Michael Kao is the founder and portfolio manager of Akanthos Capital Management, LLC, a capital structure long-short fund with an event focus based in Los Angeles. Prior to forming Akanthos in 2002, Mike worked at Canyon Capital Advisors where he co-founded the Canyon Capital Arbitrage Fund, directing investments in various arbitrage strategies.
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Michael Kao spoke at the 9th Annual Value Investing Congress, also see Greenblatt Explains His New Approach To Value Investing. Below are notes from his presentation.
Highlights from Michael Kao’s presentation
Tao of asymmetric investing
Long/short capital structure
Event-driven focus
Overweight highest conviction
Different thematic drivers to offset position concentration
Old ideas: General Motors Company (NYSE:GM) distressed bonds 8-bagger
Fannie Mae / Federal National Mortgage Assctn Fnni Me (OTCBB:FNMA), Freddie Mac / Federal Home Loan Mortgage Corp (OTCBB:FMCC) preferred 20bagger
New idea: TAG OIL LTD (TSE:TAO) (OTCMKTS:TAOIF)
Canadian domiciled E&P company
Toronto traded
Op assets in nz
Most active driller in nz
$200M market cap
$68M cash
140M ev
3.5x ebitda
Profile similar to distressed bond plus event options
Trades at 3.5x current cash flow with production at distressed levels
Valuation
Base case: $6.2, 100% upside
Upside: $15.5, 400% upside
WH in deep value
Disappointing production numbers in past few quarters
Apache Corporation (NYSE:APA) pulled out of a JV
Risks
Commodity price risk: 85% oil
Limited op history of wells
Lack of oil gas infrastructure in east coast
High potential for capex spending
Near term drilling results could disappoint