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