Q3 2023 Investor Audibles: Third Point, Sohra Peak, Greenhaven Road

Episode Summary

Executive Summary: The transcript compiles letters from Third Point, Sora Peak, and Greenhaven Road, each emphasizing that macro volatility and higher rates are creating mispricing while durable business progress drives long-term returns. Across the letters, managers highlight credit as attractive, small/micro-cap inefficiencies abroad, and idiosyncratic stock picks like PAR, Burford, KKR, API Group, and Celebrite as examples of businesses compounding despite weak share prices.

Main Topics: Third Point’s macro and credit positioning (Priority: 5/5): Daniel Loeb argues that rising long-term rates hurt bond proxies and unprofitable growth, but also create attractive dislocations. Third Point is leaning into corporate and structured credit, balance-sheet analysis, and event-driven opportunities while maintaining defensive exposure. Sora Peak’s small-cap global value strategy (Priority: 4/5): Jonathan Kukawar reports a strong quarter and describes deep research, including field work in Australia, as key to finding inefficient small/micro-cap opportunities. He emphasizes culture, market share, and long runway growth in Mader Group and Duratec. PAR Technology and the Burger King win (Priority: 5/5): Greenhaven Road frames Burger King as validation of PAR’s multi-year turnaround and unified commerce strategy. The win is presented as a gateway to major future revenue from RBI brands and international rollout, with profitability expected in 2024. Burford Capital’s litigation-driven upside (Priority: 4/5): Greenhaven Road highlights Burford’s YPF victory as a power-law-style outcome and argues the market underestimates collectibility-adjusted value. The thesis rests on asymmetric upside from a few large cases rather than many small ones. KKR, API Group, and Celebrite as compounders (Priority: 4/5): The letter positions KKR as a high-quality alternative asset manager with durable growth, API Group as a non-discretionary service provider with recurring demand, and Celebrite as mission-critical law-enforcement software with pricing power and acquisition optionality. Shorts, hedging, and market caution (Priority: 4/5): Greenhaven Road details bearish positions in speculative or weak-business-model names and adds index puts as insurance. The broader stance is cautious on macro, but confident in balance-sheet-driven opportunity and long-term business execution.

Key Arguments: Higher long-term interest rates are rationally compressing valuations of unprofitable growth, levered companies, and bond proxies, creating better entry points in credit and select equities. Third Point sees the most attractive credit environment since 2020, with yields near 10% on the JPM Global High Yield Index and substantial dispersion between strong and weak credits. Distinguishing real leverage problems from perceived ones requires deep fundamental research and capital-structure analysis, an area where Third Point believes it has an edge. Sora Peak’s universe of small and micro caps remains inefficient, especially outside the U.S., and field research can uncover material informational advantages. Western Australia, especially Perth-based companies, may be less efficiently covered than eastern Australian peers, creating potential mispricing. PAR’s Burger King deal validates years of product cleanup and strategic repositioning, making the company credible for more Tier 1 restaurant customers. The Burger King win could lead to further rollouts across RBI’s portfolio, including Tim Hortons and Popeyes, plus international expansion and hardware/software upsells. Burford’s upside is driven by a power-law case distribution, where one or two huge awards can dominate returns; YPF may prove transformational. KKR’s long-term growth is supported by the secular expansion of private markets, a growing high-net-worth franchise, and insurance-related capital. API Group benefits from legally required, recurring fire/life safety services, while Celebrite benefits from mission-critical data extraction with pricing power and product expansion. Greenhaven Road believes business progress matters more than macro in the long run, and share prices will eventually reflect operating improvements. The portfolio is protected by shorts in speculative or weak businesses and by index puts purchased when options were unusually cheap.

Data Points: Third Point flagship offshore fund return: -0.9% - Q3 2023 performance Top winners at Third Point: UBS Group AG; Jacobs Solutions; Vistra; Shell; Dana Holding - Largest contributors in the quarter Top losers at Third Point: PG&E; Microsoft; Hertz; Bath & Body Works; LVMH - Largest detractors in the quarter 10-year U.S. Treasury yield increase: +73 bps - Third Point notes Q3 rate move 30-year U.S. Treasury yield increase: +84 bps - Third Point notes Q3 rate move Corporate and structured credit exposure: ~40% of overall exposure - Third Point portfolio mix JPM Global High Yield Index yield: close to 10% - Third Point’s credit market commentary Third Point corporate credit contribution YTD: +1.3% net - Portfolio return contribution year to date Outperformance vs JPM domestic high yield: +450 bps - Third Point corporate credit YTD performance Structured credit contribution YTD: +1.3% net - Portfolio return contribution year to date Mortgage portfolio hedge ratio: 40% interest-rate hedge - Structured credit update Non-performing loans in mortgage pools: ~15% on average - Expected share of loan pools Sora Peak quarterly return: +27% net - Q3 2023 partnership return Sora Peak YTD return: +30% net - Year-to-date performance Sora Peak top-five holding concentration: 61.6% - Portfolio composition as of Sep. 30, 2023 Sora Peak average market cap: $319 million - Portfolio composition as of Sep. 30, 2023 Non-U.S. investments: 74.2% - Portfolio composition as of Sep. 30, 2023 Western Australia population: 2.7 million - Regional context in Sora Peak research Australia total population: 25.7 million - Regional context in Sora Peak research Mader Group market share in Australia: over 40% - Used to support North American expansion thesis Mader Group current North America share: 2% to 3% of TAM - Long-run growth opportunity Duratec DoD segment annual revenue: $229 million - Cited as fast-growing segment Duratec targeted revenue: A$1.0 to A$1.2 billion in 4-5 years - Management’s long-term potential estimate Duratec targeted net income: A$40 to A$50 million - At similar margins in 4-5 years Greenhaven Road quarterly return: ~3% net - Q3 2023 fund performance Greenhaven Road YTD return: 30% net - Year-to-date performance PAR existing base: ~22,000 locations - Before Burger King rollout Burger King locations added: >7,000 locations - North American rollout win Burger King annual recurring revenue: ~$25 million - Estimated ARR from North America win PAR base ARR: ~$130 million - Pre-Burger King annual recurring revenue base PAR ARR growth rate: 25%+ to >35% - Expected growth during rollout RBI brands potential follow-on locations: ~8,000+ locations - Tim Hortons plus Popeyes Potential follow-on ARR from RBI brands: $25 million+ - Projected ARR from Tim Hortons and Popeyes Burger King international locations: ~10,000 - Potential later phase rollout Potential international ARR: ~$20 million - Estimated contribution from Burger King international rollout Burger King franchisee update program: $400 million - Reclaim the Flame funding likely to drive hardware/software spend Burford YPF judgment: $6.2 billion plus $300 million/year interest - Key litigation asset Burford investment basis in YPF: $35 million invested to date; $28 million basis - Used to illustrate asymmetry Burford partial sale proceeds: $236 million for 7 million sold - Evidence of realized gains Burford market cap: $3 billion - Context for YPF significance Burford share price referenced: $13 per share - Greenhaven Road valuation view KKR valuation: 12x consensus 2024 earnings - Compared with market at 17x KKR net cash and investments: >$20 per share - Balance sheet and intrinsic value support API Group organic growth: mid-to-high single digits - Recurring non-discretionary services Celebrite valuation: just over 3x 2024 revenue - Perceived discount to peers Celebrite cash balance: $230 million - Potential acquisition firepower Flying taxi short thesis risk: regulatory + technology + business model risk - One of Greenhaven Road’s shorts Battery company funding runway: ~2 years remaining - Short thesis on weak capital structure EV manufacturer production: 1,550 vehicles last quarter - Evidence of subscale operations

Pivotal Quotes: "Time is the friend of the talented management team. Time is the friend of the advantaged business." — Scott (Greenhaven Road Capital): Explaining why long-term business fundamentals matter more than short-term macro noise "The current opportunity set in credit is the most attractive overall since 2020." — Daniel Loeb (Third Point): Summary of Third Point’s credit-market view "Burger King would have been crazy to partner with the PAR of five years ago, but now you could argue they would be crazy not to partner with the PAR of today." — Scott (Greenhaven Road Capital): Describing PAR Technology’s turnaround and strategic validation

Implications: Listeners should take away that rising rates and macro fear are creating mispricing, but the best opportunities appear to be in businesses with durable demand, improving execution, and strong balance sheets. The letters favor patient ownership, selective credit, and catalysts over index exposure.