Q3 2022 Investor Audibles: Nordstern Capital, Praetorian Capital, and Maran Capital

Episode Summary

Executive Summary: The episode reads three Q3 2022 value-investing letters focused on macro dislocation and concentrated bets. Nordstern argues stagflation, commodity shortages, and Embracer’s eventual rerating will reward patience. Praetorian sees inflation assets, uranium, oil, housing, and select special situations as best positioned for a Fed-induced regime shift. Moran emphasizes disciplined small-cap value, cash-rich bargains, and catalyst-driven situations despite weak sentiment.

Main Topics: Nordstern Capital: stagflation, commodity scarcity, and Embracer (Priority: 5/5): The letter frames the quarter’s underperformance as temporary, driven by FX weakness, Embracer share declines, and softer commodity prices. It argues global inflation remains elevated, supply shortages persist, and commodity businesses plus Embracer should outperform as markets reprice these realities. Praetorian Capital: inflation assets and macro regime change (Priority: 5/5): Harris Kupperman describes a portfolio increasingly tilted toward energy and other inflation-linked assets, arguing the Fed’s aggressive tightening will eventually reverse and leave commodities, uranium, housing, and oil as primary beneficiaries. Moran Capital: small-cap value and special situations (Priority: 4/5): Dan Roller emphasizes process, valuation discipline, and catalyst-rich smaller-cap stocks trading at depressed multiples. He highlights several positions where the market appears to over-discount bad macro news relative to underlying fundamentals. Embracer Group thesis and capital allocation debate (Priority: 5/5): Nordstern devotes substantial attention to Embracer’s acquisition-heavy model, arguing the market is undervaluing its cash flow and future gaming pipeline while ignoring the benefits of an upcoming main-market uplisting. Uranium and energy as structural shortages (Priority: 5/5): Praetorian presents a detailed bullish case for uranium and energy services, citing supply deficits, underinvestment, Russian sanctions effects, and the view that nuclear power and oil remain structurally under-supplied. Special situations and balance-sheet-driven upside (Priority: 4/5): Across the letters, the speakers favor businesses using cash flow for buybacks, asset monetization, or rerating catalysts, including Claris, API Group, CTT, Algoma Steel, and Builders FirstSource.

Key Arguments: Nordstern argues that temporary underperformance is driven by FX and cyclical weakness, but the same forces should create future upside as commodity businesses buy back shares and Embracer uplists to a broader market. The letter contends inflation will remain elevated because money supply was expanded globally faster than real goods and services can be produced, and central banks will eventually pivot under recession and debt pressures. Nordstern says commodity shortages are structural, not cyclical, due to long underinvestment in mines and energy capacity, making cash-generative resource businesses attractive even in recession. Praetorian argues the Fed is intentionally trying to break demand, but once it does so, it will likely have to pivot; energy and other inflation assets should then reprice sharply higher. Praetorian believes uranium offers asymmetric upside because utilities are understocked, supply is constrained, and sanctions on Russia could remove a meaningful portion of global enrichment capacity. Praetorian’s housing thesis rests on migration to lower-tax, lower-cost states, while builders and landowners benefit from a long catch-up cycle in U.S. housing supply. Moran argues the market is mispricing many small-cap value stocks because sentiment is poor while fundamentals remain adequate; cheap valuations plus catalysts can still generate strong long-term returns. Moran emphasizes process over market timing, maintaining cash when needed and re-adding to positions only when price dislocations create attractive risk/reward. Across all three letters, management teams are judged on cash flow, buybacks, and capital allocation rather than short-term stock performance. Each manager sees a regime shift: value lies in hard assets, cash flows, and scarcity, not in long-duration growth assumptions.

Data Points: Nordstern Q3 underperformance drivers: 3 - Embracer decline, weaker Swedish krona, and commodity price weakness Embracer invested capital over six years: more than $11 billion - Acquisitions plus game development spending since IPO Embracer enterprise value: around $8 billion - Market value versus invested capital noted in Nordstern letter Embracer acquisitions completed: more than 80 - Since IPO in 2016 Algoma Steel diluted share count: from $177 million to $111 million - Share repurchases while stock price fell Algoma Steel market cap / net cash: about $700 million market cap; $500 million net cash - Illustrates valuation versus future cash flow potential Algoma Steel long-term U.S. HRC assumption: $800 per ton - CFO guidance cited by Nordstern Algoma Steel expected mid-cycle EBITDA: $450 million - Once EAF is completed Algoma Steel expected free cash flow: $250 million - Once EAF is completed Embracer planned game releases: 110 new PC/console games this financial year - Used to support long-term growth case Embracer pipeline: 222 PC/console games in development - Supports breadth/depth of content pipeline Embracer share count: 1.235 billion shares outstanding - Maximum dilutive count noted by Nordstern Embracer net debt: about $2.3 billion - Including future earnouts and recent acquisitions Embracer debt interest rate: 1% annual interest - Compared favorably with other levered tech businesses Praetorian Q3 fund return: -0.3% net of fees - Third quarter 2022 performance Praetorian year-to-date return: -2.87% net of fees - Through first three quarters of 2022 Praetorian AUM: approximately $162 million - Quarter-end assets under management Praetorian cash exposure: over 40% - Following Claris sales in mid-August Praetorian top five drawdowns from peak: Sprott -26%, Joe -49%, Builders FirstSource -32%, Valaris -23%, BNO -26% - Illustrates portfolio volatility and potential value St. Joe land bank: approximately 175,000 acres - Florida Panhandle real estate thesis Claris enterprise value: around $600 million - Used to argue the market misprices brand assets API Group market cap: just north of $3.5 billion - Mid-teens share price during the quarter API Group EBITDA outlook: $600-$700 million rising toward close to $1 billion - Several-year outlook based on organic growth and margin expansion CTT market cap / EV: $430 million market cap; about $500 million EV - Portuguese postal carrier and bank/real estate catalyst CTT EBITDA: more than $120 million this year - Supports low EV/EBITDA multiple CTT share count reduction: from 150 million to 143.5 million shares - Aggressive buybacks Moran fund Q3 return: -0.2% net of fees - Third quarter 2022 performance Moran year-to-date return: -25.4% - Through Q3 2022 Moran 5-year compound return: approximately 13% net - Longer-term performance cited to contextualize a bad year Moran cash balance: exceeded 40% - Following Claris sales in mid-August Claris price swing: from about $19 to $29 then down to $12 - Illustrates non-fundamental volatility and possible squeeze Claris short interest: 8 million shares, almost a third of the float - Supports squeeze/catalyst argument

Pivotal Quotes: "Boil things down to their fundamental truths and reason up from there." — Elon Musk (quoted by Nordstern Capital): Used to justify Nordstern’s valuation framework and commodity thesis "It is not about risks. It is about recognizing that you have to make good moves." — Gary Kasparov (quoted by Nordstern Capital): Introduced in the context of navigating macro and geopolitical uncertainty "For the first time in my career, they're actively targeting the stock market in an effort to create a recession and reduce the wealth effect when it comes to consumer spending." — Harris Kupperman: Describing the Federal Reserve’s tightening campaign and its implications for inflation assets

Implications: The episode signals a value-investing playbook built for stagflation: own scarce real assets, strong balance sheets, and catalyst-driven businesses. If the macro pivot occurs, commodity, energy, uranium, housing, and select small caps could rerate sharply.