Portfolio Change Update
January 22, 2018
Purchased Apogee Enterprises (APOG):
- Commercial glass and frame manufacturer
- Betting management will be able to turn strategic acquisitions to financial accretion
- Expect service backlog will lead to installation business rebounding
- Margins forecasted to expand over time
- Expansion into mid-height buildings should significantly increase available market
- Geographic expansion could provide a multi-year runway for growth
- Trading at less than 13x coming year’s growth
Purchased Steelcase (SCS):
- Leading office furniture designer and manufacturer
- Look for European margins to expand with new, more efficient manufacturing
- New products addressing changing styles should benefit revenues
- Anticipate growth in Asia/Pacific
- New European design center should raise prominence and revenues in Europe
- Capital expense incentives in new tax bill could be meaningfully positive
- Believe industry and company at beginning of cycle
Added to Key Tronic (KTCC):
- Differentiated contract manufacturer
- Unique competitive advantages leading to market share gains
- Company struggled to regain meaningful revenue growth in recent times with loss of large customer
- Stock price dropped since October when company signaled they were close to winning a large new customer
- Trading at approximately 60% of book value
- Believe new business will soon create revenue and earnings momentum
Sold Lattice Semiconductor (LSCC):
- Design programmable logic semiconductors
- Agreed to be acquired by Canyon Bridge
- Significantly trimmed position after announcement and subsequent price rise due to concerns U.S. Government would block sale
- Sale was blocked
- Company held analyst meeting that enthused investors
- Company hasn’t delivered on promises for too long
- Used enthusiasm around analyst meeting to sell remainder of position
Trimmed Vonage Holdings (VG):
- Provider of voice over IP services, also known as VOIP, to business and residential clients
- Management masterfully executing business plan to improve business mix and growth rate
- Stock price rallied strongly following benefits from strategic, revolutionary acquisition
- Valuation reflecting lots of good news and future growth
- Consequently, trimmed to one of smallest positions in the portfolio
Trimmed ZAGG (ZAGG):
- Develop and market accessories for mobile devices
- A year and a half ago, investors lost confidence management could turn mophie acquisition to profitability – we disagreed
- Hence weighting raised to 5% at that time – highest will buy
- Management was successful and share price rallied sharply
- Trimmed a few months ago when weighting grew to 10% of portfolio – largest we will own
- Trimmed again after price rose further and weighting once again grew close to 10%