Tracking Jeffrey Ubben's ValueAct Portfolio - Q2 2019 Update

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Includes: ACA, ADS, AES, AFI, AWI, BHC, BKNG, C, CBRE, DAR, EIX, EVA, HE, KKR, LIND, MS, PCG, PSN, RYCEY, SLM, STRA, STX, TRN, TSG, UFI, XPO
by: John Vincent
Summary

Jeffrey Ubben's 13F portfolio value increased from $9.09B to $9.58B this quarter.

ValueAct decreased Alliance Data Systems during the quarter.

The top three positions are Citigroup, Seagate Technology, and KKR & Co., and they add up to ~52% of the portfolio.

This article is part of a series that provides an ongoing analysis of the changes made to Jeffrey Ubben’s 13F stock portfolio on a quarterly basis. It is based on Ubben’s regulatory 13F Form filed on 08/14/2019. Please visit our Tracking Jeffrey Ubben’s ValueAct Portfolio article for an idea on his investment philosophy and our previous update for the fund’s moves during Q1 2019.

This quarter, Ubben’s 13F portfolio value increased ~5% from $9.10B to $9.58B. The number of holdings increased from 20 to 23. The top three positions are at ~52% while the top five are at 71% of the 13F assets. The largest position is Citigroup which is at ~23% of the portfolio. To know more about ValueAct’s activist style of value investing, check out Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations.

Note: ValueAct has a 9.5% activist stake in Rolls-Royce (OTCPK:RYCEY). In March, it was reported that the position was reduced slightly. The stake was established mid-2015 and increased substantially in November 2015. In 2016, they got a seat in the board in exchange for restrictions including not being allowed to publicly criticize Rolls-Royce. That restriction was relaxed last April.

New Stakes:

Stars Group (TSG): TSG is a 2.43% of the portfolio stake established this quarter at prices between $16 and $20 and the stock currently trades below that at $14.07.

Parsons Corp. (PSN), Booking Holdings (BKNG), XPO Logistics (XPO), and Edison International (EIX): These are very small (less than ~0.70% of the portfolio each) new positions established this quarter.

Note: Parsons Corp. had an IPO in May. Shares started trading at around $31 and currently goes for ~$33.50.

Stake Disposals:

PG&E Corp. (PCG): PCG is a minutely small 0.20% of the portfolio stake established last quarter at prices between $6.25 and $24.50. It was disposed this quarter at prices between $17 and $24. The stock currently trades at $11.04.

Armstrong World Industries (AWI): AWI stake was established in Q2 2014 with the bulk purchased next quarter at around the mid-$40s price-range. Last year saw a ~75% selling at prices between $55 and $72. The 1.63% portfolio stake that remained as of Q4 2018 was almost eliminated last quarter at prices between $58 and $81. The remnant position was sold this quarter at ~$80 per share. The stock currently trades at $91.55.

Note: AWI was an activist stake and ValueAct was involved in the spinoff of Armstrong Flooring in April 2016.

Stake Decreases:

Alliance Data Systems (ADS): The majority of the original position was purchased in Q2 2016 at prices between $186 and $226. There was a ~50% increase in the following quarter at ~$200 per share. The next two quarters saw another ~15% increase at prices between $200 and $250. Q4 2018 saw a ~15% selling at prices between $144 and $238. That was followed with a ~30% reduction this quarter at prices between $134 and $181. The stock currently trades at ~$131.

Bausch Health (BHC) previously Valeant Pharmaceuticals: The BHC position is now at 4.72% of the 13F portfolio. ValueAct controls ~5.3% of the business. It is a very long-term stake. Q1 2017 saw a ~20% increase at ~$10.85 per share. The stock is now at $21.33. This quarter saw marginal trimming.

Note: ValueAct first purchased Valeant in 2006. Their team was involved in the transformation of Valeant from an early-stage pharmaceuticals business to the behemoth it is today.

Arcosa Inc. (ACA): ACA is a 1.67% portfolio stake that came about as a result of the spinoff from Trinity Industries. Trinity shareholders received one share of Arcosa for every three shares of Trinity held. ValueAct held ~21.4M shares of Trinity for which they received ~7.1M shares of Arcosa. The stock started trading at ~$28.50 and currently goes for $31.82. Last quarter saw a ~20% selling at $33.02 and that was followed with another ~25% reduction this quarter at prices between $30 and $39.

Note: Regulatory filings since the quarter ended show them owning 3.47M shares (7.2% of business). This is compared to 4.24M shares in the 13F report. The disposal was at prices between $34.50 and $38

Hawaiian Electric (HE): The very small 0.53% HE stake was purchased in Q3 2018 at prices between $34.40 and $36.15 and increased by ~25% next quarter at prices between $35 and $39. The stock currently trades at $43.90. Last two quarters have seen a ~22% selling at prices between $35.25 and $44.

Note: On Hawaiian Electric, ValueAct has disclosed that it is the largest position in their VAC Spring Fund. Part of the thesis is that Hawaii is the perfect place to power electricity infrastructure. Also, HE has a banking business which can source the funding of rooftop solar cells.

Armstrong Flooring Inc. (AFI): The very small 0.13% AFI stake came about as a result of the spinoff from Armstrong World Industries that closed in April 2016. The terms called for shareholders to receive one AFI share for every two shares of Armstrong World Industries held. ValueAct had 9.2M shares for which they received 4.6M shares (17.9% of the business). AFI started trading at ~$12.50 per share and the shares now go for $6.63. This quarter saw the position reduced by ~75% at prices between $9.50 and $15. The ownership stake is now at 5.7%.

Strategic Education (STRA): The very small 0.43% of the portfolio stake in STRA saw a ~45% selling during the quarter.

Note: Strayer Education merged with Capella Education in an all-stock deal in August last year. The business was renamed Strategic Education after the close of the transaction.

Stake Increases:

Seagate Technology (STX): The large (top three) ~16% STX position saw a huge ~220% increase in Q3 2016 at prices between $23 and $38.50. There was another ~45% increase in Q2 2017 at prices between $38.75 and $50.50 and that was followed with a ~55% increase the following quarter at ~$33 per share. The stock is now at $46.92. Last five quarters have seen a ~47% increase at prices between $36 and $60.

Note: ValueAct owns ~12% of the business.

CBRE Group (CBRE): CBRE is a large ~7% of the 13F portfolio stake. The majority of the original position was established in 2011 and 2012 in the mid-to-high-teens price-range. Q4 2016 saw a ~20% increase in the mid-to-high $20s price-range. There was an ~18% reduction in Q2 2017 at ~$35.20 per share and that was followed with a ~15% selling the following quarter at ~$35.90 per share. Q4 2017 and Q1 2018 also saw another ~31% selling at ~$44 per share and that was followed with a one-third selling last quarter at $49.51. The stock is currently at $49.26. This quarter saw a marginal increase.

Note: ValueAct still controls ~4% of the business.

AES Corp. (AES): AES is a very small 0.73% portfolio stake. The position saw a 165% stake increase this quarter at an average price of ~$16 per share. The stock is now at $14.79.

Note: Regulatory filings since the quarter ended show them owning 4.35M shares. This is compared to 4.15M shares in the 13F report. The increase was at ~$15.25.

Darling Ingredients (DAR), Lindblad Expeditions (LIND), and Unifi Inc. (UFI): These very small (less than ~0.50% of the portfolio each) stakes saw increases this quarter.

Note: ValueAct controls 6% of Lindblad Expeditions.

Note 2: Regulatory filings since the quarter ended show them owning 1.41M shares (7.7% of business) of Unifi Inc. This is compared to ~1.3M shares in the 13F report. The increase happened at $18.80 per share. The stock is currently at $19.62.

Kept Steady:

Citigroup (C): The C position established in Q4 2017 saw a ~500% increase in Q1 2018 at prices between $67 and $80. H2 2018 had also seen another ~25% combined increase at prices between $49 and $75. The stock currently trades at $61.95. It is currently the largest 13F position at ~23%. For investors attempting to follow ValueAct, Citigroup is a good option to consider for further research.

KKR & Co. (KKR): KKR is a large (top three) 13.38% portfolio position established in Q2 2017 and increased by a whopping ~800% the following quarter at prices between $18 and $20.50. The stock currently trades at $25.46. For investors attempting to follow ValueAct, KKR is a good option to consider for further research.

Note: ValueAct controls ~10% of the business.

Morgan Stanley (MS): MS is a large (top five) ~12% portfolio stake established in Q2 2016 at prices between $23.50 and $28 and increased by ~10% the following quarter at prices between $25 and $32. Q4 2016 saw the pattern reverse: ~35% reduction at prices between $31.50 and $44 and that was followed with another one-third selling in the following quarter at prices between $41.50 and $47. The stock is now at $39.33. Last three quarters of 2018 had seen a combined ~45% increase at prices between $37 and $55.

Trinity Industries (TRN): The ~5% TRN stake was roughly doubled at ~$13.75 per share in Q3 2016 and that was followed with another ~25% increase the following quarter at ~$12.25 per share. Q3 2017 saw another ~11% stake increase at ~$18.75 per share. There was an ~8% increase in Q4 2017 at ~$22.25 per share and that was followed with a ~15% increase next quarter at ~$23.25 per share. The stock is now at $16.28.

Note 1: Regulatory filings since the quarter ended show them owning 22.56M shares (17.6% of business). This is compared to 21.90M shares in the 13F report. The increase was at ~$19.30.

Note 2: The prices quoted above are adjusted for the Arcosa Inc. spinoff that closed last November.

SLM Corp. (SLM): SLM was a very small 0.83% of the portfolio stake established in Q1 2018. Next quarter saw the stake increased by ~410% at prices between $11 and $12. The stock is currently at $8.19. Ubben controls ~9% of the business. The stake is now at ~4% of the portfolio.

Enviva Partners (EVA): The very small 0.54% EVA stake was kept steady this quarter.

The spreadsheet below highlights changes to Ubben’s 13F stock holdings in Q2 2019:

Jeffrey Ubben - Value Act Holdings Q2 2019 13F Report Q/Q Comparison

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.