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Bonhoeffer Fund 1Q20 Commentary: Combined Motor Holdings Case Study

Bonhoeffer Fund 1Q20 Commentary: Combined Motor Holdings Case Study



car Combined Motor Holdings

Bonhoeffer Fund commentary for the first quarter ended March 31, 2020, provind a case study on Combined Motor Holdings Limited (JSE:CMH).

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Q1 2020 hedge fund letters, conferences and more

Dear Partner,

The Bonhoeffer Fund returned -33.7% net of fees in the first quarter of 2020, compared to -23.1% for the MSCI World ex-US, an international benchmark. As of March 31st, our securities have an average earnings/free cash flow yield of 26.5% and an average EV/EBITDA of 3.7. The MSCI World ex-US has an average earning yield of 7.9%. The difference between the portfolio’s market valuation and my estimate of intrinsic value is still large (greater than 100%). I remain confident that the gap will close over time and continue to monitor each holding accordingly. I am also expanding my toolbox of value investing tools to enhance fund performance which I look forward to detailing in this letter.

Bonhoeffer Fund Portfolio Overview

Bonhoeffer’s largest country exposures include: South Korea, Italy, South Africa, Hong Kong, United Kingdom, and Philippines. The largest industry exposures include: distribution, consumer products, telecom, and transaction processing.

Since my last letter, we have added to one position in the US pipeline space. Our two positions provide exposure to a recurring revenue stream from a large market (natural gas) that has been hurt by the current glut of oil where natural gas is a free byproduct of oil production. Given the current crash of oil prices, supply destruction is currently going on in the oil industry, thus pulling low-cost supply off the market. Many people have given up on the oil and gas market but the infrastructure will reflect its economic value once the market adjusts to new levels of supply and demand.

The portfolio’s investments in infrastructure are in a senior position with recurring revenue in a sector that is hurting. However, I anticipate a speedier recovery than many equity holders who may be wiped out with reorganization of many capital structures.

I remain excited about some firms we are investigating in Canada, Mexico, Georgia, South Korea, and South Africa and from a strategy perspective described below.

Risk vs. Uncertainty

The COVID-19 pandemic is an event which revealed that the world is more uncertain than we previously thought. This was the message from great investors like Warren Buffett, Howard Marks, and Sam Zell. Uncertainty does not necessarily mean values decline, but it does make the range of outcomes wider. Wider outcomes mean higher risk spreads for risky assets like stocks and real estate. This increase in uncertainty has been accompanied by lower interest rates and widespread credit availability (via the Federal Reserve and SBA programs) which should make the better outcomes worth more and buffet the effects of the downside liquidity scenarios.

I am of the opinion that this crisis should be analyzed in two phases—a financing panic followed by a fundamental reckoning. The financing crisis occurred in March and early April as some of the mortgage and high-yield financing markets froze. This was caused by some margin-call-induced selling amongst some of the mortgage REITs. The Fed stepped in and provided government, investment-grade, and previously investment-grade funding (exchanged cash for securities) to firms. This provided a put for these securities and facilitated the market opening for less-than-investment-grade firm borrowings.

The fundamental reckoning is beginning now. In this phase, a company-by-company “work out” of debt and equity financing needs will be occurring. At this point, prices reflect this, as firms directly or indirectly experience this supply and demand shock (airlines, travel, and restaurants) and are valued much lower than those not affected or whose position is enhanced due to this pandemic (software, internet, and staples). If you look at the various stock markets around the world, you can see this too. In emerging markets, you see markets with weak currencies (Brazil, Mexico, Russia, and South Africa) suffering both large equity and currency declines. Markets with strong currencies (South Korea, Hong Kong, Philippines, and Peru) are experiencing more modest equity declines. In my opinion, it is a time to sift through the firms and countries that have been hit hardest and see if their value is higher than the current market price if the optimistic scenario plays out since the downside is already reflected in most of their prices. In most cases, these are priced correctly but, in some cases, there are some hidden treasures. One example is auto dealerships. Both US and developed-market dealerships are trading at discounted prices. Comparatively, the market in China, which is further along the COVID-19 timeline, is booming higher than pre-COVID-19. Examples in our portfolio include Cambria Automobiles in the UK and Combined Motor Holdings in South Africa, as compared to China MeiDong in China.

As described by Howard Marks in a recent letter, confidence can be challenging in the face of uncertainty. We need to be open to changes in our mental models as new data arrives. As a result of the drastic changes and disruptions experienced in the first quarter, I offer my thoughts on some strategic framework models that I am incorporating into my thinking as I continue to analyze and manage the Bonhoeffer portfolio.

Value Investing and Strategic Framework Investing

Value investing is investing in securities that are trading for less than they are worth. It is interesting to examine the historical evolution in valuation techniques to estimate the fair value of firms at different stages of their life cycles (young growth, growth, mature, and declining).1 Valuation models have evolved over time from valuation multiples—which work well with mature companies (Graham)—to discounted cash flow models—which work better for growth companies (Buffett)—to distress-weighted models for declining businesses (Damodaran), and finally to strategy/business models—which focus on market size, growth (including network effects), customer lock-in, economies of scale, and probability of survival for young growth companies (venture capitalists).

Historically, value investing has been practiced by purchasing stocks with low valuation multiples compared to either similar firms or in relation to their expected growth rates or below their estimated value using DCF models. Business models in this context were used to identify similar firms or estimate future growth rates, along with determining the durability of the competitive advantage or “moat.” Many of the investors using these techniques (such as Buffett) would limit their exposure to mature or growth business where the comparable multiple or DCF techniques work best.

Another model to examine businesses is the 7 Powers model2. This model focuses on identifying the barriers to entry, scale, and adoption as important differentiators of whether firms will receive the benefit from a new business model or whether they will be arbitraged away by incumbents or competitors. Barriers to scale include scale economics, switching costs, and network economics. Barriers to entry include cornered resources (like drug patents), process power, and brands. Barriers to adoption include counter-positioning. Counter-positioning is when a new business model would be detrimental to a business’ current business model and thus is not adopted by the existing business. An example is digital photography technology and Kodak, who at the time of the innovation was the largest and most profitable chemical photography firm.

With the introduction of disruptive internet capital-light models by young growth companies, current profitability (under the assumption of the presence of either large unreproducible investment or network effects) has been less important than future profitability supported by a business model that can generate strong customer growth, recurring revenue with small amounts of customer attrition due to customer lock-in and/or creating network effects. The key parameters for this model are the lifetime value (LTV) of a customer and customer churn and customer acquisition costs (CAC).

The increase in CAC over time for new entrants versus existing firms can create a scale moat for the first company to scale. If scaling happens quickly, then incumbents do not have the time to react to the threat. Thus, there is a requirement for rapid investment, and even more so if the firm is not profitable. The lack of time, the increased supply of “free” content, and relatively expensive way to deliver similar content is why the internet has destroyed the newspaper business and cash flows. If firms have time and can reduce the cost structure of their business models (via economies of scale), then they can adopt the innovation and have a fighting chance, like what is happening in the TV business currently.

One issue with these new business models in a good number of situations is the LTV, customer churn, and CAC parameters can be challenging to estimate. Some of the business models are dependent upon outside financing when they are in the growth phase of development, especially if they are ramping up customer acquisition faster than their current cash flow can support.; the assumption being that the customer lock-in will reduce CAC versus competitors and thus recurring revenues can be stacked on top of each other to generate recurring growth rates. In software and other industries, where switching costs can be high and there is low customer-revenue churn, the stacking of recurring revenue can be sustainable. This model is also effective when more products and services can be sold to an existing customer, like Amazon, as the CAC approaches zero.

Recently, this model has been tested in markets with less stickiness, lower customer switching costs, and weaker network economics. The question is whether this model, which works with locked-in customers and high switching costs, can be as successful in these markets. Some examples or participants in these markets include Uber, Door Dash, and Carvana. Today many of these businesses are the darlings of Wall Street.

Testing of the young growth business models focused on specific market segments (for firms such as Trip Advisor or Yelp) is occurring with the current stoppage/slowdown of travel, leisure, and lodging services over the next few months/years. As the large platforms’ (Google, Amazon, or Facebook) growth rates decline in their core businesses, the young growth firms will be challenged by larger platforms who want to increase their exposure in specific vertical to maintain growth. The larger platform firms have the ability to subsidize losses to establish scale in targeted segments. Amazon is an example of this in grocery.

One approach to investing in disrupted markets is to buy the young growth disruptor. In the past, this has been successful with technology companies that have been able to secure lock-in due to high switching costs or standard setting.3 If you invest in cheap hardware technology stocks (low P/E), then you typically buy a disrupted company that has a real probability of distress (bankruptcy) that has to be factored into the valuation model. Examples of these gorillas include Microsoft, with its office suite, and Cisco, with its networking routers.

If higher switching costs or standard setting are not present, then you get new firms disrupting existing firms with each new generation of hardware/software. In these industries, a firm’s advantage only lasts if there is product generation. Many of these cheap technology firms are in markets where there are short product technology cycles, low switching costs, and there are barriers to adoption by the incumbent. One key to look for here is whether the incumbents adopt the innovation without destroying the ecosystem they have developed for business operations (i.e., do they have a barrier to adoption?). If they can adopt the innovation, then they can become competitive. Recent examples include Walmart and Target in e- commerce competing with Amazon.

Valuation Multiple Investing

Traditional value multiple investing is dependent upon mean regression. Mean regression is based upon firms in a given industry having similar economics. Historically, this has been the case for most firms and thus firms with a lower multiple would approach the multiple of a higher value in the same industry. In cases like these, P/BV, P/E, or P/FCF can be used to buy the cheaper firms in an industry. These multiples are most useful in slow-changing businesses where market share is steady.

Company-specific intangible assets like patents, local economies of scale, and network economics in combination with barriers to entry and adoption can upset the mean regression assumption. In these cases, the company possessing these assets (the advantaged firms) should sell at higher multiples than firms who do not possess these assets, as the possessors will be either protected by barriers to entry, scale or adoption, and be taking market share from the non-possessors. Examples of these types of assets can be seen in the drugs, software, distribution, media, and transaction processing businesses. In these industries, possessing the intangible asset (business model) can be more important than valuation based upon historical multiples. In these situations, the value of the advantaged firms needs to incorporate the growth from more market share, and the disadvantaged firms needs to incorporate the decline in market share. The possibility of the disadvantaged firms slowing the disruption—or adopting the disruption itself—also needs to be considered.

Network economics can have exponential growth as customer adoption increases and the network becomes larger versus the linear growth in models of the past. Networked assets can create exponential economics but, to be sustainable, they typically are associated with high switching costs and scale economics to prevent competitors from competing the profits away. Another more general question is whether these advantages allow a firm to generate successful economics. In many cases this is not the case, as either the advantages are weak or the customers and competitors prevent the successful economics.

History of Valuation Multiple Mean Regression

Valuation multiple mean regression can be looked at in a historical context associated with technological revolutions and the technology adoption lifecycle over time, as described by Perez.4 She lays out five technological revolutions since the 1770s. These revolutions are divided into two phases—installation and deployment. The installation phase is kicked-off by a new innovation, followed by an interruption period, and then a frenzy period. In the current revolution (information and telecommunications), the innovation was the development of the microprocessor in 1971. The interruption period transitioned into the frenzy period in the 1990s, as the new-age firms based upon digital technologies were formed. Many of these were little more than business plans (similar to the railroad mania in the 19th century, where lines were financed based upon future capital calls) to which some folks attributed values as though they were generated profits, thus creating bubble prices in these firms. The turning point was the popping of the bubble that was created in the frenzy period, and the technology is adopted on mass scale across existing firms. In the current cycle this occurred in the dot-com crash (2000-2002). We are currently in the synergy period, with the innovation being adopted across most industries. The key to surviving these revolutions is for the incumbent to adopt the innovation. Some examples include trains adopting diesel engines (versus steam engines) to remain competitive with trucking or incumbent utility firms investing in wind and solar to remain competitive with independent alternative energy firms. In some cases, this does not make sense economically, as the innovative product will cannibalize an existing product’s profit as described in The Innovators Dilemma5 and in the 7 Powers framework described above. This is especially true if the existing product is highly profitable. This can be seen in Kodak and the adoption of digital technology (the current technology revolution) and in Walmart’s use of local economies of scale versus a traditional discount store (like K-mart). Value multiple investing should work for disruption survivors but not for the disruption victims.

One approach for value investors is to avoid those industries being disrupted. This is followed by investors such as Warren Buffett. You can see this in Berkshire’s largest allocation of capital to businesses with long average lives like insurance, banking, regulated utilities, and consumer products. However, I think as time goes on, this approach will work for smaller and smaller groups of companies. Alternatively, the focus could be on incumbents that can adopt the innovation that the challengers have used. We see this in a few of our telecom holdings (Telecom Italia and KT Corporation).


Over time, I am confident that more opportunities will present themselves associated with this strategic framework theme. Using this theme in combination with Bonhoeffer’s three frameworks (compound mispricing, mischaracterized companies, and public LBOs) should provide some nice opportunities and diversify the portfolio from the primarily emerging market, small-cap value current composition. An area we are now examining is firms incorporating the internet into their existing business models.

As always, if you would like to discuss any of the philosophies or investments in deeper detail, then please do not hesitate to reach out. Until next quarter, thank you for your confidence in our work and have a safe and fruitful spring season.

Warm Regards, Keith D. Smith, CFA

Case Study: Combined Motor Holdings (CMH)

Combined Motor Holdings is an automotive dealership group located in South Africa. Combined Motor Holdings has 68 dealerships. Fourteen are considered premium/luxury brands and 46 are volume brands. Automobile dealerships are really four businesses in one: new car sales, used car sales, service and parts, and financing and insurance (including leasing). Disruption is occurring in the dealership industry via channel compression and disintermediation.

Combined Motor Holdings’s management has a returns-oriented framework, having delivered an average return on equity of 30% over the past eight years. Organic growth is more important than acquired growth, as management has much more control over the business model and customer experience. CMH has grown over the past few years despite the decline in units since 2013. In 2019, industry car sales declined 1.9%, but CMH units sold increased by 1.3%. It is the third largest—but fastest growing—car dealer in South Africa, with 14% earnings per share growth over the past seven years, higher RoE (31%) versus larger competitors (Motus (13%) and Super Group (9%)), and 65% of profit from new and used cars sales and service and 35% from car rental/leasing and financing.

Auto dealerships are really four types of businesses: new car sales, used car sales, service and parts, and financing. New car sales are cyclical based upon OEM new car sales. Used car sales are less cyclical, as consumers will purchase used cars when there is a downturn for economic reasons. Service and parts are more defensive, as service is required on a regular basis for automobiles. Financing is dependent upon new and used car sales and is a high-margin add-on to these types of sales.

The South African auto dealership market is less competitive than the UK’s. The result is higher margins for most dealerships in South Africa, thus leading to higher returns on capital in the mid-double digits versus mid-single digits or higher for UK dealer groups. CMH is the highest-return dealer in SA and has higher inventory turns and margins than other South African dealers. This is due in part to the ability to turn cars quickly, with inventory turns of 8.5x, the highest amongst traditional car dealers outside China.

The integrated auto dealership market is being disrupted by new business models and technology. The used-car superstore is a new business model where disruption is occurring. Examples in the US include Carmax and Motorpoint in the UK. These firms sell cars at lower prices and have higher inventory turns versus the traditional integrated dealer models. They also attract a value-oriented car buyer who buys used versus new cars. Technology is also facilitating the selection and purchase of used cars. In the UK and SA, there are used-car marketplaces led by Autotrader, where auto dealers can list and sell their used car inventory across the country to other buyers. Another disruption is the larger independent automobile service providers like Monro Muffler in the US. Luxury car dealers are more immune from price competition than the volume dealers, superstores, and independent automobile service firms present. Most of Combined Motor Holdings’s sales are currently in the volume market (72% of dealerships).

The auto dealership model is also subject to local economies of scale. In a local market, a dealership, like other retailers, can take advantage of economies of scale (density) associated with advertising, logistics, and local oversight. If you look at CMH’s geographic footprint, then you notice two clusters—one around Durban and the second around Pretoria/Johannesburg representing 57 of the 60 dealerships.

SA Auto Dealership Business

Sources of growth for Combined Motor Holdings include service and parts growth, used car sales growth, new dealerships, and acquisitions. The South African new-car market has been declining in the past five years, with new car sales declining. CMH has been able to increase sales over the past five years. CMH’s smaller size also allows it to maintain revenue growth by adding a relatively modest number of dealerships versus competitors who need to add a larger number of dealerships to maintain their revenue growth rates.

Combined Motor Holdings has utilized the local scale model to generate comparable margins (5.0% EBITDA) with less than 20% of the revenue of the other South African automobile dealers (Motus and Super Group). The higher margins are in part due to the focus on primarily two markets versus the other SA dealerships. Inventory turns are also important in the auto retailing business. CMH has the highest inventory turns of 8.5 times amongst the SA car dealers which range from 4.6 to 5.6 times. Quicker inventory turns mean that the dealer is matching the customer to cars more quickly than its competitors. This allows CMH to either sell fewer cars or sell for lower prices than competitors while obtaining the same return on invested capital. CMH has a higher return on equity than South African competitors from both higher margins and inventory turns.

Downside Protection

Auto dealer risks include both operational leverage and financial leverage. One way to measure operational risk in automotive dealerships is the “absorption” ratio, which measures how closely the firm’s gross profits (assuming no new car sales) cover the firms selling, general, and administrative costs. Unfortunately, the SA car dealers do not provide the revenue and cost breakout to determine their absorption ratios.

Financial leverage can be measured by the Debt/EBITDA ratio. Combined Motor Holdings has a lower Debt/EBITDA than other SA dealers (1.5x EBITDA versus 2.3 to2.7x for the other SA dealers). In addition, all of CMH’s debt is associated with its rental operations. CMH has also done well in the SA auto recession of FY2015-2019. Over these four years, CMH’s revenues were up 3% and net income was up 33%, while total car sales volumes were down.

The historical financial performance for CMH is illustrated below:

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Revenues R6,507.5 R7,362.2 R8,293.7 R9,808.7 R10,703.6 R10,737.9 R11,016.2 R10,244.9 R10,572.6 R11,154.8 9-yr growth
Growth 13.1% 12.7% 18.3% 9.1% 0.3% 2.6% -7.0% 3.2% 5.5% 6.2%
EBITDA R222.0 R280.6 R308.7 R404.0 R424.7 R465.5 R504.1 R512.0 R579.1 R558.9
Margin 3.4% 3.8% 3.7% 4.1% 4.0% 4.3% 4.6% 5.0% 5.5% 5.0%
Growth 26.4% 10.0% 30.9% 5.1% 9.6% 8.3% 1.6% 13.1% -3.5%
Adj. Net Income R76.7 R111.3 R121.4 R158.7 R156.7 R194.6 R247.5 R284.2 R332.9 R305.2 9-yr growth
Free Cash Flow R92.4 R117.0 R138.2 R81.9 R357.1 R313.4 R474.7 R157.4 R113.3 R537.5
FCF Conversion 120.5% 105.1% 113.8% 51.6% 227.9% 161.0% 191.8% 55.4% 34.0% 176.1%
Equity R465.0 R542.0 R539.0 R625.0 R604.0 R684.0 R643.0 R767.0 R935.0 R1,052.0
Growth 16.6% -0.6% 16.0% -3.4% 13.2% -6.0% 19.3% 21.9% 12.5%
Return on Equity 16.5% 20.5% 22.5% 25.4% 25.9% 30.2% 37.3% 40.3% 39.1% 30.7% 28.9%
FCF RoE 19.9% 21.6% 25.6% 13.1% 59.1% 45.8% 73.8% 20.5% 12.1% 51.1% 34.3%






















Adj NI/Share R0.71 R1.03 R1.12 R1.47 R1.46 R2.08 R3.03 R3.80 R4.45 R4.08 9-yr growth
Growth 44.5% 9.4% 31.0% -0.9% 42.6% 45.9% 25.3% 17.1% -8.3% 21.4%























9-yr growth

Growth 26.1% 18.5% -40.6% 337.6% 0.8% 73.8% -63.8% -28.0% 374.4% 26.7%
Director Comp R24.75 R23.22
% Adj Net Inc 7.4% 7.6%

Management and Incentives

Combined Motor Holdings’s management has been focused on increasing efficiencies by merging small franchises into larger regional operations and reducing overhead. The CEO currently holds 26 million shares (R250 million) which is more than 26 times his 2019 salary and bonus. The CEO’s total compensation is about 50% salary and 50% bonus. The bonus is based 70% upon financial KPIs (EPS growth, return on equity, and rental profit growth) and 30% upon nonfinancial KPIs.


Sensitivity Table
Price Upside
Current Adjusted Earnings R3.26
7-year Expected EPS Growth Rate 10% -1.2% R9.60 0.0%
Historical EPS Growth Rate 14% 2.5% R21.52 124.1%
Current AAA Bond Rate 9.0% Growth Rate 5.0% R29.48 207.1%
Implied Graham Multiple * 13.93 7.5% R37.45 290.1%
Implied Value R45.42 10.0% R45.42 373.2%
Current Price R9.60 15.0% R61.36 539.2%

* (2*Growth Rate + 8.5)*(4.4%/AAA bond rate)

The key to the valuation of Combined Motor Holdings is the expected growth rate. The current valuation implies an earnings/FCF decline of 1.2% into perpetuity using the Graham formula ((8.5 + 2g)*(4.4/AAA bond rate)). The historical ten-year earnings growth has been 19% per year including acquisitions and the current return on equity of 31%. The historical revenue growth rate has been 6% per year over the past nine years.

South African new car sales declined by 3% per year over the past five years, while Combined Motor Holdings’s revenues have increased by 1% per year, 4% in excess of the SA automotive market growth rate. Over the past five years, CMH has grown EPS by 21% per year, 14% due to increased net income growth and 7% from share repurchases. The increase in net income is due to cost efficiencies. Over the next five years, the automobile market is expected to grow by 2.2% per year in new units. If we assume the excess growth going forward, then we arrive at a revenue growth rate of 6%. Given this, a 10% earnings growth is conservative given the 2.6x multiple of earnings/revenue growth over the past nine years and the historical RoE of 29%. The resulting current multiple is 14.0x, while CMH trades at an earnings multiple of 3.0x. If we look at firms in different markets (Motus and Super Group) with similar growth prospects, they have earnings multiples of around 5.0x. If we apply 5.0x earnings to CMH’s estimated 2019 earnings of R3.29, then we arrive at a value of R16.45 per share, which is a reasonable short-term target. If we use a 10% seven-year growth rate, then we arrive at a value of R45.42 per share. This results in a five-year IRR of 36%.


Below are the South African and international firms engaged in the car dealership market that have high returns on equity.

Book EBITDA Absorption Debt/ Blue Sky/
Price Value Earnings Inv Turns Margin RoE RoTE P/E P/BV Ratio EBITDA Share
Asbury Auto 72.07 28.75 9.21 5.99 5.2% 32.0% 57.6% 7.8 2.51 121% 2.51 95.51
AutoNation 39.79 32.37 4.39 4.97 4.4% 13.6% 50.4% 9.1 1.23 115% 2.04
Lithia Motors 118.94 54.94 11.1 4.32 4.6% 20.2% 49.0% 10.7 2.16 111% 2.56 150.49
Penske Automotive Group 34.09 32.22 5.29 4.84 3.3% 16.4% 107.4% 6.4 1.06 102% 2.35
CarMax 81.85 20.88 5.03 6.97 6.8% 24.1% 24.1% 16.3 3.92 N/A 9.70
Cambria Automotive 0.455 0.61 0.1 5.20 3.3% 16.4% 25.2% 4.6 0.75 88% 1.66 1.03
Vertu 0.263 0.74 0.054 4.52 1.3% 7.3% 12.7% 4.9 0.36 81% 1.08 0.73
Lookers 0.183 0.99 0.071 4.34 1.4% 7.2% 17.9% 2.6 0.18 79% 1.29 1.12
Bilia 68.3 28.15 7.2 6.28 6.0% 25.6% 54.6% 9.5 2.43 N/A 0.85
Motorpoint Group 2.12 0.3 0.187 8.89 2.4% 62.3% 62.3% 11.3 7.07 N/A 0.00
Combined Motor Holdings 9.6 9.34 3.26 8.50 4.5% 32.8% 38.7% 2.9 1.03 N/A 1.50 24.287
Super Group (Inv/Margin - Dealers) 15.31 23.02 2.94 5.57 3.3% 7.8% 16.8% 5.2 0.67 N/A 2.70
Motus Group (SA only) 28.68 60.65 5.72 4.00 8.1% 16.8% 18.7% 5.0 0.47 N/A 2.30
Nissan Tokyo Sales 215 600.03 37.7 14.48 5.2% 5.8% 9.4% 5.7 0.36 N/A
China MeiDong 15.8 1.19 0.3141 13.20 5.0% 26.4% 27.8% 50.3 13.29 89%


Compared to other SA automotive dealer groups, Combined Motor Holdings has the highest inventory turns and return on equity. The Blue Sky value is based upon multiples paid for branded dealerships over the tangible book values of those dealerships. The methodology for the multiple determination is described in the Year- end 2019 Haig Report. CMH, like other auto dealers, has significant upside based upon the Blue Sky methodology. CMH differs from the other SA dealers in return on equity and runway for growth, as it is smaller than the other dealers and thus can more easily focus on niches that will have a smaller impact on larger firms.


The primary risks are:

  • lower-than-expected growth in sales/earnings; and
  • a lack of new investment opportunities (merger and acquisition or new dealership).

Potential Upside/Catalyst

The primary upsides/catalysts are:

  • a resolution of COVID-19 in South Africa;
  • more share repurchases; and
  • increased local scale or purchase of local scale in new

Timeline/Investment Horizon

The short-term target is R16.45 per share, which is almost 75% above today’s stock price. If the economic recovery thesis plays out over the next five years (with a resulting 10% FCF/earnings per year growth), then a value of R45.42 could be realized. This is a 36% IRR over the next five years.

1 Aswath Damodaran has a nice framework for business valuation by development stage of business that is described in detail in his The Little Book of Valuation.

2 This model is described in Hamilton Helmer’s 2017 7 Powers: The Foundation of Business Strategy, as well in a May 19, 2020, “Invest Like the Best” podcast by Patrick O’Shaughnessy.

3 As described in The Gorilla Game, Moore, Johnson, and Kippola, 1998. This book was the first to describe how network economics are achieved through the technology-adoption lifecycle by firms that can provide products ahead of competitors in markets where participants have customer lock-in due to high switching costs, such as Microsoft.

4 Technological Revolutions and Financial Capital, Carlota Perez, 2002

5 The Innovator’s Dilemma, Clayton Christensen, 1997

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Sex work is real work: Global COVID-19 recovery needs to include sex workers

Societally, we need to recognize that sex workers have agency and deserve the same respect, dignity and aid as any other person selling their labour.



Globally, sex workers have been left to fend for themselves during the pandemic with little to no support from the government. (AP Photo/Bikas Das)

During the pandemic, business shifted from in person to work-from-home, which quickly became the new normal. However, it left many workers high and dry, especially those with less “socially acceptable” occupations.

The pandemic has adversely impacted sex workers globally and substantially increased the precariousness of their profession. And public health measures put in place made it almost impossible for sex workers to provide any in-person service.

Although many people depend on sex work for survival, its criminalization and policing stigmatizes sex workers.

Research shows that globally, sex workers have been left behind and in most cases excluded from government economic support initiatives and social policies. There needs to be an intersectional approach to global COVID-19 recovery that considers everyone’s lived realities. We propose policy recommendations that treat sex work as decent work and that centre around the lived experiences and rights of those in the profession.

Sex work and the pandemic

The United Nations Population Fund (UNFPA) recently reported that apart from income-loss, the pandemic has increased pre-existing inequalities for sex workers.

In a survey conducted in Eastern and Southern Africa, the UNFPA found that during the pandemic, 49 per cent of sex workers experienced police violence (including sexual violence) while 36 per cent reported arbitrary arrests. The same survey reported that more than 50 per cent of respondents experienced food and housing crises.

Lockdowns and border closures adversely impacted Thailand’s tourism industry which relies partially on the labour of sex workers.

Read more: Sex workers are criminalized and left without government support during the coronavirus pandemic

In the Asia Pacific, sex workers reported having limited access to contraceptives and lubricants along with reduced access to harm reduction resources. Lockdowns also disrupted STI or HIV testing services, limiting sex workers’ access to necessary healthcare.

In North America, sex workers have been excluded from the government’s recovery response. And many began offering online services to sustain themselves.

A woman stands backlit next to a dimly lit bus that reads 'Thailand' with green lighting.
Sex workers stand in a largely shut-down red light area in Bangkok, Thailand on March 26, 2020. (AP Photo/Gemunu Amarasinghe)

Government vs. community response

Globally, sex workers have been left to fend for themselves during the pandemic with little to no support from the government. But communities themselves have been rallying.

Elene Lam, founder of Butterfly, an Asian migrant sex organization in Canada, talks about the resilience of sex wokers during the pandemic.

She says organizations like the Canadian Alliance for Sex Work Law Reform are working in collaboration with Amnesty International to mobilize income support and resources to help sex workers in Canada.

Organizations in the United Kingdom, Germany, India and Spain have also set up emergency support funds. And some sex worker organizations have developed community-specific resources for providing services both in person and online during the pandemic.

Global recovery needs to include sex workers

The International Labour Organization’s “Decent Work Agenda” emphasizes productive employment and decent working conditions as being the driving force behind poverty reduction.

Sociologist Cecilia Benoit explains that sex work often becomes a “livelihood strategy” in the face of income and employment instability. She says that like other personal service workers, sex workers also should be able to practice without any interference or violence.

In order to have an inclusive COVID-19 recovery for all, governments need to work to extend social guarantees to sex workers — so far they haven’t.

As pandemic restrictions disappear, it is crucial to ensure that everyone involved in sex work is protected under the law and has access to accountability measures.

A woman stands wearing a mask with a safety vest on in front of a collage of scantily clad women and a sign that reads 'nude women non stop'
A volunteer helps out at Zanzibar strip club during a low-barrier vaccination clinic for sex workers in Toronto in June 2021. THE CANADIAN PRESS/Frank Gunn


As feminist researchers, we propose that sex work be brought under the broader agenda of decent work so that the people offering services are protected.

  1. Governments need to have a legal mandate for preventing sexual exploitation.

  2. Law enforcement staff need to be trained in better responding to the needs of sex workers. To intervene in and address situations of abuse or violence is critical to ensure workplace safety and harm reduction.

  3. Awareness and educational campaigns need to focus on destigmatizing sex work.

  4. Policy-makers need to incorporate intersectionality as a working principle in identifying and responding to the different axes of oppression and marginalization impacting LGBTQ+ and racialized sex workers.

  5. Engagement with sex workers and human rights organizations need to happen when designing aid support to ensure that an inclusive pathway for recovery is created.

  6. Globally, there needs to be a steady commitment towards destigmatizing sex workers and their services.

Despite the gradual waning of pandemic restrictions, sex workers continue to face the dual insecurity of social discrimination and loss of income support. Many are still finding it difficult to stay afloat and sustain themselves.

Societally, we need to recognize that sex workers have agency and deserve the same respect, dignity and aid as any other person selling their labour.

The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.

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OU researchers award two NSF pandemic prediction and prevention projects

Two groups of researchers at the University of Oklahoma have each received nearly $1 million grants from the National Science Foundation as part of its…



Two groups of researchers at the University of Oklahoma have each received nearly $1 million grants from the National Science Foundation as part of its Predictive Intelligence for Pandemic Prevention initiative, which focuses on fundamental research and capabilities needed to tackle grand challenges in infectious disease pandemics through prediction and prevention.

Credit: Photo provided by the University of Oklahoma.

Two groups of researchers at the University of Oklahoma have each received nearly $1 million grants from the National Science Foundation as part of its Predictive Intelligence for Pandemic Prevention initiative, which focuses on fundamental research and capabilities needed to tackle grand challenges in infectious disease pandemics through prediction and prevention.

To date, researchers from 20 institutions nationwide were selected to receive an NSF PIPP Award. OU is the only university to receive two grants to the same institution.

“The next pandemic isn’t a question of ‘if,’ but ‘when,’” said OU Vice President for Research and Partnerships Tomás Díaz de la Rubia. “Research at the University of Oklahoma is going to help society be better prepared and responsive to future health challenges.”

Next-Generation Surveillance

David Ebert, Ph.D., professor of computer science and electrical and computer engineering in the Gallogly College of Engineering, is the principal investigator on one of the projects, which explores new ways of sharing, integrating and analyzing data using new and traditional data sources. Ebert is also the director of the Data Institute for Societal Challenges at OU, which applies OU expertise in data science, artificial intelligence, machine learning and data-enabled research to solving societal challenges.

While emerging pathogens can circulate among wild or domestic animals before crossing over to humans, the delayed response to the COVID-19 pandemic has highlighted the need for new early detection methods, more effective data management, and integration and information sharing between officials in both public and animal health.

Ebert’s team, composed of experts in data science, computer engineering, public health, veterinary sciences, microbiology and other areas, will look to examine data from multiple sources, such as veterinarians, agriculture, wastewater, health departments, and outpatient and inpatient clinics, to potentially build algorithms to detect the spread of signals from one source to another. The team will develop a comprehensive animal and public health surveillance, planning and response roadmap that can be tailored to the unique needs of communities.

“Integrating and developing new sources of data with existing data sources combined with new tools for detection, localization and response planning using a One Health approach could enable local and state public health partners to respond more quickly and effectively to reduce illness and death,” Ebert said. “This planning grant will develop proof-of-concept techniques and systems in partnership with local, state and regional public health officials and create a multistate partner network and design for a center to prevent the next pandemic.”

The Centers for Disease Control and Prevention describes One Health as an approach that bridges the interconnections between people, animals, plants and their shared environment to achieve optimal health outcomes.

Co-principal investigators on the project include Michael Wimberly, Ph.D., professor in the College of Atmospheric and Geographic Sciences; Jason Vogel, Ph.D., director of the Oklahoma Water Survey and professor in the Gallogly College of Engineering School of Civil Engineering and Environmental Science; Thirumalai Venkatesan, director of the Center for Quantum Research and Technology in the Dodge Family College of Arts and Sciences; and Aaron Wendelboe, Ph.D., professor in the Hudson College of Public Health at the OU Health Sciences Center.

Predicting and Preventing the Next Avian Influenza Pandemic

Several countries have experienced deadly outbreaks of avian influenza, commonly known as bird flu, that have resulted in the loss of billions of poultry, thousands of wild waterfowl and hundreds of humans. Researchers at the University of Oklahoma are taking a unique approach to predicting and preventing the next avian influenza pandemic.

Xiangming Xiao, Ph.D., professor in the Department of Microbiology and Plant Biology and director of the Center for Earth Observation and Modeling in the Dodge Family College of Arts and Sciences, is leading a project to assemble a multi-institutional team that will explore pathways for establishing an International Center for Avian Influenza Pandemic Prediction and Prevention.

The goal of the project is to incorporate and understand the status and major challenges of data, models and decision support tools for preventing pandemics. Researchers hope to identify future possible research and pathways that will help to strengthen and improve the capability and capacity to predict and prevent avian influenza pandemics.

“This grant is a milestone in our long-term effort for interdisciplinary and convergent research in the areas of One Health (human-animal-environment health) and big data science,” Xiao said. “This is an international project with geographical coverage from North America, Europe and Asia; thus, it will enable OU faculty and students to develop greater ability, capability, capacity and leaderships in prediction and prevention of global avian influenza pandemic.”

Other researchers on Xiao’s project include co-principal investigators A. Townsend Peterson, Ph.D., professor at the University of Kansas; Diann Prosser, Ph.D., research wildlife ecologist for the U.S. Geological Survey; and Richard Webby, Ph.D., director of the World Health Organization Collaborating Centre for Studies on the Ecology of Influenza in Animals and Birds with St. Jude Children’s Research Hospital. Wayne Marcus Getz, professor at the University of California, Berkeley, is also assisting on the project.

The National Science Foundation grant for Ebert’s research is set to end Jan. 31, 2024, while Xiao’s grant will end Dec. 31, 2023.

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Pfizer vaults into sickle cell market as GBT deal confirmed

Pfizer’s reported interest in acquiring sickle cell disease specialist Global Blood Therapeutics (GBT)  has been confirmed, with the
The post Pfizer…



Pfizer’s reported interest in acquiring sickle cell disease specialist Global Blood Therapeutics (GBT)  has been confirmed, with the $68.50-per-share deal valuing GBT at $5.4 billion.

As we reported this morning, the deal gives Pfizer already-approved SCD therapy Oxbryta (voxelator) – which industry watchers reckon could see a dramatic uptick in sales with Pfizer’s marketing muscle – plus a phase 3 antibody candidate, a phase 1 follow-up to Oxbryta that could offer improved dosing.

Oxbryta is the main asset in the deal, with Evaluate predicting sales could reach $1.5 billion in 2028 – a leap forward from the $195 million it made last year and $127 million in the first half of 2022.

Pfizer is expecting big things from the takeover , predicting that the company’s SCD franchise will bring in combined peak sales of more than $3 billion.

The boards of both companies have recommended the deal to shareholders, and the two companies suggested it should close before the end of the year – assuming of course it doesn’t fall foul of any antitrust issues raised by financial regulators.

The GBT deal comes at a time when the market for SCD therapies is undergoing significant change, with multiple new drugs reaching the market after years of stagnation and progress also being made with genetic therapies from the likes of bluebird bio, Vertex Pharma/CRISPR Therapeutics and Precision Bio/Novartis.

Oxbryta came to market in 2019, a few days after Novartis’ injectable anti-P-selectin antibody Adakveo (crizanlizumab), which is also tipped for blockbuster sales but like Oxbryta has suffered from a slow rollout.

CRISPR Therapeutics and Vertex are also in the running with their gene-editing candidate CTX001, in phase 1/2 trials which are due to generate final results later this year. If those results are positive the partners have said they could file for approval in the US before year-end.

Meanwhile, bluebird bio’s one-time gene therapy  lovotibeglogene autotemcel is supposed to be heading for regulatory filing in the US next year, although it has been delayed by an FDA partial clinical hold implemented after a persistent case of anaemia was seen in one adolescent patient in a clinical trial.

GBT’s inclacumab – another P-selectin antibody that could encroach on Adakveo – is in a pair of phase 3 trials due to generate results next year.

Meanwhile, there are a couple of orally-active pyruvate kinase R activators from Forma Therapeutics and Agios – etavopivat and mitapivat, respectively – in mid-stage development, and Pfizer has its own SCD candidate in PF-07209326, an E-selectin anatomist in phase 1.

It’s worth noting that this isn’t Pfizer’s first deal in SCD. In 2011 it paid $340 million for rights to rivipansel, a pan-selectin antagonist developed by GlycoMimetics, which failed a phase 3 test in 2019 and was jettisoned by Pfizer the following year.

The deal is another example of Pfizer splashing out on business development thanks to windfall cash generated by its COVID-19 vaccine Comirnaty and oral antiviral therapy Paxlovid. It comes shortly after the group closed a $6.7 billion acquisition of Arena Pharma, bringing on board etrasimod in late-stage testing for ulcerative colitis, and made an $11.6 billion takeover bid for Biohaven and its migraine therapy Nurtec ODT (rimegepant).

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