A small Czech investment group has become the third largest investor in Xerox. Starteepo Invest says it has bought the shares because it believes that the fortunes for the business are about to turn for the better. It has been using shares since the start of the year, buoyed by optimistic signs in the Q1 results. It declared a 5.05% stake in the company at the start of May and has since increased this to 6.1% moving from fourth to third and holding more than 8 million shares. “We continue to view Xerox as a high conviction investment and one of the largest positions in our portfolio,” said Starteepo’s chairman of the board Frantisek Bostl. “Our conviction has increased as we continue to analyse the company’s publicly available disclosures, strategic initiatives, and transformation efforts.”
The company argues that investors have underestimated the impact of restructuring, the acquisition of Lexmark, the emphasis on profitability and the way that the balance sheet is being strengthened.
This comes with a warrant structure, announced earlier this year that allows owners of debt to switch to an equity stake instead, as discount to the value of the debt held. This, says the Starteepo argument, will reduce debt from the balance sheet and do so in a financially sound way. And as the majority of existing debt repayments are not due until 2028 and 2029, there is adequate time for Xerox to reposition.
A sizeable chunk of that debt was taken on to fund the Lexmark acquisition which is targeted to realise $300 million a year in savings and has already triggered a new logo for the business. As Lexmark has 200,000 end users, many in Asia Pacific where Xerox has negligible presence, there is plenty of opportunity for Xerox to sell other products and services.
Bostl also argues that while the market for print is shrinking, this is not happening fast and that there are plenty of sectors where for regulatory reasons, print will remain crucial for many years. This makes Xerox a compelling long term opportunity which makes Xerox a long term investment opportunity.
Unlike previous outside investment from Carl Icahn and Darwin Dearborn, Starteepo intends to be supportive of the board and the strategy begun under Steve Bandrowczak as CEO and continued by Louie Pastor.
There is also an AI aspect to the investment and strategy. AI is dependent on data and a low of corporate data is tied up in printed documents that Xerox can releases, let alone tapping into the way that AI can improve workflows.
Bostl says: “We believe the market may be overlooking a potentially significant long-term opportunity embedded within Xerox’s evolving workflow platform.
“We continue to view Xerox as a high conviction investment and one the largest positions run our portfolio. Our conviction has increased as we continue to analyse the company’s publicly available disclosures, strategic initiates, and transformation efforts.”
