Portfolio Change Update
November 15, 2017
Purchased First Internet Bancorp (INBK):
- Online commercial bank
- Above average loan growth in low loss categories
- Expect management to develop consistent loan sale process generating fee income
- Expecting earnings to grow faster than fixed expenses, enhancing income growth
- Trading at less than 12x next year’s consensus estimates at time of purchase
Added to Carbo Ceramics (CRR):
- Manufactures proppants and other technologies for oil & gas well completions
- Reduced excess industry proppant inventory
- Proprietary new technologies adoption increasing
- Stock price under $10 down from nearly $200 at peak and trading at less than half tangible book value
- Continuation of methodical process of increasing the energy weighting in the portfolio
Added to Navigant Consulting (NCI):
- Professional services and consulting firm focused on companies in Finance, Healthcare and Energy
- Number of individually inconsequential events collectively impacted earnings in the first half
- Share price dropped meaningfully from level where position trimmed earlier in year
- Meeting with management team led to conclusion issues would be quickly overcome
- Increased weighting from smaller than average to normal size
Added to Psychemedics (PMD):
- Hair based drug testing firm with global presence
- Earnings grew and share price responded to initial opening of Brazil market
- Additional testing requirements may more than double Brazil market over next 12 months
- Plus, initiatives developing in Brazil may lead to market share gains
- Expecting earnings could grow meaningfully from these developments
- CEO recently purchased shares
Added to Super Micro Computer (SMCI):
- Design & sell high-end servers and related applications
- Share price declined in part based on margin squeeze from component price spikes
- Entering important large business data-center market
- Experiencing high growth in China
- Now entering next upcycle led by Intel’s introduction of the next generation server processor
- Increased weighting to take advantage of lower price with improving business drivers
Added to VAALCO Energy (EGY):
- Produce oil in West Africa
- Share price had limited response to higher oil prices
- Direct beneficiary of higher oil prices
- Believe oil prices will continue migrating higher
- Increased ownership, raising energy sector weighting further
- Trading at less than 10x this year’s consensus earnings estimate
Trimmed Myriad Genetics (MYGN):
- Leading provider of genetic testing
- Stock price roughly doubled from early this year when added to the position
- Pleased with how catalysts developing
- However, valuation increased and our forecasted upside decreased
- Therefore, position trimmed to raise cash for First Internet Bancorp purchase
Trimmed (ZAGG):
- Develop and market accessories for mobile devices
- Over a year 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 when weighting grew to 10% of portfolio, largest we will own