to do. You know, the key to happiness is low expectations. So um my way of valuation is all about can I get a good profit if forward economics are below what management would like them to be and below historical uh historical performance levels. >> Good one. And um the only other one is Engles market. >> Yeah. So Engles is also compelling just because the food cycle is kind of in a downturn and um >> people are eating less Yeah, there is actually some demand contraction. Yes. Um, >> from GLP1s, is that >> maybe GLP-1s? Um, but fuel prices >> American eater finally takes an L. >> I I wonder if uh yeah. Yeah, I actually haven't thought about that too much, but um maybe there is some impact there. But um fuel prices are also lower, so that has impacted the business as well, and it's impacted Kroger. I use Kroger as a onetoone comparison just because their their store formats are so similar which is why you don't really see Kroger competing in uh Engles uh markets um just because um it it would be redundant and they're typically operating within smaller towns in the southeast where there's not really you know at most you kind of get like a a Walmart and an Engles and then maybe like like a Publix or like an an Aldi or something like that. It's usually smaller markets. Um, but I mean it's it's gotten cheaper and that's what I expected would happen after just a ginormous runup of of inflation and margin expansion um post pandemic. And it is now at the um lowest price to tangible book that it has ever been. >> Wow. at least since 1992. And the kicker is that the business has about 658 million in um property value that isn't recorded in the balance on on the balance sheet. So, I went through over a thousand county tax record searches, identified 445 owned properties, was able to um conduct depreciation calculations on each property that wasn't land cuz land doesn't depreciate, of course. And yeah, but 658 million in value is not we estimate is not on uh is not on the books. >> So, what's that make like Gwen's adjusted price to book today then? about 0.52%. So about half book >> um for a very very competitive and very incumbent um regional ger. And if you look at the consolidated uh numbers, it's it's fairly disappointing. They're dealing with damages from Hurricane Helen. Um three stores remain closed. Um four stores were closed for almost a year. So that had a big impact. Um, also just cleanup damages and things like that. Even still, their net margin is is is with a 50% decline in in net net margin this recent quarter. It's still higher than Albertson's. So, um, and and >> two instead of one is that for grocery. >> Yeah. Yeah, it's low. Yeah, you're right. But, um, the company isn't supposed to be a cash machine uh just because they have so much so much >> return. Yeah. >> Uh, so much property and but the the big kind of exciting piece of Engles is is their leasing business. So they own a shopping center leasing business which is like it's not malls. It's like it's like you know um like a plaza like you go in there and there's a grocery store and like a super cuts and like maybe you go get your nails done or whatever and there's like a discount store. Um, and sometimes there's a dollar store and that's kind of the the model that they go for. Um, so things that are e-commerce resistant and sort of one-stop shops when as far as kind of shopping centers are concerned and they produce 85% FFO margins um in that business. So it's significantly more profitable than the grocery business. And what you were seeing prior to the pandemic is a shift towards away from investing in the supermarket business and towards investing in the leasing business. >> And so margins were steadily ticking up every single year. And so the leasing business has continued to do well. Um base rents are up 16% year-over-year. you pretty much have this staple, consumer staple funding um without a REIT. So, it's this kind of exciting, I don't know if you want to call it a canary in a coal mine. I don't know if that would be the right saying, but it's this thing that is bubbling and that will that has contributed to upper margins over time. And I think that will show again as the supermarket business normalizes um and the helen damages get resolved. But um it's going to continue to contribute larger and larger and larger share of overall uh profit and and will likely increase the margins of of angles broadly over time. Um and yeah, I mean if you look at ROIC that was acquired by Blackstone, that's the largest um grocery anchored um operator shopping centers in the United States. They were acquired at an enterprise value of about 6 billion. I think Engles is at an operating as an enterprise value of about 1 and a half billion. So um and Engles is producing slightly higher IBIDA than than uh ROIC was. >> Thanks for the thanks for the update. We're going to we're going to run out of time a little bit unfortunately. >> Yes. >> If folks want to uh get in touch with you or follow along with what you're doing, what's the best way of doing that? >> Uh so just follow me on LinkedIn. Uh just Gwen Hoffmire, you'll find me. Um or you can send me an email. um visit my website uh maiden financial and you can get in touch with me through there via email. Um and yeah, those are the two two best ways to do it. >> Well, thanks very much for the update. Uh we'll have you back on in the near future to to uh give us another update, learn about what you're up to. Uh Gwen Hoffmar, Maiden Financial. Thank you. >> Thank you very much. >> JT, any last words? >> No. Enjoy the rest of your summer. >> Nothing to add. Bye, folks.
Magnetic Position Sensors $MELE, Promo Market $FOUR and Ingles $INMKT with Gwen Hofmeyr | S07 E26
Summary
Transcript
Don't waste all the good stuff. >> You'll just hear it again. It's fine. >> A hamster is running as hard as he can. I think we're live. Hang on. >> Hot start. >> We're live. Yeah. This is Value After Hours. I'm Tobias Carlile joined as always by my co-host Jake Taylor. Our special guest today is Gwen Hoffmire from Maiden Financial. How are you, Gwen? Good to see you again. Good to be back. It's uh feels very full circle. You you inspired me to start my first ever blog eight years ago. So, it's uh it's a pleasure. >> Oh, I'm glad. >> Do you have a voodoo doll that your stab of Toby now for? >> You caught me. That's that's exactly what I was doing before this. >> I I've been feeling pain. Don't worry. >> Yeah. Is that why your back hurts too? Yeah. >> Um, tell us a little bit about Maiden Financial and then let's talk about Malaxisus uh your most recent uh report. So, let's talk talk about Maiden Financial first. >> Yeah. So, Maiden Financial is my my research company. Um, I started it because I published a couple reports last year. one on a regional bank in the US called Hangingham Institution for Savings and another one on Engles Markets and both reports took about 300 to 400 hours and the market response was pretty overwhelming and I think it affirmed this kind of theory that I had that there's a lot of volume uh there's a lot of research volume today but there's not a lot of of research depth, especially on the cell side. Um, and that's typically because cellside research is viewed as a bridge um to kind of capture the economics of other financial services. It's sort of seen as a means to an end. So, a lot of it is surface level, a lot of it stays at the rapport level. And I sort of identified that need to go beyond and to do the work that managers just don't have the time to do because they're wrapped up in the minutia of running their fund. Um so yeah, we do in-depth research on companies across the developed world. Our reports average about 50 pages or longer. Um, and we research the way that we do with the intention of acquiring an owner-like understanding of the companies that we research. Um, I find in my eighth year now being in the industry that the more that I know about a company, the better that I behave. And so I think that instead of you know looking at the forest um and forgetting about you know the few diseased trees that are within the forest I feel more inclined to go inside the forest and to analyze every tree inside the forest and to say truly you know I know which areas are healthy which areas are not. And I find it very behaviorally grounding when the tide pulls out to stay focused on business characteristics and and not on the movement of of their respective share price movements. >> Well, tell us a little bit about your most recent research report, which is in a firm called Mlexus, which I confess I had not heard of before and know nothing about. So, yeah, >> you'll start from the start. >> Toby Toby knows more than I do. So, >> yeah. Yeah. So, it's one of the more recent reports um um technically second most recent that I published. It's on a Belgian sensor producer. So, Alexis is a a Belgian sensor producer mostly for automotive applications. So, about 90% of the sensors that they make um are for automotive and the rest kind of go into white goods, um robotics, various other kind of consumer goods. Um, >> and Quinn, can you give the ticker for people so they can >> Yes. So, um, it tra it trades on the Euronext exchange under the ticker MLE. >> Okay. Thank you. And so um what drew me to the company is uh earlier in the year especially around the announcement of liberation day tariffs um industrial inventories were quite high at the OEM level and also at the supplier level and they remain fairly elevated. So a lot of OEMs as well as their suppliers were seeing quite notable declines in in the share prices of their stocks. And so I I am fairly interested in analog sensors just because it's kind of a lagging edge technology that I can wrap my head around. You know, there's sensors that are just taking data about some kind of physical characteristic of the environment, whether that's heat or um current, electrical current or pressure, and they're transforming that into a digital signal um that can be used for various applications across many different mechanical um wares, whether that's a car or a blow dryer. They're they're in everything basically uh that we used um that require micro electronics um to assist their function. And one company that I noticed in particular, so one thing that that we do at Maiden is when we're thinking about analyzing an industry, we just take every company in that industry, put it into a spreadsheet and figure out uh just kind of almost chart like an archaeological dig site around the whole industry. like what have the economics of each respective company been on a 20-year basis and how has that changed over time and what where are the difference in the capital structure and ownership etc etc um and Malaxus really stood out because Malaxus produces returns on capital and returns on capital employed that are um about double the average of its named competitors and the only company that bests it on a return on equity basis over the past 10 years and the firm has about 45% debt to equity. So I think it's relevant to cite that figure um is Texas Instruments. So Texas Instruments slightly best them but return in terms of return on capital employed. So, capital efficiency, Alexexas bests Texas, which is really surprising because Texas is one of the better companies in the world in my opinion. And that was particularly odd because Alexis generates about a tenth of the revenue of its named competitors. So that you know begs the question how is it that a company that generates a tenth of its you know revenue of its peers and those peers are 10 times larger and it's generating you know returns on capital that are double that peer average. I mean you know economies and scale blah blah blah why isn't that showing up in those in those larger peers? And so in my experience, when you get a smaller player or even a larger player that shows really high profitability, it's typically because they have a niche um they're focused on one particular area of the market. They might dominate that that area of the market or they might just be optimized in a way that other firms are not and there's just a lot of inertia and there's maybe not the incentive to streamline in the same way. And so, um, immediately I developed the theory that, uh, Malaxus was very likely focused on the production of just a few types of sensors. But you would be misled to be thinking that because when you look at the company's website, um, they offer 13 different types of integrated circuits. And so, from the face of it, you would think, oh, they're kind of a diversified player. They're offering a bunch of different products. But there are over two dozen different types of sensors that are sensing completely different environmental phenomena. And so if it was the case that they were focused on just a couple different types of sensors, um it would be explanatory for their upper profitability um if they're dominating smaller markets. And so we looked at all 991 of Malaxus's products. And if you do that, um, you'll notice that about 45% of their products are magnetic position sensors. And so that was a big kind of aha moment where it's like, okay, yes, it seems to be that our thesis is correct. Uh, another 25 30% or so are magnetic latch and switch sensors. So 75% of the product inventory that they offer are just magnetic sensors. And so this is like, okay, well, this is significant. Um the next question that follows is how many of these things um are being sold by competitors on major distributor websites. So we went on uh to distributors like LCSC which is the largest micro electronics distributor in Asia and Mouser Europe which is a top five distributor in Europe. And we basically just filtered for these types of sensors to figure out what share of distributor inventory did Alexis hold. And so on Mouser Europe, Malaxus uh dominates um position sensors. They have 85% of listed inventory on that distributor site and about 67% on LCSC. On LCSC, it's likely higher. And it's the reason why I say that is a lot of the fact sheets that are on LCSC are in Chinese. And so we didn't have the time to go through unfortunately thousands of fact sheets to translate them all to kind of figure it out. But a lot of named competitors of Alexis it turns out are really doing completely different things. So, in the case of, for example, um, latch and switch sensors, which I'll get into the details of what they are and what they do, um, over 50% of Texas instruments um, latch and switch sensors on LCSC are not slated for automotive applications. So even though a firm might list a magnetic position sensor or a magnetic collagen switch sensor, it doesn't mean that it's being used for the same um applications that axle sensor would be used for. So um confirmed that the magnetic position sensor um dominance was real. Then when we looked at latch and switch sensors um on Mouser Europe, Malaxus has about 3540% of the inventory and has the number one position. Algro Micros systemystems is the next largest kind of pie of that. Both of those have over 50%. But on LCSC, um, Algro Microsystems had a higher share and it was really Algro Microsystems, um, Malaxus and Texas Instruments. And so they have 13 or 14 named competitors and those were the three that really had any kind of material share of uh, of product that Millexus produces. So the next question was okay well micros systemystems is also producing a bunch of these magnetic latch and switch sensors um are there differences between some latch and switch sensors and other latch and switch sensors and the answer is yes. So um Alexis mostly produces what are known as three wire latch and switch sensors whereas micros systems produces two wire latch and switch sensors. So a two-wire um latch and switch sensor basically the signal input line and the signal output line. So the the lines that power the sensor share the same line as the signal transmission line. And so any variation in the voltage of the current that's passing through that sensor can disrupt signal quality and um can reduce the sensitivity of of the reaction time of of you know that signal being sent to an electronic control unit. and um and an action taken in response to that to that signal. Whereas a three-wire sensor segregates the signal input outline input line from the signal output line. Uh so you you have your power input line, you have your power output line and you have the signal line. So all three are kind of separated from each other. So you get faster response time, higher reliability and no risk of of kind of disruption of the signal quality. So automatically um that kind of raises a suspicion that Malaxus is more focused on producing a higherend product. Um and that seems to be the case from Allegro's disclosure. They do produce sophisticated sensors, but it seems to be that they're more focused on producing a kind of just good enough sensor. So, lower-end automotive applications, I don't know if you've ever driven a higherend car versus a lower-end car, but the responsiveness of the steering, of the the shifter, of um windows going up and down can be quite different. And so, those are some of the applications of of where magnetic sensors are used. Um, another distinguishing qu charact characteristic is that Molexus uh really dominates three axis mag uh magnetic latch and switch sensors whereas Algro is mostly focused on two axis uh latch and switch sensors. And really the only firm that has a kind of material share of threeaxis sensors is Infinine. Um but Infineon largely is doing completely different things. So it's it's like 10% of a much larger pile that Malaxisus is totally dominating. And so they came out with this sensing technology in 2005 called Triacis. So they've been focused on it for 20 years. And basically what it is is um a magnetic sensor senses the presence absence or variations in the flux of a magnetic field. So if you have a magnet has a north and a south pole um naturally that creates a magnetic field and lines of flux create that magnetic field. So if you take one magnet and you push it against another magnet you create resistance and what's happening is is the one magnetic field is is interacting with another magnetic field. And so an application where a three-dimensional sensor would be helpful. So that's what three axis means. It means that the sensor can sense changes in the flux of a magnetic field in threedimensional space whereas a two axis sensor would only be able to measure it in a two dimension on a two dimensional plane. So for things like ride stability where you need to be sensing the distance of a vehicle's suspension from the road in threedimensional space to ensure that your vehicle doesn't, you know, go off the road or fall over, tip over or something, that's where a three-axis uh position sensor would be used. They're also used in steer by wire technology, which is basically instead of having your steering wheel attached directly to the rack of your vehicle. It's actually separated. It kind of faces an actuator um with a magnet attached to it. And so when you move the steering wheel, um it it interferes with the flux of of that magnetic field and sends that positional data to electronic control unit and you turn the wheels of the car and it's just safer. you can just add um more sensors. You can add a lot of redundancy to make sure that steering doesn't fail. Um a two axis sensor is used for kind of north pole south pole applications. So, you know, putting a vehicle from park into neutral and putting it from neutral into park. It's kind of measuring simply measuring the presence or absence of a magnetic field. Um, another good example would be um pressing your window button up and down. You know, you press it down for a second, it goes all the way down. You pull it up for a second, it goes all the way up. And that would be, you know, it would be programmed to be, okay, north pole, window goes down, south pole, window goes up. And there would be some kind of time delay on that, too. So, if you only pulled the button up for a second, it might just go up a little bit. And so, those are the differences. And I'm pontificating, so you know, feel free to to interrupt me. >> How much how much does one of those units cost? Out of curiosity. >> Yeah, so Alexis sells about two billion sensors per year. They're they cost 50 cents on average. So they're a very very low cost in terms of um when uh for for OEMs. Um so it's typically something that doesn't see a lot of price cuts. It's pretty easy to have price stability and to increase prices when demand is present. Um and um >> it's pretty amazing that as a species we've figured out how to like have something measure, you know, those types of things for for 50 cents. I mean >> Yeah, exactly. Yeah. Yeah. It's pretty awesome. And and it's um they're getting quite involved in China. though um which is quite different compared to uh like a Texas Instruments which is kind of seeing like a almost like a pull out of China in favor of the US. um which is unfortunate because EVs have m much more sensors in them and so Alexis has kind of really been taking that market >> in recent years. Um and they have been sort of positioning design testing of their sensors to be self-sufficient within China as well. And they haven't said this verbatim, but that would protect the company from sanction risk if China were to invade Taiwan. they could effectively just, you know, um have the entity function independently, source materials domestically, and they'd still probably be able to keep the subsidiary. They just wouldn't be able to invest in it from Europe, which is what they don't want to do anyways. They're very they're very utilitarian people. Um they're very either want decisions to be going from Belgium to China. they want decisions to be made in China um to have speed to market and yeah so all that to say is Alexis is kind of the dominant player uh in the magnetic sensing space for automotive applications and those two markets together are worth about 1.6 6 billion. And so it makes sense um when you look at Alexis's sales, which are just under a billion um that that kind of verifies that that is the case. But if you look at market share disclosures, um like if you look at Infinion's investor presentation, they'll rank Malax's fourth or fifth in the industry because they're measuring, you know, um sensor revenue as a percentage of total sensor industry revenue. even though there's literally over a dozen sensors doing different things and yeah. >> So do then do you think you know they listed 13 or whatever competitors and maybe only two real ones and do you think that there is there a reason that they might be obiscating you know what the competitive dynamics actually look like? Is this a you know is it like Peter Teal said about you want to hide a monopoly? You know, I spoke to the IR rep and because interviews is something that I like I like doing just after I research a company. It's great to get the executive on the phone and to share that with members. Um, but I spoke with the IR rep and it seems that they ended up sharing their report with management just because it's I don't know if they were necessarily fully aware the extent of the dominance that they have. I think they're just so focused on well this is what we do and this is what we do well. You know, we don't need some kind of like high-end strategy to do well in the market. We can just be a pick and a shovel and we can do it better than everyone else and we can maintain strong relationships with tier one suppliers and make sure that they have what they need when they need it and stand out in that way. And it's just so I think I don't think that they've necessarily I don't think that they're necessarily trying to obuscate their competitive position. I think that they're just so busy that um they haven't had time because otherwise the the IRF was grateful for the report and I don't think management would want to read it if they didn't have anything to gain from it. So you're welcome Alexis for the free consultancy work. Um you can send my bill to me >> at a later date. Um but no it's I I'm not sure. I think there there is evidence of companies that I have analyzed where that was obvious that they were trying to I think not draw attention to their competitive position. I don't know if that's the case with Alexis because you know what's the point of Infinine with the company's whatever 10 billion plus euros in annual sales going after a small little niche market where there's a really strong incumbent. it doesn't make any sense, you know, why why spend all that money and do all that R&D just for a small slice of the pie that's barely going to move the needle. So, I think there's a lot of business to go around and the industry is very fragmented in terms of the types of technologies that you can look at. And >> how do you think about that trade-off between uh disclosure and transparency to investors versus revealing, you know, corporate strategy perhaps uh to competitors that might hamstring yourself? >> Yeah. I mean, I think that I think that it's a good thing. I think that the the less that that companies disclose in terms of their competitive position, the better. And the reason why I say that is twofold. I think for one the amount of work required to verify what we did was you know a 300 hour plus project and on the buy side you definitely see that level of work being done at some firms but on the sell side it's it's not as common and so I think with the advent of AI and I think um with global funds shifting to passive in a majority way I think it's an advantage to investors who are more active um to do the really deep work that is increasingly not being done to to become a shark uh in in an industry where sharks are facing endangerment. Um, so I selfishly I think it's a great thing and I and I and I it might even be better in a way, you know, if there's less people doing that work to verify the competitiveness of of various companies, then it could also benefit the companies themselves. Um, >> so Gwen, just two two quick questions. One is, so these guys make a small a reasonably inexpensive component in a much bigger, more expensive end product. >> Yeah. uh how hard is it to copy this and to compete with them directly and then after that let's let's talk about the valuation a little bit. >> Yeah. So um I think like China would be a good example. So their team in China it's it's 100% Chinese except for one token Belgian. And the reason the token Belgian is there is because the Chinese actually don't have a lot of knowhow for um sensor technology and they they currently you know like not to be demeaning or anything they're just not in a place where they're really self-sufficient with understanding the technology and understanding how to develop and design the technology to be better. Um so I think that I think that it it is certainly it is certainly easier than Leading Edge. It's not that it's not horribly complex, right? Like you're you pretty much have a magnet, you know, with micro electronic components that are just collecting data. And I would I feel like the knowhow is limited in China mostly because China just isn't particularly interested in investing in leading edge technology. There's not a lot of that happening. And a big reason for that is um is academic institutions are simply not sponsoring it. Like they're basically taking it out of they're taking electrical engineering and that micro electronic sense out of the academic curriculum. So that's a problem in Europe and it's also a problem in China. Um the jobs don't pay as well. They're not sexy. Um it's not something that it's exciting to talk about. like it's pretty much, you know, I don't know. It's it's like um >> I want I wanted to say something that was maybe controversial to say, but it's maybe appeals to a a mind that has a specific interest in in the particular mechanics of niche devices. Um, so yeah, I think I think there there are barriers to techn to the technology being understood and developed on the academic side. Um, and I think that that's showing up with their for into China. So it's I would say there are barriers there and there's even a concern within Europe itself and within Mlexus itself. Um the um I always forget her name. It's it's Francois Shambar Franis Duchal. There's a lot of lot of Belgian names going on at that company at the executive level. But she's the chairwoman. Frantois is the chairwoman and she goes on road shows all year trying to encourage people to get into STEM specifically uh on the micro electronic side of the business just because they're starved for for talent. Um and so even within Europe I think there's just not a lot of desire to go and compete with the incumbents. Um, so I think that their position is relatively insulated and and um yeah, >> how about valuation? >> So valuation, yeah, I mean they're I haven't looked at the I think they're trading at about 67. So their for last high was around €110. So I guess they're about 40% off their prior high. Um, it's in a position where it is higher than when we published it at we published at about454, but I think that it's still in a position where you can probably beat it up and get a satisfactory rate of return. In fact, I'm looking at it every single day. um because I have uncharacteristically cash on my in my portfolio right now and that always makes me sweat because I I don't like cash um on the books and so looking at it every day and thinking about the valuation for sure um but I would say yeah base has probably gone from 12% to around 10% and so that's something to consider um and the upper end's probably gone from about 25% % to about maybe 20%. But there is this kind of there is this potential for um I guess a bird in the bush to be captured um in the sense that they're kind of in the same position as they were with autos 25 years ago where there was this real opportunity to carve out a niche within um magnetic sensors but specifically speifically with robotics. So robotics in terms of articulated hand functions and things like that would be using threedimensional um position sensors which is Alexis's specialty >> and they have a lot of interest from China and they have prototypes that they're developing and so they really want to be in that industry. Um and I think that that's a potential boon for them over the long run. It's not something that I have put any thought into because I don't know, but it is um you know, you're kind of getting the cake, but you also might you also might get the cherry as well. So, it could be it's kind of a position where you know, heads you make a satisfactory return, tails, you make a a really exceptional return. But, um but in the end term, I mean, the shares shares have effectively gone nowhere for 10 years. like it's very compelling. The firm is being discounted relative to peers where in the past it would have a premium over peers um just in terms of their upper profitability. the IR spokesperson um described it as what he's been calling the tyranny of the few where if you're not a large company um you know you basically just don't matter uh in terms of sponsored research and he's just he's kind of beside himself at at why the business is being valued the way that it is. Um, but there are inventory issues still and and that will probably take I don't know maybe 12 or 18 months to to kind of even out and and that's the great that's a great time to get interested in cyclicals in my opinion is is when you see that supply blowout and you see demand that kind of supply demand mismatch because um the market fears lower forward earnings and naturally sells off the stocks and um That's kind of like the equivalent of rain, you know. And I think I think cyclicals, some almost every company is cyclical to some degree, just some are more cyclical and some are less cyclical. Most of Warren's businesses have periods where they overearn and under earn. Um, you know, there's very few Microsofts in the world. Um, and so with a kind of more cyclical business, um, like Malaxisus where it's tied to to autos, um, I kind of I kind of picture it as when they experience that supply demand mismatch as it being as it being raining outside. So, um, the cyclical can almost be thought of as like an umbrella. Um, when it's raining outside, umbrellas are valuable and uh and when the sun comes out, they it's time to put the umbrella away. And that's how I feel about cyclicals is is the value is is when they're in a period of of um opacity with regards to for future earnings. Um and the attention kind of shifts away from okay well what are earnings going to be you know next quarter or next year or whatever and towards okay well this is a product that is driven by necessary demand which means that it's very likely that demand will be higher in the future or at least as strong and that kind of almost makes it easier for an investor in the sense that they can shift their attention away from what is broadly unknowable which is forecasting the economics, future economics of a business and they can shift their attention towards the balance sheet which is you know asking questions like can this company survive? And with cyclicals a lot of them if you survive you get free market share for the most for the most part because um a lot of firms are short-term oriented. They will lever up, acquire, mimic the herd mindlessly in a way that ultimately um detracts from their ability to invest in those kind of downturns. Um Alexis is one of those companies that continues investing throughout the cycle. And they actually they the last repurchase they did was at 65 per share, but they initiated buybacks between about €50 to €65 per share. And the company's majority owned by by the the founders and this is the first time that they've done that since the Euro zone crisis. So when share prices were significantly lower. Um so that's a huge huge buy signal. they have stopped which suggests they're not willing to purchase at a price above 65 but um I don't know I mean I think it's it's up for an investor's interpretation but it's an excellent company to to learn about and um I think a lot of a lot of the opportunity comes from doing preparatory work in investing um you often don't have time to do the work when the opportunity presents itself. So even just learning about companies with without any kind of expectation of immediate reward can be very very valuable over a long time horizon. >> Let me do a quick shout out to the folks at home and then JT you want to do some vegetables? >> Sure. >> Peditikva Israel what's up? Winter Park Florida. Tallahassee Valareereeso what's up Mac Belleview Boisey Cromwell New Zealand. Savland of Finland, Cincinnati, Ohio, Tampa, Florida, Jupiter, Florida, Andrew Pradesh, India, Austin, Texas, Monique, Jamaica, Breton, and Toronto, Snomish, JT, what have you got for us? Goththingberg, Sweden. Last one in the house. >> Uh, yeah, today's going to be a little bit more artistic than normal, so buckle your seat belts. Yeah, this could be this could blow up on the launchpad or maybe it's fun. We'll see. But uh this is a um a friend of mine, Adam, recommended that I read this book called The Screw Tape Letters, which is quite an odd title for a book, but um it was this it's written in 1942, and it's really like a satirical masterpiece by CS Lewis. And you know he was CL his Clive Staples Lewis better known as CS Lewis was a scholar of medieval and Renaissance literature and a professor at Oxford and Cambridge and he was quite a prolific author uh as well and he's perhaps best known for the Chronicles of Narnia which a lot of lot of everyone read when they were a kid but he had a lot of non-fiction things he wrote as well especially in in like around Christianity and that it remains often a bridge for a lot of readers today between reason and faith uh at at once one point he was an avowed atheist and then he underwent a profound conversion in his early 30s and was really heavily influenced by one of his close friends who was uh JRR Tolken who wrote the Lord of the Rings. So uh the premise of the Screw Tape Letters is both very simple and quite brilliant the way that it's inverted. Uh the book convict is a bunch of letters written by Screw Tape who's a senior demon in hell and he's they're written to his young nephew this uh demon named Wormwood and he's a junior demon who's just getting started on learning how to corrupt human souls and you know it's very Charlie Mungerlike in the in its inversion of you know showing how to create a miserable life. Uh and that's really what what makes the book really powerful is its voice. Uh, and you know, they're written entirely from the demon's perspective, and it really flips good and evil on its head. So, you know, God is referred to as the enemy, and hell is this like very bureaucratic place. You know, it's kind of like dry and corporate almost. Uh, but you know, it's great satire. Uh, but it's also a bit of a mirror mirror like spiritually. Um, and each letter off offers tips on how to exploit human weaknesses. you know, distract the subject with small pleasures, cultivate spiritual pride, distort love into possessiveness, encourage vague anxieties. Uh, and the brilliance is not really in like demonizing sin in the usual sense. It's it's much more about like he's not like encouraging them to turn them into murderers. It's rather more about like become this like loop lukewarm, complacent, you know, too busy to be thoughtful. Uh, and really like kind of losing your mortal soul from that. Oh, in an act of profound hubris, I attempted to rewrite a Screw Tape letter in a financial context. So, uh, the following is a letter from Abyismus, who's a senior financial demon, to his eager nephew, Tickworm. So, uh, away we go. Uh, my dearest Tickworm, I read your latest report with something approaching satisfaction. Your patient, I gather, has opened a brokerage account, downloaded two trading apps, opened a crypto wallet, and started referring to himself, without irony, as early stage capital. Excellent. You now stand at the edge of your first real assignment. Not merely to ruin him, but to ruin him in the most elegant way possible through the rituals of self-diluted financial sophistication. We do not wish to keep away from keep him away from markets. That's outdated thinking. The more delicious path is to let him in fully but wrongly. Let him study enough to be confident but never enough to be correct. Begin with speculation disguised as investment. Encourage him to chase stories, not actual financial statements, momentum stocks, spacks with vaporists forecasts, hot tips that feel like privileged information. Anything trending on social feeds. He must believe he's early to the next wave, though he's simply the inevitable bag holder arriving for the rugpull. Let him believe risk is merely a byproduct of cowardice. Caution, you'll whisper to him, is attacks on ambition. You only need to get rich once, so why not do it quickly, boldly, and with an extra helping of excitement. A man of his caliber deserves good stories to woo the opposite sex, not boring business fundamentals and monk-like patience. Next, initiate him into the cult of macro obsession. Whisper to him that every CPI release, every Fed meeting and dotplot, and every unemployment print is a tactical moment. He must trade on this data. Let him believe he's interpreting signals that even the professionals misread. Was that a twitch in Pal's eyebrow that only he saw? The market isn't ignoring him. It's simply not enlightened yet. He's ahead of the curve. And now the algorithm will deliver him to one of our favorite weapons, the Tik Tok financial influencer. Let him follow 21-year-old prophets who preach conviction while leaning against rented sports cars. This coin will 10x, they declare, and your patient obeys. He's not reading. He is scrolling. He's not evaluating. He's imitating. This is what we call user generated misfortune. And it's a favorite of our dark fathers. From here, elevate him into options trading where ignorance and leverage embrace in holy combustion. He he will say gamma and theta as incantations while sacrificing premiums weekly. When he wins, let him feel chosen and smarter than all the other dumb money neopights. When he loses, tell him he was simply early. We want him addicted to the idea of mastery while remaining functionally confused. Finally, when he grows weary, offer him the false comfort of diversification. He must not know what he really owns as he scatters his holdings across crypto, uranium, distressed real estate, leverage ETFs, money losing spacks, pointless NFTts, and vintage wine startups. This, he will say, is strategy, but it is clutter, and it is our free lunch to his torment. The high fee burdens and of these complex instruments help ensure his road to ruin. Let him spend a decade in motion and call it growth. Let him perform diligence without discipline, conviction without clarity, and action without understanding. The delicious tragedy is not that he will eventually be financially devastated. It is that he will think he was smarter than average the whole time. That eventual bitterness of his broken spirit is the sweetest fruit for a financial demon. And by all means, never let him write anything down, lest he learn from his mistakes. Steer him away from systemization that will lead to self-awareness and ine inevitable improvement. Keep the idea of a business-like approach far from his mind. That is too boring and pedestrian for someone as smart as our man. Yours in infinite churn. Abysmas. >> Bravo. >> Amazing. >> Thanks. >> Wow. I feel honored to be to to have just borne w bear witness to that. That's uh >> I think that's one of your better better uh better segments. Jake shake. Clearly, I have too much time on my hands is I think the takeaway have >> Is that your Is that your commentary, JT? On the state of the markets currently? >> Uh there it's a touch autobiographical perhaps? Uh I'm a little skeptical of uh some of the current behavior that I see. Yes. >> What do you think, Gwen? Do you feel does it feel a little bit toppy to you or what where are you at? I mean, I I guess this is where I'm sort of disappointing because I don't think about the market at all. I really don't, you know, it it has no bearing on, you know, my understanding of companies. So, it's just it's just, you know, we've had industries that have gone through multiple recessions over the past few years that were completely disjointed from the market. and it would have been a complete waste of time to be thinking about oh well the market is is at a P of X. Um but to comment on the behavior of that I'm observing in the market yet it's very concerning. It's concerning um on multiple levels. Um >> I was h happy to see that we checked the box on hot IPO uh you know which is always a telltale sign of every bubble we have which we with Figma. Yeah. which we haven't had that really in this most recent uh rehash of of uh you know financial mania, >> right? You know, is it because the assets already exist to spur the mania and that IPOs are maybe not as sufficient. I mean, you've got Bitcoin, um, you've got crypto, you've got things that are maybe, um, >> yeah, there is outlets for that. I think there's also something to be said about, um, you know, the indexation, like where did that money come from really, like who's gotten fired in the course of this transition? And a lot of it is small and midcap managers and who bought IPOs. It was small and midcap managers. Um, so it's quite difficult I think to get an IPO interest in an IPO going because they're simply like the indexes aren't that's not really their business. Um, so it's it's kind of an interesting dynamic there and and you know there's what is it 12,000 plus private companies at this point in private equities hands. Um, which is a huge number compared to Russell 2000 or you know S&P 500. These are really big numbers. Um, and they they're they tend to be much much much smaller. Like I think the average PE company is like onetenth the size of the Russell 2000 average company, >> right? >> So who's going to buy if you tried to IPO one of your private equity of those 12,000 private equity companies? Like who's left to buy this? It's it's not clear. >> Yeah. I mean it's do you think that there's going to be some kind of you know um end to the kind of like Pavlovian dog >> paradigm that we are in where the overarching thesis that is driving markets is basically just give up and get rich. um which is a very powerful um a very powerful sales pitch and I think I don't know if passive funds can be compared to the mortgage back security but you know the mortgage back security was a one of the better financial inventions you know in financial history. It was just abused until it became malignant and and not good. And I wonder if that's where passive is headed as well is there's this very attractive, easy sales pitch. Um I wonder if there's an end date to that. I wonder if there's a way where that can be abused to the point where it actually becomes harmful. >> What do you seek when that that uh concerns you? Um, I think I I think I am concerned about AI to some degree, which may be controversial. And I'm concerned about AI from um, I guess for a few different reasons. So, recently I have been just researching industrials and I don't like Inquisitive companies. I really don't like them. I don't like them because it just creates a lot of opacity in the financial statements in a way that makes understanding an inquisitive company's true profitability very difficult. And so I kind of going through this list of 412 industrials um above 400 million market caps in North America. And so many of them were inquisitive. I was just on Capq looking at the M&A history and I was like I was like okay you know I'm just going to ask chat GBD and I'm just going to say how like of all industrial categorized companies in North America with 400 million market capitalizations or more have made at least three acquisitions since 2017 and Chat GBTA Gemini Perplexity none of them had the answer which is really interesting because all of that information is public. And so I went through all 412 companies manually and just figured it out. About 75% of them have made more than three acquisitions uh since 2017. About 25% of them have not. And so the 25% bucket is what I would be interested in because it's really difficult to ignore the herd. It's really difficult to ignore social proof bias. Um, and >> I'm surprised I'm surprised the AI didn't write you a haik coup but with the wrong answer in it. >> Yeah. Yeah. You know, me too. But, uh, maybe next time. Um but uh it's um yeah it was uh just kind of made me realize that AI might have the unfortunate consequence of incentivizing research that might not necessarily be proprietary be proprietary um becoming proprietary. So becoming private and becoming increasingly captive um because there are just so many AI platforms that use information that Maiden has shared publicly for profit. So they're selling a subscription and part of what powers that um that platform is information that's been scraped from the web. And so I think that there's the potential negative consequence that the most thoughtful um investors in the market, not saying that I'm one of them, um may become increasingly private with the information that they produce, not wanting it to be kind of swept away into some kind of large AI uh database or whatever. Um I guess the other area that I worry about is um passive investing I think is reducing the incentive to work hard. Um and I think that AI might serve to compound that trend. And I think that the most valuable characteristic that an investor can acquire is self-reliance. um an ability to analyze a company from A to Z without reading any analyst report without getting you know any kind of prior information and from that A to Z method acquiring an understanding where they can determine on their own if a company is or or isn't worth investing in. So, I'm picturing the scene from like demolition, man, where like you have the AI powered, you know, fancy everything and then you got the people like living under the bridges and, you know, in their old clothes and they're like, you know, doing actual real work around companies. >> Yeah. Yeah. I mean, it's uh I I I worry I worry dependency is not a good skill. It is not a good >> trait >> trait in investing. And I think being dependent on AI models without verifying is a concern. And there's a lot of in almost every study that I conduct, there will be maybe a dozen or so data points where it's just not necessarily clear and you have to kind of interpret a little bit. And those data points might be significant. They might have a material impact on the overall visualization of the end uh data set. And so, and I think there's also just this there's this urgency to kind of latch on to speed in the in the market. >> And I and investing is is not a race, it's a waltz. So, I just don't think that it's necessary to I don't know to I don't think it's necessary to kind of give up the old school manual way of just reading through every line of accounting and discovering the nuance because at least with my use of it so far, it's been mostly unhelpful um in terms of the type of work that I want to do. So, you don't need to find all the opportunities immediately. If you can acquire information that's high quality and you can use that over time, you're going to do just fine. Um, >> Toby, what are you seeing that's uh anything concerns you? >> Uh, general overvaluation. M >> just before we we go on to get too deep in my macro thoughts though. >> Do you want to give us two updates Gwen on for imprint and Engles market which I think we discussed last time. So just maybe >> a quick update on where we're at with those two. >> Yeah. So for imprint group um last time I talked about it probably irresponsible. >> What's the ticker on for imprint? Just >> uh so it's it's on traded on the on the London stock exchange. So LSC4 fur. >> Oh f. Okay. >> Yeah. Good one. >> Yeah. And um so basically last time I talked about I hadn't analyzed the company since 2019. So maybe a bit irresponsible of me, but share prices declined uh in the wake of the liberation day tariffs to um 2019 prices. And so I did a full expose of the company and um it's a pretty special business. I definitely suggest people take a close look at it. um I analyzed it's it's kind of I almost want to call it an intermediation platform because its e-commerce platform is just an intermediary um entity that just connects suppliers with uh with customers for print doesn't actually really hold any inventory uh but the company is trading at 2019 prices and the business generates higher cross cycle returns on capital than the mag 7. So, it's an extremely profitable business, no debt, 150 million cash on the books, and that cash position is maintained specifically to position the company to take advantage of downturns in the market because promotional products is a cyclical business. And when you have a management that optimizes their balance sheet to invest across the cycle, um it's unsurprising that foreign print has grown at 20 times the rate of the overall market organically over the past 10 years. >> Wow. >> So, um really well-run company, very thoughtfully well-run company. Um you don't pay withholding taxes on UK dividends. That's a nice thing as well. So when you look at the dividend, um I would normalize it because their profitability doubled in the wake of of the pandemic just because um the average selling price of their products went up above the rate of new orders. So, um, but normalizing that completely back to pre- pandemic and assuming effectively no growth, um, you're looking at a pretty decent return. I think um, in my view, a at least a 10% return base. Um, assuming like pretty abysmal performance over the next 5 years or so, which is what I like to do. You know, the key to happiness is low expectations. So um my way of valuation is all about can I get a good profit if forward economics are below what management would like them to be and below historical uh historical performance levels. >> Good one. And um the only other one is Engles market. >> Yeah. So Engles is also compelling just because the food cycle is kind of in a downturn and um >> people are eating less Yeah, there is actually some demand contraction. Yes. Um, >> from GLP1s, is that >> maybe GLP-1s? Um, but fuel prices >> American eater finally takes an L. >> I I wonder if uh yeah. Yeah, I actually haven't thought about that too much, but um maybe there is some impact there. But um fuel prices are also lower, so that has impacted the business as well, and it's impacted Kroger. I use Kroger as a onetoone comparison just because their their store formats are so similar which is why you don't really see Kroger competing in uh Engles uh markets um just because um it it would be redundant and they're typically operating within smaller towns in the southeast where there's not really you know at most you kind of get like a a Walmart and an Engles and then maybe like like a Publix or like an an Aldi or something like that. It's usually smaller markets. Um, but I mean it's it's gotten cheaper and that's what I expected would happen after just a ginormous runup of of inflation and margin expansion um post pandemic. And it is now at the um lowest price to tangible book that it has ever been. >> Wow. at least since 1992. And the kicker is that the business has about 658 million in um property value that isn't recorded in the balance on on the balance sheet. So, I went through over a thousand county tax record searches, identified 445 owned properties, was able to um conduct depreciation calculations on each property that wasn't land cuz land doesn't depreciate, of course. And yeah, but 658 million in value is not we estimate is not on uh is not on the books. >> So, what's that make like Gwen's adjusted price to book today then? about 0.52%. So about half book >> um for a very very competitive and very incumbent um regional ger. And if you look at the consolidated uh numbers, it's it's fairly disappointing. They're dealing with damages from Hurricane Helen. Um three stores remain closed. Um four stores were closed for almost a year. So that had a big impact. Um, also just cleanup damages and things like that. Even still, their net margin is is is with a 50% decline in in net net margin this recent quarter. It's still higher than Albertson's. So, um, and and >> two instead of one is that for grocery. >> Yeah. Yeah, it's low. Yeah, you're right. But, um, the company isn't supposed to be a cash machine uh just because they have so much so much >> return. Yeah. >> Uh, so much property and but the the big kind of exciting piece of Engles is is their leasing business. So they own a shopping center leasing business which is like it's not malls. It's like it's like you know um like a plaza like you go in there and there's a grocery store and like a super cuts and like maybe you go get your nails done or whatever and there's like a discount store. Um, and sometimes there's a dollar store and that's kind of the the model that they go for. Um, so things that are e-commerce resistant and sort of one-stop shops when as far as kind of shopping centers are concerned and they produce 85% FFO margins um in that business. So it's significantly more profitable than the grocery business. And what you were seeing prior to the pandemic is a shift towards away from investing in the supermarket business and towards investing in the leasing business. >> And so margins were steadily ticking up every single year. And so the leasing business has continued to do well. Um base rents are up 16% year-over-year. you pretty much have this staple, consumer staple funding um without a REIT. So, it's this kind of exciting, I don't know if you want to call it a canary in a coal mine. I don't know if that would be the right saying, but it's this thing that is bubbling and that will that has contributed to upper margins over time. And I think that will show again as the supermarket business normalizes um and the helen damages get resolved. But um it's going to continue to contribute larger and larger and larger share of overall uh profit and and will likely increase the margins of of angles broadly over time. Um and yeah, I mean if you look at ROIC that was acquired by Blackstone, that's the largest um grocery anchored um operator shopping centers in the United States. They were acquired at an enterprise value of about 6 billion. I think Engles is at an operating as an enterprise value of about 1 and a half billion. So um and Engles is producing slightly higher IBIDA than than uh ROIC was. >> Thanks for the thanks for the update. We're going to we're going to run out of time a little bit unfortunately. >> Yes. >> If folks want to uh get in touch with you or follow along with what you're doing, what's the best way of doing that? >> Uh so just follow me on LinkedIn. Uh just Gwen Hoffmire, you'll find me. Um or you can send me an email. um visit my website uh maiden financial and you can get in touch with me through there via email. Um and yeah, those are the two two best ways to do it. >> Well, thanks very much for the update. Uh we'll have you back on in the near future to to uh give us another update, learn about what you're up to. Uh Gwen Hoffmar, Maiden Financial. Thank you. >> Thank you very much. >> JT, any last words? >> No. Enjoy the rest of your summer. >> Nothing to add. Bye, folks.