The Long Case for Ambassadors International

Stephen Roseman Thesis CapitalNewsletter Value Investor Insight carried an interview September 29th with Stephen Roseman, who runs Thesis Capital. Since 2000, his portfolios – at three different firms, but assuming the fee structure of Thesis Capital – have returned an average 15.9% per year after fees, vs. 7.2% for the Russell 2000, according to Value Investor Insight. Here's the excerpt from the interview in which he discusses Ambassadors International (AMIE), which was trading at $32.58 at the time of the interview:

Matt Feshbach described Ambassadors International (AMIE) to us last year. The stock is up 150% since. Why do you think it’s still a bargain?

SR: I got into Ambassadors at about the same price, $13, that it was in your issue with Matt. The company had $10 per share of cash, so for $3 you got a hodgepodge of tiny businesses and a call option on the Ueberroth family’s ability to create value – something they had done successfully for a long time. [Peter Ueberroth recently stepped down as Ambassadors’ chairman, replaced by his son Joseph, who is also CEO.]

I believe the stock has gotten cheaper as it’s gone up. They paid very little for river-cruise businesses in the Midwest, Alaska and Pacific Northwest that should earn $1.45 to $1.75 in net earnings this year. From the $100 million in cash they had when I first got involved, they still have $93 million.

Is the river-cruise business attractive?

SR: I think so, yes. Retirees are the largest demographic who go on cruises, and we’re on the cusp of the largest generation in U.S. history starting to retire. This generation of retirees is also the most active and wealthiest ever, which bodes well for cruising businesses. Once they’ve done the big Carnival cruise, people will start looking for more adventure- oriented cruises like those Ambassadors offers. Their boats are steel-hulled, so they can be grounded and people can get off to see elk feeding or to explore glaciers.

There are plenty of operating improvements to be made as well, in particular to better use their fleet by expanding the cruise calendar. The previous owners weren’t particularly sophisticated marketers, so there’s also upside from better leveraging marketing spending.

What other growth opportunities are they pursuing?

SR: They recently bought Bellingham Marine, the preeminent builder and designer of boat slips and docks in the world, adding it to an existing marinamanagement business on the West Coast and in Japan. I don’t expect this to be a huge business – adding maybe 15 cents per share in earnings this year – but it’s a very profitable one.

The company is also playing close to the vest its plans to enter the fractional yacht business – an analog to Berkshire Hathaway’s NetJets, but for yachts. New competitors have entered the field, but I’m confident Ambassadors will only move forward if they’re convinced they have an edge.

At $32.50, are the shares still objectively cheap?

SR: The cruise and marina businesses should earn between $1.60 and $1.90 per share this year. If you back out the $8 per share in cash, the net share price is less than $25, which means you’re paying only 13-15x earnings. That’s less than a market multiple, for a reliable and growing business.

On top of that you still have almost all of the original upside optionality from what management is able to do with the cash. It’s had a nice run, but we still think this is a tremendous opportunity.

AMIE 1-yr chart:

AMIE 1-yr chart

Related: More long stock picks here.

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