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TRANSCRIPT
Fourth Quarter 2013
Webcast Presentation
January 28, 2014
Presented by:
Dennis Bryan, CFA, Partner
Arik Ahitov, Managing Director
FPA Capital Fund, Inc. - FPPTX
First Pacific Advisors, LLC
Agenda
I. Performance
II. Portfolio
III. Market Overview
IV. Question and Answer
V. Appendix
First Pacific Advisors, LLC
Performance
Section I
First Pacific Advisors, LLC
Performance (%)
3
Returns for Period Ended December 31, 2013
Performance shown is net of fees and annualized for periods exceeding 1 year. * Inception for FPA Management was July 11, 1984. Return information for period July 1-July 10, 1984 reflects performance by a manager other than FPA. A benchmark comparison is not available based on the Fund’s inception date therefore a comparison using July 1, 1984 is used. A redemption fee of 2% will be imposed on redemptions within 90 days. Expense Ratio as of most recent prospectus: 0.83%
Calculated using Morningstar Direct
Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data may be obtained via http://www.fpafunds.com/capital or by calling toll-free, 1-800-982-4372.
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
FPA Capital 22.85 9.69 0.90 24.25 53.78 -34.79 -0.39 5.42 16.53 12.62 38.54 -3.86 38.13 -3.08 14.24
Russell 2500 36.80 17.88 -2.51 26.71 34.39 -36.79 1.38 16.17 8.11 18.29 45.51 -17.80 1.22 4.27 24.14
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984*
FPA Capital -0.42 17.70 37.76 38.39 10.37 16.74 21.57 64.51 -13.80 24.30 18.11 10.75 12.57 28.95 7.00
Russell 2500 0.38 24.36 19.03 31.70 -1.05 16.55 16.09 46.89 -14.88 19.43 22.73 -4.68 11.98 31.93 6.94
As of Date: 12/31/13 QTD YTD 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years Since 7/1/84*
FPA Capital 5.25 22.85 22.85 10.78 21.04 8.85 10.96 13.10 14.90
Russell 2500 8.66 36.80 36.80 16.28 21.77 9.81 9.67 10.77 12.08
First Pacific Advisors, LLC
Performance attribution – FPA Capital vs. Russell 2500
4
LTM: From December 31, 2012 to December 31, 2013
Benchmark Cash* All Else* FPA Capital*
36.8%
-13.1%
0.02%
23.9%
LTM = Last Twelve Months *Performance attribution shown is gross of fees. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data may be obtained via http://www.fpafunds.com/capital or by calling toll free, 1-800-982-4372.
First Pacific Advisors, LLC
Equity summary data – as of December 31, 2013
5 5
P/E (Price/Earnings) is the price of a stock divided by its earnings per share. P/BV (Price/Book Value is the market price of a stock divided by the book value per share.
Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. The S&P 500 is presented for illustrative
purposes and should not be considered the primary benchmark comparison to the Fund.
Capital Russell 2500 S&P 500
Average P/E Ratio 14.8x 27.8x 19.2x
Average P/BV Ratio 1.7x 2.4x 2.7x
Median Market Cap (billions) $4.3 $1.0 $16.5
Weighted Average Market Cap (billions) $6.4 $3.8 $122.1
Weighted Average Market Cap (billions)
without the Two Largest Companies$4.4 N/A N/A
Weighted Return on Average Equity (ROAE) 13.0% 11.5% 17.5%
Weighted Total Debt to Total Capital 30.3% 44.6% 49.4%
First Pacific Advisors, LLC
Portfolio Composition
Cash value
■ A prospective portfolio holding must meet
buy criteria to justify cash deployment
■ Cash has high value in periods of
– Low liquidity
– High volatility
– Equity market duress
• Cash discipline allows capital to be deployed to investments we believe have the most upside potential
6
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Technology Financial Consumer
Retail Other Industrials
Energy Cash & Fixed Income
For illustrative purposes only and reflects FPA Capital Fund.
The power of “No”
First Pacific Advisors, LLC
Recent additions
7
1 P/E before extraordinary items (trailing) 2 0% if company was in net cash position 3 Purchased in Q3 2013 4 Acquired by WellPoint in 2013 5 Sold in Q3 2013 6 Purchased in Q4 2013
Past performance is not indicative of future results
Total Enterprise Value (TEV) is a valuation measurement used to compare companies with varying levels of debt. TEV/EBITDA (Total Enterprise Value/Earnings Before Interest,
Taxes, Depreciation and Amortization) is a valuation multiple to measure the value of a company. Price-to-Sales (P/S) is a ratio valuing a stock relative to its own past performance.
Price to sales is calculated by dividing a stock's current price by its revenue per share in most recent year. Return on equity(ROE) measures a corporation's profitability by revealing how
much profit a company generates with the money shareholders have invested.
Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for informational purposes only and should not be construed as
recommendations by the Funds, Advisor or Distributor.
As of initial purchase
Market Cap
(MM) TEV TEV/EBITDA P/E1 P/BV P/S ROE Net Debt/Capital2
Aaron's3$2,097 $1,984 6.6x 14.9x 1.7x 0.9x 12% 0%
Amerigroup4 $2,204 $1,873 3.9x 8.2x 1.7x 0.4x 24% 0%
Apollo $2,231 $1,553 1.8x 6.2x 2.2x 0.6x 32% 0%
Arris $1,224 $788 3.9x 14.8x 1.2x 1.1x 9% 0%
Alliant Tech5 $1,437 $2,180 3.6x 5.5x 1.2x 0.3x 21% 42%
Centene $2,356 $2,051 22.4x NM 2.5x 0.3x -1% 0%
DeVry $2,230 $1,911 3.6x 7.4x 1.6x 1.1x 24% 0%
Federated $2,037 $2,141 7.5x 12.2x 3.7x 2.1x 36% 11%
Helmerich & Payne $4,004 $4,066 4.4x 10.2x 1.2x 1.7x 14% 0%
InterDigital $1,588 $1,061 4.8x 12.3x 4.2x 4.4x 42% 0%
Oshkosh $2,742 $3,470 3.4x 5.5x 1.8x 0.3x 39% 27%
Titan International6 $859 $1,176 6.5x 18.9x 1.2x 0.4x 7% 20%
Veeco $1,108 $533 1.5x 4.5x 1.3x 1.0x 47% 0%
Average $2,009 $1,907 5.7x 10.1x 2.0x 1.1x 24% 8%
Median $2,097 $1,911 3.9x 9.2x 1.7x 0.9x 24% 0%
First Pacific Advisors, LLC
Hypothetical growth of $10,000 since inception A record of attractive long-term returns
8
Time Period: July 1, 1984 – December 31, 2013 Source: Morningstar Direct.
Performance shown is net of fees. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.
The chart illustrates the performance of a hypothetical $10,000 investment made in the fund since inception. Figures include reinvestment of capital gains and dividends, but do not
reflect the effect of any applicable redemption fees, which would lower these figures. An investor cannot invest in an index. This chart is not intended to imply any future performance of
the fund. The S&P 500 is presented for illustrative purposes and should not be considered the primary benchmark comparison to the Fund.
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Russell 2500
$288,836
FPA Capital
$596,234
S&P 500
$246,717
First Pacific Advisors, LLC
Performance
Attractive upside/downside capture
9
January 1985 – December 2013 Source: Morningstar Direct.
22.29%
-5.07%
20.69%
-12.95%
Up Markets Down Markets
FPA Capital Russell 2500 FPA Capital Russell 2500
Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown.
First Pacific Advisors, LLC
Individual stock performance
10
as of December 31, 2013 and inclusive of dividends. 1 Sold in Q3 2013 and represents return based on average sell price. 2 Purchased in Q1 2013 and represents return from its cost basis. 3 Purchased in Q3 2013 and represents return from its cost basis. 4 Purchased in Q4 2013 and represents return from its cost basis.
Company LTMPerformance
ContributionCompany LTM
Performance
Contribution
Western Digital 100.83% 4.29% Patterson-Uti Energy 37.14% 0.49%
Cimarex Energy 82.99% 0.81% Baker Hughes 36.98% 0.59%
Oshkosh 70.41% 2.15% Foot Locker 32.01% 0.59%
Arris Group 62.92% 1.05% Centene2 31.17% 0.19%
SM Energy 59.41% 0.99% Reliance Steel & Aluminium 24.36% 0.35%
Alliant Techsystems1 59.12% 0.17% Atwood Oceanics 16.60% 0.18%
Cabot Oil & Gas 56.09% 0.35% Rowan Companies 13.08% 1.15%
Trinity Industries 54.14% 0.84% Veeco Instruments 11.60% 0.21%
Helmerich & Payne Inc. 52.95% 0.51% Aaron's Inc3 7.73% 0.06%
DeVry 51.17% 1.10% Titan International4 7.60% 0.04%
Signet Jewelers 48.60% 0.62% Rosetta Resources 6.00% 0.86%
Federated Investors 47.95% 0.49% Ensco 0.27% 0.12%
Apollo2 46.57% 1.30% Newfield Exploration -8.03% -0.04%
Avnet 45.20% 2.66% InterDigital -27.69% -0.86%
Arrow Electronics 42.46% 2.59%
LTM = Last Twelve Months
Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for informational purposes only and should not be construed as
recommendations by the Funds, Advisor or Distributor.
First Pacific Advisors, LLC
Portfolio
Section II
First Pacific Advisors, LLC
Security changes in portfolio - QTR
From September 30, 2013 to December 31, 2013
12 12
New Securities Added to Exisiting Securities Reduced Securities Eliminated Securities
Titan International, Inc. Aarons, Inc. Cimarex Energy Company None
Arris Group, Inc. Ensco PLC
Atwood Oceanics, Inc. Foot Locker, Inc.
Interdigital, Inc. Newfield Exploration Company
Rosetta Resources, Inc. Oshkosh Corporation
Veeco Instruments, Inc. Rosetta Resources, Inc.
SM Energy Company
Trinity Industries, Inc.
Western Digital Corporation
Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for
informational purposes only and should not be construed as recommendations by the Funds, Advisor or Distributor.
First Pacific Advisors, LLC
Security changes in portfolio - YTD
From December 31, 2012 to December 31, 2013
13 13
New Securities Added to Exisiting Securities Reduced Securities Eliminated Securities
Aarons, Inc. Arris Group, Inc. Arrow Electronics, Inc. Alliant Techsystems Inc.
Apollo Group Inc. Atwood Oceanics, Inc. Avnet, Inc.
Centene Coporation Devry, Inc. Cabot Oil & Gas Corporation
Titan International, Inc. Helmerich & Payne, Inc. Cimarex Energy Company
Interdigital, Inc. Ensco PLC
Rosetta Resources, Inc. Foot Locker, Inc.
Veeco Instruments, Inc. Helmerich & Payne, Inc.
Newfield Exploration Company
Oshkosh Corporation
Patterson - Uti Energy, Inc.
Reliance Steel & Aluminum
Rosetta Resources, Inc.
Rowan Companies, Inc.
SM Energy Company
Signet Jewelers Ltd
Trinity Industries, Inc.
Veeco Instruments, Inc.
Western Digital Corporation
Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for
informational purposes only and should not be construed as recommendations by the Funds, Advisor or Distributor.
First Pacific Advisors, LLC
$0
$10
$20
$30
$40
$50
$60
Apollo Group Inc. (APOL)
14
Initial purchase at 2x EBITDA
and 16% FCF yield but
revenues under pressure
Investment Rationale:
Largest company in the for profit education industry.
Hard to serve unconventional students (older, employed, etc.)
Scrutinizing costs for the first time in Company’s history.
Pristine balance sheet.
Weakness in Bachelor's and Associate’s Degree programs enrollment
First Purchase 01/30/2013
Increased
position
Increased
position
Past performance is not indicative of future results.
For illustrative purposes only and reflects FPA Capital Fund.
As of 12/31/13, Apollo Group Inc. represented 3.87% of FPA Capital Fund's total net assets. Portfolio composition will change to ongoing management of the Fund. References to
specific securities or sectors should not be construed as recommendations by the Fund, its Advisor or Distributor.
EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization) is an indicator of a company's financial performance.
FCF (free cash flow) yield is an overall return evaluation ratio of a stock, calculated by taking the free cash flow per share divided by the share price.
Source: Yahoo Finance, FPA
First Pacific Advisors, LLC
$0
$10
$20
$30
$40
$50
$60
$70
$80
Built less than 10%
of position Increased
position slowly
Stepped up
purchases
* Special
Dividend:$ 1.60
*
InterDigital, Inc. (IDCC)
15
Investment Rationale:
Tremendous growth in handsets/tablets is expected.
IDCC has technology used in 2G, 3G, and 4G/LTE technologies.
Pristine balance sheet.
Bargain valuation during accumulation.
First Purchase 06/16/2011
Increased
position
Past performance is not indicative of future results.
For illustrative purposes only and reflects FPA Capital Fund.
As of 12/31/13, InterDigital Inc. represented 2.48% of FPA Capital Fund's total net assets. Portfolio composition will change to ongoing management of the Fund. References to
specific securities or sectors should not be construed as recommendations by the Fund, its Advisor or Distributor.
Source: Yahoo Finance, FPA
First Pacific Advisors, LLC
Sector components – as of December 31, 2013
16 16
TECHNOLOGY 23.12% EDUCATION 6.93%
Arrow Electronics 6.52% Apollo Group 3.86%
Avnet 6.20% DeVry 3.07%
Western Digital 4.31% INDUSTRIALS 4.60%
Arris Group 2.79% Oshkosh 2.78%
InterDigital 2.48% Trinity Industries 1.24%
Veeco Instruments 0.83% Titan International 0.58%
OIL FIELD SERVICES 16.96% RETAILING 4.19%
Rowan Companies plc 5.79% Foot Locker 2.13%
Ensco plc 3.31% Aaron's 1.04%
Atwood Oceanics 3.05% Signet Jewelers 1.02%
Baker Hughes 1.88% FINANCIAL SERVICES 1.27%
Patterson-UTI Energy 1.61% Federated Investors 1.27%
Helmerich & Payne 1.32% BASIC MATERIALS 1.26%
OIL & GAS EXPLORATION & PRODUCTION 9.30% Reliance Steel & Aluminum 1.26%
Rosetta Resources 4.03% HEALTHCARE 0.65%
SM Energy 2.01% Centene 0.65%
Cimarex Energy 1.53% CASH 31.77%
Newfield Exploration 1.48%
Cabot Oil & Gas 0.25%
Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for
informational purposes only and should not be construed as recommendations by the Funds, Advisor or Distributor.
First Pacific Advisors, LLC
Market Overview
Section III
First Pacific Advisors, LLC
Margin debt
First Pacific Advisors, LLC
S&P 500 price-to-sales
First Pacific Advisors, LLC
Stock market valuation to GDP
Source: MacroMavens – January, 2014 First Pacific Advisors, LLC
Profit margins
First Pacific Advisors, LLC
Wage Growth
Source: MacroMavens – January, 2014
First Pacific Advisors, LLC
Labor force participation rate
First Pacific Advisors, LLC
Long-term unemployment
First Pacific Advisors, LLC
Labor force dropouts
First Pacific Advisors, LLC
Sluggish growth
First Pacific Advisors, LLC
Real GDP growth expectation
First Pacific Advisors, LLC
Consumer discretionary spending
First Pacific Advisors, LLC
The age of the US capital stock is at a record level
First Pacific Advisors, LLC
Question and Answer
Section IV
First Pacific Advisors, LLC
Disclosure
31
These slides are intended as supplemental material to the 4th Quarter 2013 FPA Capital audio presentation that is posted on our website fpafunds.com.
We do want to make sure you understand that the views expressed on these slides and in the accompanying audio presentation are as of today, January 28, 2014,
and are subject to change based on market and other conditions. These views may differ from other portfolio managers and analysts of the firm as a whole, and are
not intended to be a forecast of future events, a guarantee of future results or investment advice. Any mention of individual securities or sectors should not be
construed as a recommendation to purchase or sell such securities, and any information provided is not a sufficient basis upon which to make an investment
decision. The information provided does not constitute, and should not be construed as, an offer or solicitation with respect to any securities, products or services
discussed.
Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents
past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it
may be worth more or less than its original cost. Current month-end performance data may be obtained by calling toll-free, 1-800-982-4372.
You should consider the Fund’s investment objectives, risks, and charges and expenses carefully before you invest. The Prospectus details the Fund's
objective and policies, charges, and other matters of interest to the prospective investor. Please read this Prospectus carefully before investing. The
Prospectus may be obtained by visiting the website at www.fpafunds.com, by email at [email protected], toll-free by calling 1-800-982-4372 or by
contacting the Fund in writing.
Statistics have been obtained from sources believed to be reliable, but the accuracy and completeness cannot be guaranteed and is not a complete summary or
statement of all available data. The Russell 2500 Index consist of the 2,500 smallest companies in the Russell 3000 total capitalization universe offers investors
access to the small to mid-cap segment of the U.S. equity universe, commonly referred to as "smid" cap. Past results are not necessarily indicative of future results.
Investments in mutual funds carry risks and investors may lose principal value. Stock markets are volatile and can decline significantly in response to adverse
issuer, political, regulatory, market, or economic developments. The Fund may purchase foreign securities, including American Depository Receipts (ADRs) and
other depository receipts, which are subject to interest rate, currency exchange rate, economic and political risks; this may be enhanced when investing in emerging
markets. Small and mid cap stocks involve greater risks and they can fluctuate in price more than larger company stocks. Groups of stocks, such as value and
growth, go in and out of favor which may cause certain funds to underperform other equity funds.
The portfolio holdings as the most recent quarter end may be obtained at http://www.fpafunds.com.
The FPA Funds are distributed by UMB Distribution Services, LLC. 803 W. Michigan Street, Milwaukee, WI 53233.
First Pacific Advisors, LLC
Appendix
Section V
First Pacific Advisors, LLC
Performance (%)
33
Returns for Period Ended December 31, 2013
Performance shown is net of fees and annualized for periods exceeding 1 year. * Inception for FPA Management was July 11, 1984. Return information for period July 1-July 10, 1984 reflects performance by a manager other than FPA. A benchmark comparison is not available based on the Fund’s inception date therefore a comparison using July 1, 1984 is used. A redemption fee of 2% will be imposed on redemptions within 90 days. Expense Ratio as of most recent prospectus: 0.83%
Calculated using Morningstar Direct The S&P 500 is presented for illustrative purposes and should not be considered the primary benchmark comparison to the Fund.
Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its original cost. Current month-end performance data may be obtained via http://www.fpafunds.com/capital or by calling toll-free, 1-800-982-4372.
As of Date: 12/31/13 QTD YTD 1 Year 3 Years 5 Years 10 Years 15 Years 20 Years Since 7/1/84*
FPA Capital 5.25 22.85 22.85 10.78 21.04 8.85 10.96 13.10 14.90
Russell 2500 8.66 36.80 36.80 16.28 21.77 9.81 9.67 10.77 12.08
S&P 500 10.51 32.39 32.39 16.18 17.94 7.41 4.68 9.22 11.48
2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999
FPA Capital 22.85 9.69 0.90 24.25 53.78 -34.79 -0.39 5.42 16.53 12.62 38.54 -3.86 38.13 -3.08 14.24
Russell 2500 36.80 17.88 -2.51 26.71 34.39 -36.79 1.38 16.17 8.11 18.29 45.51 -17.80 1.22 4.27 24.14
S&P 500 32.39 16.00 2.11 15.06 26.46 -37.00 5.49 15.79 4.91 10.88 28.68 -22.10 -11.89 -9.10 21.04
1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984*
FPA Capital -0.42 17.70 37.76 38.39 10.37 16.74 21.57 64.51 -13.80 24.30 18.11 10.75 12.57 28.95 7.00
Russell 2500 0.38 24.36 19.03 31.70 -1.05 16.55 16.09 46.89 -14.88 19.43 22.73 -4.68 11.98 31.93 6.94
S&P 500 28.58 33.36 22.96 37.58 1.32 10.08 7.62 30.47 -3.10 31.69 16.61 5.25 18.67 31.73 11.75
First Pacific Advisors, LLC
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
Russell 2500
$288,836
FPA Capital
$596,234
Capital: 2.4%R 2500:14.9%
Capital: 18.3%R 2500: 15.9%
Capital: 20.9%R 2500: 16.0%
Capital: 13.9%R 2500: 7.9%
Capital: 6.3%R 2500:11.9%
Capital: 16.8%R 2500: 6.5%
Capital: 8.5%R 2500: 16.2%
Capital: 7.2%R 2500: 2.9%
Capital: 7.7%R 2500: 8.0%
Market cycle performance
34
Time Period: July 1, 1984 – December 31, 2013
Source: Morningstar Direct.
Performance shown is net of fees. Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. Time periods indicate P/E peaks of R2500. Source: Morningstar Direct. The chart illustrates the performance of a hypothetical $10,000 investment made in the fund since inception. Figures include reinvestment of capital gains and dividends, but do not reflect the effect of any applicable redemption fees, which would lower these figures. An investor cannot invest in an index. This chart is not intended to imply any future performance of the fund.
7/1/1984 - 2/29/2000
7/1/1984 - 2/28/1998 3/1/1998 - 2/29/2000
10/1/2005 - 9/30/2007 3/1/2000 - 9/30/2005
3/1/2000 - 9/30/2007
10/1/2007 – 12/31/2013
10/1/2007 - 6/30/2011 7/1/2011 – 12/31/2013
First Pacific Advisors, LLC
Portfolio companies
35
Aaron's Apollo Arris Arrow Atwood Avnet Baker Hughes Cabot Centene Cimarex
Market
leading
company
With its largest
competitor, they control
2/3 of the market.
Largest for-profit
education company in
the US.
Clients and industry
experts view them as
the “gold standard”.
Global Distributor with
over $20B sales of
electronic products.
Highest utilization rates
and margins in the
industry.
Global distributor with
$25B sales of
electronic products.
Market leading
company: One of the
“Big 3” service
companies.
Among the largest E&P
companies with assets
in the prolific marcellus
shale.
One of the leaders in
pure play Medicaid
managed care
companies. 34%
revenue 10-year CAGR.
Independent E&P
producer with
resources in Oklahoma
and Texas.
With a history
of profitability
The company has
never lost money, grew
its revenues through
the recession, and has
improved its margins
steadily.
Profitable for 20+ years.
28%+ 10-year average
EBITDA margin.
Positive free cash flow
generation since 1995.
Generated substantial
profits over the last two
decades.
Profitable in 18 of the
last 20 years.
Generated substantial
operating profits over
the past two decades.
Profitable 22 of last 23
years.
Among the highest
ROIC of any E&P
company with reserves
in marcellus shale.
EBIT excluding unusual
items positive every
year since 2000.
Very high ROIC in
multiple shale reserves
in the U.S.
Pristine
balance sheet
~$3.75 net cash. 35% of market cap in
net cash.
Solid capital allocation
throughout history.
Currently, high debt
load due to large
acquisition.
Net debt/EBITDA is
~2x.
Modest net
debt/EBITDA.
Net debt/EBITDA is
less than 1.2x, and net
debt/total capital is less
than 20%.
1.0x net debt/EBITDA. Net debt/EBITDA is
~1x.
Large net cash position. Net debt/EBITDA is
~0.6x.
Good
management
teams
New CEO, previously
CEO & Chairman of
Delta Airlines.
The Founder retired
and the Company
moved from co-CEO to
single CEO model.
Disciplined
management team with
deep bench.
Focus on having the
highest margins in the
business.
Long history of offshore
experience; solid board.
Focus on EVA and
recently instituted a
dividend.
New CEO with strong
operational background;
streamlining business
units.
Focus on being low
cost. Producer of
natural gas.
Good incentive
programs that focus on
long-term performance.
Long history of
successfully deploying
capital into high return
oil and gas reserves.
Cheap
Trading at 6x EV/NTM
EBITDA.
Trading at 3.1x NTM
EBITDA.
Initial investment at
12% free cash flow
yield and under four
times total enterprise
value to EBITDA.
Purchased initial
position at ~9x earnings
and at 1x BV.
Trading at 9.6x LTM
EPS of $5.32; earnings
power rising to >$8 by
FY16
Purchased initial
position at 1x BV and
10x earnings.
5.7x forward
EV/EBITDA.
Purchased initial
position at less than
heavily risked net asset
value.
9%+ current FCF yield
for a company that is
growing revenues
double-digit in a
profitable fashion.
Purchased initial
position at less than
heavily risked net asset
value.
First Pacific Advisors, LLC
Portfolio companies
36
DeVry Ensco Federated Investors Foot Locker Helmerich & Payne InterDigital Newfield Exploration Oshkosh Patterson-UTIReliance Steel &
Aluminum
Market
leading
company
Most respected US for
profit education
company with diverse
source of revenues.
Leader in customer
satisfaction, safety, and
financial performance.
$375B AUM
One of the largest
money market funds.
Largest athletic
footwear retailer in the
U.S.
Most efficient and
technologically
advanced onshore rig
fleet in U.S.
Have been working on
new inventions since
early 70s. To date, they
have obtained or
applied for ~20k
patents.
Independent oil and gas
producer.
One of the largest
specialty vehicle
manufacturers that has
been around since for
almost a hundred
years.
Largest fleet of U.S.
land rigs.
Largest North American
distributor of steel and
aluminum.
With a history
of profitability
Never lost money.
19%+ 10-year average
EBITDA margin.
Averaged 41.9%
operating margins last
5 years.
Generated profits every
year since 1995.
ROIC averaged low
double digits at the time
of purchase. Today
~16% ROIC.
Profitable every year
since 1984.
22% revenue and 38%
EBITDA 10-year CAGR.
EBIT ex. unusual items
positive since 1993.
EBIT excluding unusual
items positive every
year since 1992.
Profitable 18 of the last
22 years.
Has been profitable
every year since going
public more than two
decades ago.
Pristine
balance sheet
10% of market cap in
net cash.
1.9x net debt/EBITDA. Almost no net debt. Net cash on the
balance sheet at time of
purchase. Today net
cash ~$4.70.
No net debt. 36% of market cap in
net cash.
Net debt/EBITDA at
2.4x but selling assets
that will decrease
leverage further.
Decreased net debt
from $3b in 2007 to
$350mm.
0.6x net debt/EBITDA. Less than 40% net debt
to total capital and net
debt to EBITDA is less
than 2.8x.
Good
management
teams
Strong Board; aligned
incentives.
Arguably the best
operators in the
industry.
Family involved since
1955. Great capital
return history.
Solid retail executives
with good track record
over many years.
Best CEO in the
industry + outstanding
succession planning.
Prudent capital
allocation and
disciplined litigation
strategy.
Added new board
member with deep
experience in
unconventional plays.
Current CEO has been
with the Company
since 1996 and served
as both CFO and COO.
New CEO – highly
respected
Schlumberger veteran.
Focus on profit margins
and inventory returns.
The 10-year average
ROE is ~16%.
Cheap
SOTP analysis shows
that the main business
(60% of revenue) can
be purchased for free.
7.9x forward P/E, 6.5x
forward EV/EBITDA.
Bought at ~$18.
Collected ~$3.50 of
dividends. Still 20%
ROC and 10% FCF
yield.
Bought initial position at
less than 10x earnings.
6.0x forward
EV/EBITDA.
Backdoor way to
participate in the growth
of mobile
communications.
Initially bought the stock
at 1x BV and sold most
of the stock at $75.
Bought some back at
$20.
3.4x EV/EBITDA, 5.5x
P/E at the time of initial
purchase.
1.4x tangible book
value, 4.5x forward
EV/EBITDA.
Initially bought stock at
less than 5x normalized
EPS and 50% of BV.
First Pacific Advisors, LLC
Portfolio companies
37
Rosetta Resources Rowan Companies Signet SM Energy Titan International Trinity Veeco Western Digital
Market
leading
company
Some of the lowest
finding costs and
highest recycle ratios in
the industry.
Leading high-spec,
harsh weather global
jack-up rig operator.
Largest independent
jewerly retailer in the
U.S.
Top quartile finding
costs with conservative
reserve bookings.
Leader in North
American agricultural
tires
Largest railcar
manufacturer in the
U.S. Strong barge
position as well.
Number one player in
the MOCVD tool
market.
Largest worldwide
manufacturer of hard-
disk drives.
With a history
of profitability
Acq’d. Eagle Ford
acreage in 2008; wells
capable of 10% IRR at
$45 oil prices.
Since 1999, only lost
money once ($3mm in
2003).
Long history of
generating profits and
mid-to-high ROE.
Profitable 19 of the last
23 years.
Positive EBIT 18 of last
23 years
Strong earnings and
positive cash flow
generator in a highly
cyclical business.
Outsourced most
production, which
decreased the fixed
cost structure.
Average ROIC over the
past decade is roughly
19%.
Pristine
balance sheet
Net debt/EBITDA 2.0x
and falling
1.7x net debt/ EBITDA. Net debt/Capital at initial
purchase ~10%.
1.1x net debt/EBITDA. 1.6x net debt/EBITDA Less than 2x Debt-to-
EBITDA at puchase.
40% of market cap in
net cash.
Nearly $2.5 billion of net
cash, or roughly $10
per share.
Good
management
teams
Run by Burlington
Resources alumni;
among the best
operators in the
industry.
First outside team to
run the company.
Rationalizing costs and
assets.
Strong management
teams focused on
profitable growth.
Deep operating
experience,
conservative approach
to the business.
History of being price
sensitive with plant
acquisitions
Long history of running
profitable but cyclical
business.
The management team
is highly respected.
Long track record of
operating profitable
businesses in a very
competitive industry.
Cheap
Trading at significant
discount to NAV; further
upside from horizontal
drilling in Permian +
Eagle Ford
downspacing.
Trading at 15.1x
depressed LTM EPS of
$2.20, rising to >$5 by
2016
Purchased stock at
~10x earnings.
May have substantial
upside from Eagle Ford
downspacing and
Permian asset
development
5.8x forward
EV/EBITDA
Purchased initial
position at less than
10x normalized
earnings.
1.5x EV/EBITDA, 4.5x
P/E at the time of initial
purchase.
Initial purchase was at
less than 6x EPS, 60%
of sales, and 1.7x BV.
First Pacific Advisors, LLC
Portfolio sector allocation - YTD
38
12/31/2012 12/31/2013 % Change
Technology 24.74% 23.12% -1.62%
Oil Field Services 17.38% 16.96% -0.42%
Oil & Gas Exploration & Production 11.41% 9.30% -2.11%
Education 1.95% 6.93% 4.98%
Industrials 7.62% 4.60% -3.02%
Retailing 3.64% 4.19% 0.54%
Financial Services 1.42% 1.27% 0.33%
Basic Materials 0.94% 1.26% -0.16%
Healthcare 0.00% 0.65% 0.65%
Cash 30.90% 31.77% 0.88%
Total 100.00% 100.00%
Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for
informational purposes only and should not be construed as recommendations by the Funds, Advisor or Distributor.
First Pacific Advisors, LLC
Top ten holdings – as of December 31, 2013
39
* For Financial Companies, Leverage = Equity/Total Assets
Notes:
P/BV = Price/Book Value
P/CF = Price/Trailing 12 months Cash Flow Per Share
P/E = Price/Trailing 12 Months Earnings
ROAA = Return On Average Assets
ROAE = Return On Average Equity
TD/TC = Total Debt/Total Capitalization
M/R = Market Capitalization/Revenue
NM = Not Meaningful
N/A = Not Available
USD Cost
5-Yr. 5-Yr.
Security Shares Price Total Price Total P/BV P/E P/CF M/R Yield(%) ROAA ROAA ROAE ROAE TD/TC
Arrow Electronics 1,515,500 $15.32 $23,211,110.00 $54.25 $82,215,875.00 1.36 13.02 9.64 0.27 0.00 4.30 1.97 11.17 6.11 32.53
Avnet 1,772,400 $7.85 $13,912,925.00 $44.11 $78,180,564.00 1.35 13.08 10.25 0.23 1.36 4.55 1.45 11.08 5.08 31.62
Rowan Companies plc 2,065,700 $34.03 $70,295,771.00 $35.36 $73,043,152.00 0.92 16.08 8.16 2.85 0.00 3.66 4.32 5.88 7.21 29.65
Western Digital 647,600 $12.46 $8,067,807.00 $83.90 $54,333,640.00 2.40 11.50 9.07 1.31 1.43 6.60 12.39 11.65 20.27 22.51
Rosetta Resources 1,058,702 $17.25 $18,262,039.00 $48.04 $50,860,044.08 2.24 12.84 7.14 3.78 0.00 10.12 10.81 20.02 18.92 47.18
Apollo Group 1,780,700 $18.64 $33,190,901.00 $27.32 $48,648,724.00 2.77 12.47 7.55 0.84 0.00 8.85 15.91 19.11 35.81 5.89
Ensco plc 730,600 $42.18 $30,813,055.00 $57.18 $41,775,708.00 1.06 10.28 7.10 2.81 5.25 6.88 7.76 10.54 10.66 27.55
DeVry 1,090,508 $27.39 $29,874,012.00 $35.50 $38,713,034.00 1.62 23.37 11.67 1.16 0.96 4.83 11.60 6.94 17.92 0.00
Atwood Oceanics 719,606 $40.66 $29,259,778.00 $53.39 $38,419,764.34 1.55 10.04 7.31 3.36 0.00 10.61 13.85 16.62 19.32 36.57
Arris Enterprises 1,444,000 $13.50 $19,497,915.00 $24.36 $35,175,840.00 2.60 27.20 21.76 1.22 0.00 3.73 4.56 9.74 8.05 62.02
Market Valuation Profitability (%) * Leverage (%)
Portfolio composition will change due to ongoing management of the Fund. References to individual securities are for
informational purposes only and should not be construed as recommendations by the Funds, Advisor or Distributor.
First Pacific Advisors, LLC