Arnaud Langlois Short Air Products & Chemicals: Sohn London Conference

We're posting up notes from the Sohn London investment conference.  Next up is Arnaud Langlois of 1798 TerreNeuve Fund, Lombard Odier who presented a short of Air Products and Chemicals (NAS:APD).


Arnaud Langlois's Sohn London Conference Presentation

Short: Air Products and Chemicals (NAS: APD)

The stock is up 59% this year. APD is trying to grow at 10% per annum. To achieve this, in 2018 the company set out a plan to invest $17bn between 2018-2022 mostly into coal gasification – making gas from coal. There are risks with this process:

- Country risk, projects take place in countries that are trying to exploit coal assets like China, Indonesian and Indian

- Concentration risk, APD is investing too much into coal gasification

- Joint venture risks, their partners are in the mining industry which can be unstable

- Environmental risks. Coal gasification is a water intensive process. Plants have been stopped in China due to water shortages. It is also CO2 intensive emitting x2 coal fired power stations

Langlois’s research suggests that APD’s CO2 footprint could be 100m tons by 2025. That would give it one of the largest footprints in the S&P 500. Any new legislation that limits or taxes greenhouse gas emissions would hurt the company. Carbon pricing is established in Europe and seems likely to spread. No investor with a long-time horizon should support the APD’s business model.


Be sure to check out the rest of the presentations from Sohn London conference 2019.

Pershing Square Q2 Letter: Sold Undisclosed Hilton Stake

Bill Ackman's Pershing Square has put out its mid-year report which includes commentary on their investments.  They also disclose that they previously owned a stake in Hilton (HLT) but recently sold it after the spin-offs took place.

In the letter, they also write about their latest investment, Automatic Data Processing (ADP):

"ADP is a classic Pershing Square investment. It is a simple, predictable, free-cash-flow generative business that has under performed its potential. As a conservatively financed, capital-light business with long-term customer relationships in a sector with substantial positive growth, we believe it has modest downside. If it is able to achieve its potential, we believe it offers substantial upside. We acquired ADP for the funds along with a co-investment vehicle (PSVI) which we recently raised to increase our ownership of the company.  We believe that ADP is one of the highest quality businesses we have owned, and one which offers an enormous opportunity for operational improvement.

They also provide an update on their stake in Chipotle (CMG), noting that the company has battled another setback with a norovirus incident in Virginia.  That said, Pershing feels that the company is still on the right track.  They write,

"We made our investment in Chipotle anticipating that the sales recovery would be neither smooth nor predictable,but with a belief that the key drivers of Chipotle’s powerful economic moat and long-term success would remain intact. With the steps that the company has taken to improve its business, we continue to believe there is an enormous long-term growth opportunity for Chipotle given: (1) the significant potential to drive sales per restaurant higher through mobile and digital ordering, menu innovation, catering, and improved operations, (2) the opportunity to expand its vastly under penetrated restaurant base in the U.S., and (3) the considerable potential to build the brand internationally."

Their letter also touches on Mondelez (MDLZ), Howard Hughes (HHC), Air Products (APD), Restaurant Brands (QSR), Platform Specialty Products (PAH), Nomad Foods (NOMD), and Fannie Mae/Freddie Mac, as well its short position: Herbalife (HLF).


Embedded below is Pershing Square's Q2 letter:



You can download a .pdf copy here.

Pershing Square's Q1 Letter

Bill Ackman is out with Pershing Square's first quarter 2017 letter.  Pershing returned -2.6% net in the first quarter of the year.

We've already highlighted how Ackman pitched Howard Hughes at the recent Sohn conference. 

His Q1 letter provides updates on other stocks such as Mondelez (MDLZ), Air Products (APD), Restaurant Brands (QSR), Chipotle (CMG), Fannie Mae/Freddie Mac, as well as Platform Specialty Products (PAH), Nomad Foods (NOMD), and their short of Herbalife (HLF).



Embedded below is Pershing Square's Q1 letter:



You can download a .pdf copy here.

Pershing Square's 2016 Annual Report: VRX, APD, FNMA, HLF, HHC, MDLZ, NOMD, PAH, QSR

Bill Ackman's hedge fund firm Pershing Square Capital Management is out with its 2016 annual report.

Pershing Square lost 13.5% net in 2016.  The bulk of this loss was attributed to its previous position in Valeant Pharmaceuticals (VRX).

Ackman writes about why they ended up selling VRX:

"If the stock price had increased even very substantially from here, the impact on our overall performance would have been modest, and would not compensate  us for the human resources and substantial mindshare that this investment had and would have continued to consume  if we had remained a shareholder.  Furthermore, while Valeant has made significant progress and we expect  management to continue to do so, there is still a lot of work to be done.  

Clearly, our investment in Valeant was a huge mistake.  Th e highly acquisitive nature of Valeant’s business required  flawless capital allocation and operational execution, and th erefore, a larger than no rmal degree of reliance on  management.  In retrospect, we misjudged the prior management team and this contributed to our loss.  We deeply  regret this mistake, which has cost  all of us a tremendous amount, and whic h has damaged the record of success of  our firm." 

Despite the poor 2016, Pershing points out that they've generated a compound annual return of 14.8% compared to S&P returns of 7.7% over the same time period.

The report also details portfolio updates on numerous positions, including: Air Products & Chemicals (APD), Fannie Mae (FNMA) / Freddie Mac (FMCC), their short of Herbalife (HLF), Howard Hughes (HHC), Mondelez (MDLZ), Nomad Foods (NOMD), Platform Specialty Products (PAH), and Restaurant Brands (QSR).

They also touch on some of the positions they've exited.

Embedded below is Pershing Square's 2016 annual report:



You can download a .pdf copy here.

Pershing Square Reduces Air Products & Chemicals Stake

Bill Ackman's Pershing Square has been busy in the markets lately.  The latest activity includes selling some shares of his stake in Air Products and Chemicals (APD).  This comes after Pershing recently acquired a new stake in Chipotle (CMG) as well.

Per an amended 13D filed with the SEC, Pershing Square now owns 7.8% of APD with over 16.97 million shares (via 4 million common stock and 12.9 million underlying call options).

This is down from the previous 9.5% of the company they owned (with 20.54 million shares exposure).  The 13D filing notes that on September 12th Pershing sold over 3.5 million shares. 

The rationale for this transaction was: "The three-year commitment period for Pershing Square's co-investment vehicles in the issuer ends on September 30th, 2016.  The Reporting Persons sold the Common Stock to return capital to the PSV Funds co-investors."

Per Google Finance, Air Products & Chemicals is "an industrial gases company. The Company's Industrial Gases business provides atmospheric and process gases and related equipment to manufacturing markets, including refining and petrochemical, metals, electronics, and food and beverage. The Company operates through seven segments: Industrial Gases-Americas, Industrial Gases-Europe, Middle East, and Africa (EMEA), Industrial Gases-Asia, Industrial Gases-Global, Materials Technologies, Energy-from-Waste, and Corporate and other. The Company is also a supplier of liquefied natural gas process technology and equipment. The Company's Materials Technologies business serves the semiconductor, polyurethanes, cleaning and coatings, and adhesives industries. The Company manufactures and distributes products in two lines of business: Industrial Gases and Materials Technologies."

Pershing Square's Latest Presentation on Their Holdings

Bill Ackman's hedge fund firm Pershing Square Capital Management recently released its slideshow presentation from its European Investing Meeting.

In it, they update the status/progress of their investments with numerous slides on each name regarding their thesis and how it's playing out. 

The investments profiled include: Mondelez (MDLZ), Air Products (APD), Zoetis (ZTS), Restaurant Brands (QSR), Canadian Pacific (CP), Howard Hughes (HHC), Valeant Pharmaceuticals (VRX), Platform Specialty Products (PAH), Fannie Mae/Freddie Mac, Nomad Foods (NOMD), and their short of Herbalife (HLF).

Embedded below is Pershing's latest presentation:



You can download a .pdf copy here.

What We're Reading ~ 10/14/15

The psychology of risk and reward [Farnam Street]

The (non) velocity of money [Reformed Broker]

The CFA vs MBA decision [A Wealth of Common Sense]

Latest market commentary from Byron Wien [Blackstone]

The king of online gambling [Forbes]

Thoughts on Fastenal (FAST) [Base Hit Investing]

A look at Air Products & Chemicals (APD) [Bear of Burrard Street]

Stock picks from Marty Whitman's successor [Barrons]

Why interest rates could stay lower for longer than previously thought [Market Anthropology]

The social network illusion that tricks your mind [Technology Review]

Venture capital and the internet's impact [Stratechery]

Move over Louis Vuitton, here's LFX [Bloomberg]

Secrets to building a mighty network [Backchannel]

Pershing Square Semi Annual Report: Mondelez, Nomad Foods & More

Bill Ackman's hedge fund firm Pershing Square is out with its semi-annual report and second quarter letter.  Year to date through July 2015, Pershing Square Holdings was up 10.1% net.  This obviously doesn't include the volatility in August and they note they were down for the year as of recent activity, but still outperforming the indices.


Pershing's Thesis on Mondelez

Ackman's letter provides an update on their new position in Mondelez (MDLZ), writing

"We believe that now is an attractive time to invest in Mondelez because its profit margins are just beginning to expand after several years of limited improvement.  In addition, we believe that 3G Capital, through its ownership of Hertz, and now Kraft, has established new benchmarks for operational efficiency, organizational design and management alignment which have allowed 3G companies to be more profitable, nimbler, and better positioned to grow over the long-term.  We believe that 3G's higher standards for operating performance will catalyze a competitive response in the packaged foods industry, leading to greater operating margins and profitability for Mondelez and other companies in the industry."


Pershing's New Position in Nomad Foods

The firm also talked about their new purchase of Nomad Foods (NHL).  They purchased $350 million in a private placement of Nomad's common stock during its acquisition of Iglo Group in June, giving them a 22% ownership stake. 

Nomad is a specialty purpose acquisition company (SPAC) sponsored by Martin Franklin and Noam Gottesman.  Pershing has worked with Martin before in a previous SPAC (Justice Holdings) that then became Burger King (now known as Restaurant Brands).

The thesis here is a consolidation play as they believe Iglo is a platform investment to then acquire more of the packaged food industry.

Pershing writes,

"Iglo is the leading branded frozen food business in Europe with euro 1.5 billion in sales. It is a stable, high margin (20% EBITDA margin), free-cash-flow-generative business.  It has a leading share in European frozen foods at 2.2 times the size of the next largest competitor, with strong brand equity.  Historical growth in the business has been flat, but management sees opportunity for organic growth by expanding the company's great brand names into adjacent frozen food categories."


In its letter, Pershing also provides updates on Valeant Pharmaceuticals (VRX), Air Products and Chemicals (APD), Canadian Pacific (CP), Zoetis (ZTS), Restaurant Brands (QSR), their short of Herbalife (HLF), Fannie Mae/Freddie Mac (FMCC), and.


Embedded below is Pershing Square's semi-annual report / Q2 letter:



You can download a .pdf copy here.

For more on this firm, head to Bill Ackman's presentation at the Delivering Alpha conference.

Pershing Square's Presentation From European Investor Meeting

Bill Ackman's Pershing Square Holdings has just released a presentation on its portfolio from a recent European investor meeting.

In it, the hedge fund outlines their thesis on various portfolio companies and updates regarding those positions.  They also offer a look at their thinking on a recent addition to their portfolio: Valeant Pharmaceuticals (VRX).

Embedded below is Pershing Square's presentation from its recent European investor meeting:



You can download a .pdf copy here.

For more from this hedge fund, check out Pershing Square's annual report here.

Bill Ackman's Pershing Square Q3 Letter: Zoetis, Allergan & More

Bill Ackman is out with Pershing Square Capital's third quarter letter to investors.  Pershing is up 35% net for the year as of the end of October.  The Q3 letter outlines Ackman's thesis on his newest holding: Zoetis (ZTS). 

ZTS is a spin-off from Pfizer and is an animal health company.  Ackman took this position alongside Sachem Head Capital, another activist hedge fund run by Scott Ferguson (who previously worked at Pershing).

He likes that Zoetis has a durable product portfolio and is involved in markets with secular growth. Ackman writes, "We believe Zoetis is a scarce asset."

Additionally, Ackman outlines the Allergan (AGN) saga and also gives updates on his positions in Canadian Pacific (CP), Howard Hughes (HHC), Platform Specialty Products (PAH), Fannie & Freddie, Air Products (APD), as well as his Herbalife (HLF) short.

Embedded below is Pershing Square's Q3 letter:



For more from Ackman, check out some of his recent conference appearances: Ackman's fireside chat at Invest For Kids Chicago as well as Ackman's talk at Great Investors' Best Ideas Dallas.

Senator Investment Group's Thesis on Air Products & Chemicals (Q4 Letter)

Alex Klabin and Doug Silverman's hedge fund Senator Investment Group has built a sizable position in Air Products & Chemicals (APD) in the fourth quarter, according to their Q4 letter.

We've previously highlighted how Bill Ackman's Pershing Square is long APD and now Senator has bought a stake as well.


Senator's Air Products & Chemicals Thesis

The hedge fund likes that the company is involved in an attractive business with significant barriers to entry and oligopoly-like qualities.  There's 5 suppliers of industrial gasses: APD, Praxair, Linde and Air Liquide, and Airgas.  

Senator writes,

"Air Products trades at 18.1x 2014 earnings, but only 12.7x recurring free cash flow, a more relevant metric given the stable, cash generative nature of the business.  Moreover, for the last few years, Air Products' earnings and cash flow potential have been depressed by large investments in growth projects that have yet to impact financial results."

They like that industrial gas businesses see the majority of their revenues linked to long-term contracts.

Senator notes Pershing's involvement as a positive as the company has ousted the CEO and added new directors to the board.  Senator thinks a new CEO could potentially be announced during the first quarter and will put in place a restructuring plan. 

They feel the company's cost cutting opportunity to be around $400 million or so ("5% of its cost base and 27% of trailing EBIT of $1.5 billion") and point to how competitor Praxair went through something similar in 2000.  The hedge fund's base case for Air Products assumes that a new CEO can capture half of that opportunity.

Senator believes the company could also reap the benefits of the capital investments they made in the past few years as plants come online.  They see $175 million of incremental EBIT from this by 2016, as well as $450 million of increment EBIT opportunity from 'unutilized' merchant gas sales.  Senator estimates earnings growth of 20% in both 2015/16.

Senator concludes,

"A new CEO, a focused board and a large, constructive shareholder will very likely bring about other value maximizing moves, such as the sale, spin or MLP conversion of Air Products' hydrogen pipelines and additional cash returns to shareholders through issuances of project-level debt. In terms of downside, we think the 2014 guidance from the current management is reasonable and translates into $8.70 of free cash flow per share.  In our view, it's hard to envision the shares trading for less than 11x FCF (or 10% downside from current levels) given the defensive characteristics of the business and the imminent announcement of a new CEO.  Over the next two years, we believe Air Products' shares could trade to 15x our $12 free cash flow estimate or $180 per share, implying close to 70% upside in a large cap, high-quality business."

For more on this hedge fund, we've posted some of Senator's other recent portfolio activity here.

Bill Ackman & Pershing Square's Q3 Letter: Converts 40% of Herbalife Short to Put Options

Bill Ackman recently sent out his letter to investors from hedge fund Pershing Square Capital.  In it, he reveals that he's switched out almost half of his Herbalife (HLF) short position from equity to put options.  He made this move largely for risk management purposes.

He also talks about his new activist position in Air Products & Chemicals (APD) where they've already made progress by replacing the CEO.

Bill Ackman's Q3 letter is embedded below, courtesy of The New York Post:

 


If you missed it: Ackman also dumped his J.C. Penney stake as well.

Bill Ackman's Interview With Charlie Rose

Bill Ackman of hedge fund Pershing Square Capital Management recently appeared on Charlie Rose for an interview. 

While Ackman has been in the media a lot regarding his short position in Herbalife (HLF) and long position in J.C. Penney (JCP), this is the first appearance Ackman himself has made in quite some time.  As such, we wanted to highlight his latest thoughts on the various situations he's involved in.

Embedded below is the video of Ackman's interview:



If you missed it earlier, you can also check out Ackman's Q2 letter.

Bill Ackman's Q2 Letter: Updates on Pershing's Positions

The New York Post has shared Bill Ackman's Q2 letter and it's quite in-depth and worth highlighting.  The Pershing Square manager provides updates on many of his positions, including his new position in Air Products & Chemicals (APD), his controversial Herbalife (HLF) short, as well as their troubled stake in J.C. Penney (JCP) and more.

Embedded below is Ackman's Q2 letter:




For more from this manager, you can check out Ackman's presentation on Procter & Gamble.

Bill Ackman Starts New Air Products & Chemicals (APD) Position: 13D Filing

Bill Ackman's hedge fund firm Pershing Square Capital today filed a 13D with the SEC regarding shares of Air Products & Chemicals (APD).  Per the filing, Pershing Square owns a 9.8% of the company with 20,545,284 shares.

This is a brand new position for the hedge fund and the 13D contains the standard boilerplate that Pershing sees the company as an attractive investment and may engage in disucssions with management.

The filing was required due to portfolio activity on July 22nd.

Per Google Finance, Air Products & Chemicals "has a portfolio of products, services, and solutions that include atmospheric gases, process and specialty gases, performance materials, equipment, and services. It is a supplier of hydrogen and helium and operates in markets, such as semiconductor materials, refinery hydrogen and natural gas liquefaction. Its segments include Merchant Gases, Tonnage Gases, Electronics and Performance Materials, and Equipment and Energy."

For more from this hedge fund, we've also posted up Pershing Square's presentation on Procter & Gamble.

Eton Park Reduces Airgas (ARG) Position

Eric Mindich's hedge fund firm Eton Park Capital has reduced its stake in Airgas (ARG). Due to an amended 13D filing with the SEC, Eton Park now shows a 4.92% ownership stake in ARG with 4,145,191 shares due to portfolio activity on March 29th.

This is a 31% reduction in their position size. Back in December 2010, Eton Park owned 7.15% of Airgas. The bulk of their recent sales came on February 16th and March 30th at weighted average prices of $63.0019 and $66.3244, respectively.

You'll recall that Airgas had in the past been subject to a takeover bid by Air Products (APD). Eton Park had supported the bid after APD raised its offer numerous times. However, Airgas did not seem receptive. For now, Eton Park still holds a position, albeit a smaller one than previous months.

Per Google Finance, Airgas is "a distributor of industrial, medical and specialty gases (delivered in packaged or cylinder form), and hardgoods, such as welding equipment and supplies."

Shumway Capital Returns Capital to Investors, Will Manage Internal Assets

Chris Shumway's hedge fund Shumway Capital Partners sent out a letter to investors today notifying them that the fund will be returning capital to outside investors. The firm will live on, instead only managing internal capital. Shumway, who has seen 17% annual returns, is one of the widely regarded Tiger Cub hedge funds started by former members of Julian Robertson's Tiger Management.

Late last year, Chris Shumway announced that he would be stepping down from his Chief Investment Officer role. This initiated a wave of redemptions as investors in the funds became wary. Shumway writes,

"In a sense, these changes created more risk for many of you who committed to stay invested in SCP and makes short term results of the fund a primary issue for us all. As a result, it has become more difficult for us to focus on long term investing as we have for the last nine years, which I believe has been a main driver of our success."

It's obvious from the above that Shumway is not fond of Wall Street's and an investor's focus on short-term performance. We'd venture to guess that Shumway also somewhat tired of the 'corporate' nature of running a large investment firm. Catering to each investor's concerns meant less and less of his time was dedicated to investing.

Shumway isn't alone in his desire to focus on investing for the long-term. Fellow Tiger Cub manager Roberto Mignone of Bridger Management closed to new investors, effectively capping assets under management so that he could focus on investing rather than having to worry about running a large organization.

It will be interesting to see who stays behind at Shumway to manage internal capital and who leaves to start their own funds. There are already a few notable Shumway alums managing their own funds including John Thaler's JAT Capital, Anu Murgai's Suranya Capital Partners, and Matthew Crakes' Greenhart Capital. The reason we mention these established and potentially future Shum-alum funds is that some former SCP investors could potentially allocate capital there.

Shumway will return outside capital by the end of the first quarter, which undoubtedly means they'll be selling partial positions. Here are Shumway's top 10 holdings as of September 30th, 2010. We'll get an updated look at their holdings here in a few weeks, so keep in mind the below is quite dated:

1. Apple (AAPL)
2. Citigroup (C)
3. Priceline.com (PCLN)
4. Pfizer (PFE)
5. Las Vegas Sands (LVS)
6. Baidu (BIDU)
7. SPRD Gold Trust (GLD)
8. Target (TGT)
9. Air Products & Chemicals (APD)
10. BP (BP)

A screenshot of Chris Shumway's letter is posted below via ZeroHedge:

(click to enlarge)

It will be interesting to see what happens to Shumway's portfolio once outside capital has been returned and the fund is only managing internal capital.

Hedge Fund Eton Park Increases Position in Airgas (ARG), Bets on Takeover

Due to activity on May 21st, 2010, Eric Mindich's hedge fund Eton Park Capital has disclosed an updated position in Airgas (ARG). Per a 13D filed with the SEC, we learn that Eton Park now has a 7.27% ownership stake in the company with 6,014,200 shares. This is an increase in their position as back on March 31st, 2010 they owned 3,910,000 shares. So, over the past two months, Mindich's firm has added 2,104,200 shares (a 53.8% increase in their position size). They spent $370 million to acquire the additional exposure and the filing did mention that part of this transaction was conducted on margin.

This makes Eton Park the second largest shareholder of Airgas (ARG), a company which recently received a buyout offer from Air Products & Chemicals (APD) for $60 per share. Eton is obviously wagering that Air Products & Chemicals will increase their offer as shares of Airgas are currently trading around $62, above the $60 offer price. Please also keep in mind that since Eton Park is an arbitrage focused fund, they most likely have hedged this position somehow (possibly via shorting shares of Air Products). They are not required to disclose short positions so we will not be able to see the other part of this trade they could theoretically have on.

For other recent investments from Eric Mindich's hedge fund, check out Eton Park's new position in Cohen & Company (COH) as well as their new stake in Sable Mining (SBLM). And for more of our coverage on Mindich, we recommend checking out some of his thoughts on whether or not there is alpha in asset allocation at a previous hedge fund panel.

Taken from Google Finance, Airgas is "a distributor of industrial, medical and specialty gases (delivered in packaged or cylinder form), and hardgoods, such as welding equipment and supplies. Airgas is a producer of nitrous oxide in the United States, the liquid carbon dioxide producer in the Southeast, the producer of atmospheric merchant gases in North America and a distributor of process chemicals, refrigerants, and ammonia products."

For the latest investments from prominent managers, head to our hedge fund portfolio tracking series.