Content Published Last Week

1. Burford Capital, Elliott Management & Collecting vs Argentina

2. Shein: Disrupting Fast Fashion

3. Credit Acceptance: Hurdles to Loan Volume Growth

4. Credit Acceptance: CAPS vs DealerCenter Loan Application Workflow

5. WestRock: WestRock 2.0 Strategy & Cost Improvement

6. Alteryx: Competition, Enterprise Sales & Use-Cases

7. MaxCyte: Electroporation Technology, Cell- & Gene Therapy & Competition

8. Zara & SHEIN Supply Chain Analysis

Burford Capital, Elliott Management & Collecting vs Argentina

In 2012, NML Capital, an affiliate of Elliott Management, seized an offshore Argentine vessel in an attempt to bring the nation to the negotiation table. Argentina has a long history of refusing to pay foreign court orders. It’s no different for BUR’s $16bn YPF case. The gross value of BUR’s share in the case is ~$6.3bn, the equivalent to $29 per share, double its current market cap.

But the real question is how much and when will Argentina really pay?

Many investors compare Elliott’s defaulted sovereign debt case to YPF although there are significant differences. This interview explores how BUR could potentially seize Argentine assets and how Argentina and its potential new leaders may approach its legal obligations. We explore the similarities and differences between the NML and YPF cases, the appeal process, and how the next year may unfold.

Since this interview was conducted, Burford has filed to enforce Argentine assets from October 16th, a week before Argentina’s election. We will be watching closely.

Embassies and other such entities cannot be attached. For instance, if Burford Capital wants to seize Aerolineas Argentina planes that fly to Miami and New York, it can't, because those planes are leased from an Irish company. If you want to seize Argentine sovereign assets, you have to seize the planes we own that fly domestically, not internationally. There aren't many of those. If you want to seize our battleships, even though Elliott Management was initially successful in seizing those assets, an international court later overruled their achievement. So, if you try to do that again, you will fail. We don't have many overseas assets to seize. Elliott Management's attempts to find assets prolonged this litigation. Argentina also prolonged this litigation because they found assets. This process extended the legal proceedings for over a decade until it was finalized by the new government in 2016. The YPF case has also been ongoing for eight years. Why eight years? Because when the Supreme Court said in 2020 that they wouldn't take the case, Argentina asked Judge Preska to reconsider her forum non conveniens ruling based on new evidence. To everyone's surprise, Judge Preska agreed. That took another year in court to be ruled on. When Argentina lost the forum non conveniens issue, the pretrial procedures began

Shein: Disrupting Fast Fashion

Last week, we published an analysis of SHEIN’s supply chain. This is potentially insightful for those also studying Temu vs AMZN. This interview is with a Former Shein Manager who explains how their business works:

Shein operates on four key principles. Two of these are beneficial for production personnel, while the other two are somewhat different. These four principles are unchanging. The first principle is that the initial order quantity is always small. They divide orders into two categories; first order and then the repeat order. First order is always, if it is stock, it's 100 pieces. If it is production, it's 200 or 300 pieces. Even if they feel that this is best seller and it will sell, they still do this model. They don't change this idea. The second thing is, the lead time is 14 days. Whenever they give you an order, you have to deliver in 14 days. And 14 days include the weekend. They don't count weekend. Every day is a workday. That's the first two things. The third thing is, they pay four days after delivery. - Former Manager at SHEIN

It’s impressive how SHEIN pays suppliers after 4 days compared to 100+ for competing fashion retailers. Given garment suppliers typically pay their fabric supplier on a 4-6-month lead time, SHEIN frees up significant working capital for garment suppliers to fund other projects. This interview further explores the supplier and SHEIN perspective on how the company is disrupting fast fashion.

We also hosted a short podcast (Apple / Spotify) explaining our research process for both Zara and SHEIN Supply Chain Analysis. We discuss:

1. Zara and SHEIN's supply chain philosophy

2. How SHEIN can pay suppliers within 4 days

3. Sustainability and QC challenges at SHEIN

4. How Boohoo and ASOS can react to SHEIN's growth

Credit Acceptance: Hurdles to Loan Volume Growth & CAP vs DealerCenter

We recently published our first survey with multiple subprime auto leaders on Credit Acceptance. The survey explored two questions:

1. How can dealers originate more loans through CACC?

2. How does CAPS compare to other origination platforms?

Unsurprisingly, dealers claimed they would allocate more loans to CACC if the company would advance them more cash upfront. This seems the antithesis of CACCs long-term, dealer-aligned, holdback economic model. This week we published 2 interviews on CACC. A Former Sales executive at CACC shares how the internal incentives of underwriters are designed and its impact on loan volume growth:

I won't mention any names, but there's a man who controls many of the advances and the scoring model. He gets bonuses based on EVA. So, why would he risk lowering that? We could do 500,000 contracts and make 900, instead of doing 275,000 and making 1,550 per deal. But this model works for him because he's earning a significant amount from his bonus. If you look at their EVA bonuses from five years ago, they were enormous, especially for the chiefs. - Former Sales Exec at CACC

We also published an interview with a CACC dealer who walks through the loan origination process on CAPS relative to other platforms. The context for this interview is the hypothesis that CAPS’ lack of integration with DealerCenter, a CRM desking tool with a stronghold in independent car dealerships, is potentially limiting loan volume growth. With DealerCenter being owned by the same parent as Westlake, there seems to be resistance from CACC to plug into the DealerCenter ecosystem.

Everyone has to deal with something. You can't operate a dealership on Credit Acceptance alone. If you're just starting out, you'd either have to use Wayne Reaves or Frazer. You have to have a DMS because I have to print out all the documents that the state requires. Credit Acceptance doesn't handle all the documents. They do their contract and the credit application, but not everything. Some people start this business with handwritten contracts, and that's not feasible. You need a record because you get so many applications, it's about volume. DealerCenter at least organizes them for me. I would love it if they integrated directly with Credit Acceptance, but I think Westlake owns a part of it, so I don't see that happening. - Director of Indie Auto Dealer, customer of CACC

WestRock 2.0 Strategy & Cost Improvement

Prior to Smurfit Kappa's and WestRock's merger announcement, WestRock's new leadership announced a plan to cut $1b in opex. A former plant General Manager at WestRock with over 25 years of experience explores the cultural challenges hitting such a target:

The only way to achieve that is on the mill side. If we consider the scenario we were just discussing, where they're building the new Longview plant and hypothetically shut down two other facilities. If done correctly, you could save a million dollars per facility, which could potentially provide a $2 million opportunity. To reach a billion, it has to be on the mill side - Former Plant Manager at WestRock

In addition to efficient mill operations, the executive believes the company might have a bloated management structure. Smurfit seems to agree.

I believe that paper mills are crucial because any increase in speed at a paper mill reduces your cost curve. As for the SG&A side, there were numerous vice presidents, senior directors, and newly created departments led by senior vice presidents. I think we have an excess on the corporate side. I truly believe we are excessively staffed on the corporate side. - Former Plant Manager at WestRock

Alteryx: Competition, Enterprise Sales & Use-Cases

Alteryx democratizes data analysis by providing a no-code solution for data preparation and workflows. In an interview with a former Global Strategy executive, the threat of GenerativeAI is summarized:

There are also challenges with Alteryx's ability to spread licenses throughout entire companies. Furthermore, with the advent of generative AI and other cutting-edge technologies that aren't fully developed yet, the concept of no code, low code is becoming questionable. We're moving towards a future where even non-tech individuals can use a no code, low code, or coded solution. This trend is already evident in large organizations and is likely to extend to small and mid-sized companies as well." Tools that can generate code or execute code based on prompts negate a large part of the value Alteryx provides to non-technical users. - Former Global Strategy Director at Alteryx

MaxCyte: Electroporation Technology, Cell- & Gene Therapy & Competition

MaxCyte is a biotechnology company providing electroporation technology for the Cell & Gene Therapy market. This former Technical Sales executive discusses electroporation, the competitive landscape, and estimates the potential TAM for the technology:

As you can imagine, the manufacturing process takes about six weeks. With the process I described earlier, which includes transduction, it takes approximately seven to 15 days. This is a lengthy process compared to an electroporation platform. Essentially, with MaxCyte, you're reducing the timeline. You take your patient material, follow all the steps, and when your cells have expanded, you load your mRNA CAR with the electroporation platform. This speeds up the process from seven to 15 days to one to two days. - Former Technical Sales Exec at Maxcyte

Once a technology platform such as MaxCyte's is selected, it is rare to see a customer switch.

During my time at MaxCyte, I never saw a customer leave after signing an agreement. The only reason I could see them leaving for would be the pricing terms. But I have not seen such a thing, so I can't comment. - Former Technical Sales Exec at Maxcyte

However, significant question marks remain around the safety of modalities like Viral Vectors. This seems to currently constrain CGT to rare diseases that have a high fatality rate.