Contrarian Corpus
activist full deck follow up
2020-02-05 · 62 pages

Pershing Square Holdings (fund) — portfolio includes Agilent, Berkshire Hathaway, Chipotle, Hilton, Restaurant Brands, Lowe's, Howard Hughes, Fannie Mae/Freddie Mac PSH

N 3 Narrative
V 4 Visual
C 3 Craft
Original source ↗

The three reasons

  1. 1

    PSH delivered 58.1% NAV return in 2019, beating S&P by 2,660bps — return to roots is working

  2. 2

    Agilent margins trail closest peer Waters by 930bps despite being 2x revenue — clear expansion runway

  3. 3

    PSH still trades at 28.9% discount to NAV despite outperformance — buyback math is highly accretive

Primary demands

  • Continue narrowing PSH's discount to NAV via buybacks, dividend, and improved performance
  • Drive operational improvement and margin expansion across portfolio holdings (Agilent, BRK, Lowe's, CMG)
  • Execute Howard Hughes three-pillar transformation plan ($2bn asset sales, $50mm overhead reduction, MPC focus)
  • Press for Fannie/Freddie exit from conservatorship via FHFA capital rule and PSPA amendment

KPIs cited

PSH 2019 NAV return
58.1% vs S&P 500 31.5% (+2,660bps), MSCI World 28.4%, HFRX Activist 16.3%
PSH total share return 2019
51.2%
Discount to NAV
Widened from 25.2% to 28.9% during 2019 despite strong NAV; YTD narrowed to 26.9% by Feb 4, 2020
Share buybacks 2019
$224mm at average $18.84/share, average 28.0% discount to NAV, ROI 38.9%
Cumulative buybacks since inception
$601mm, 39.6mm shares, 16.5% of public shares, ROI 30.9%
PSLP/PSH compound annual return since 2004
14.3% vs S&P 500 9.1%; cumulative 745.3% vs 303.2%
Top contributors 2019
Chipotle 14.7%, Hilton 9.0%, Fannie/Freddie 7.2%, Starbucks 5.7%, Lowe's 5.3%
Agilent EBITDA margin gap vs Waters
25.5% vs 34.8% (930bps gap) despite Agilent being 2.1x Waters revenue
Agilent net leverage vs peers
0.8x net debt/EBITDA vs Danaher 3.5x PF, PerkinElmer 2.8x, Thermo 2.5x
Chipotle 2019 same-store sales growth
11% (incl. 7% transaction growth); restaurant margins expanded 180bps to 20.5%
FNMA/FMCC share price gain 2019
+194% / +183%
PSH Total AUM
$8.6bn total / $7.2bn equity AUM at 12/31/2019
2039 bonds issued
$400mm at 4.95% coupon, 20-year unsecured, no mark-to-market covenants

Pattern membership

Where this document fits across the library's 12 rhetorical / structural patterns.

Notable slides (8)

Notes

Annual investor update for Pershing Square Holdings (the listed fund vehicle), not a single-target activist campaign. Covers fund performance, organizational restructuring narrative ('return to our roots'), and one-pagers on each portfolio company (Agilent, Berkshire, Chipotle, Hilton, RBI, Lowe's, HHC, Fannie/Freddie) plus exited positions (Starbucks, ADP, UTX, Platform Specialty). Agilent section (pp. 30-35) is the closest thing to a fresh thesis pitch with a real peer-gap chart vs Waters. Slide 23 'Varied Approach to Activism' is a useful framework slide showing the visibility spectrum of activist tools. Slide 39 is an excellent annotated CMG share price chart timelining every activist milestone since 2016 — good template for a 'campaign storyboard' slide. Visual style is classic Pershing: blue/green/red header bands, Verdana sans-serif, dense bullets with takeaway boxes top and bottom of each slide. Section dividers are oddly minimal (light blue band on white). UTX page (p. 57) is a candid post-mortem on a campaign they walked away from after Raytheon merger — interesting specimen of activist exit rhetoric.