Wednesday, Mar 9th 2022

Titan Trade Update: We’ve sold Diversey in Offshore

Investor Update

We sold our small stake in Diversey Holdings (DSEY) due to the historical spike in commodity prices, which we believe could be a meaningful headwind for the foreseeable future.

The table below details these moves:

trades

Diversey Holdings (DSEY) is a provider of cleaning and hygiene solutions for customers in a wide variety of sectors including Food & Beverage, Healthcare, Hospitality, and Retail industries. Diversey was a severely mismanaged company until Bain Capital (large private equity firm) acquired it in 2017.

The company just went public in March 2021, so with a limited track record of execution in public markets and potential supply chain bottlenecks as the world re-opens, we opted to start with a small toe-hold position when we first invested in December. We planned to scale up the position if our thesis was tracking, but we believe that the historic spike in oil prices we’re seeing could lead to sustained pressure on their profit margin.

To get into the nitty gritty: Raw materials make up roughly 20% of sales, which is about ⅓ of the company’s cost-of-goods-sold (COGS), of which 30% is directly linked to the oil value chain. Assuming a 5% move in the remaining COGS base, and a 25% move in propylene prices (again, oil prices have moved >50% since December), COGS is estimated to go up by ~7%.

To simplify: As costs go up, profit margin goes down, and this surge in costs should prove to be a meaningful headwind for the foreseeable future.

Although this trade went against us, we believe this is an example of why sizing is so important in portfolio construction.The negative attribution to our Offshore portfolio has been minimal. The proceeds from this sale have gone into our cash reserve in Offshore, and we have harvested these losses which may help offset gains elsewhere in client portfolios.

Please let us know if you have any questions, and thank you as always for the opportunity to manage your capital.

Onwards, Titan Investment Team

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