Description

Hi guys,

This is currently my favorite equity idea.  Stumbled upon it during my adventures through the HY credit markets.  Its very cheap today vs its current fair value.  It also has several future catalysts that will/could push the fair value far beyond today's.

I'm including 2 dropbox links.  One for the writeup, and one for an excel tearsheet with my valuation math/comps & thesis overview.

Writeup: https://db.tt/F9Dvi8Zz

XLS: https://db.tt/NUNhMxor

Writeup Summary:

Buy Intrawest, ticker: SNOW. 

Intrawest is a failed Fortress PE investment, turned failed Jan 2014 IPO.  I believe Intrawest is very cheap on both a relative value basis and relative to what it could be worth if the owners and new management take steps to realize additional value. 

Intrawest owns/operates a portfolio of 6 mountains & ski resorts.  Of those 6, they own the land/slopes of 4 mountains, and have long-term floating-rate (based on revenue/EBITDA) leases with local governments for the other 2.  The portfolio includes: Steamboat, Winter Park, Stratton, Tremblant, Snowshoe, and Blue Mountain.  They also have an adventure segment that offers heli-skiing, and a real estate segment that primarily runs a timeshare business. 

Using a SOTP, I get a fair value range of $22-27 per share.  This is comprised of approximately $15-19 of value from the operations, $3.50 from developable real estate holdings, $1.50 of cash, and $2.50-3.50 from the PV tax savings from the realizable portion of their $1.6B NOLs.  

I believe that due to a combination of favorable fundamentals, technicals, and both existing & potential catalysts, this equity is set up very nicely:

·         Small-float IPO, with negligible retail ownership, and nearly all float held in value funds & mutual funds. 

·         Highly motivated owners (Fortress) have been in this name for 9yrs, and the investment has reached the end of the PE lifecycle.  However, they know this thing is worth $20+ per share, and I think they are unlikely to dump their remaining 60% ownership at a price much lower than that.

·         Highly cyclical business, and we are currently climbing the cycle.  Strong ski growth over past few years, and 20%+ season pass growth in the books for this season.

·         Incredibly efficient capital structure with 4.5x leverage, paying 550bps on a recently refi’d unitranche loan. This equity has serious juice, given that the operations are trading at 7.8x through the equity.  Comps are at 10.5x today, implying a double just on the operations’ valuation. 

·         November 2014 management change.  Booted the CEO with 20+ years of ski resort experience, and replaced him with Tom Marano (25+ years at Bear, including head of mortgage trading; 1 year at Cerberus; 5 years as CEO of post-crisis ResCap; and notably, no ski resort experience).  Clearly shows Fortress’ desire to pump up the price using corporate finance & monetizing of real estate holdings. 

·         Potential catalysts to drive value: 1) REIT conversion, although benefits beyond expanding the shareholder base would be limited, but could drive a 12x blended multiple; and 2) resurrecting the real estate development business.  I view the REIT as a 33% probability, and restarting development projects as a 90%+ probability. 

Catalyst

-Mgmt change

-monetizing RE assets

-restarting development biz

-cheap, even under status quo