GreenWood Investors’ 2Q letter commentary on Rolls Royce, a name that we’ve talked about in Activist Strategy and we’ve posted Andvari’s letter to Rolls Royce in the past. Here’s GreenWood’s commentary:
Similar to FCA’s North American profit margin opportunity, traders have lamented Rolls Royce’s profit margin gap vs. its main competitor, GE Aviation, as well as its poor historical management which dramatically lowered the firm’s return on invested capital (ROIC). Simply by following his own playbook used at ARM, we believe East will be able to nearly double the profit margins of the company’s civil aerospace division and restore ROIC back to attractive levels north of 20%. With just a few small acquisitions, large-scale 3D printing and some share repurchases, we think Rolls shares are worth nearly five times today’s price over our typical time horizon. If we ask any American investors which blue chip companies can quintuple in a few years, all we get back are blank stares. The jet engine business has some of the highest competitive barriers to entry in the world, and as Rolls seeks to improve the fuel efficiency of its industry-leading engines into the next decade (with a 25% reduction in fuel burn), the company has a decent chance at monopolizing the wide-body engine market, the fastest growing segment of the civil aerospace industry. Thankfully, East will have a daily reminder on his morning commute to, “mind the gap,” between his margins and GE Aviation’s.
Canyon Distressed Opportunity Fund likes the backdrop for credit
The Canyon Distressed Opportunity Fund III held its final closing on Jan. 1 with total commitments of $1.46 billion, calling half of its capital commitments so far. Canyon has about $26 billion in assets under management now. Q4 2020 hedge fund letters, conferences and more Positive backdrop for credit funds In their fourth-quarter letter to Read More