Bernard Horn: Finding Value Spanning the Globe

Bernard Horn of Polaris Capital Management is speaking at the Value Investing Congress and he is talking about value opportunities around the world, including Europe. He uses a discounted cash flow method as his primary methodology for making investment decision. Horn, who manages $4 billion in assets, mentioned that equities historically have had a 6% real rate of return after inflation over the past 50 to 75 years. Horn described his style of investing as fundamental analysis, specifically Graham and Dodd style analysis. Horn looks for companies with sustainable free cash flow. His objective is to beat the benchmark but with lower than benchmark risk. The beta for Horn's portfolio is lower than 1. Horn believes the volatility we have seen recently is very normal, and the current situation is very normal. The first company that Horn mentioned is Nichirei Corporation, a Japanese frozen food manufacturer. He believes that the company has opportunities as consumer demand is growing for food convenience and logistics outsourcing by its retailing partners. Horn says that the logistics segment of the business is the fastest growing business. It operates in a fragmented market, and the recent strength in the Japanese Yen has been a net positive for the company. The company has been able to cut operating expenses and raise operating income, despite the drop in sales because of the Japanese earthquake. The stock is currently trading at 360 yen ($4.70), and Horn believes it could be worth 420 yen ($5.50). He also mentions Methanex Companies MEOH. It is the largest global methanol producer in the world. Horn mentions that he sees the opportunity for consolidation in the industry, and the increase for methanol as an alternative source of energy. There is strong Chinese demand for methanol, and Horn believes that Methanex could be poised to take advantage of this. He did mention the Chilean production, which the company relies heavily on, as a potential risk for the company. Shares are currently trading around $40 per share, and he believes it could be worth $47 per share. The third equity Horn is mentioning is the Italian-based company Trevi Finanziaria Industriale S.P.A. It operates in foundation engineering and equipment space, oil and gas drilling equipment and services. He believes that global infrastructure spending will benefit Trevi, as well as the strong demand for on-shore equipment drilling services. Horn mentions that potential risks for Trevi is a volatile order pattern, and a weak commercial real estate market. The stock currently trades at €7, and he believes it could more than double in value to eventually trade at €15. Smurfit Kappa, the packaging materials company is another name Horn spoke about. The company has faced some scares in Europe markets, particularly the cucumber scare in Germany, but has seemingly started to overcome these concerns. The company has been able to pass along some price increases, and may benefit from industry consolidation. It is growing its American South assets, and could see cost savings resulting in higher margins during the growth cycle of packaging, particularly as China has increased demand for packaging. The stock currently trades at €4 and could go to €9. Ameris Bancorp ABCB is the last company Mr. Horn mentioned during his speech. The company could benefit from FDIC assisted deals, and the eventual repayment of its TARP preferred dividend. He believes the Georgia-based community bank could be worth $19 per share, up from a current $9 per share.