Robert Robotti, founder of Robotti & Company, and noted Grahamite small-to-mid cap value investor, started out as an accountant working for the auditor of Tweedy, Browne Company. After leaving the accounting firm Robotti worked for “Super” Mario Gabelli as his CFO for three years when Gabelli was only a twelve‐person firm. Applying the lessons from Tweedy, Browne and Gabelli in his own firm has led to returns of 14.1 percent compound since inception in 1993 (versus 8.7 percent for the Russell 2000). Robotti, who is speaking at the upcoming Value Investing Congress in Omaha in May, has given an interview to Value Investor Insight describing his process, the beaten-up industries he’s presently following, and why he thought that Builders FirstSource, Inc. (BLDR) – which has more than doubled since the interview – was a good investment.
Robotti’s offsider Isaac Schwartz says of the quirky types of investments Robotti & Company makes:
We see considerable potential in Mongolia, whose economy is being fundamentally transformed by demand for its natural resources. Roads, railways and processing facilities are being built in the country to facilitate the shipping of coal, copper and iron ore to China and elsewhere. One way we’ve found to play that is through a Japanese company called Sawada Holdings [8699:JP], which owns a majority stake in Khan Bank, the dominant bank in Mongolia. Khan’s asset base has grown a hundred-fold in the last decade and it now controls roughly 30% of the country’s total banking assets. Khan in the first half of 2011 had net earnings of $24 million, a 49% return on equity. Put a 15-20x multiple on that on an annualized basis and the bank overall would be worth $700 to $950 million, making Sawada’s stake worth maybe $400-500 million. But if we value the rest of Sawada’s holdings, primarily a Japanese broker-dealer, at book value, its current market value [at a share price of around ¥740] implies a value for Khan of only $130 million at current exchange rates. That’s a pretty nice discount for a company with dominant market share, great returns on capital and extraordinary growth upside. Another bank bet we’re making is through Indonesia’s Panin Insurance [PNIN:IJ], the control shareholder of Bank Panin, a leading commercial bank serving the country’s affluent ethnic Chinese minority. There’s actually a bank museum in Jakarta that focuses on the Asian financial crisis of 1997-98, which is indicative of the influence that crisis had, resulting in a conservatively capitalized and risk-averse banking industry in Indonesia. Bank Panin trades independently at a much higher valuation, but on our look-through numbers we’re able to buy it through the insurance holding company at an implied P/E closer to 5x and at only 50% of book value. That for a bank in a growing economy that has increased its book value per share by 16% annually over the last five years.
Robotti is scheduled to speak at the Spring congress in Omaha. There is a PDF of the Value Investor Insight interview available to readers for free on the Value Investing Congress website. The interview and special promotion will only be available until Monday, April 16th so check it out before Monday’s deadline.
To download the interview head to ValueInvestingCongress.com/Download.
To take advantage of the special offer see ValueInvestingCongress.com/GREENBACKD. Use discount code S12GB4 to save $500 before April 16.