4Q 16 Combined Signia PP update€¢ Strong track record: alpha ... -Market Share-Management...
Transcript of 4Q 16 Combined Signia PP update€¢ Strong track record: alpha ... -Market Share-Management...
Investment StrategiesSmall-Micro Cap ValueConcentrated Value
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Firm overview• Founded in 2001
• Experienced team: 20+ years practicing a value investing discipline
• Focused: bottom-up fundamental research
• Proven: investment process
• Strong track record: alpha
Investment Strategies Small-Micro Cap Value • Fundamental bottom-up research process
• Exploit market inefficiencies in small & micro-cap stocks
• Private equity alternative
• Target market capitalization of $1b and below
• Benchmark: Russell Microcap Value / Russell 2000 Value
Concentrated Value • Fundamental bottom-up research process
• Exploit market inefficiencies in small & micro-cap stocks
• Opportunistic: mid and large-cap “fallen angels”
• Unconstrained by market capitalization
• Benchmark: Russell 3000 Value / Russell 2000 Value
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Small & micro-cap stocks make up only 2% of the market by capitalization, but represent nearly 50% of the investible universe.
Small-Micro Cap: Opportunity and Inefficiencies
Signia Concentrated Value:
Strategy exploits inefficiencies in the small and micro-cap market andcapitalizes on opportunities presented by mid-cap and large-cap fallen angels.
Signia Small-Micro Cap Value: Strategy targets the largest opportunity set in the market,
securities with market capitalizations of $1b and below
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*Source: Furey Research
Small-Micro Cap: Opportunity & Inefficiencies
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Micro Small Mid Large
AVERAGE NUMBER OF COVERING ANALYSTS
0%
10%
20%
30%
Micro Small Mid Large
PERCENTAGE OF COMPANIES WITH NO ANALYST COVERAGE
The small to micro-cap investment universe is largely ignored by Wall Street, creating compelling investment opportunities.
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20 Year Annualized Rolling Return 12/31/1945 to 12/30/2016
Small-Micro Caps Generate the Highest Long-Term Returns
Source: Furey Research Partners and Factset as of 12/30/16
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Small-Micro Caps Generate the Highest Long-Term Returns
Source: Furey Research Partners and Factset as of 12/30/16
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On Average More Than 60% of Public M&A Transactions Occur at the Small-Micro Cap Level
Source: Furey Research Partners and Factset as of 12/30/16
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Differentiated Portfolio
For the 15 years ended December 2014. Data is based on the eVestment US All Cap, Large Cap, Mid Cap, Small-Mid Cap, and Small Cap Equity universes, composed of 223 concentrated strategies and 2,2029 diversified strategies with a reported number of holdings, as reported on 10 February 2015. US Concentrated managers are those strategies with 30 or fewer holdings as of the reporting date, while diversified managers are those with more than 30 holdings. Source: eVestment, Lazard
Average 3 – year Rolling Returns
Average 5 – year Rolling Returns
3) Source: Modern Portfolio Theory and Investment Analysis. Illustrative Purpose Only
Russell Microcap Value Index Micro-cap Peer Group* Signia Small-Micro Cap ValueAverage # of Holdings 1,122 200 30-45
Russell 3000 Value Index Average Mutual Fund* Signia Concentrated Value Average # of Holdings 3,000 90-228 12-20
* Source: Furey Research and The Financial Times
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Investment Process – The Value Focus
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Catalyst – What is unique to this company that will drive improved performance.
Investment Process
TYPES OF CATALYSTS
Company Specific: new products, new markets, hidden assets, restructuring
Cyclical: industry correction over 1-3 years
Secular: 5-10 year industry trends
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Identification of Value - What are we paying for this business.
Investment Process
ABSOLUTE
-Price/Book-Price/Earnings EV/EBITDA -EV/Sales -Dividend Yield -EV/Cash Flow & Sum-of-the Parts
RELATIVE
-To Historical Valuations-To Current Peer Group-To Recent Transactions in the Sector
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Identification of Quality - Financial strength, capital structure, strength of management, and competitive position.
Investment Process
ABSOLUTE
-Balance Sheet Strength-Interest Coverage-Cash Flow Generation-Insider Ownership
RELATIVE
-Market Share-Management Team-Profitability-Shareholder Friendly -Deployment of Capital
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Investment Process
Screen for Candidates:
-Market-Cap -Valuation -Quality
Company Due Diligence:
-10-k, 10-Q -Street Research-Transcripts -Conferences
Team Discussion:
-Direct Dialogue with Company
Management -Identify Investment
Catalyst
Develop Model & Price Target
Present to Investment Team
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Sterling Construction (STRL) is a leading heavy civil construction
company specializing in roads, bridges, and water infrastructure
specifically within the Western United States. ($65m market cap at
time of purchase)
COMPANY DESCRIPTION:
Company Example: Sterling Construction (STRL)
CATALYST:
VALUATION & QUALITY:
Company Specific: Management turnaround led by board
member and industry veteran Paul Varello
Cyclical: Improving bidding environment in Sterling’s core
markets, particularly within Texas
Secular: Failing domestic infrastructure in significant need of
repair and modernization
Valuation: At the time of purchase, STRL traded at .48x P/B and
3.9x our 2017 estimated earnings
Quality: STRL had a small net debt position with the potential to
improve the balance sheet through non-core asset sales.
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Initial Purchase
Add to position as fundamentals continue to track thesis
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COMPANY DESCRIPTION:
Pep Boys is one of the nation’s leading automotive
aftermarket retailers with 750+ locations throughout the
United States. ($600m market cap at time of purchase)
VALUATION & QUALITY:
CATALYST:
Company Example: Pep Boys (PBY)
Company Specific: Long time shareholder Mario Gabelli
had taken an activist stake in the company and was
awarded 4 board seats
Company Specific: PBY was in the early stages of rolling
out a new store format, “The Road Ahead”, which would
increase sales and expand margins for the company.
Valuation: At the time of purchase, PBY traded at 1x book
value and 5x EV/EBITDA, while peers traded at 10-12x
Quality: PBY was conservatively financed at 21% net/debt
to capital and generated solid cash flow.
PBY owned a significant portion of its real estate which was
valued on the balance sheet at $350m - the estimated
market value was $750m
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Add to position as fundamentals continue to track thesis
Initial Purchase
Initial purchase
Initial buyout offer from Bridgestone $15
Icahn Enterprises LP wins bidding war at $18.50
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Differentiated Portfolio: Signia Small-Micro Cap Value Strategy
Portfolio Characteristics
Investment Process Fundamental Bottom-UpMkt. Cap Range $1b and BelowNumber of Holdings 30-45Performance Benchmark Russell Microcap Value
Russell 2000 Value
Portfolio Snapshot 12/31/2016
Current Number of holdings 30EV/EBITDA 5.8Price to Book 1.2Price to Sales 0.7Price to Cash Flow 5.9L.T. Debt to Capital 22%Price to Earnings (forward) 212017 Vs. 2016 EPS Growth 79%Weighted Average Mkt. Cap $407Turnover (annual) 60%
Top 10 Holdings (%) 12/31/2016
Sterling Construction Company Inc 8.2%Build-A-Bear Workshop Inc 5.1%New York & Co Inc 4.6%Gain Capital 4.2%Autobytel Inc 4.2%Pennant Park Investment Corp 3.8%Ardmore Shipping Corp 3.8%First Internet Bancorp 3.6%Revolution Lighting Technologies Inc 3.6%Advantage Oil & Gas 3.5%
Sectors Weightings (%) 12/31/2016
Technology 15.4%Consumer Discretionary 22.0%Energy 11.3%Autos & Transports 2.2%Producer Durables 15.8%Financial Services 27.3%Cash 6.0%Total Portfolio 100.0%
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Performance: Signia Small-Micro Cap Value Strategy
*GIPS compliant performance presentation available upon request
Calendar Year Returns2012 19.71% 18.05% 22.81%2013 33.21% 34.52% 41.17%2014 0.86% 4.22% 3.15%2015 2.16% -7.47% -6.45%2016 30.19% 31.74% 30.59%
2017 YTD 2/14/17 3.73% 1.84% 0.11%
Annualized Returns 2/14/2017
Trailing 1 Year 54.35% 50.44% 50.99%Trailing 3 Year 13.72% 10.27% 8.82%
From Inception 9/30/11 18.65% 17.53% 18.57%
Signia Net of Fees
Russell 2000
Value Index
Russell Microcap
Value Index
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Differentiated Portfolio: Signia Concentrated Value Strategy
Portfolio Characteristics
Investment Process Fundamental Bottom-Up
Mkt. Cap Range All Cap
Number of Holdings 12-20Performance Benchmark Russell 3000 Value
Russell 2000 Value
Portfolio Snapshot 12/31/2016
Current Number of Holdings 16EV/EBITDA 4.41Price to Book 1.1Price to Sales 0.6Price to Cash Flow 4.7Price to Earnings (forward) 23.1L.T. Debt to Capital 22%2017 vs. 2016 EPS Growth 157%Weighted Average Mkt. Cap $465.0Expected Turnover (annual) 60%
Top 10 Holdings (%) 12/31/2016
Sterling Construction Company 11.0%Build-A-Bear Workshop Inc 7.4%New York & Co 7.1%Gain Capital 6.4%First Internet Bancorp 5.9%Revolution Lighting Technologies In 5.7%Ardmore Shipping Corp 5.6%Autobytel Inc 5.5%Advantage Oil & Gas LTD 5.3%North American Energy Partners In 4.9%Total Top 10 Holdings (%) 64.8%
Sectors Weightings (%) 12/31/2016
Consumer Discretionary 21.4%Financial Services 16.6%Producer Durables 16.7%Energy 18.0%Materials & Processing -Technonlogy 17.6%Other -Cash 9.7%Total Portfolio 100.0%
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Performance: Signia Concentrated Value Strategy
Returns Through 2/14/16Year to Date (2/14/15) 5.78% 3.37% 1.82%
Trailing 1 Year (2/14/17) 56.41% 34.07% 50.44%From Inception (6/30/2015) 32.57% 18.98% 25.32%
Signia Net of Fees
Russell 3000 Value
Russell 2000 Value
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TEAM OPPORTUNITY STRATEGIES
• Proven and experienced team: 20+ years within the asset class
• Deep knowledge of portfolio companies and catalysts
• Track record of generating alpha
• It pays to be active in small & micro-cap
• Differentiated by concentration
• Fundamental bottom-up research process designed to identify and exploit market inefficiencies
• Deep value, private equity alternative
• Opportunistic approach to investing in mid & large-cap
• Portfolios with high active share
Why Signia
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Investment Management Personnel
Portfolio Manager and Principal - Tony has 20 years of experience in the investment managementindustry. Prior to co-founding Signia Capital Management, he was an Equity Research Analyst for a$2B Pacific Northwest asset management firm. Tony holds a BA in finance from GonzagaUniversity. In addition, he is a CFA charter holder.
COLIN KELLY, CFA
RICHARD BEAVEN, CFA
ANTHONY BENNETT, CFA
Lead Portfolio Manager and Principal - Rich has over 20 years of experience in the investmentmanagement industry. Prior to joining Signia Capital Management in 2002, Rich was the AssistantDirector of Research and a Portfolio Manager for a $2B Pacific Northwest asset management firm.Rich holds a BA in business administration from the University of Kentucky and an MBA fromGonzaga University. In addition, he is a CFA charter holder and has served as President of the CFASociety of Spokane.
Director of Research and Portfolio Manager - Prior to joining Signia Capital Management, Colin wasVice President of Equity Research for a Pacific Northwest wealth management firm. He also servesas an adjunct professor of finance at Gonzaga University. Colin holds a BBA with emphasis infinance and marketing from Gonzaga University. In addition, he is a CFA charter holder andcurrently serves on the Board of Directors of the CFA Society of Spokane.
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Compliance, Operations and Trading
Chief Compliance Officer, Chief Operating Officer and Principal - David joined Signia Capital Managementin 2004 and has over 13 years of experience in the investment management industry and 25 years ofexperience managing small businesses. Prior to joining Signia, he was the Network and DatabaseAdministrator for ICM Asset Management. David holds a BA from Eastern Washington University. He is aCertified Securities Compliance Professional and Registered Investment Advisor Representative.
DAVID KREBS, CSCP
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Advisory Board
PAUL GREENWOOD
Paul has over 20 years of investment experience, most recently as Director of U.S. Equity for the Russell Investment Group. At Russellhe was responsible for the performance and investment content of all of Russell’s U.S. Equity efforts, including more than $30 billioninvested in Russell’s multi-manager funds, and all U.S. Equity research performed on behalf of Russell’s global consulting clients,representing $1.6 trillion in total assets. Paul is currently a Managing Director at Northern Lights Ventures, an independent privateequity firm providing strategic resources and capital to the money management industry.
RICHARD THOMPSON
Richard is a member of Signia Capital Management's advisory board. Richard, a serial entrepreneur, co-founded and served as CEOand/or chairman of four successful technology companies, Flycast Communications, Adify, Playdom, and Funzio. He was also on thefounding team of Octel Communications. Currently, Richard is a founding Partner of Signia Venture Partners, an early stage venturefund focused on education technology, online video, mobile gaming, and the wider consumer mobile ecosystem. Richard holds a BS inpsychology from UCSC and an MBA from the Wharton School at the University of Pennsylvania.
LAWRENCE BRAITMAN
Lawrence is a founding member of Signia Capital Management. Larry is a serial entrepreneur, who co-founded two successful Internettechnology companies, Adify and FlyCast Communications. Previously, Lawrence worked as an attorney with the firm Saul EwingRemick & Saul in Philadelphia, PA. Lawrence holds a B.A. in Psychology from Franklin Marshal College and a J.D. from GeorgetownUniversity.
JOHN SCELFO
John is the Chief Executive Officer of Spur Industries, a manufacturer of specialty metals products serving international industrialcompanies. Prior to joining Spur Industries, John was a Vice President and Plant Manager with Kaiser Aluminum. John has over 30 yearsof experience managing industrial companies
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Signia claims compliance with the Global Investment Performance Standards (GIPS®) and has prepared and presented this report in compliance with the GIPS standards. Signia has not been independently verified.
Firm. Signia Capital Management, LLC (“Signia”) is defined as an independent investment management firm that is not affiliated with any parent organization. Signia is an equity manager investing primarily in U.S. traded
securities.
Composite Construction. The Small-Micro Cap Value Composite (“Composite”) was created October 2011. The Composite consists of all discretionary fee-paying accounts invested in diversified portfolios of U.S. Small Micro
capitalization equity securities with the objective of maximizing total return. The basis for selection is to include all diversified equity portfolios with a mandate to invest in Small Micro capitalization value companies, with
few tax or other constraints that would otherwise impede the objective of maximizing total return.
All fee paying, discretionary portfolios are included in firm composites; no non-fee paying portfolios are included in firm composites. After thirty days under management, new portfolios are included at the beginning of the
next full calendar quarter. Terminated portfolios are included through the last full quarter under management.
Benchmark. The benchmark is the Russell Microcap Value Index. Signia selected this benchmark because the Russell Microcap Value Index is an unmanaged group of securities generally considered to represent the
performance of the micro-capitalization segments of the U.S. equity universe. Signia actively manages the portfolio of its account and the structure of the actual portfolio may be at a variance to the index. The portfolio is
diversified across economic sectors that may at times be meaningfully different from the index. Index returns reflect the reinvestment of dividends but do not reflect the fees, brokerage commissions, or
other transaction costs.
Calculations. Valuations are computed and performance reported in U.S. dollars. Results are calculated at a minimum of monthly and adjusted for external cash flows. Returns calculated using a time weighted rate of
return. Period returns are geometrically linked. Using beginning period market values, the Composite is asset weighted by aggregating assets and cash flows into a single portfolio. Trade date accounting is used. Securities
are priced using end-of-day market prices obtained from Interactive Data. Returns include dividends, interest, and realized and unrealized gains and losses. Dividends are recorded on a cash basis. No leverage derivatives
are used. Policies for valuing portfolios, calculating performance and preparing compliant presentations are available upon request.
Dispersion and Risk. The dispersion of annual returns is measured by the standard deviation across asset-weighted returns represented within the composite for the full year. Dispersion of annual returns is not applicable
because the composite consisted of one account for all periods. Three-year standard deviation composite calculations are unavailable as the composite has not achieved three years of annual return data.
Fees. Signia’s standard fee schedule is 1% of assets under management. Fees are negotiable and vary based on the size and type of the investment. When calculating performance the actual investment
management fees are used.
Past performance is not an indicator of future results.
To request a complete list and description of the firm’s composites, please contact Tony Bennett at 509.789.8971 or [email protected].
Performance Presentation Disclosures
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