Contrarian Corpus
activist full deck follow up
2017-01-26 · 95 pages

Portfolio-wide update (Mondelez, Air Products, Restaurant Brands, Chipotle, Howard Hughes, Fannie/Freddie, Valeant, Herbalife short, Platform Specialty, Nomad, CP, Zoetis)

N 3 Narrative
V 3 Visual
C 2 Craft
Original source ↗

The three reasons

  1. 1

    Mondelez EBIT margin of 15.4% sits ~1,200bps below Kraft Heinz's 27.6% — a fixable gap

  2. 2

    FTC injunction forces Herbalife into 'top to bottom' US restructuring to 'start complying with the law'

  3. 3

    After -13.5% in 2016 driven by Valeant, portfolio is repositioned with catalysts across core holdings

Primary demands

  • Continue margin transformation at Mondelez toward 17-18% EBIT by 2018 with further upside beyond
  • Support Valeant turnaround under new CEO Joe Papa via board representation, asset sales and deleveraging
  • Maintain Herbalife short thesis given FTC permanent injunction and SEC China investigation
  • Deploy APD's $2.6bn of freed-up capital from Versum spin and PMD sale into value-accretive initiatives

KPIs cited

2016 Net Return (PSH)
-13.5% vs S&P 500 +11.9%
Cumulative net return since 2004 inception
Pershing Square L.P. 503.1% vs S&P 500 163.4%
Total Strategy AUM (12/31/2016)
$10,982mm across PSLP, PSI, PSH, PSII
Mondelez EBIT margin (2016E)
15.4% vs Kraft Heinz 27.6%, Hershey 20.2%, Smuckers 19.2%
Mondelez margin target
17-18% by 2018, up from 15-16%; +600-700bps path to 'optimized'
APD FY2016 EPS growth
+14% to $7.55 despite 3% FX headwind; 9 consecutive quarters of double-digit EPS growth
APD operating margin expansion
+400bps to 23.1% in FY2016
APD capital freed
$2.6bn from Versum spin-off and $3.8bn sale of PMD to Evonik
APD upside since Pershing 13D
+76% including Versum from average cost at announcement to 1/20/2017
Valeant attribution to 2016 returns
-19.2% gross contribution
Herbalife FTC redress
$200mm in checks to ~350,000 victims; largest consumer redress to date
Herbalife valuation
~13x midpoint of revised 2017 guidance; 14-16x on pro forma basis
FNMA / FMCC price appreciation
+66% and +73% from average cost to 1/20/2017
CP share price total return
+244% (3.44x) from average cost to exit on 8/4/2016

Pattern membership

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

Notable slides (10)

Notes

Not a single-target activist campaign deck — this is Pershing Square's annual LP update covering the entire portfolio following a -13.5% 2016 (driven by Valeant blow-up). Document type 'full_deck' is the best fit among enum values, though it is really an investor-relations/LP review rather than a campaign thesis. Structure: (1) performance review, (2) per-position update (Mondelez, APD, QSR, Chipotle/new undisclosed, Howard Hughes, Fannie/Freddie, Herbalife short, Platform, Nomad, Valeant) with a share-price-with-annotated-catalysts chart for each, (3) exited positions (CP victory lap, Zoetis), (4) org/personnel update including new LTIP. Villain framing is reserved for Herbalife short — uses direct FTC Complaint quotes calling Herbalife's model non-viable and recruitment-driven. Useful pattern for slide-swipe: the annotated share-price chart layered with Pershing's 13D date, management actions, and guidance updates appears consistently across every holding. Margin-gap bar chart (page 21) and before/after EBIT trajectory chart (page 20) are the strongest visual artifacts. Tone is restrained and analytical given the post-mortem context around Valeant losses.