Tieton Capital Management

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

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November 15, 2017

November 15, 2017 By Lora Leavenworth

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

Filed Under: Portfolio Change Updates

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