Tracking David Abrams' Abrams Capital Management Portfolio - Q4 2018 Update

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Includes: AABA, ABG, AKBA, BEN, BNED, CCO, CI, CWH, ENT, ESRX, FB, GOOG, GOOGL, KERX, KMI, LAD, ORLY, PACD, SCU, SHPG, SPH, TAK, TEVA, UHAL, WLTW, WU
by: John Vincent
Summary

David Abrams’ 13F portfolio value decreased this quarter from $3.78B to $2.42B. The number of positions decreased from 22 to 19.

Abrams Capital Management added Facebook and Pacific Drilling, while dropping Altaba during the quarter.

The top three positions are Franklin Resources, O’Reilly Automotive, and Teva Pharmaceutical, and they add up to 36% 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 02/14/2019. 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 Q3 2018.

This quarter, Abrams’ 13F portfolio value decreased ~36%, from $3.78B to $2.42B. The number of holdings decreased from 22 to 19. The top three stakes are at ~36% of the 13F portfolio, while the top five holdings are at ~52%. The largest position is Franklin Resources (BEN), and it accounts for 12.30% of the 13F portfolio.

Stake Disposals

Shire plc (SHPG): SHPG was a large (top-three) ~11% of the portfolio merger-arbitrage stake established last quarter at prices between $166 and $181. It was eliminated this quarter at prices between $169 and $179.

Note: Takeda Pharmaceutical’s (TAK) cash-and-stock deal for Shire plc closed last month. Shire plc ADR holders received ~$91 per share cash and ~5 shares of Takeda ADR for each share held.

Express Scripts (ESRX): ESRX was a large (top-five) ~8% of the portfolio stake established in Q2 2018 at prices between $68 and $82, and increased by ~20% last quarter at prices between $74 and $95. It was a merger-arbitrage stake. Cigna (CI) bought Express Scripts in a cash-and-stock deal ($48.75 cash and 0.2434 shares of the merged entity for each share held) that closed in December.

Altaba (AABA) (previously Yahoo): AABA was a large 6.79% portfolio stake established in Q2 2017 at prices between $46 and $56, and disposed this quarter at prices between $55.50 and $67. The stock currently trades at $74.59.

Aetna Inc.: AET was a 4.42% of the portfolio merger-arbitrage stake established in Q1 2018 at prices between $168 and $194, and increased by ~14% next quarter at around the same price range. There was a ~48% selling last quarter at prices between $183 and $206. The position got eliminated as CVS Health’s cash-and-stock deal for Aetna ($145 per share cash and 0.8378 CVS shares for each share held) closed in November.

Keryx Pharmaceuticals (KERX): KERX was a small ~1% of the portfolio position established in Q3 2015 at prices between $3.38 and $10.50. The position got eliminated as Akebia’s merger with Keryx closed in December.

New Stakes

Facebook (FB) and Pacific Drilling SA (PACD): These are medium-sized new stakes established this quarter. FB is a 5.42% portfolio position purchased at prices between $124 and $163, and the stock currently trades at $161. The ~4% PACD stake got established as the company emerged from Chapter 11 bankruptcy in November. The stock is now at $15.30. Abrams Capital’s ownership stake in Pacific Drilling is 9.81%. They had ~$200M in Pacific Drilling debt when the company filed for bankruptcy in November 2017.

Stake Decreases

O'Reilly Automotive (ORLY): The large (top-three) ~12% ORLY stake was purchased in Q3 2017 at prices between $173 and $220, and it is now at ~$372. This quarter saw a minor ~3% selling.

Teva Pharmaceutical (TEVA): TEVA is currently the third-largest position at 11.80% of the portfolio. It was established in Q3 2017 at prices between $15.50 and $33.50. The stock currently trades at $16.83. There was minor trimming over the last two quarters.

Western Union (WU): WU is a large (top-five) position at 10.66% of the 13F portfolio. The stake 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. This quarter saw a ~50% selling at prices between $16.50 and $19. The stock currently trades at $17.87.

Willis Towers Watson plc (WLTW): WLTW is a fairly large ~7% position purchased in Q1 2017 at prices between $117 and $133. The stock is now at ~$172. There was a ~6% trimming this quarter.

Global Eagle Entertainment (ENT): ENT is a very small 0.56% 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 $2.66. There was a ~15% selling over the last two quarters at prices between $2 and $3.

Note: Abrams controls 6.62% of the business.

Stake Increases

Franklin Resources: BEN is currently the largest position at 12.30% of the 13F portfolio. It was 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 last quarter at prices between $30 and $34.50. The stock currently trades at $32.61. For investors attempting to follow, BEN is a good option to consider for further research. There was a marginal increase this quarter.

Lithia Motors (LAD): The 7.25% LAD stake was established in Q2 2018 at prices between $95 and $105, and almost doubled last quarter at prices between $81 and $99. The stock is now at $90.27. For investors attempting to follow Abrams, LAD is a good option to consider for further research. This quarter also saw a ~15% stake increase.

Note: Their ownership stake in Lithia Motors is at 10.21%.

Asbury Automotive (ABG): ABG is a 5.24% position established in Q3 2017 at prices between $50 and $62, and increased by ~45% last quarter at prices between $67 and $77.50. This quarter saw another 20% stake increase at prices between $59 and $72. The stock currently trades at $71.79.

Note: Their ownership stake in the business is 9.71%.

Camping World Holdings (CWH) and Akebia Therapeutics (AKBA): These two positions established last quarter saw large increases this quarter. CWH is a 1.83% position purchased last quarter at prices between $19 and $27, and increased by two-thirds this quarter at prices between $11.25 and $22.50. It is now at $12.90. AKBA was a minutely small 0.26% portfolio stake as of last quarter. They merged with Keryx Pharmaceuticals in a transaction that closed in December. KERX shareholders received 0.37433 common shares of AKBA for each share held. Abrams had ~9.1M shares of Keryx, for which he received 3.4M shares. Abrams also increased the overall position by ~20% during the quarter at prices between $5.40 and $9.15. AKBA currently trades at $7.28. Compared to the size of the portfolio, the stake is still fairly small at 1.29%.

Note: Their ownership stake in Akebia and Camping World Holdings are at 4.8% and 10.41% respectively.

Kept Steady

AMERCO (UHAL): UHAL is a 7.81% 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 ~$385.

Kinder Morgan (KMI): KMI is a 5.57% of the portfolio position purchased in Q1 2018 at prices between $14.75 and $19.75, and the stock is currently at $19.16. There was a ~4% stake increase in Q2 2018.

Alphabet Inc. (GOOG): GOOG is a ~4% position purchased in Q2 2018 at prices between $1005 and $1175, and the stock is now at $1120.

Suburban Propane Partners (SPH): SPH is a 2.38% 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 $21.71. 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.

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: 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 $6.89. H1 2018 had also seen a ~12% trimming.

Note: Regulatory filings since the quarter ended show them owning 4.53M shares of Barnes & Noble Education. This is compared to 5.87M shares in the 13F report. Around 1.35M shares were disposed at ~$7.10.

Och-Ziff Capital Management (OZM): OZM is a 0.85% portfolio stake established in Q2 2016 at prices between $33 and $43.50, and increased by ~11% in the following quarter at prices between $33.50 and $44.90. There was another ~11% increase in Q4 2016 at a cost basis around $32. Q1 2017 also saw a ~17% increase at prices between $22 and $36.30. The stock is now at $12.60.

Note: The prices quoted above are adjusted for the 1-for-10 reverse-stock split in January. Abrams controls ~12% of the business.

Clear Channel Outdoor Holdings (CCO): CCO is a very small 0.72% 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 $5.48.

The spreadsheet below highlights changes to Abrams’ 13F stock holdings in Q4 2018:

David Abrams - Abrams Capital Management - Q4 2018 13F Report Q/Q Comparison

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