We’ve initiated a position in WillScot Mobile Mini (WSC) shares for clients in Titan’s Opportunities strategy, increased our holdings in Avantor (AVTR), Hayward (HAYW), and SS&C Technologies (SSNC), using the proceeds from a sale of Smartsheet (SMAR) and a reduction in our positions in Five Below (FIVE) and Elastic (ESTC).
We believe these moves offer our clients:
- New exposure to a growing industrial name;
- Increased exposure to the goods producing sector of the economy;
- Reduced exposure to cloud software; and
- Tactically reduced risk exposure ahead of potential Q4 earnings volatility.
Building out storage
WSC is a market leader in the modular and portable storage industry, providing temporary storage and office solutions for construction sites, schools, mining operations, and a host of other use cases. WSC offers Opportunities clients exposure to the industrial sector, which we believe may be set to benefit from the recent infrastructure package passed by Congress.
Our current work suggests WSC shares may be able to return 16% annually, net of fees, for Titan clients over the next three years.
Today’s WSC is the combination of WillScot with Mobile Mini, a deal that closed in July 2020. We believe the recently-combined WSC may be able to expand margins and improve free cash flow generation, while reducing its overall debt load.
We believe WSC also has several idiosyncratic growth drivers that may enable the company to generate annual revenue and earnings growth of at least 10% and 25%, respectively, without additional M&A.
Lastly, WSC has authorized the repurchase of up to $1 billion in additional shares, which we believe offers management another path to creating shareholder value.
Cutting out SMAR
To partially fund our purchase of WSC, we’ve sold out of our position in SMAR for Opportunities clients.
A holding in Opportunities since inception, SMAR shares have appreciated 41% over the period of initial purchase on 8/17/2020 through 11/30/21.
We believe pandemic tailwinds may be subsiding for the business. While SMAR shares may appear cheap relative to its peers, our work shows that the company’s lack of free cash flow generation may put shares at risk of facing additional selling pressure.
Adding to AVTR, HAYW, and SSNC
In addition to initiating a position in WSC for Opportunities clients, we’ve also increased our position in three existing portfolio holdings — AVTR, HAYW, and SSNC.
We recently added to our position in AVTR
, and are delighted to do so again. AVTR is a life sciences tools (LST) business that we believe may benefit from a COVID-accelerated appetite for R&D across the pharmaceutical industry.
HAYW is a leading manufacturer of pool equipment that we believe may benefit from a favorable competitive structure within its industry and demographic tailwinds. We initially purchased HAYW for Opportunities clients
in late October, and believe this name warrants a larger position today.
SSNC is a leading provider of information processing and business operations for the financial services and healthcare industries. At current levels, we believe SSNC shares offer an attractive risk/reward as the company continues to demonstrate best in-class capital allocation, with pending M&A activity a catalyst that we believe may drive the stock higher.
Trimming FIVE and ESTC
We’ve also tactically reduced our portfolio exposure in two holdings, FIVE and ESTC.
We believe these decisions may help mitigate downside risk and reduce portfolio volatility, while also providing the portfolio with additional capital that can be used to seize opportunities during temporary market dislocations.
FIVE is a specialty value retailer with more than 1,100 stores across the U.S. While we remain confident in the company’s value proposition and long-term investment thesis, we believe FIVE shares may see elevated volatility following the company’s expected earnings release this week. We believe it is prudent to trim our position in FIVE ahead of this event.
ESTC is a leading enterprise search, observability, and security company that we believe is well-positioned to benefit from key secular technology themes. Similar to FIVE, we believe there may be an increased probability of share price volatility following Elastic’s expected earnings announcement this week and have reduced our exposure accordingly.