Tieton Capital Management

4700 Tieton Drive, Suite C
Yakima, WA  98908
(509) 965-6488

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January 23, 2017

January 23, 2017 By Lora Leavenworth

Portfolio Change Update

January 23, 2017

Purchased Green Bancorp (GNBC): 

  • Texas based commercial bank
  • Clobbered with downturn in oil & gas market
  • Aggressively addressing problem loans
  • Anticipate return to steady growth trajectory
  • Strategic acquisitions likely play a role in future growth
  • Proceeds for purchase came from HomeStreet, Inc. sale
  • Trading at approximately book value at time of purchase

Purchased Liberty Tax (TAX): 

  • Franchisor & operator of income tax preparation offices
  • Reigniting growth of franchise locations
  • Repurchasing of area developers & franchisees increasing cash flow
  • Maturing of younger locations improving revenue
  • Look for higher profits from financial products
  • Trading at less than 10x this year’s earning with more than 4% dividend yield

Purchased Nautilus, Inc. (NLS): 

  • Design personal and commercial exercise equipment
  • Organic growth potential from innovative commercial equipment acquisition
  • Further opportunity in recently added sporting goods chain stores
  • Believe investors overreacted to soft consumer data in Q2 & Q3
  • With recent acquisition positioned to aggressively pursue large international opportunity
  • Third time owning company in last 20 years

Added to Myriad Genetics (MYGN): 

  • Leading provider of genetic testing
  • Sales force stabilization after period of unusual turnover
  • Broader reimbursement (trading at approximately 5x earnings, if receive reimbursement for all tests currently conducting for patients)
  • Addition of new test indications expanding market
  • Potential FDA approval of pharmaceuticals that require a prescreening Myriad test
  • Recent acquisitions could accelerate revenue growth

Added to TESSCO Technologies (TESS): 

  • Distributor of products to wireless carriers and retail stores
  • New CEO continues to enhance leadership team, which may increase revenue potential
  • Forecast margin expansion with increased efficiencies as revenues grow
  • Leading to earnings growing faster than revenues
  • Expanding into new markets
  • Rebound in wireless carrier spending would be a meaningful enhancement to business
  • Approximately 6% dividend yield
  • Trading at roughly book value

Sold Francesca’s (FRAN): 

  • Boutique clothing store
  • Management improved merchandise selection
  • Led to better individual store sales
  • In response, share price increased
  • Company was sold because stock price appeared to more than reflect improved sales 

Sold HomeStreet, Inc. (HMST): 

  • West coast commercial bank and mortgage lender
  • Originally purchased for growth of commercial segment
  • Although commercial growth developed, mortgage growth was much stronger than anticipated
  • Forecasted rising interest rates would diminish mortgage demand and disproportionately hurt HomeStreet
  • After we sold, company preannounced a dismal Q4 as a result of rising interests
  • Proceeds were used to buy Green Bancorp

Sold MGP Ingredients (MGPI): 

  • Alcoholic beverage and food ingredients supplier
  • Unknown company when CEO began purposeful strategic turnaround
  • Increased capacity, improved mix, and introduced own brands
  • Share price rallied beyond our multi-year expectations
  • Valuation appears to fully recognize turnaround
  • Founding family also selling shares

Trimmed Innospec, Inc. (IOSP): 

  • Specialty chemical company
  • Superbly managed
  • Share price recently moved higher
  • Trimmed shares to more closely align forecasted upside to portfolio weighting
  • Meaningful opportunity remains for business to benefit from recent acquisitions 

Trimmed Navigant Consulting (NCI): 

  • Consulting firm focused on finance, healthcare and energy industries
  • Management doing terrific job executing their strategy to accelerate growth and expand margins
  • Third quarter earnings substantially exceeded expectations
  • Share price responded favorably, which increased portfolio weighting and decreased projected upside
  • As a result, position was trimmed

Filed Under: Portfolio Change Updates

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