Compact Perspectives

8/ Based on the above perspective, I believe $JD's intrinsic value is trading below its price. Furthermore, this IV is calculated on a no-growth/venture money-losing basis. We can get more granular on valuation but I believe directionally this is the right bet and the market...

7/ As everyone knows, $JD's balance sheet is filled with loads of cash. Many ways to calculate this, yada yada. My calculation shows $27.5bn net cash or roughly 72% of current Mcap.

6/ Given that $JD operates in China, my "fair" or Base hurdle is 18%. Meanwhile, the Conservative hurdle is 25%, representing a slight double from my usual hurdle rate for US equities or 4x P/FCF. Don't think I need to mention this, but these hurdle rates are quite conservative.

5/ According to $JD's filings, Free Cash Flow in the LTM from 3Q23 was $5.4bn. Our projected Normalized FCF is a mere $3.9bn for reasons mentioned in the above. Again, we are looking at $JD as a no growth and money-losing in its other ventures.

3/ Yes, topline has been essentially flat since 2022. So let's play along with exactly that. The "Normalized" Year is from the view that $JD no longer grows anymore. The Normalized Year reflects no material growth in JD Retail (core biz) and overall continues..

Picked up $JD (JD .Com) at $23.09 last week. I believe the pendulum of investor psychology has swung into the extreme for $JD and China in general. I think there is too little confidence and too much cheapness. I think $JD could regain 12-30% or more from here. 🧵...

8/ BV+EARNINGS METHOD: Markel Parent Co's BV is calculated by subtracting Ventures BV. The Mcap. is then based on a normalized insurance P/BV of 1.2x. This represents both the Insurance & Investments divisions. Meanwhile, Ventures is valued in the same way as the Earnings Method.

7/ SOTP, EARNINGS: Insurance is valued using a 12% hurdle based on 2x of Joel Greenblatt's conservative Rf rate. Markel Ventures valued at a P/E implied from 1x PEG. Meanwhile, Investments are valued at 9.2% implied from the 5-yr CAGR in BV.

6/ EARNINGS METHOD: Total normalized earnings expected to be $1,199M or 5.5% YoY decrease from LTM. The projected earnings represent an EPS of $88.8, an arguably much more conservative projection than the $100-150 shared by $MKL management.

5/ EARNINGS METHOD: Equities to grow inline w/ market @ 7%. Fixed income conservatively assumes no value upside from expected rate cuts. ST-investments remain constant. Investment yield projected at 2% based on the 5-yr median. This nets out to $465M or 10% YoY decrease from LTM.

4/ EARNINGS METHOD: Markel Ventures revenue is projected to grow at 22.9% or 25% discount to its 5-yr revenue CAGR. Meanwhile, the NPAT margin is assumed to increased by 32bps to its pre-COVID margins. This nets out to $264M, representing a 28% YoY increase from the LTM figure.

3/ EARNINGS METHOD: Insurance revenue is projected to grow 10% below its 5-yr CAGR with a 94.4% combined ratio based on the 5-yr median. This nets out to $469M or 14% YoY decrease from its LTM figure due to a higher combined ratio assumed.

I picked up some $MKL shares last month at $1,326.3/share. I believe there could be additional $MKL upside of up to 25-30% from the current price based on a SOTP valuation using earnings and BV driven methods. 🧵...

Recently re-read One Up On Wall Street by Peter Lynch. Peter Lynch was the fund manager of the Magellen Fund at Fidelity between 1977-90. Lynch averaged a 29.2% annual return, consistently more than double the S&P500 index. Mainly writing this out to keep record for myself. 🧵