Choice Equities Capital Management, a boutique investment management firm, published its fourth-quarter 2020 Investor Letter – a copy of which can be downloaded here. A net return of 23.1% was recorded by the fund for the Q4 of 2020, outperforming its S&P 500 benchmark that delivered a 12.2% return, but below the 31.4% return of its Russel 2000 index. You can view the fund’s top 5 holdings to have a peek at their top bets for 2021.
Choice Equities Capital Management, in their Q4 2020 Investor Letter, said that Viad Corp. (NYSE: VVI)’s business could return quickly once things normalize due to the pent-up demand for travels. Viad Corp. is a global experiential services, travel and recreation company that currently has a $792.4 million market cap. For the past 3 months, VVI delivered a decent 32.71% return and settled at $38.79 per share at the closing of February 19th.
Here is what Choice Equities Capital Management has to say about Viad Corp. in their Q4 2020 investor letter:
“Our investment in Viad Corp. can probably be thought of as a reopening play, which would be a fair characterization. For many “reopening plays”, the attractiveness of the potential investment revolves around answering some version of the question: how long will it take for the company to get back to its pre-pandemic level of cash flows? So, on that score, an investment in Viad looks attractive as a reasonable case could made cash flows can meet or even exceed those levels in a couple years’ time. The company is comprised of two businesses: GES, the number two player in the event staffing business that supports trade shows and conventions; and Pursuit, a high-end destination hotel and attractions resort chain. Clearly, neither of these businesses is well suited to prosper in a pandemic. But much like other companies who have suffered during this episode, Viad was thriving before the pandemic struck. Both businesses are well-managed and possess strong competitive positions. While the GES segment is not necessarily a quickly growing business, it generates ample cash flow which the company has used to finance capital projects in its higher return, opportunity rich Pursuit business. On the back of Pursuit’s 23% EBITDA CAGR over the last four years, together the company had grown cash flows at a very respectable low teens annual rate with reasonable expectations such growth could continue, or even accelerate.
The Pursuit business is pretty unique. It is a collection of high-end hotel and lodging properties. Many of the hotel property assets are leased through long-term exclusive ground rights agreements with select national parks in spectacular settings like Banff in Canada and Glacier Park in Montana. These resorts and their various attractions have become major destinations for clients, and the company had expansion plans for new sites like Flyover Las Vegas and Sky Lagoon in Reykjavik, Iceland coming online in 2021. The GES business was also performing well, and similarly, there are reasons to think cash flows could actually exceed prior peaks. Management looks to have capitalized on the recent period of dormant activity to reconfigure some employee contract structures. As a number of smaller players have not survived the downturn, the company also looks poised to capture greater market share once events and conventions return.
Considering the pent-up demand for high-end travel and backlog of delayed conventions that exists, business could return quickly once things normalize. Though it is likely 2021 will be full of fits and starts and might produce some false starts, it also stands to reason 2022 and beyond have an opportunity to produce higher cash flows than previously thought. Perhaps more importantly, given the company has improved its balance sheet and was cash flow positive in its critical third quarter, it appears as if they have turned the corner, and we do not need such an optimistic scenario to unfold for a successful investment.”
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