David Einhorn, in Greenlight Re second quarter conference call, blames the “challenging” market for Greenlight’s worst monthly performance. Einhorn also discusses the affects of coal prices on Consol Energy stock, Micron affected by lower DRAM demand and SunEdison benefiting from it’s stake in TerraForm. See his remarks below.
David Einhorn – Greenlight Capital Re, Ltd. – Non – Independent Chairman of the Board
Thanks, Bart and good morning everyone. The Greenlight Re investment portfolio lost 1.5% in the second quarter, bringing the six month returns to minus 3.2%. Losses in Micron and counsel energy cost us more than our gain in SunEdison are one significant winter during the quarter the short portfolio was flat and macro positions were slightly tractor.
Micron’s earnings and powered projections were affected by lower than expected computer DRAM demand as well as manufacturing issues that arose when the Company began migrating capacity from computer DRAM to mobile and other components. The results surprised the market and led to lower forecast earnings and a lower stock price. Having reviewed our thesis, we continue to believe that the industry behaviors more rational to three players and still expect current trough earnings to be higher than in the past and peak earnings to be higher in the future.
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Consol Energy stock price suffered as coal prices fell 10% during the quarter. Consol recently completed an IPO, CNX coal resources, a master limited partnership of this coal business. We took advantage of the market’s tepid demand for coal assets and buy shares with a 25% discount to the proposed range. Consol has valuable coal and natural gas assets, a conservative balance sheet and the management team that is focused on creating shareholder value. We believe Consol’s assets are worth about twice it’s current stock price at prevailing commodity prices. The recovery in coal and gas would further enhance the value.
In the second quarter SunEdison stock price continued to benefit from progress and it’s development business an ownership stake in TerraForm power. The market also rewarded the Company for the upcoming IPO of TerraForm global and emerging market yield. Unfortunately, the IPO was met with tepid reaction last week and SunEdison gave up all of the second quarter gains in July. In the second quarter, we added a few new small positions including Applied Materials in Bank of New York and exhibit a number of positions. We ended the quarter with 21% net exposure and continue to maintain our conservative portfolio positioning.
David Einhorn: Greenlight biggest losses come from SunEdison
In the month of July, our portfolio was 5.9%, our worst monthly performance since October 2008. The losses were broad-based, but the biggest loss is coming from SunEdison as I just mentioned, Consol Energy which continue to suffer from poor industry sentiment, gold, which had a rough month and the short bowel basket. The overall market environment has become a cutely unfavorable for our investment strategy. While we could have done better in a couple of spots, we don’t expect to do well when investors shunned value stocks in favor of momentum stocks. We’ve experienced this type of dynamic a few times before and in each case, the short-term results been painful for us. As before, we expect that the environment will improve and we will recover.
In the meantime, we are actively managing the portfolio. In addition to looking for opportunities, we continue to scrutinize our current position. During the challenging environment in July, we feel our current portfolio is quite attractive. Our underwriting results were disappointing in the quarter the problems are concentrated in business written in 2010 and earlier the more recent underwriting years are performing well.