Q2 2023 Investor Audibles: Buckley Capital, Immersion Investments, & Greenlight Capital

Episode Summary

Executive Summary: The transcript is a Value Hive “Investor Audibles” episode summarizing Q2 2023 letters from Buckley Capital, Immersion Investments, and Greenlight Capital. Across the letters, managers emphasize small-cap mispricings, process-driven investing, and selective concentration in high-quality businesses with catalysts, while discussing both long ideas and portfolio risk management amid volatile markets.

Main Topics: Buckley Capital’s Q2 performance and key holdings (Priority: 5/5): Buckley reported strong Q2 and YTD returns, driven mainly by NeoGames’ acquisition by Aristocrat, and highlighted several other mispriced small-cap opportunities including Griffin, Marlowe, Dental Corp, Exponential Fitness, MPAA, Basic-Fit, Franklin Covey, Potbelly, and an exited IDT position. Immersion Investments’ small-cap philosophy and portfolio updates (Priority: 5/5): Immersion emphasized patience, selective action, and owning undervalued small caps while the market remains skeptical. The letter outlines a new holding in MPAA, a reduced position in Basic-Fit due to communication issues, and continued confidence in Franklin Covey and Potbelly. Greenlight Capital’s market view and portfolio positioning (Priority: 4/5): Greenlight described a strong first half led largely by Green Brick Partners, plus gains in Console Energy and Tenant Healthcare. The firm added positions in Net Power and Onex, reduced exposure via hedges, and expressed concern that inflation and rates may reaccelerate. Catalysts and mispricing in special situations (Priority: 4/5): Across the letters, managers repeatedly argue that market prices lag intrinsic value when strategic reviews, takeouts, restructurings, or short-term sentiment shifts are involved. Several holdings are framed as special situations where value realization may come from corporate actions or operational improvement. Confidence in recurring-revenue and high-quality business models (Priority: 4/5): Many of the highlighted companies are defended as recurring revenue, defensible, or structurally improving businesses, such as NeoGames, Marlowe, Dental Corp, Franklin Covey, and Basic-Fit, despite public-market skepticism. Risk management, sizing, and process discipline (Priority: 4/5): Each manager stresses portfolio construction discipline: trimming oversized positions, reducing exposure to weak names, using expert diligence, and tightening net exposure when macro conditions or stock-specific risks increase.

Key Arguments: Buckley argues NeoGames was mispriced on recurring revenue growth and market-share potential, and Aristocrat’s acquisition validated their valuation work. Buckley contends Griffin’s home-and-building-products profitability is more durable than the market expects, with upside from a restructuring and capital return program. Buckley believes Marlowe’s UK valuation discounts ignore its recurring revenue, acquisitive scale model, and potential upside from asset sales or re-rating. Buckley says Dental Corp remains attractive despite a failed sale process because of predictable cash flows, margin expansion, and consolidation-driven growth. Buckley argues Exponential Fitness’s short report was largely inaccurate and that franchisee diligence supports a healthy system with a long growth runway. Immersion argues the market is treating all small caps as risky, creating unusual value opportunities that can outperform over a 3-5 year horizon. Immersion reduced Basic-Fit because management communication is poor and European investors remain fixated on near-term profit rather than long-term share gains. Immersion sees MPAA as a temporarily under-earning business with pricing and volume recovery potential that could materially lift earnings. Immersion believes Franklin Covey has transformed from lumpy consulting into a recurring subscription-driven business, but the market has not yet recognized it. Greenlight argues the market is overly optimistic on rate cuts and disinflation, so it increased hedges and reduced exposure despite a strong stock market. Greenlight views Net Power as a high-upside but early-stage carbon capture bet that warrants only modest sizing due to execution risk. Greenlight emphasizes that its best returns continue to come from concentrated high-conviction ideas like Green Brick Partners and selective special situations.

Data Points: Buckley fund Q2 return: 11.4% - Buckley Capital reported performance for Q2 2023. Buckley fund YTD return: 27.4% - Buckley Capital reported performance through the first half of 2023. Buckley outperformance vs Russell 2000 Value: 24.9% - Buckley said it outpaced the iShares Russell 2000 Value ETF. Buckley outperformance vs Russell 2000: 19.3% - Buckley said it outpaced the iShares Russell 2000 ETF. NeoGames acquisition premium: 120% premium to purchase price - Buckley said Aristocrat’s offer validated their investment thesis. NeoGames purchase valuation: 11x free cash flow / 7.5x EBITDA - Buckley described entry valuation for NeoGames. NeoGames iLottery market share in North America: 67% - Buckley said NeoGames leads North American iLottery. NeoGames core business growth: ~15% per year - Buckley described NeoGames’ organic growth before takeout. North American iLottery projected CAGR: 30%+ from 2021 to 2027 - Buckley cited market growth for iLottery. Griffin FY2023 EBITDA: ~$480 million - Buckley said EBITDA would be far above FY2021. Griffin FY2023 EPS: ~$4.20 - Buckley compared current earnings to FY2021. Griffin share repurchase program: $258 million - Buckley cited buybacks as downside protection. Marlowe software ARR: 43 million GBP - Buckley highlighted the governance, risk, and compliance software segment. Marlowe current share price: 555 pence - Buckley described the stock as deeply discounted. Marlowe fair value estimate: 1,250 pence - Buckley’s estimated intrinsic value for Marlowe. Dental recurring annual patient visits: 89% - Buckley used this to show resilience and repeatability. Dental bid range in strategic review: $11 to $14 per share - Buckley said private equity bids were blocked by financing. Dental valuation target: $16.30 to $18 per share - Buckley’s implied 2024 EBITDA-based price target. Exponential Fitness franchised studios: 2,700 stores - Buckley referenced the scale of the system during short-report scrutiny. Exponential Fitness long runway: 5 years - Buckley estimated the remaining growth runway based on obligated studios. Basic-Fit valuation: ~7.5x EBITDA / 11x earnings - Buckley said the stock remains cheap despite quality. Basic-Fit debt to EBITDA: ~2x - Buckley noted leverage concerns among UK investors. Franklin Covey multi-year revenue mix: ~45% - Buckley cited the shift toward recurring contracts. Franklin Covey buybacks YTD: 4% of shares - Management has been repurchasing stock aggressively. Immersion net performance Q2: 22.3% - Immersion Investments’ net return for Q2 2023. Russell 2000 return Q2: 5.2% - Benchmark referenced by Immersion. Immersion fund holdings: 19 businesses - Position count as of July 2023. Immersion top five concentration: 57% of FundNAV - Down from historic 65% to 80%. MPAA market share in starters and alternators: 50% - Immersion described MPAA’s aftermarket leadership. MPAA EBITDA guidance: $90 million - Management soft-guidance for FY2024. MPAA expected EPS: $1.15 to $1.50 per share - Immersion estimated earnings power on normalized margins. MPAA stock price at writing: ~$9 - Immersion discussed valuation after index-driven selling. Greenlight Q2 return: 14.5% - Greenlight Capital’s net return in Q2 2023. S&P 500 Q2 return: 8.7% - Benchmark return cited by Greenlight. S&P 500 first-half return: 17% - Greenlight noted strong market performance in H1. NASDAQ first-half return: 32% - Greenlight noted growth-stock strength. ARK Innovation ETF first-half return: 41% - Greenlight contrasted speculative rally with value weakness. Green Brick Partners stock move: +134% to $57 from $24 - Greenlight’s largest contributor in H1. Greenlight net exposure: 107% long / 84% short - Portfolio exposure at quarter end.

Pivotal Quotes: "What is cheap can keep getting cheaper until a fear or an issue is resolved." — Immersion Investments: Used to explain patience and the need for catalysts before valuation gaps close. "We believe the vast majority of the report was either factually inaccurate, cherry-picked, overblown, or misleading." — Buckley Capital: Buckley’s response to the short report attacking Exponential Fitness. "We continue to believe that the market is over anticipating rate cuts." — Greenlight Capital: Greenlight’s macro view explaining its hedges and cautious positioning.

Implications: The episode reinforces that skilled small-cap managers are finding opportunity in mispriced, catalyst-driven names despite a skeptical market. It also shows rising emphasis on due diligence, portfolio discipline, and macro risk control as rates, inflation, and sentiment remain key drivers.