This article is part of a series that provides an ongoing analysis of the changes made to Pershing Square’s 13F portfolio on a quarterly basis. It is based on Ackman’s regulatory 13F Form filed on 05/15/2019. Please visit our Tracking Bill Ackman's Pershing Square Holdings article for an idea on how his holdings have progressed over the years and our previous update for the fund’s moves during Q4 2018.
Ackman’s 13F portfolio value increased ~13%, from $5.96B to $6.72B this quarter. The number of positions decreased from 9 to 8. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for ~53% of the total portfolio value: Chipotle Mexican Grill (CMG), Restaurant Brands International (QSR), and Lowe's Companies (LOW).
In addition to partner stakes, the fund also invests the capital from Pershing Square Holdings (OTCPK:PSHZF), a public entity that debuted in Euronext Amsterdam in October 2014. This was set up primarily to increase the amount of capital invested that is permanent. Pershing Square Holdings has underperformed the S&P 500 since its EOY 2012 inception, although YTD return as of May 17, 2019 is very strong - up 38.4% compared to ~14% for the S&P 500 index. Their original flagship fund’s (2004 inception) track record is outstanding, with cumulative returns at ~500% compared to ~220% for the S&P 500 index.
To learn more about Bill Ackman, check out the book Confidence Game: How Hedge Fund Manager Bill Ackman Called Wall Street's Bluff.
Element Solutions (ESI) (previously Platform Specialty Products): On 01/23/2014, Ackman disclosed a huge new stake in Platform Specialty Products Corporation in a 13G filing. Pershing Square was a PAH investor prior to its NYSE IPO. Q4 2014 saw a ~30% stake increase at prices between $21 and $28. Ackman’s cost basis was ~$14, and his ownership stake was ~20% of the business. The entire position was sold this quarter at ~$11.75 through a buyback deal with the company. The stock currently trades at $10.62.
United Technologies (UTX): UTX is an ~11% of the 13F portfolio stake established in Q1 2018 at prices between $122 and $138, and increased by ~135% next quarter at prices between $118 and $128. The stock currently trades at ~$134. The last three quarters have also seen a combined ~30% increase at prices between $101 and $142. For investors attempting to follow Ackman, UTX is a good option to consider for further research.
Note: Pershing Square believes the upcoming three-way split should be a catalyst for significant share price appreciation: Otis Elevator, Climate, Controls, & Security (CCS), and Aerospace (UTC Aerospace Systems and Pratt & Whitney).
Hilton Worldwide Holdings (HLT): The large ~14% portfolio stake was established in October 2018. It was purchased at prices between $64 and $78, and the stock currently trades well above that range at $92.93. There was marginal increase this quarter.
Note: In Q4 2018, Hilton Worldwide Holdings came back in to the portfolio after a gap of eighteen months. The previous position was purchased in Q3 2016 and disposed a year later. Pershing Square has said that the new position was acquired at a better valuation compared to their previous purchase. This is despite the fact that the business structure has transformed into a capital-light model as a result of the spin-off in early 2017 of Park Hotels & Resorts (PK) and Hilton Grand Vacations (HGV).
Chipotle Mexican Grill: CMG is the largest position at ~20% of the portfolio. The stake was established in Q3 2016 at a cost basis of ~$405 per share. The position was sold down by ~30% in Q3 2018 in the high $400s price range, and that was followed with a ~10% trimming over the last two quarters. The stock currently trades at ~$716. Ackman harvested gains.
Note: Despite the 63% increase in share price YTD, Pershing Square believes the business transformation is in early stages - it has the potential for upwards of 25% margins (current margins are at 21%) and store count doubling (current store count is ~2500) in the coming years.
Restaurant Brands International: QSR is currently the second-largest 13F position at ~18% of the portfolio. Pershing Square’s cost basis is ~$16. Q3 2017 saw a ~32% selling at prices between $59 and $66. H1 2018 had also seen a ~22% reduction at prices between $53 and $64. The stock currently trades at $67.47. There were minor ~6% trimmings each over the last two quarters.
Note: The stock is up 28% YTD. Per Pershing Square’s Q1 2019 shareholder letter, shares trade at a discount to peers: 23 times 2019 estimated FCF, compared to Yum! Brands (YUM) and McDonald's (MCD) at 26 to 27 times.
Lowe's Companies: LOW is a large (top-three) ~15% of the portfolio stake established in Q2 2018 at prices between $81 and $101, and increased by ~9% next quarter at prices between $95 and $117. Last quarter also saw a ~13% increase at prices between $86 and $114. The stock currently trades at $109. There was a ~2% trimming this quarter. For investors attempting to follow, LOW is a good option to consider for further research.
Note: Pershing Square believes that the stock should outperform going forward as the business transformation that will allow Lowe's to narrow the performance gap with Home Depot (HD) becomes more evident to the market.
Starbucks Corp. (SBUX): The ~11% SBUX stake was established last October at a cost basis of ~$51 per share, compared to the current price of $78.91.
Automatic Data Processing (ADP): ADP is a large ~10% of the 13F portfolio stake established in Q2 2017 at a cost basis of ~$97, and increased by around four times the following quarter at prices between $101 and $119. The stock is now at ~$162. There was a ~10% trimming in Q1 2018 at prices between $108 and $124, and another ~47% selling in the following quarter at prices between $113 and $140. Q3 2018 also saw a ~4% trimming, while last quarter there was a marginal increase. This quarter saw marginal trimming.
Note 1: Regulatory filings from last year show them owning 21.3M shares (4.9% of business): ~4M shares listed in the 13F report in common stock, and the rest in American-style Call Options.
Note 2: Per a letter to investors in June 2018, their average entry price on ADP was $105 per share.
Note 3: In November 2017, Pershing Square lost a proxy battle at ADP - his three (including himself) board nominations were rejected.
Howard Hughes Corp. (HHC): HHC is a ~2% of the 13F portfolio position established in 2010 as a result of its spin-off from GGP Inc. (GGP). The stock has returned over 3x since the spin-off. Q3 2017 saw a one-third increase as a result of the conversion of warrants held. There was a ~53% selling (~2.5M shares) in February 2018 at ~$128 per share (underwriting agreement). That transaction was prompted to address FIRPTA issues at PSH. The stock is currently at ~$109. Q3 2018 saw a ~3% trimming, and that was followed with a ~40% reduction last quarter at prices between $90 and $124. There was a ~3% trimming this quarter.
Note: Regulatory filings from November show them having an economic interest of 5.4M shares of HHC (~12.6% of the business), including 4.17M notional common share exposure through swaps that are not listed in the 13F.
Fannie Mae (OTCQB:FNMA) and Freddie Mac (OTCQB:FMCC) are other long positions in the partnership - the holdings were disclosed in 13D filings on November 15, 2013 - as they are not 13F securities, they are not listed in the 13F report. Ackman held just under 10% of the outstanding shares of both these businesses - 115.57M shares of FNMA at a cost basis of $2.29 and 63.5M shares of FMCC at a cost basis of $2.14. The combined investment outlay was ~$400M. FNMA and FMCC currently trade at $2.76 and $2.67 per share respectively. In March 2018, Pershing Square said their Fannie/Freddie pfds now amount to 21% of their total investment in the two GSEs. They said it is a hedge in case the resolution favors pfds more than the common.
The spreadsheet below highlights changes to Pershing Square’s 13F stock holdings in Q1 2019:
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. 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.
Additional disclosure: We are long Fannie/Freddie pfds.