This article is part of a series that provides an ongoing analysis of the changes made to Alex Roepers’ 13F portfolio on a quarterly basis. It is based on Roepers’ regulatory 13F Form filed on 08/14/2018. Please visit our Tracking Alex Roepers’ Atlantic Investment Management Portfolio article for an idea on his investment philosophy and our last update for the fund’s moves during Q1 2018.
This quarter, Roepers’ 13F portfolio value decreased ~11% from $727M to $645M. The number of holdings decreased from 18 to 16. The top three holdings are at ~54% while the top five are at ~81% of the 13F assets: Owens-Illinois (NYSE:OI), Arris International (ARRS), Huntsman Corporation (HUN), CommScope Holding (COMM), and Diebold Nixdorf (DBD).
Atlantic Investment Management’s annualized returns since 1992 (flagship fund’s inception) is impressive at ~16%. Last year, they underperformed the S&P 500 index with a return of ~10%. In a CNBC interview in May, Roepers mentioned that they are not interested in board-room battles as they value staying liquid: ~20% of their historical returns can be traced back to active position-sizing around core stakes.
To know more about activist investing, check out Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations.
Lennar Corporation (LEN): The 0.72% LEN position was purchased in Q4 2017 at prices between $52.75 and $64 and disposed this quarter at prices between $49 and $64. The stock is now at $50.57.
International Paper (IP), LSC Communications (LKSD), Steelcase Inc. (SCS), and Tenneco Inc. (TEN): These are very small (less than ~1% of the portfolio each) positions that were disposed this quarter.
ADT Inc. (ADT), Oshkosh Corp. (OSK), and WestRock Co. (WRK): These are very small new stakes established this quarter. ADT is a 0.74% position purchased at prices between $7 and $9.50 and the stock is currently at $8.71. The 0.68% OSK stake was established at prices between $68.50 and $81.50 and it is now at $70.64. WRK is a minutely small 0.29% position established this quarter.
Arris International plc: A small ~1% portfolio stake in ARRS was purchased in Q4 2016. The following quarter saw a huge ~800% increase at prices between $25 and $31. There was another ~55% stake increase in Q2 2017 at prices between $25 and $30. The stock is now at $24.42. The stake is a top-three position at ~15% of the portfolio. Last two quarters had seen a combined ~20% increase at prices between $23 and $30 while this quarter saw a ~16% selling at prices between $24 and $27.50.
Huntsman Corp.: HUN is a large (top three) ~14% of the portfolio stake established in Q2 2017 at prices between $23 and $27. There was a ~20% selling the following quarter at prices between $25 and $29. The stock currently trades at $31.53. There was a ~9% trimming this quarter.
Note: An all-stock merger with Clariant AG (OTCPK:CLZNY) was announced in May 2017 but the plans were dropped in October following activist pressure. Roepers still considers Huntsman a takeover candidate.
Eastman Chemical (EMN): EMN is a large ~8% of the 13F portfolio stake established in Q4 2015 at prices between $65 and $74. The position has wavered. Recent activity follow: There was a ~30% increase in Q1 2017 at prices between $76 and $81.50 and that was followed with a ~28% reduction in Q3 2017 at prices between $82.50 and $90.50. The stock currently trades at ~$97.69. Q4 2017 saw an ~8% trimming and that was followed with a ~20% reduction last quarter at prices between $93.50 and $111. There was another ~40% selling this quarter at prices between $102 and $109. Roepers is harvesting gains.
Owens-Illinois: OI is Roepers’ largest position at ~25% of the 13F portfolio. It is a very long-term stake. In 2008, the position was minutely small and was built up to 11.2M shares by 2012 through consistent buying. It was sold down by ~40% the following year but was built back up to 12.2M shares in 2014 at prices between $24 and $35. Recent activity follow: Q1 2017 saw a ~17% increase at prices between $18 and $20.50 and that was followed with a ~40% selling over the next two quarters at prices between $20 and $25. There was a ~22% increase last quarter at prices between $21 and $23 and that was followed with a ~20% increase this quarter at prices between $16.50 and $22. The stock currently trades at $17.47.
Note 1: Atlantic Investment’s ownership stake is now ~6% of the business. Their overall cost basis is ~$20.
Note 2: Roepers considers it a core position. They expect the company to initiate dividends and buybacks shortly and that along with takeover possibility should help re-rate the shares.
CommScope Holding: COMM stake was first purchased in Q2 2016. Q4 2016 saw a huge increase to a top three portfolio stake at prices between $30 and $37.50. There was another ~20% increase in Q1 2017 at prices between $35 and $42. The position has since wavered. There was a ~45% selling last quarter at prices between $36.50 and $41 while this quarter there was a similar increase at prices between $27.50 and $41. The stock is now at $30.88. The position is very large (top five) at ~14% of the portfolio.
Diebold Nixdorf Inc.: DBD stake was established in Q3 2016. The following quarter saw the position built to a large stake at prices between $21 and $26. There was a ~23% increase in Q1 2017 at prices between $25 and $31.60 and that was followed with a ~18% increase in the following quarter at prices between $25.80 and $30.70. The stock is now below those ranges at $11.85 and the stake is at ~13% of the portfolio.
There was a ~16% selling in Q4 2017 at prices between $16.15 and $23.25 while last quarter there was a similar increase at prices between $14 and $19. The overall cost basis is ~$22 per share. There was a ~10% stake increase this quarter.
Note: Atlantic's EOY 2017 investor letter identified the appointment of the new CEO along with merger integration and improving market conditions as potential positives going forward. Previously, a November 2017 regulatory filing had disclosed a letter sent to Diebold. It urged the then CEO to provide 2018 outlook and reaffirm 2020 target. The letter also suggested hiring a financial advisor to device strategic alternatives including buying back 20% of the outstanding shares without adding leverage (preferred converts).
Avnet Inc. (AVT): The AVT position saw a ~600% stake increase this quarter to a substantial 5.79% portfolio stake at prices between $38 and $43.50. The stock currently trades above that range at $47.58.
Crown Holding (CCK), Belden Inc. (BDC), and NCR Corporation (NCR): These are very small (less than ~1% of the portfolio each) stakes that saw increases this quarter. The CCK and BDC positions were established last quarter while the NCR stake was first purchased in Q4 2017.
Triumph Group Inc. (TGI): TGI is now a very small 0.55% of the 13F portfolio position. It was established in Q4 2013 and a large stake was built over the next two quarters at prices between $61.50 and $79. The position had wavered but in Q3 2016, it was still a very large ~11% portfolio stake. The four quarters through Q3 2017 saw the position almost sold out at prices between $20 and $34.50. The stock currently trades at $21.
The spreadsheet below highlights changes to Roepers’ US stock holdings in Q2 2018:
Disclosure: I am/we are long DBD, OI. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
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