Corsair Capital Q2 Letter: Quintiles Transnational / IMS Health Thesis

Jay Petschek and Steven Major's hedge fund Corsair Capital is out with its second quarter letter. 

In it, they touch on the unique world of negative interest rates we now live in and how investors are reacting:

"The U.S. stock market is currently trading at approximately 16x-17x next year’s earnings. This equates to an earning’s yield of approximately 6% after-tax and 8% on a pre-tax basis - a big gap to 10-year treasury bonds yielding just 1.5%. As long as investors believe that stocks will generally continue to earn what they currently do (even with zero growth), equities will seem to be mathematically quite cheap compared to bonds. Of course, just because bonds are expensive doesn't mean investors have to invest in stocks. However, if not stocks, where will investors turn? It just seems the answer is TINA – there is no alternative – as all assets are historically expensive and stocks may prove to be the proverbial 'best house in a lousy neighborhood.'"

They also provide updates on numerous positions, including Diamond Resorts International (DRII), Olin Corp (OLN), Clearwater Paper (CLW), Voya Financial (VOYA), Countrywide plc (CWD),  and IAC/InterActive (IAC).


Lastly, they feature a write-up on Quintiles Transnational (Q) which is set to merge with IMS Health (IMS).


Embedded below is Corsair's Q2 letter:



For more recent hedge fund letters, we've also posted:

- Third Point's Q2 letter

- Greenlight Capital's Q2 letter

Corsair Capital Boosts Globe Specialty Metals Position

Jay Petschek and Steven Major's hedge fund firm Corsair Capital has filed a 13G with the SEC on their position in Globe Specialty Metals (GSM).  Per the filing, Corsair now owns 5.01% of the company with over 3.69 million shares.

This marks an increase in their position size of almost 2 million shares since the end of the first quarter.  The filing was made due to activity on May 20th.  They've owned this stock for many years now.

For more from this hedge fund, check out Corsair's Q1 letter here with their thesis on Orbital ATK.

Per Google Finance, Globe Specialty Metals is "is the producer of silicon metal and silicon-based alloys. The Company’s customers include silicone chemical, aluminum and steel manufacturers, auto companies and their suppliers, ductile iron foundries, manufacturers of photovoltaic solar cells and computer chips, and concrete producers. The Company operates in five segments: GMI is a manufacturer of silicon metal and silicon-based alloys and a provider of metallurgical coal for the silicon metal and silicon-based alloys industries; Globe Metales is a manufacturer of silicon-based alloys; Solsil is a developer of upgraded metallurgical grade silicon metal; Corporate segment include general corporate expenses, investments, and related investment income, and the other segment include Yonvey’s electrode production operations, as well as Siltech’s silicon alloy production and certain other distribution operations for the sale of silicon metal and silicon-based alloys."

Corsair Capital's Q1 Letter & Pitch on Orbital ATK

Jay Petschek and Steven Major's hedge fund firm Corsair Capital is out with its first quarter letter to investors.  In it, they talk about the global macro situation as well as their positions in Ryman Hospitality (RHP), Kindred Healthcare (KND), CommScope (COMM), and Republic Airways (RJET).

Sees IAC Interactive Spin-Off Coming

Additionally, they outline their thoughts on IAC Interactive (IACI).  They feel shares are worth over $100 (currently trading around ~ $72) and see revenue growth via their online dating apps (advertising implementation on Tinder and paid subs on Tinder Plus).  Corsair expects chairman Barry Diller to spin-off the online dating segment (Match Group) in order to unlock value.

Pitch on Orbital ATK

The end of their letter includes a pitch on Orbital ATK (OA).  In summary, Orbital merged with Alliant Techsystems and they see various synergies here.  This, plus increased buybacks and dividends lead them to believe multiple expansion will occur, bringing the company more inline with competitors.  They think shares are worth ~$100 and currently trade around $73. See the letter below for the full pitch.

Corsair's Q1 Letter

Embedded below is Corsair Capital's Q1 2015 letter:



For more from this hedge fund, head to Corsair Capital's recent interview with Graham & Doddsville.

Graham & Doddsville Interview With Bill Ackman & More

The latest issue of Graham & Doddsville is out.  This new edition of the student investment newsletter of Columbia Business School features interviews with Pershing Square's Bill Ackman, Corsair Capital's Jay Petschek and Steve Major, as well as Lyrical Asset Management's Andrew Wellington.

Additionally, the publication showcases student stock pitches on the likes of CDK Global (CDK), Schibsted Media (SCH:NO), JetBlue (JBLU), and First Solar (FSLR).


Highlights From Bill Ackman's Interview

On running a concentrated portfolio: "I'm a big believer in concentration.  But it's not just analysis that protects you, it's the nature of the things you invest in.  If you invest in super high quality, durable, simple, predictable, free cash flow generating businesses, that should protect you as well.  If you pay a fair to cheap price for businesses of that quality, I think it's hard to lose a lot of money.  The key is you have to be a good analyst in order to determine whether it truly is a great business.  You have to really understand what the moats are.  You have to understand the risk of technological entrants."

On position sizing:  "We size things based on how much we think we can make versus how much we think we can lose.  We'll probably be willing to lose 5-6% of our capital in any one investment."

On testing conviction: "One of the best ways to get confidence in an idea is to find a smart person who has the opposing view and listen to all of their arguments."


Embedded below is the latest issue of Graham & Doddsville:



You can download a .pdf copy here.

If you missed past issues of this great newsletter, be sure to also check out their interview with Maverick Capital's Lee Ainslie as well as their interview with Wally Weitz.

Corsair Capital's Thesis on SeaWorld: Q2 Letter

Jay Petschek and Steven Major's hedge fund firm recently sent out their second quarter letter and in it they include a pitch on SeaWorld (SEAS). 

They see the investment as one with limited downside and an upside of at least $40 per share over the next year.  Corsair feels the company has a great expansion opportunity ahead of it.  They also feel that Blackstone will eventually sell its remaining 20% ownership stake which will remove an overhang on the stock.

You can read Corsair's full investment thesis on SeaWorld embedded below:



For more recent hedge fund letters we've also posted up Greenlight Capital's letter and Third Point's Q2 letter.

Corsair Capital's Pitch on Orora Limited: Q1 Letter

Jay Petschek and Steven Major's hedge fund firm Corsair Capital is out with its first quarter letter.  In it, they pitch Orora Limited.

Their thesis is that this is a spinoff that hasn't seen much attention and could have as much as 75% upside.  The company is a bottler of wines in Australia and New Zealand with large market share.  They also are the top local producer of aluminum cans for beverages.

Via cost cuts and new capacity, Corsair sees the company's cashflow increasing over the next few years.

Embedded below is Corsair's Capital's Q1 letter:




For more from this hedge fund, we've also posted Corsair's thesis on Alere.

Corsair Capital's Thesis on Alere (ALR): Q4 Letter

Jay Petschek and Steven Major's hedge fund Corsair Capital pitched Alere (ALR) in their Q4 letter.  They feel that the market still has a negative view toward the company despite numerous changes happening.

The company is involved with medical diagnostics and has a huge market share in 'point-of-care rapid tests used in hospitals, clinics and doctors' offices.'

Over the last ten years, the company went on an acquisition binge and basically failed to integrate them properly.  A proxy contest in 2013 led to changes and the company hired Namal Nawana from Johnson & Johnson as COO to change the culture and reduce costs.

Corsair thinks ALR is worth between $70-80 per share if it trades with a multiple in-line with other competitors.  ALR trades around $37 today.

They also note, "Furthermore, if the market doesn't come around and value this business properly, we wouldn't be surprised if, after restructuring the company, (the CEO) looks to sell the company as he did with IMA back in 2001."

Embedded below is Corsair Capital's Q4 letter with their pitch on Alere (ALR):




If you missed it, we've posted up Corsair's past letters as well.

Corsair Capital's Thesis on News Corp: Q3 Letter

Jay Petschek and Steven Major's hedge fund Corsair Capital has released its Q3 letter and in it, they detail the thesis of one of their holdings: News Corp (NWSA).

They see this as a typical undervalued spin-off play as the old News Corp this year has split up into a publishing entity ('new' News Corp) and an entertainment division (21st Century Fox).  Many nvestors held shares of the growth company (Fox), and dumped shares of NWSA.


Corsair's Thesis on News Corp (NWSA)

Corsair writes,

"The misperception of NWSA as a  shrinking newsprint business enabled new investors to purchase several growing video/digital assets (which  contribute approximately 50% of the company’s EBITDA) at a cheap valuation. With solid cash generative businesses, a net-cash rich balance sheet of almost $4.00 per share and a management team focused on creating  shareholder value, NWSA shares offer limited downside and upside of a $25.00 stock price in the next 12  months. Potential catalysts include accretive acquisitions, share buybacks, a growing dividend policy, more  bullish sell-side coverage and a re-rating of the stock."

Corsair also recently disclosed a new position in Perion Network.


Embedded below is Corsair's Q3 letter with their write-up on NWSA:




For more hedge fund letters, we just posted up David Einhorn's Q3 letter as well.

Corsair Capital Discloses New Perion Network Stake

Jay Petschek and Steven Major's hedge fund Corsair Capital has filed a 13G with the SEC and disclosed a brand new position in Perion Network (PERI).  Per the filing, they now own 6.6% of the company with 820,236 shares.

The filing was required due to activity on October 3rd.

Per Google Finance, Perion Network is "a digital media company. The Company's products include: IncrediMail, a communication client; Smilebox, a photo sharing and social expression product and service; and Sweet IM, an instant messaging application. The Company generates revenues primarily through search, the sale of products and services, and advertising. IncrediMail is its communication client, available over the Internet it its basic version free of charge, used for managing email messages and Facebook feeds, with many graphic and personalizing capabilities. Smilebox is an Internet photo sharing service available for the desktop and smart-phone. Its product is available in seven languages in addition to English."

For more on this hedge fund, head to Corsair Capital's thesis on American Realty Capital Properties.

Corsair Capital's Thesis on American Realty Capital Properties (ARCP): Q2 Letter

Jay Petschek and Steven Major's hedge fund Corsair Capital recently sent out their Q2 letter and in it they detailed their thesis on a new core investment, American Realty Capital Properties (ARCP).

The main story here is that this is an underfollowed company with minimal sell-side coverage that's gone through a "major transition" over the past 6 months.  The company is a net lease real estate investment trust that owns single tenant commercial properties.

Overall, Corsair sees numerous catalysts for the company, including closing 2 deals, internalizing the management company, increasing the dividend slowly, and acquiring more properties.

Embedded below is Corsair's Q2 letter with the full ARCP thesis:




In the other part of Corsair's letter, the hedge fund firm also reveals they have a new core position in ING US Inc (VOYA).  This is a spin-off of the company's US operations that came to market at ~50% of book value as the company was a 'forced seller.'  Corsair thinks the company will trade at book value ($38) or slightly higher as the company drives initiatives and they could start a dividend.

For more on this hedge fund, we've also posted up Corsair's thesis on Ryman Hospitality here.

Corsair Capital's Thesis on Ryman Hospitality: Q1 Letter

Jay Petschek and Steven Major's hedge fund Corsair Capital finished the first quarter of 2013 up 8.1% net and their compounded net annual return sits at 14.5%.  Their Q1 letter detailed a write-up of their thesis on Ryman Hospitality (RHP), a current core investment.


Corsair's Thesis on Ryman

In summary, the company is a transformation story as they've morphed from Gaylord Hotels into Ryman, specializing in the premium large group segment. 

They've converted from a C-Corp into a REIT, sold the Gaylord brand and management rights to Marriott, and are looking to leverage Marriott's group customer base.

Due to these (and numerous other changes outlined below), Corsair feels that Ryman has great revenue visibility and thinks it should trade closer to the valuation of shopping mall REITs. 

With a 4.5% yield, they see a $60 stock in the near term and the potential to head as high as $70 if investors give it the premium valuation they think it deserves.


Embedded below is Corsair Capital's Q1 letter with their thesis on Ryman Hospitality:




For more from this hedge fund, we've highlighted some of Corsair's recent portfolio activity as well as their thesis on Acacia Research too.

Corsair Capital Management Boosts Wausau Paper Holdings

Jay Petschek and Steven Major's hedge fund Corsair Capital Management recently filed a 13G with the SEC regarding shares of Wausau Paper (WPP).  Per the filing, Corsair disclosed a 5.6% ownership stake in WPP with 2,774,724 shares.

This marks an increase of 1,920% in the number of shares they own.  At the end of 2012, they only owned 137,323 shares.  The 13G was required due to portfolio activity as of March 13th.


Starboard Value Involved Too, Pushing For Change

Investment firm Starboard Value has been involved with shares of Wausau for some time.  Starboard had increased its stake in WPP, owning 14.8% of the company as of March and recently gained two seats on the board of directors.

Starboard has been fighting for Wausau to divest all its operations except for the tissue segment.  A few weeks ago, the company announced it planned to sell its specialty paper business for $130 million.  Wausau looks to be repositioning itself by turning focus to the tissue business.

Per Google Finance, Wausua Paper "manufactures, converts, and sells paper and paper products.  The Company operates in two principal segments: Tissue and Paper, with both business segments marketing their products under the Wausau Paper brand name. The Tissue segment produces a complete line of towel and tissue products that are marketed, along with soap and dispensing systems, for the away-from-home market."

For more on this hedge fund, we've also posted up Corsair's thesis on Acacia Research (ACTG).

Corsair Capital's Thesis on Acacia Research (ACTG): Q4 Letter

Jay Petschek and Steve Major's hedge fund Corsair Capital is out with its Q4 2012 letter to investors.  In it, they provide an investment thesis write-up on one of their core picks: Acacia Research (ACTG).

Updates on Portfolio Holdings

They also provide brief updates on some of their other positions such as DigitalGlobe (DGI), which received approval for its acquisition of GeoEye.  They feel the combined entity will "yield significant revenue, expense, and capital synergies and should outperform for many years, as demand for its mapping products and services grows."  You can view Corsair's analysis of DigitalGlobe which was penned before the GEOY takeover.

Additionally, Corsair continues to like Chicago Bridge & Iron (CBI).  The hedge fund originally invested in Shaw Group, which CBI bought out.  They see CBI earning around $5.50 per share in cash earnings by 2014.

Acacia Research Thesis

This company essentially helps monetize underutilized patents and Corsair feels they fill a big gap as the majority of patents are held by small businesses or individual inventors who lack the wherewithal to protect/enforce these patents.  Corsair bought in November and think shares could trade over $40 per share, deserving a 15x multiple.

Embedded below is part of Corsair Capital's Q4 letter with their investment thesis on Acacia Research Corp:




For more hedge fund letters, we also posted up excerpts from Children's Investment Fund Q4 letter.

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's Investment Thesis on SunCoke Energy (SXC)

Earlier today we posted up Corsair Capital's Q1 letter.  Now, we present their investment thesis on one of their latest positions: SunCoke Energy (SXC).  SXC was spun-off from Sunoco last year and the hedge fund thinks investors misunderstand the company's business model.

Corsair believes that "SXC offers both steelmakers and equity investors a compelling and valuable proposition.  SXC has modest debt, generates a tremendous amount of cash, and management has invested in SXC since the spin.  At 10x 2012 run rate EBITDA less Maintenance CapEx ... we derive a target price over $25."

That's some compelling upside seeing how SunCoke Energy currently trades around $14.  Corsair says that one of the main things that attracted them to invest was SXC's highly-structured contracts, recurring cashflows, and incremental (low-risk) earnings growth.

The hedge fund also sees growth opportunities as compelling as well as the potential to convert coke operations to an MLP structure.

However, the main risk here is that Arcelor Mittal (MT) accounts for 70% of the company's sales and they only have three primary customers.

As far as valuation goes, Corsair writes:

"Based on $300 million of EBITDA (2012 guidance plus Middletown for a full year of operations) less Maintenance CapEx of $60 million valued at 10x yields a target price of $27."

Embedded below is Corsair's investment thesis on SunCoke Energy:



Be sure to also read the rest of Corsair Capital's Q1 letter for updates on their other investments.

Corsair Capital Provides Updates on Their Positions: Q1 Letter

Jay Petschek and Steven Major's hedge fund Corsair Capital is out with their Q1 letter and in it they detail updates on their investments in: LyondellBasell (LYB), Shaw Group (SHAW), Republic Airways (RJET), Neo Material Technologies (NEM) and TNS (TNS).

Given that LYB has been owned by numerous hedge funds, we wanted to highlight their commentary:

LyondellBasell (LYB) - "Though the company reported a weak Q4 as expected, the market anticipates record-low gas prices will continue to suppress ethane prices, one of LYB's main input costs, thereby supporting high ethylene margins.  If current ethane prices are sustainable, the industry could enter a 'super-cycle' where LYB would show earnings previously not thought possible.  The company also took advantage of the current strong credit markets and refinanced $3 billion of debt, benefitting by both extending maturities and lowering interest payments."


Also, the fund addressed their position in Shaw Group (SHAW): "two of its main customers received the final requisite Nuclear Regulatory Commission licensing to construct two new nuclear power plants and the EPA's increased environmental standards drove power plant maintenance contract wins.  The company also reported a strong fiscal Q2 and the upcoming divestiture of the Energy and Chemicals division in the next few months should create additional shareholder value.  We estimate that SHAW could earn $3.00/share in FY 2013, which would increase its net cash position to over $17.00/share."

We've previously posted up Corsair's investment thesis on Shaw Industries for further color.



Embedded below is Corsair Capital's Q1 letter:



Later this morning we also posted up Corsair's investment thesis on SunCoke Energy.

Corsair Capital's Investment Thesis on Aperam

Earlier today we posted up hedge fund Corsair Capital's Q4 letter. We're also posting up an addendum from their letter: their investment thesis on Aperam (AMS:APAM), a core holding.

In summary, the hedge fund likes this stainless steel manufacturer as it "offers investors over 200% potential upside with limited downside given its low leverage with no near term maturities, high dividend yield, strong cross-cycle earnings power, and credible cost-cutting program."

The company was spun-off from Arcelor Mittal (MT) and Corsair thinks APAM could trade between $38 and $63, and in an extreme scenario as high as $88.

Embedded below is Corsair's investment thesis on Aperam (email readers click to come read it):



And if you missed it earlier, be sure to read Corsair's Q4 letter.

We've also posted up other hedge fund letters recently: Greenlight Capital and East Coast Asset Managment.

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: Is Negativity "Priced In" the Market? (Q3 Letter)

Jay Petschek and Steve Major's hedge fund Corsair Capital outline how their portfolio has performed in their third quarter letter. They pinpoint the notion that fear has been driving markets for the past few months. Instead of focusing on hindsight, they look to what investors should be doing today.

Simply put, Corsair does not believe this is a repeat of 2008. They point to better liquidity, solid corporate balance sheets, and insider buying. While they acknowledge that things are not "rosy," they wonder if all the negativity is now priced in the market.

Their letter goes on to talk about their positions in Globe Specialty Metals (GSM), Lyondell Basell (LYB), Neo-Material Technologies (TSE:NEM), Reader's Digest (RDA), and TNS (TNS). They also mention they sold their position in Keystone Industries (KYCN) in a negotiated transaction.

For some of the hedge fund's latest investments, we posted Corsair's investment thesis on Shaw Group (SHAW).

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




As noted in our September hedge fund performance numbers update, Corsair was -9.5% for the year at the end of September but has seen 14.2% annualized returns since inception in 1991.

Corsair Capital's Investment Thesis on Shaw Group (SHAW)

Jay Petschek and Steven Major's $749 million hedge fund Corsair Capital recently sent their third quarter letter to investors and attached a write-up of their new position in Shaw Group (SHAW). Below you'll find their investment thesis.

The hedge fund bought SHAW as shares have tumbled due to the nuclear disaster in Japan. SHAW currently trades just under $22 per share and Corsair writes,

"We believe SHAW is worth $37-$43 per share and will trade near that level over the next year. Several catalysts will drive the stock higher including reporting a simplified and cash-rich balance sheet, executing a buyback worth 30% of the current market cap (the 2nd such program in calendar year 2011), and earnings growth in FY 2012."

They also believe that if those various catalysts do not result in the stock trading higher, Shaw Group could potentially be a compelling takeover target for competitors who could use stock to finance the acquisition.

Embedded below is the letter. Email readers please click to come read Corsair's thesis on Shaw Group:



For more on Corsair, we covered their past letter where they anticipated increased market volatility as well as their investment thesis on Innophos.