Corsair Capital's Investment Thesis on DigitalGlobe: Q2 Letter

Jay Petschek and Steve Major's Corsair Capital is out with its Q2 2012 investor letter.  In it, they outline their investment thesis on a core position: DigitalGlobe (DGI).  Additionally, they provide updates on Six Flags (SIX), Innophos (IPHS), Aperam (APAM), and TNS (TNS).

Corsair's DigitalGlobe Thesis

Note: the below was written before the announcement that Digital Globe would be merging with GeoEye (GEOY).  Under the terms, GeoEye shareholders will elect either 1.137 shares of DigitalGlobe and $4.10 per share in cash, or 100% of the consideration in cash ($20.27), or 100% of the consideration in stock (1.425 shares of DGI for each share of GEOY owned).  The transaction marks a 34% premium to to GEOY's previous closing price.

For those interested, here's Corsair's original DGI thesis:

One of the hedge fund's core positions is US satellite imaging company, DigitalGlobe (DGI), which provides real-time and archived images from 3 satellites.  DGI co-developed Google Earth as well as Apple's new Maps product.  The company received a takeover offer from competitor GeoEye (GEOY) for $17 per share but DGI rejected it.

Corsair sees strong leadership and expects the company to create value via dividends, share repurchases and "disciplined M&A."  The government effectively represents 50% of their revenue, so that is certainly a risk and is why the stock sold off so hard in February (government spending cuts).  Corsair's view was that the stock already reflected a worst-case scenario and 2012 is a transformational year.  You can read their full case in the letter below. 


Unrelated, but also worth highlighting from the letter: they cite Jim Grant of Grant's Interest Rate Observer, pointing out a potential contrarian signal for equities, noting that "this is the first time in 12 years that pension managers are putting more money into fixed income securities than equities, whereas, just a few years ago they were putting twice as much into equities than in bonds."

Embedded below is Corsair Capital's full Q2 letter:




For more on this hedge fund, head to Corsair's thesis on SunCoke Energy.

Corsair Capital Talks Lyondell Basell, Six Flags & Innophos: Q4 Letter

Jay Petschek and Steve Major's hedge fund Corsair Capital is out with their Q4 letter. For 2011, the hedge fund finished -3.7% and since inception in January 1991, the firm has seen a compound net annual return of 14.4%.

They note that 2011 was a difficult year because, "correlations between stocks and most asset classes were near record highs, seemingly subject to the whims of investors choosing to either put 'risk on' or to take 'risk off.' "

Corsair also touches on some of their positions noting that Lyondell Basell (LYB) saw strong insider buying during the stock's dip. They continue to also like Neo-Material Technologies (TSE:NEM) as think it's worth $15+ (it currently trades around $8.30).

The hedge fund likes that Six Flags (SIX) has refinanced its debt and announced a new $250mm buyback plan. Lastly, Corsair fancies Innophos Holdings (IPHS) as "the company trades at under 10x our cash estimate for 2012 and we continue to believe it is worth 15x given the quality of its business model and clean balance sheet." We've previously highlighted Corsair's thesis on Innophos.

Embedded below is Corsair Capital's Q4 letter (email readers click the link to come view it):



We've also posted up their new write-up of a core investment: Corsair's thesis on Aperam (APAM NA).

Corsair Capital Sees Increased Market Volatility Ahead (Q2 Letter)

Jay Petschek's hedge fund firm Corsair Capital Management finished the second quarter up 0.2% net, bringing them to up 6.2% for the year. They've turned in a solid 15.3% annualized return since 1991 and are one of our favorite funds to track.

Last quarter, we highlighted that Corsair anticipated increased M&A activity. Their second quarter letter focuses on the 2011 market landscape thus far and macro concerns.

They write, "there seems to be a delicate balance worldwide between stimulating economic growth and keeping prices of basic necessities within an affordable range ... we believe this uncertainty only increases general investor skittishness and market volatility."

Portfolio Updates

They also update their various positions by noting that they continue to expect Innophos (IPHS) to earn $5.00 of adjusted EPS in 2012, surpass market expectations, and trade at a 15x multiple. We've previously covered Corsair's bullish case on Innophos.

They continue to like their stake in Expedia (EXPE) as the company announced the impending spin-off of its TripAdvisor segment. The current issue of our Hedge Fund Wisdom newsletter lays out the investment thesis on EXPE in detail for those interested.

Corsair also updated their stakes in Maiden Holdings (MHLD), KAR Auction Services (KAR), and Pace Oil & Gas (PCE). Their letter also includes a write-up on their new investment in TNS Inc (TNS).

Embedded below is Corsair's Q2 letter (email readers come to the site to view it):

Corsair Capital Anticipates Increased M&A Activity: Investor Letter

Jay Petschek's Corsair Capital Management is one of our favorite funds to track. Corsair returned 6.0% net in the first quarter and has seen 15.5% annualized returns since inception in 1991. Their latest investor letter updates us on their market view and some of their positions.

They write, "The global economy’s strength leads us to believe companies will exit the sidelines with renewed confidence and deploy cash for strategic acquisitions. Market multiples remain below historic averages and the capital markets are open; companies can now afford to strategically position themselves to benefit from higher growth in emerging markets, gain access to resources, improve cost structures, and so forth."

Post Reorganization Companies

In the past, we've highlighted how John Paulson is betting on restructured equities. We've also detailed that Dan Loeb's portfolio holds post-reorg equities. Corsair also likes this play, but they've invested in names we haven't seen discussed in manager commentaries before.

In particular, Corsair owns Six Flags (SIX), which emerged from bankruptcy in May of last year. Their thesis is predicated on management's ability to reinvent the business model and improve profitability. They also point to large insider buying.

They also own Reader's Digest, another company recently emerged from bankruptcy. While some have left the publishing industry for dead, investors should be cognizant that the company "derives less than 8% of its earnings from the Reader's Digest Magazine."

Corsair's letter also details updates on their positions in Globe Specialty Metals (GSM), Innophos (IPHS), Keystone (KYCN), and Schweitzer-Mauduit (SWM). It also contains a detailed write-up on their new investment in IDT Corp (IDT), which they believe is worth $38-57 on a sum-of-the-parts valuation (a 50-130% return).

Embedded below is Corsair Capital Management's first quarter letter (email readers come to the site to read it):



Be sure to check out other hedge fund letters we've posted up, including David Einhorn's Greenlight Capital and Lee Ainslie's Maverick Capital.