ASB Partners Q423 and Year End 2023 Letter
Letter sent to LPs summarizing the performance of ASB Partners for Q423 and the Full Year 2023 with a discussion of selected positions $LRN,$OSW,$IWG...Please see the risk disclosures.
February 4, 2024
Dear Limited Partner,
For the quarter and year to date ending 12/31/2023, ASB Partners’ un-audited net results were +2.9% and +16.9% respectively. The following tables summarize various metrics of concentration and performance.
As can be seen from the table below, for the fourth quarter of 2023, the Fund underperformed the major indexes. On a full-year basis, the Fund tracked the Russell 2000 but trailed the S&P.
Selected Portfolio Discussion
Q4 2023 Contributors:
Stride (LRN) –
Stride reported strong earnings on October 25, 2023, which pushed the stock to all-time highs. As was mentioned in last quarter’s letter and a previous post, Stride provides a platform for virtual, K-12 public schools. The business has been around for 30 years, and Stride is the largest provider with >70 schools spread across 30 states. Importantly, as relates to the barriers to entry, this isn’t just a piece of software that can be ripped out and replaced. Stride provides the entire public school offering from beginning to end: they recruit, enroll, and provide guidance counselors, principals, and teachers for each student. The only thing they don’t provide is the physical building. Given the lack of a physical presence and a higher student-to-teacher ratio, Stride can provide an equivalent education for less than half the cost of a traditional, brick-and-mortar school. I’ve followed the name since 2017 when it appeared on a screen for value stocks trading at ~ 3x EV/EBITDA.
The market cap is now $2.7 billion, and the company is still relatively underfollowed (three top holders are passive index funds). Before the pandemic, Stride struggled to differentiate itself from other for-profit education companies. However, the consistent, post-pandemic results and their recent, bullish long-term guidance have gone a long way to change the market’s perception that they are doing something different than their peers.
OneSpaWorld (OSW) –
OSW has 90% market share of the outsourced spa market on cruise ships (20x larger than the next competitor). In return for giving OSW exclusive rights to run the spa on the ship, OSW gives the cruise operators ~50% of the gross revenues. This is a decent trade-off because OSW 1) doesn’t have to fund capital expenses associated with the build-out of new ships; 2) doesn’t need to spend on marketing because the cruise operators always sail at full capacity. As can be seen by their largest customers, this is a remarkably dominant and stable business:
During the pandemic, OSW had to take out debt to survive, given lockdowns and moratoriums on cruising, but they are aggressively paying it down and expect to be debt-free by the end of 2024 (90% after-tax free cash flow to Adj. EBITDA conversion).
Another quirk of the story: OSW is domiciled in Bermuda and doesn’t pay taxes so they don’t get the interest-deduction benefit. There is no reason for them to have debt on their balance sheet. Once they pay down the debt, Management is confident that all the excess free cash flow will be returned to shareholders.
International Working Group (IWG) –
IWG’s stock price finished a volatile year close to where it began. The company laid out its long-term vision at a Capital Markets Day, which I covered in a previous post.
Everyone knows that commercial real estate is going through a dramatic transition:
The bet with IWG is that the worse it gets for landlords, the more they will flock to IWG’s new capital-light offering wherein landlords partner with IWG to lease up their space.
Thankfully, IWG is generating decent cash flow at current occupancy rates and is paying down gross debt. As more capital-light venues lease-up, IWG’s cash flow should improve.
I appreciate your support. Please let me know if you have any questions. K-1s should be ready in late March/early April.
Sincerely,
Adam Buckstein
Managing Member
646-353-8314