rational investing in irrational markets

8/13/2019 Rational Investing In Irrational Markets

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Rational Investing

inIrrational Markets


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Disclosures

Disclosures

The analyses and conclusions of Broyhill Asset Management, LLC (BAM")contained in this presentation are based onpublicly available information. BAM recognizes that there may be confidential information in the possession of thecompanies discussed in the presentation that could lead these companies to disagree with BAMsconclusions. Thispresentation and the information contained herein is not a recommendation or solicitation to buy or sell any securities.

The analyses provided may include certain statements, estimates and projections prepared with respect to, among otherthings, the historical and anticipated operating performance of the companies, access to capital markets and the values

of assets and liabilities. Such statements, estimates, and projections reflect various assumptions by BAM concerning

anticipated results that are inherently subject to significant economic, competitive, and other uncertainties andcontingencies and have been included solely for illustrative purposes. No representations, express or implied, are madeas to the accuracy or completeness of such statements, estimates or projections or with respect to any other materialsherein. Actual results may vary materially from the estimates and projected results contained herein. Accordingly, noparty should purchase or sell securities on the basis of the information contained in this presentation. BAM expressly

disclaims liability on account of any partysreliance on the information contained herein with respect to any suchpurchases or sales.

Accounts managed by BAM and its affiliates have invested in the equity of Cedar Fair, LP (FUN). It is possible thatthere will be developments in the future that cause BAM to change its position regarding the companies discussed inthis presentation. BAM may buy, sell, cover or otherwise change the form of its investment regarding such companies

for any reason. BAM hereby disclaims any duty to provide any updates or changes to the analyses contained hereincluding, without limitation, the manner or type of any BAM investment.


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Agenda

The Macro

Sound Advice

Find Your Niche

Knowing Where To Fish

Looking For A Cheap Thrill?

Bottom Line: Putting It All Together

Agenda


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Macro

Backdrop


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Profit Recovery SlightlyExceeding Job Recovery

Macro Backdrop

Source: Zero Hedge


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Are You Smarter Than a Fifth Grader?

Macro Backdrop

Source: Zero Hedge


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The Definition of Insanity

Macro Backdrop

Source: Zero Hedge


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The Feds Dilemma

BRIDGEWATERASSOCIATES DAILYOBSERVATIONS

In the old days central banks moved interest rates to run monetary policy. By watching the flows, we could see how lowering interestrates stimulated the economy by 1) reducing debt service burdens which improved cash flows and spending, 2) making it easier tobuy items marked on credit because the monthly payments declined, which raised demand and 3) producing a positive wealth effectbecause the lower interest rate would raise the present value of most investment .

All that changed when interest rates hit 0%; "printing money" (QE) replaced interest-rate changes. Because central banks can only

buy financial assets, quantitative easing drove up the prices of financial assets and did not have as broad of an effect on the economy.The marginal effects of wealth increases on economic activity have been declining significantly.

The Fed's dilemma is that its policy is creating a financial market bubble that is large relative to the pickup in the

economy that it is producing. If it were targeting asset prices, it would tighten monetary policy to curtail the emerging bubble,whereas if it were targeting economic conditions, it would have a slight easing bias. In other words, 1) the Fed is faced with a difficultchoice, and 2) it is losing its effectiveness.

We expect this limit to worsen. As the Fed pushes asset prices higher and prospective asset returns lower, and cash yields can't

decline, the spread between the prospective returns of risky assets and those of safe assets will shrink at the same time as theriskiness of risky assets will not decline, changing the reward-to-risk ratio in a way that will make it more difficult to push asset priceshigher and create a wealth effect.

Said differently, at higher prices and lower expected returns the compensation for taking risk will be too small to get investors to bidprices up and drive prospective returns down further. If that were to happen, it would become difficult for the Fed to produce muchmore of a wealth effect. If that were the case at the same time as the trickling down of the wealth effect to spending continues todiminish, which seems likely, the Fed's power to affect the economy would be greatly reduced.

Macro Backdrop

Source: Zero Hedge


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Were Worried About Whether Theres Much Gas Left

BRIDGEWATERASSOCIATES DAILYOBSERVATIONS

We think that US monetary policy is nearing a new test that will require wisdom and creativity along the lines of that which wasrequired to deal with those problems. The basic issue is that quantitative easing is a much less effective tool when asset prices arehigh and thus have low expected returns than it is for managing financial crises. That's because QE stimulates the economy by (1)offsetting a panic by providing cash to the financial system when there's a need for cash, and (2) by raising asset prices, and drivingmoney from the assets they buy into demand and investment, creating a higher level of future economic activity. So, the policy wasparticularly wise and most effective (in the sense of impact per dollar) at the height of the financial crisis when there was both adesperate need for cash and when extremely depressed asset prices were heavily weighing on demand and investment.

Now, there is a flood of liquidity and asset prices are high relative to underlying fundamentals. So the impact of additional assetprice increases on demand is much less. Quantitative easing today is driving asset prices to unsustainable levels, without stimulatingmuch additional activity. That leaves a much clearer tradeoff between driving up asset prices today and lowering future returns.

The dilemma the Fed faces now is that the tools currently at its disposal are pretty much used up, in that interest rates are at zero andUS asset prices have been driven up to levels that imply very low levels of returns relative to the risk, so there is very little ability tostimulate from here if needed. So the Fed will either need to accept that outcome, or come up with new ideas to stimulate

conditions. We think the question around the effectiveness of continued QE (and not the tapering, which gets all the headlines) isthe big deal. Given the way the Fed has said it will act, any tapering will be in response to changes in US conditions, and anydeterioration that occurs because of the Fed pulling back would just be met by a reacceleration of that stimulation. So the degreeand pace of tapering will for the most part be a reflection and not a driver of conditions, and won't matter that much. What willmatter much more is the efficacy of Fed stimulation going forward.

In other words, we're not worried about whether the Fed is going to hit or release the gas pedal, we're worried about

whether there's much gas left in the tank and what will happen if there isn't.

Macro Backdrop

Source: Zero Hedge


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Interest Rates Are Near All Time Lows

LONGTERMTEN-YEARTREASURYRATE

Macro Backdrop

Source: Robert Shiller


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Yields Have Collapsed Across Asset Classes

LONGTERM DIVIDENDYIELD

Macro Backdrop



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While Equity Valuations Are Near All Time Highs

LONGTERM GRAHAM & DODD PRICE-TO-EARNINGS MULTIPLE

Macro Backdrop



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Investors Are Not Being Compensated To Take Risk

Macro Backdrop

Source: Mebane Faber


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Sound

Advice


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Theres More Than one Way To Skin A Cat

Sound Advice


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Macro Thinkers

Sound Advice


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Agitators

Sound Advice


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Value Guys

Sound Advice


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Cheaters?

Sound Advice


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Find Your Niche

Sound Advice


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Our

Niche


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Sex Sells

Our Niche


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But Boring Is Better

Our Niche


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Last Year We Estimated OAK Was Worth $56

$25 $7 $7 $17 $56

15x 2013EstimatedFee-relatedEarnings of$1.69

CurrentAccruedIncentivesDiscounted20%

CurrentInvestmentIn LPs

Discounted20%

6x 2013EstimatedIncentiveIncome

PotentialReturn:38%

Downside Protection: $39

Source: Broyhill Asset Management Estimates

Our Niche


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$30

$35

$40

$45

$50

$55

$60

$65

This Year, The Business Performed As Expected

OAKTREE CAPITAL GROUP LLC (OAK) STOCKPRICE

Our Niche

Presentation to

Bowden Group

Now

What?

Source: Bloomberg


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Now What?

Our Niche


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Knowing

WhereTo Fish


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Knowing Where To Fish

Free Fall


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A i l d S k C i i


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Attractive, But Overleveraged Stocks Create Opportunities

SIX FLAGS UNDERPERFORMED THE MARKET FOR THE ENTIRETY OF ITS HISTORY UNTIL

Free Fall

S d B T


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Sad, But True

Free Fall

R I P


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Rest In Peace

Free Fall

F Of D f l S d A Th I d


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Fear Of Default Spread Across The Industry

CEDARFAIRS LONGTERM STOCKPERFORMANCE

Free Fall

T M h D b C T A G d I B d


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Too Much Debt Can Turn A Good Investment Bad

Free Fall

D i C i P f Th h R i


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Despite Consistent Performance Through Recessions

-

100,000,000

200,000,000

300,000,000

400,000,000

500,000,000

600,000,000

1998 1999 2000 2001 2002 2003 2004 2005

CEDARFAIRS REVENUESWERE HISTORICALLYINCREDIBLYRESILIENT

Source: Company Filings

Free Fall

A Sh t T O i t ti C D i V B d D i i


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A Short Term Orientation Can Drive Very Bad Decisions

CEDARFAIRS REVENUES DECLINED AWHOPPING 8% DURINGTHE CRISIS

860,000,000

880,000,000

900,000,000

920,000,000

940,000,000

960,000,000

980,000,000

1,000,000,000

1,020,000,000

2008 2009


Free Fall


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I t r Sp k Up


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Investors Speak Up

Source: New York Times, Dealbook, April 2010

Free Fall

Was This Time Different?
http://dealbook.nytimes.com/2010/04/06/apollo-and-cedar-fair-walk-away-from-l-b-o-deal/http://dealbook.nytimes.com/2010/04/06/apollo-and-cedar-fair-walk-away-from-l-b-o-deal/


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Was This Time Different?

Free Fall

Revenue Miraculously Recovers


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Revenue Miraculously Recovers

800,000,000

850,000,000

900,000,000

950,000,000

1,000,000,000

1,050,000,000

1,100,000,000

2009 2010 2011 2012

CEDARFAIRS REVENUES POST CRISIS


Free Fall

Good Call Q! Did We Miss The Boat?


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Good Call Q! Did We Miss The Boat?

$21.50

$0

$5

$10

$15

$20

$25

Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11

FUN STOCKPRICE

Source: Bloomberg

Free Fall


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Cheap

Thrill?

Uncovering Value


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Uncovering Value

From the June 30, 2013 issue of Value Investor Insight, reprinted with permission of Value Investor Media, Inc.

Cheap Thrill?

Investors? Possibly You!
http://broyhillasset.us6.list-manage1.com/track/click?u=443e8872e35ccdde12b72e8cd&id=f40c423d17&e=cf7204e208http://broyhillasset.us6.list-manage1.com/track/click?u=443e8872e35ccdde12b72e8cd&id=f40c423d17&e=cf7204e208http://broyhillasset.us6.list-manage1.com/track/click?u=443e8872e35ccdde12b72e8cd&id=f40c423d17&e=cf7204e208http://broyhillasset.us6.list-manage1.com/track/click?u=443e8872e35ccdde12b72e8cd&id=f40c423d17&e=cf7204e208http://broyhillasset.us6.list-manage1.com/track/click?u=443e8872e35ccdde12b72e8cd&id=f40c423d17&e=cf7204e208http://broyhillasset.us6.list-manage1.com/track/click?u=443e8872e35ccdde12b72e8cd&id=f40c423d17&e=cf7204e208


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Investors? Possibly You!

Source: YouTube

Cheap Thrill?

Prestige Investments
http://youtu.be/0veaeu6rOqYhttp://youtu.be/0veaeu6rOqY


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Prestige Investments

CEDARFAIRHASA NUMBEROF GOODTHINGS GOING FORIT

Attractive Business Under Temporary Pressure

Structurally Defensive Economics

High & Stable Barriers to Entry Improving Pricing Power Strengthening Balance Sheet Consistent & Growing Cash Flow

Cheap Thrill?

Short Term Headwinds Create Long Term Opportunity


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Short Term Headwinds Create Long Term Opportunity

Cheap Thrill?

A Mature Industry With High Barriers To Entry


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A Mature Industry With High Barriers To Entry

US AMUSEMENT PARKSUPPLYHAS BEEN STAGNANT

Cheap Thrill?

Resilient Performance Through Recession


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Resilient Performance Through Recession

OPERATING PERFORMANCE IS INCREDIBLYSTABLEAND RECOVERS RAPIDLYFROM DECLINES

Cheap Thrill?

Source: Cedar Fair Investor Presentation, May 2013

Rationale Players With Considerable Pricing Power


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Rationale Players With Considerable Pricing Power

A VISITTOA REGIONALAMUSEMENT PARKCOSTSJUST $5 PERHOUR

Cheap Thrill?

Driven By Several Key Initiatives


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Driven By Several Key Initiatives

Cheap Thrill?

Increasing Attendance & Per Capita Spending


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Increasing Attendance & Per Capita Spending

RECENT GROWTH IN PERCAPITASPENDING HAS EXCEEDED GROWTH INATTENDANCE

Source: Cedar Fair Investor Presentation, May 2013

Cheap Thrill?

Easy Credit: Leverage Works Both Ways


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Easy Credit: Leverage Works Both Ways

LEVERAGE RATIOSAT CEDARFAIRHAVE CONSISTENTLYDECLINED POST CRISIS

Source: Company Filings, Broyhill Asset Management Estimates

$-

$50

$100

$150

$200

$250

$300

$350

$400

$450

$500

0.0x

1.0x

2.0x

3.0x

4.0x

5.0x

6.0x

2006 2007 2008 2009 2010 2011 2012 2013* 2014e* 2015e* 2016e*

Leverage Ratio ( left axis) Adjusted EBITDA (right axis)

Cheap Thrill?

Lower Rates Offer Potential For Step-Up In Distribution


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Lower Rates Offer Potential For Step Up In Distribution

Sofrom a bond perspective, we do continue to monitor the markets and will look to take

those 9-1/8% cost bonds out as soon as it makes financial and economic sense. I dont

know that you would see us do a one-time distribution. I dontthinkwed see a lot of

value on that, but more so think about a step-function opportunity much like you saw ayear ago.

- Brian C. Witherow, CFO, Third Quarter 2013 Earnings Call

Cheap Thrill?

Growing Cash Flow Drives Greater Distributions


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Growing Cash Flow Drives Greater Distributions

DISTRIBUTIONS CAN GROW FASTERTHAN EBITDA GROWTH

$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$300

$320

$340

$360

$380

$400

$420

$440

$460

$480

Sep-10 Dec-10 Mar-11 Jun-11 Sep-11 Dec-11 Mar-12 Jun-12 Sep-12 Dec-12 Mar-13 Jun-13 Sep-13 Dec-13 2014e* 2015e* 2016e*

Distr ibution per Share (right axis) Adjusted EBITDA ( left axis)

Cheap Thrill?

Source: Company Filings, Broyhill Asset Management Estimates

Step-up in DistributionDriven by Decrease in

Leverage Ratios

Step-up in DistributionDriven by 2014

Refinancing?

Greater Distribution Drives Higher Stock Price


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$2.80

$2.50

$1.60

$0.99

$0.25

$1.90

$-

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

$3.50

$4.00

$-

$5

$10

$15

$20

$25

$30

$35

$40

$45

$50

2007 2008 2009 2010 2011 2012 2013

FUN Stock Price (right axis) Distribution per Unit (left axis)

Apollo OfferDec-09

Step-Up In

Distribution

Offer Terminated

Apr-10

Greater Distribution Drives Higher Stock Price

FUN CAPITALALLOCATION: THE FOUNDATION OF OURINVESTMENTTHESIS

Source: Bloomberg, Company filings

Cheap Thrill?

Six Flags

Bankruptcy Jun-09

Step-Up InDistribution?

Whats it Worth?


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What s itWorth?

WE SEE LITTLE RISKON ATHREE-YEARHORIZONWITHATTRACTIVE UPSIDE POTENTIAL

Bear Base Bull

2016 Adjusted EBITDA $450 $470 $490

Target Multiple 8x 9x 10x

Value per Unit $40 $50 $65

Plus: 2014-2016 Distributions $10 $10 $11

Total Value per Unit $50 $60 $75

Premium to Current Price 5% 30% 60%

Cheap Thrill?

IF FUN CAN GENERATE SALES GROWTH OF 2% - 4%, WE EXPECTADJUSTED EBITDA

TO REACH $450 - $490 MILLION BY2016 ASSUMING LITTLE MARGIN EXPANSION


Valuation Is An Imprecise Science


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Valuation Is An Imprecise Science

VALUING FUN BASED ON GROWING DISTRIBUTIONS - YIELDS SIMILARRESULTS

Bear Base Bull

Distributable Cash Flow 220 235 250

Distribution per Unit $3.50 $3.80 $4.00

Target Yield 8% 7% 6%

Value per Unit $45 $55 $65

Plus: 2014-2016 Distributions $10 $10 $11

Total Value per Unit $55 $65 $75

Premium to Current Price 15% 35% 65%

Cheap Thrill?


IF MANAGEMENT PAYS OUT 90% OF CASH FLOW NET OF FIXED CHARGES, WE EXPECT

DISTRIBUTIONSTO RANGE FROM $3.50 TO $4.00 BY2016


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Putting

It AllTogether

A Value-Oriented, Disciplined Focus On Quality


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, p Q y

TOPTEN POSITIONSACCOUNTED FOR76% OFASSETSAT SEPTEMBERQUARTER-END

Security % of Assets

Cash & Equivalents 28.9%

Vodafone Group 6.9%

Cedar Fair 5.6%

Hospira 5.5%

Western Union 5.3%

Microsoft 5.1%

Nestle 5.1%

Apple 5.0%

Oaktree Capital Group 4.6%

Nuveen Municipal Value 4.5%

Total for Top 10 75.5%

Putting It All Together

Reduces The Risk Of Large Drawdowns


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1Past performance is not indicative of future results.

g

-0.8%

0.4% 0.4%

0.8%0.5%

-0.8%

-0.2%

-0.6%

-3.1%

-2.3%

-4%

-3%

-2%

-1%

0%

1%

2%

3%

Oct-12 Feb-13 May-13 Jun-13 Aug-13

High Quality Portfolio MSCI All World

BROYHILL HIGH QUALITYEQUITYDRAWDOWNANALYSIS SINCE INCEPTION


While Participating During Good Times


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0.3%

2.6%

-1.4%

3.2%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

4.0%

High Quality Portfolio MSCI All World

Down Capture: -19.0%

Up Capture: 81.9%

1Past performance is not indicative of future results.

p g g

BROYHILL HIGH QUALITYEQUITYUP/DOWN CAPTURE SINCE INCEPTION


Driving Long Term Outperformance


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1Past performance is not indicative of future results.2Since Inception is August 31, 2012. All periods greater than one year are annualized.

Growth of $10,000 Since Inception2

Monthly Performance1 Performance History

BAMHQ

MSCIAW

YTD: 24.6% 16.9%

One Year: 26.5% 20.7%

Since Inception2: 27.3% 23.3%

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Year

2013 6.7% 0.4% 3.2% 0.6% 0.4% 0.8% 3.3% 0.5% 3.2% 3.2% 24.6%

2012 - - - - - - - - 1.4% -0.8% -1.2% 2.8% 2.2%

g g p

$12,729

$12,328

$9,500

$10,000

$10,500

$11,000

$11,500

$12,000

$12,500

$13,000

Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 Mar-13 Apr-13 May-13 Jun-13 Jul-13 Aug-13 Sep-13 Oct-13

High Quality Portfolio MSCI World


Sound Advice


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The New Normal


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Any Questions?


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Contact Information


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Subscribe to our mailing list:

Broyhill Asset Management, LLC

800 Golfview ParkPost Office Box 500Lenoir, NC 28645

Phone: 828 758 6100

Fax: 828 758 8919

Contact Information

Disclaimer
http://eepurl.com/q6pVLhttp://eepurl.com/q6pVL


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PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

This material has been prepared solely for the purposes of illustration and discussion. BroyhillAsset Management is the marketingname for the investment management business conducted by Broyhill Asset Management, LLC. and its affiliates. Broyhill Asset

Management, LLC is an SEC Registered Investment Advisor.

Under no circumstances should the information contained herein be used or considered as an offer to sell, or solicitation of an offer to

buy any security. Any security offering is subject to certain investor eligibility criteria as detailed in the applicable offering documents. The

information contained herein is confidential and may not be reproduced or circulated in whole or in part. The information is in summaryform for convenience of presentation, it is not complete and should not be relied upon as such.

Any information, data, statement, opinions, or projections made herein may contain certain forward looking statements, projections, and

information that are based on the beliefs of Broyhill Asset Management as well as assumptions made by, and information currentlyavailable to, Broyhill Asset Management. Such statements reflect the view of Broyhill Asset Management with respect to future events

and are subject to certain risks, uncertainties and assumptions (including, but not limited to, changes in general economic and business

conditions, interest rate and securities market fluctuations, competition from within and without the investment industry, new products

and services in the investment industry, changes in customer profiles, and changes in laws and regulations applicable to Broyhill AssetManagement). Should one or more of these other risks or uncertainties materialize, or should underlying assumptions prove incorrect,

actual results may vary materially from those described herein.

All information, including performance information, has been prepared in good faith; there are no representations or warranty expressedor implied, as to the accuracy or completeness, of the information, and nothing herein shall be relied upon as a promise or representation

as to the past or future performance. This material may include information that is based, in part or in full, on hypothetical assumptions,models, and/or other analysis (which may not necessarily be described herein). No representations or warranty are made as to thereasonableness of any such assumptions, models, or analysis. The information set forth herein was gathered from various sources which

are believed, but not guaranteed, to be reliable. Unless stated otherwise, any opinions expressed herein are current as of the date hereof

and are subject to change at any time. Accordingly, neither Broyhill Asset Management nor its principals or affiliates make anyrepresentations as to the timeliness of any information in this presentation.

rational investing in irrational markets

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