Wednesday, Jan 5th 2022

Titan Trade Update: Drawing down some strategic cash

Investor Update

Last week, we initiated four new positions across Titan’s Opportunities and Offshore strategies, buying Digital Turbine (APPS) for clients in our Opportunities strategy, and purchasing Analog Devices (ADI), Diversey (DSEY), and TaskUs (TASK) for clients in our Offshore strategy.

We believe these moves accomplish two key things for our clients:

  • Adding high-quality compounders to both portfolios; and
  • Drawing down our strategic cash holdings.

Building and deploying

In the final weeks of 2021, the biggest portfolio changes we made for clients involved building up strategic cash reserves.

We believed these positions would help portfolios navigate a volatile period for markets and provide our investment team with capital to later deploy into new or existing opportunities. And when it comes to drawing down some of this cash, the future is now.

Seizing Opportunities

In the final week of 2021, we initiated a position in Digital Turbine (APPS) for clients in Titan’s Opportunities strategy. APPS can be thought of as a “toll road operator” in the mobile advertising business, helping its partners reach audiences where consumers increasingly spend much of their screen time: on their phone.

After its recent selloff, we believe APPS shares are attractive on both a relative and absolute basis. We believe the company’s dominant competitive positioning coupled with its patented SingleTap technology may enable the company to drive 3-year compounded annual earnings growth above 60%, and our work suggests annual returns may average 20%, net of fees, over the next 3-5 years.

In addition to purchasing APPS for Opportunities clients, we also increased our existing position in Elastic (ESTC). ESTC is a leader in the enterprise search and security market, and shares of the company have declined sharply since mid-November.

In our view, this sell-off in the stock is overdone with our work suggesting returns may average mid-to-high teens, net of fees, over the next 3-5 years. As a result, we’re excited to deploy additional capital into what we believe is an attractive risk/reward opportunity.

We continue to hold strategic cash in our Opportunities strategy and believe we may be able to deploy this capital into similarly attractive situations in the weeks and months ahead.

Going abroad

We also drew down strategic cash reserves for clients in our Offshore strategy, initiating three new positions.

Analog Devices (ADI) is a leading semiconductor manufacturer with notably strong positions in the vehicle and factory automation industries. We believe the company’s model can be thought of as “hardware-as-a-service” given ADI’s sales into stable end markets with long product cycles that create sticky, durable revenue streams.

While ADI trades at a premium valuation relative to its historical absolute levels, we view the current valuation setup as fair with modest upside as we believe investors may appreciate synergies and higher exposure to secular growth drivers following its Maxim Integrated acquisition.

Diversey (DSEY) is a provider of cleaning and hygiene solutions for customers in a wide variety of sectors including Food & Beverage, Healthcare, Hospitality, and Retail, DSEY was a severely mismanaged asset until being acquired by Bain Capital in 2017 and we believe the value creation that has taken place under this ownership may be in the early innings.

We have opportunistically started a position in DSEY to capitalize on its recent sell-off. At its current valuation, only conservative assumptions are needed to get to expectations for average returns in the mid-teens, net of fees, over the next 5 years. We may also look to increase the size of our position as we gain more conviction on the company’s plans.

TaskUs (TASK) provides outsourced solutions for fast-growing, digital leaders including Meta Platforms (FB) and Netflix (NFLX), both of which are holdings in Titan’s Flagship portfolio. TASK helps these tech giants scale their support operations quickly while controlling costs and maintaining high standards.

Based on its organic growth and profitability profile, we believe that TASK’s current valuation provides significant upside optionality and our work suggests the stock could provide average returns in the low-twenties, net of fees, over the next 3-5 years.

After these purchases, we continue to hold strategic cash in our Offshore strategy and believe we may be able to deploy this capital into similarly attractive situations in the weeks and months ahead.

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