Portfolio Change Update
June 14, 2018
Purchased Health Insurance Innovations (HIIQ):
- Develops, distributes and administers individual health insurance and supplemental plans
- Takes no underwriting risk
- Debt free
- High return on capital
- Free cash flow generator
- Growing customer/policy count rapidly
- Rolling out new technology platform – could further accelerate revenue growth & create new business opportunities
- Margins should expand meaningfully with growing revenues
- Approximately 12x consensus earnings at time of purchase
Purchased Insight Enterprises (NSIT):
- Provide technology solutions to Fortune 500 companies and governments
- Solid return on capital
- Successfully integrating large 2017 acquisition
- Demonstrating financial accretion from acquisition
- Should lead to free cash flow generation
- Free cash flow will likely lead to additional strategic acquisitions
- Benefitting from software & solutions moving to recurring revenue model
- Trading less than 10x consensus earnings when purchased
- Significantly, earnings guidance has since increased
Added to Atlas Financial (AFH):
- Niche commercial vehicle insurer
- Strong belief in management team
- Business & industry confidence increased after recent meetings with management and attending May analyst meeting
- Trading less than 6x management’s guidance for 2018 earnings (rarity for non-cyclical)
- Raised weighting to 5% – largest weighting will buy
Added to Green Bancorp (GNBC):
- Texas business bank
- Successfully cleaned up problem loans tied to oil price drop
- Originally purchased modest weighting, then stock price ran
- CEO acknowledges bank will ultimately be sold (CEO has done before)
- Earnings caught up with stock price
- Added to position for loan growth phase and potential acquisition
Added to ZAGG, Inc. (ZAGG):
- Leading designer and marketer of mobile device accessories
- Last year trimmed position after it ran on high expectations
- Price dropped after fourth quarter report
- Used erratic investor reaction at lower price to finish rebuilding trimmed shares – around 10x consensus estimates
- After addition, first quarter earnings beat investor expectations by wide margin
Sold Innospec (IOSP):
- Specialty chemical company
- Management doing splendid job with synergies tied to large acquisition last year
- Profits advancing nicely
- Share price responded
- Therefore, forecasted upside diminished
- Concerned highly profitable business line disappearing in medium-term
- Sold to deploy funds to better alternatives
Trimmed Barrett Business Services (BBSI):
- Outsourced human resource services company for small and medium sized businesses
- Management executing business plan
- Stock price moved up
- Consequently, forecasted upside decreased
- Trimmed to raise cash for alternatives with greater forecasted upside
Trimmed Enova International (ENVA):
- Online subprime lender with operations in U.S., U.K. and Brazil
- Management masterfully executing business plan
- Surprised investors with strong income leverage in first quarter and big earnings beat
- Stock price responded quite favorably
- Forecasted upside reduced as a result
- Trimmed to raise cash for alternatives with greater forecasted upside