Motiwala Capital - Q2 2015 Letter
New Position : $HNNA
Top 5 positions
Top 5 positions
Motiwala Capital LLC
www
.
motiwalacapital
.
com
Second
Quarter 2015
Letter
Dear
Investors
,
S&P 500
had flat return in the second quarter of 2015
up
0.2
8
%
.
Motiwala Capital
accounts on
an aggregate basis
had a
net
return
of
+0
.48
%
.
Year to date S&P 500 is up 1.23% while our
accounts returned
-
2.5%.
Since inception, our annualized
return
has been 13.5% v/s 13% for
S&P 500.
Year
S&P 500
Motiwala Capital
2015 YTD
1.23%
-
2.5%
2014
13.7%
3.9%
2013
31.9%
33.2%
2012
16.0%
20.3%
2011*
-
1.7%
4.9%
Cumulative
70.06%
72.99%
Annualized
13%
13.5%
* Since March 4, 2011.
Portfolio
C
omposition
Our portfolios are divided into two
primary
sections. The ‘Generals’ are
undervalued
equity
investments.
We own 19
positions, cumulatively equaling
68
% of the portfolio.
T
he rest of the
portfolio is
invested
in special situations
(short term investments with a specific event that
can
unlock
value)
and
cash
(
25
%)
.
Our c
ash level
s
reduced from the prior quarter after adding to
several existing positions and initiating one large position
.
Top 5
P
ositions
Company name
% of portfolio
Hennessy Advisors
7.5%
Western Digital
7%
Qualcomm
5
.5%
Mind CTI
5%
Viacom
4.5%
Portfolio
Activity
Special Situations: Share
tenders
After a long time, there were
several
tender offers
during
the quarter
and as a group there were
nicely
profitable
contributing positively to performance
.
2
Motiwala Capital LLC
2Q 2015 Letter
Generals:
New Positions:
I
initiated
one
new posi
tion in the quarter.
I bought back
Hennessy Advisors (HNNA,
formerly
referred to as
Microcap H
)
that was a big winner in 2014 and sold at the start of
2015
.
After our
sale the stock price d
eclined while
business remained
stable
.
HNNA is an asset manager
p
roviding
investment advisory services to sixteen open
-
ended mutual funds called the Hennessy Funds
.
Asset Management is an excellent
business characterized by high profit margins, low financial leverage,
high ROE, miniscule capital expenditures, high free
cash flow and recurring revenues. Hennessy has $6.3
Billion in assets under management (AUM) across its funds. Hennessy’s source of revenue is the
investment advisory fees (0.4%
-
1.2%) and shareholder service fees (0.1%) that it charges the mutual
funds.
From March 2015,
HNNA started charging shareholder service fee on ALL its funds. I estimated that
this change would increase total revenues by 10% and net income by 18%. Meanwhile the stock declined
from $20 to $19. I took the opportunity and made it our
largest position.
HNNA just reported its Q3 earnings and the results were excellent.
Year over year
revenue increased by
36% and EPS increased by 60%.
Sequentially revenue increased by 13% and profits increased by 27%,
higher than my estimates.
While the
stock has appreciated 15% since purchase,
it
is
still
very attractive
at
10x
run
-
rate
earnings
while the market and comps are trading significantly higher. The
biggest risk is a market correction that could reduce AUM via
outflows
.
Generals:
Reduced pos
itions:
We
sold half of our large position in Visteon (equity and warrants)
as the share price
appreciated towards our target price. We
further
trimmed our
position in
Outerwall
(
OUTR
)
after a nice run
.
Generals: Increased positions:
During
the quarter
, I added to several existing positions primarily on price declines. The
pos
itions added to were: Mind CTI
, Qualcomm, Google, Western Digital, Seagate, Viacom,
O
racle
and International Housewares Retail
.
Last few months have been very hectic
.
First
there
was
the
examination by the Texas State
Securities Board.
Then, m
y family
welcomed our newborn daughter into this world on May 18,
2015.
My
two sons are overjoyed
that
they wont have to share their toys with her.
I am thankful
to my clients for the opportun
ity to manage a
portion
of their assets. Thank you for the referrals.
Sincerely,
Adib Motiwala
400 E Royal Lane Suite 290
Irving TX 75039
817.689.5115
Adib
Motiwala
3
Motiwala Capital LLC
2Q 2015 Letter
This
commentary candidly discusses a number of individual companies. These opinions are current a
s of
the date of this commentary but are subject to change. All information provided is for information
purposes only and should not be considered as investment advice or a rec
ommendation to purchase or
sell
any specific security. While the information pre
sented herein is believed to be reliable, no
representations or warranty is made concerning the accuracy of any data presented. This communication
may not be reproduced without prior written permission from us.
Past performance is no guarantee
of future
results.
Motiwala Capital performance is computed on a
before
-
tax time weighted return (TWR) basis and is net of all paid management fees and brokerage costs.
Performance figures are unaudited
and generated using our custodian
’
s reporting functionality
.
Performance of individual accounts
may
vary depending on the t
iming of their investment, the effects of
additions, and the impact of withdrawals from their account.
2011 performance is from the period Marc
h
4, 2011 to Dec 30
, 2011. The same period was used for S&P 500 and Motiwala Capital.
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