Field Notes July 3, 2020

July 3, 2020

Given all of the unrest we are experiencing in the United States, we think these comments from one of our Taiwanese brokers are worth passing along. 

“In Taiwan, the super long weekend, the dragon boat festival, has finally come to an end. During these four days, I have got nowhere to go, the highway is jammed for as long as 32 consecutive hours, this is the scene I have never seen in my life, people here call it ‘revenge tour’ after the outbreak. These four days so many things happened, lots of car accidents, many cases of drowning, street fighting. All tourist spots are clustered with numerous people, absolutely no social distance, no masks, it’s quite terrifying, especially when cases in US and Japan are rising again, Taiwan is of no exception, a Japanese student, staying in Taiwan for four months, was tested positive when touching down the Japanese soil at the customs, this has made Taiwan super suspicious of having community infections already. Something is really wrong here.”

Here at Seven Canyons we too are feeling cooped up. We want to report from Taiwan in person rather than sending along a note from a broker. But international travel is still restricted so we are getting our job done through “visits” with companies via phone calls and Zoom meetings. While these contacts are helpful, especially during this time of crisis, they just aren’t the same as face to face meetings. 

While we can’t travel, we have picked up the slack by screening harder and doing way more calls with companies than normal.   For example, Ryan our financials analyst, did calls with 7 companies in one day!  We start the day speaking to Indian companies (first call typically at 7am our time as this is the time Indian corporates prefer) and we wrap up the day with calls with Japan and Taiwan (typically 8-10pm).  While it does not get us the type of interaction that we prefer, we are still able to find great new ideas.  For example, we found Arman financial through such screening.  It’s a real gem.  

We came across Arman in a high quality, growth screen. Arman is one of the most rapidly scaling microfinance companies in emerging markets. It is largely undiscovered at $55M USD market cap with zero foreign investment and it is benefitting from new priority sector policies that stimulate small-ticket lending to rural India. After learning more about Arman’s business model, we became comfortable with their sound underwriting process and 27-year history of strong asset quality. Arman lends to small ticket borrowers, $300-600 USD ticket size – sufficient capital in India to buy a cash-flowing cow, no pun intended. Arman has more than three years of 40%+ growth headroom in Gujarat before expanding to adjacent states. The company is extremely well capitalized and has industry leading margin and funding profile. India is experiencing one of its worst economic crises in recent decades and despite this, Arman’s management team is navigating this poor macro landscape very well.

We hope you are well and that you are staying safe.

The Seven Canyons team