Berkshire Hathaway's AGM (2025)
Monthly updates: JET2, XPEL, WOSG, LOGC
Don’t forget to read the recent Special Report on XPEL based on 54 interviews. XPEL is a great company going through a blip.
Read insights from Watches & Wonders in Switzerland, the watch industry’s biggest trade show.
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Thank you to all of you who attended the first Hidden Gems Investing meetup in Omaha last weekend. The most valuable part of the Berkshire weekend in my view are the meetups before and after the Saturday annual meeting, which are only possible because thousands of value investors descend on the same locations. I hope to see more of you in future as this newsletter keeps growing.
For those who have not been to a Berkshire Hathaway meeting before, this is what being sat in the audience is like:
And here are some of the exhibits in the hall:
This meeting will forever be remembered for the last five minutes of the Q&A, when Buffett announced he would be retiring as CEO at year-end. I filmed the standing ovation he received after he announced it:
Well deserved for an outstanding record over 65 years.
But I suspect this is not the last time we will see him on stage. Buffett announced he will be retiring as CEO, but he also holds the position of Chairman and did not announce his retirement from that position. His energy levels were high on and off stage.
On to the monthly update - Has there been any other news over the last month?
The announcement of tariffs on Liberation Day significantly impacted stocks, including those profiled by this newsletter. I expect many of the companies themselves will be largely unaffected from tariffs. As markets from move from panic to reflection, many of their stocks are now recovering.
This is how I think tariffs will impact the companies profiled by this newsletter, and several are discussed below:
Direct negative impact: TerraVest, Watches of Switzerland, XPEL
No material direct impact: Jet2, Kyndryl, Macfarlane, Seaport Entertainment
Direct positive impact: ContextLogic.
Jet2 (JET2.L)
Jet2's stock jumped 20% after a trading update on April 29. The results themselves were brief and largely in line with the February update, but investors reacted to the announcement of a £250mm buyback, equivalent to 8.5% of the pre-announcement market cap. The buyback is expected to be complete in nine months and is in addition to the company buying back all £304mm of outstanding convertible debt in March.
The two buybacks combined will eliminate around 14% of the fully diluted share count and mark a big change in capital allocation policy.
Jet2 has compounded EPS at 24% p.a. over the last decade, yet the stock has 'only' returned 15% p.a. and was trading on 6.5x P/E prior to the announcement despite having net cash, double-digit growth prospects, the best competitive position and management team in the industry, and a track record of gaining share during downturns.
At 6.5x P/E, Jet2 could theoretically buy back all its shares in 6.5 years if the stock price does not go up. The company had in the past been resistant to a buyback because although Founder Phillip Meeson had most of his net worth invested in the shares, like many founders he preferred to reinvest all cash into the business and held a large amount of excess cash on the balance sheet.
My biggest concern over the last few years has been whether Meeson's retirement would reduce shareholder friendliness further, but the opposite seems to have happened. Over the last six months, Jet2 has bought back all convertible debt, offset all dilution in the employee share save scheme, and now announced a major share buyback.
I believe that despite the 20% stock move investors still underappreciate these changes.
It looks to me that announcement is not a one-off and that buybacks will now be an ongoing use of cash. The company has £1.1bn of own cash and a target to reduce this to £600-700mm, meaning it will still have excess cash after the £250mm buyback and future cash generation. I could therefore see a smaller buyback of around 4% of the share count being an ongoing feature if the stock stays where it is.
Here is how I think about the value of the company and the buyback:
Current EPS is £1.9, or £2.0 after the buyback.
EBIT should grow slightly over 10% in most years with Jet2's aircraft order guaranteeing about 7% seat growth for the rest of the decade, a mix shift towards much higher ASP package holidays, and inflation.
That will be offset to some extent by lower interest income on cash balances, meaning EPS over three years should increase to around £2.5.
I believe a company with these qualities should trade at 15x, implying a stock price of £37.5 vs £16.5 today. However, even a modest 12x multiple implies a value of £30.
Even a £30 valuation is roughly double today's share price, meaning that every 10% of the shares Jet2 is able to reduce buy back today increases intrinsic value of the remaining shares by another 10%.
In Jet2's case, I think the value creation is even greater. The company sits on £1.1bn of 'own cash', defined as net cash minus customer deposits. This is such an enormous cash pile that investors appear to have placed no value on it as it seems like there was little prospect of the cash being put to work (the P/E was low at 6.5x but ex ‘own cash’ its even cheaper at 4.5x). That should now change as it turns out the cash is worth something. If the company is willing to reduce own cash from £1.1bn to £600-700mm via buybacks, we should arguably be subtracting the £400-500mm of own cash from the market cap. That would put the stock on an ex cash P/E of 7x, even today.
For completeness, the results themselves largely reiterated what management stated in February:
PBT ex FX for FY25 is expected to be £565-570mm or +9% y/y.
Summer '25 capacity is +8.3%, with management still "satisfied" with bookings.
Pricing for package holidays are still "displaying a modest average increase" and will help mitigate previously announced cost increases.
Overall, UK travel demand seems to have held up ok and been unaffected by any spillover from US tariffs. Various travel agents are reporting strong late bookings and Ryanair's CEO also said about 10 days ago that they had not seen an impact.
XPEL
Special Report, Notes from the trade show
I attended the New York Auto Show where I spoke with several representatives from Ford. This was helpful because 18 months ago a short seller called Culper Research released a report that stated a Detroit OEM (later revealed to be Ford) had partnered with paint company PPG to paint vehicles not through spray paint but by wrapping it with colored paint protection film. Culper argued that this would happen at mass scale and mean XPEL's film installed in the aftermarket obsolete, causing the stock to fall heavily.
Culper would later highlight PPG's announcement that it had produced a "revolutionary new matte clear film" for the Ford Mustang 2024 Edition as the result of this.
I argued in the Special Report that this was marketing spin, not a threat to XPEL, and that colored film has not replaced spray paint because it is thousands of dollars more expensive. I believe my conversations at the New York Auto Show now give final confirmation of that.