Tracking David Abrams' Abrams Capital Management Portfolio - Q3 2018 Update

|
Includes: AABA, ABG, AET, AKBA, BEN, BNED, CCO, CI, CWH, ENT, ESRX, GOOG, GPI, HCP, KERX, KMI, LAD, ORLY, OZM, PCG, QCP, SHPG, SPH, TEVA, TKPYY, UHAL, WELL, WLTW, WU
by: John Vincent
Summary

David Abrams’ 13F portfolio value increased this quarter from $3.60B to $3.78B. The number of positions remained steady at 22.

Abrams Capital Management added Shire plc while dropping PG&E and Quality Care Properties during the quarter.

The top three positions are Teva Pharmaceutical, Shire plc, and Western Union, and they add up to one-third of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to David Abrams' 13F portfolio on a quarterly basis. It is based on Abrams' regulatory 13F Form filed on 11/09/2018. Please visit our Tracking David Abrams' Abrams Capital Management article for an idea on his investment philosophy and our last update for the fund's moves during Q2 2018.

This quarter, Abrams' 13F portfolio value increased ~5% from $3.60B to $3.78B. The number of holdings remained steady at 22. The top three stakes are at one-third of the 13F portfolio while the top five holdings are at ~49%. The largest position is Teva Pharmaceutical (NYSE:TEVA) and it accounts for 11.12% of the 13F portfolio.

Stake Disposals:

PG&E Corp. (PCG): PCG was a 4.63% of the portfolio stake established in Q4 2017 at prices between $44 and $70 and increased by ~20% the following quarter at prices between $38.50 and $45.50. The position was disposed this quarter at prices between $41.50 and $47. The stock is now at $39.92.

Note: PG&E shares dropped sharply last December as it halted the dividend citing liability concerns from the October 2017 Northern California wildfires. Another drop happened last week as wildfires caused major damage and loss of life in Northern and Southern California.

Quality Care Properties (QCP): QCP was a 4.20% portfolio stake established in Q4 2016 at prices between $12.50 and $17. There was a ~38% stake increase in Q1 2018 at prices between $12.25 and $20 and that was followed with a marginal increase last quarter. Abrams Capital owned ~7.4% of the outstanding shares of QCP. The REIT was a spin-off from HCP Inc. (HCP) that started trading in October 2016. Welltower Inc. (WELL) acquired QCP for $20.75 per share cash and the transaction closed in July.

Group 1 Automotive (GPI): GPI was a small 0.80% stake purchased in Q3 2017 at prices between $53 and $72 and doubled in Q1 2018 at prices between $62.50 and $82.50. Last quarter saw a ~9% selling. The position was sold out this quarter at prices between $63 and $80. The stock is currently at $56.65.

New Stakes:

Shire plc (SHPG), Camping World Holdings (CWH), and Akebia Therapeutics (AKBA): These are the three new positions this quarter. SHPG is large (top three) ~11% portfolio stake established at prices between $166 and $181 and the stock is currently at ~$180. CWH is a small 1.31% position purchased at prices between $19 and $27 and it is now below that range at $17.03. AKBA is a minutely small 0.26% portfolio stake.

Note 1: In May, Takeda Pharmaceutical (OTCPK:TKPYY) agreed to acquire Shire plc in a cash-and-stock deal valued at ~$194 (~$90 cash) per ADR. The deal is expected to close in June 2019.

Note 2: Akebia Therapeutics is merging with Keryx Pharmaceuticals (KERX) in a transaction announced in June. KERX shareholders will receive 0.37433 common shares of AKBA for each share held. Abrams has a significant ownership position in Keryx.

Note 3: Regulatory filings since the quarter ended show them owning 3M shares (8.11% of the business) of Camping World Holdings. This is compared to 2.3M shares in the 13F report.

Stake Decreases:

Teva Pharmaceutical (TEVA): TEVA is currently the largest position at 11.12% of the portfolio. It was established in Q3 2017 at prices between $15.50 and $33.50. The stock currently trades at $23.45. There was marginal trimming this quarter.

Western Union (WU): WU is Abrams' third-largest stake at 10.66% of the 13F portfolio (~4.2% of the business). The position was first purchased in Q4 2013 at prices between $16 and $19.50 and increased by ~23% in Q2 2014 at prices between $15.25 and $17.25. The stock currently trades at $18.82. For investors attempting to follow Abrams, WU is a good option to consider for further research. Last two quarters have seen marginal trimming.

Altaba (AABA) previously Yahoo: AABA is a large 6.79% portfolio stake established in Q2 2017 at prices between $46 and $56 and the stock currently trades at $60.98. Last two quarters have seen minor trimming.

Aetna Inc. (AET): AET is a 4.42% of the portfolio stake established in Q1 2018 at prices between $168 and $194 and increased by ~14% last quarter at around the same price range. The stock currently trades at ~$209. There was a ~48% selling this quarter at prices between $183 and $206.

Note: AET is a merger-arbitrage stake. CVS (NYSE:CVS) is acquiring Aetna in a cash-and-stock deal ($145 per share cash and 0.8378 CVS shares for each share held) announced last December.

Keryx Pharmaceuticals (KERX): KERX is a small ~1% of the portfolio position established in Q3 2015 at prices between $3.38 and $10.50. The stock currently trades at $3.24. There was a ~70% stake increase in Q4 2017 at an average price of ~$5 per share. This quarter saw a ~9% trimming.

Note: Abrams Capital owns ~8% of the outstanding shares of Keryx.

Global Eagle Entertainment (ENT): ENT is a very small 0.49% of the portfolio position first purchased in Q4 2013 at prices between $9 and $15.50 and increased by two-thirds in Q3 2014 at prices between $9.50 and $14. Q1 2017 saw a ~20% increase at prices between $2.92 and $6.79 and that was followed with a similar increase in the following quarter at prices between $2.75 and $3.55. The stock currently trades at $2.72. There was a ~7% trimming this quarter.

Note: Abrams controls ~7.5% of the business.

Stake Increases:

Express Scripts (ESRX): ESRX is a large (top five) ~8% of the portfolio stake established last quarter at prices between $68 and $82 and increased by ~20% this quarter at prices between $74 and $95. The stock currently trades at $98.48. It is a merger-arbitrage stake - Cigna (CI) is buying Express Scripts in a cash-and-stock deal ($48.75 cash and 0.2434 shares of the new company for each share of ESRX held) announced in March.

Franklin Resources (BEN): BEN is a large ~8% of the 13F portfolio position established in Q4 2015 at prices between $35 and $42 and increased by ~50% the following quarter at prices between $31.50 and $39. There was another ~25% stake increase this quarter at prices between $30 and $34.50. The stock currently trades at $30.87. For investors attempting to follow, BEN is a good option to consider for further research.

Lithia Motors (LAD): The 4.32% LAD stake was established last quarter at prices between $95 and $105 and almost doubled this quarter at prices between $81 and $99. It is currently trading near the low end of those ranges at $82.87. For investors attempting to follow Abrams, LAD is a good option to consider for further research.

Asbury Automotive (ABG): ABG is a ~2% position established in Q3 2017 at prices between $50 and $62 and increased by ~45% this quarter at prices between $67 and $77.50. The stock currently trades at $67.96.

Note: Their ownership stake in the business is ~8%.

Suburban Propane Partners (SPH): SPH is a small 1.86% portfolio stake established in Q2 2017 at prices between $22.75 and $27 and increased by ~75% next quarter at prices between $23.50 and $26. The stock is currently at $22.71. The position was more than doubled in Q4 2017 at prices between $23.20 and $26.70 and that was followed with a ~87% increase over the next two quarters at prices between $22 and $27. This quarter also saw a ~6% further increase.

Kept Steady:

O'Reilly Automotive (ORLY): The large (top five) ~8% ORLY stake was purchased in Q3 2017 at prices between $173 and $220 and it is now at ~$355.

AMERCO (UHAL): UHAL is a 5.43% position purchased in Q4 2016 at prices between $314 and $374 and increased by ~160% the following quarter at prices between $367 and $391. There was a ~45% increase in Q2 2017 at prices between $341 and $393 and that was followed with a similar increase in H1 2018 at prices between $323 and $384. The stock is now at ~$336. For investors attempting to follow Abrams, UHAL is a good option to consider for further research.

Willis Towers Watson plc (WLTW): WLTW is a fairly large 4.41% position purchased in Q1 2017 at prices between $117 and $133. The stock is now at ~$160.

Kinder Morgan (KMI): KMI is a 4.11% of the portfolio position purchased in Q1 2018 at prices between $14.75 and $19.75 and the stock is currently at $17.53. There was a ~4% stake increase last quarter.

Alphabet Inc. (GOOG): GOOG is a ~4% position purchased last quarter at prices between $1,005 and $1,175 and the stock is now at $1,066.

Barnes & Noble Education Inc. (BNED): BNED is a ~1% of the portfolio stake. It was established as a result of the spinoff of BNED from Barnes & Noble (NYSE:BKS): shareholders of Barnes & Noble received 0.632 shares of BNED for each share of BKS held. The position was more than doubled since at prices between $8.50 and $15.50. Q4 2017 saw an about turn: ~25% sold at an average price of ~$8 per share. The stock currently trades at $6.22. There was a ~7% trimming in Q1 2018 and another ~4% selling last quarter.

Och-Ziff Capital Management (OZM): OZM is a 0.87% portfolio stake established in Q2 2016 at prices between $3.30 and $4.35 and increased by ~11% in the following quarter at prices between $3.35 and $4.49. There was another ~11% increase in Q4 2016 at a cost-basis around $3.20. Q1 2017 also saw a ~17% increase at prices between $2.20 and $3.63. The stock is now at $1.08.

Note: Abrams controls ~12% of the business.

Clear Channel Outdoor Holdings (CCO): CCO is a very small 0.53% of the 13F portfolio stake. It is a very long-term position that has been in the portfolio since 2009. The stake has been kept almost steady since. In March 2012, CCO paid a special dividend of $6.08 per share and that recouped almost the entire outlay on this investment. The stock currently trades at $5.81.

The spreadsheet below highlights changes to Abrams' 13F stock holdings in Q3 2018:

David Abrams - Abrams Capital Management - Q3 2018 13F Report

Disclosure: I am/we are long AKBA, BNED, KERX, KMI. 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.

Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.