Pershing Square latest presentation slides
Also see 2017 letters
Ackman ’16 Letter On Fannie: “Various Scenarios” of “a … – V
Chipotle Mexican Grill (CMG)
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?Superb restaurant brand that pioneered the “fast casual” category with the success of its outstanding product offering, unique culture, and powerful economic model
?Founded by Chairman and CEO Steve Ells in 1993
?High quality, simple, predictable, unlevered, free-cash-flow-generative business
?Recovering from food safety issues beginning in the fourth quarter of 2015 which caused a peak decline in average unit sales of 36%(1)
?We are currently Chipotle’s second largest shareholder with a ~10% ownership stake in the company
We believe that the Chipotle brand is still in its growth phase with significant opportunity to increase its unit count and its average unit volume. The drivers of this growth include:
“Fast Casual” category growth
?Mobile and online opportunity
?Catering opportunity
?Unit growth opportunity
?Potential for significantly more units in the U.S. than the current store base of approximately 2,200
?Compelling returns on capital for new units even at today’s lower sales levels
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Despite significant share price volatility since the 2016 US elections, we believe the shares of a reformed Fannie and Freddie will be worth a multiple of their current price
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Perry Case Development: In February, the D.C. Circuit Court of Appeals upheld a lower court ruling against shareholder plaintiffs, concluding that the FHFA has broad discretion as conservator and refusing to invalidate the Net Worth Sweep
?We believe that the approximate one-third decline on the day of the ruling was a market overreaction:
?Various appeals options are available to the Perry plaintiffs
?Several other legal cases, including the Court of Federal Claims case under Judge Sweeney, continue to proceed favorably
FNMA and FMCC: Perry Case Developments
Irrespective of court case developments, we believe reform and restructuring of Fannie and Freddie are likely to occur:
?We do not believe there is a viable alternative that can preserve the prepayable 30-yr fixed rate mortgage at a reasonable cost
?US Treasury warrants for ~80% of the common stock of Fannie and Freddie would be worthless if the entities are eliminated
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Organizational Updates in March 2017
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?Over 10 years at the firm Tim has been responsible for building out a best-in-class operation
?Tim plans on returning to academia
Tim Barefield, COO retired
Nicholas Botta, CFO, assumed the title of President and is responsible for non-investment team related operations including overseeing technology
?Nick has worked with Bill since 2000 and has been integral to managing firm operations since inception
Michael Gonnella, Senior Controller, assumed the title of CFO
?Mike has been with the firm for 11 years responsible for day-to-day management of the finance team
Amy Szeto and Adam Rapp assumed Senior Controller roles
?Amy and Adam have been members of the finance team for over 10 years
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HLF
Herbalife shares have appreciated in 2017 (+24%), driven by a $1.45bn refinancing package / $1.5bn share repurchase authorization Partially offset by recent disclosure:
?Q4 top-line results below guidance driven by both weak volume and FX headwinds
?New SEC / DOJ China corruption probe
?Reduced 2017 guidance ($3.65 – $4.05) including incremental interest expense; actual EPS is likely to be higher giving consideration for potential buybacks
?On a pro forma basis(1) we estimate Herbalife is trading at ~15x earnings
?Long investors appear optimistic regarding Herbalife’s ability to successfully navigate the FTC mandated business model changes
?We remain short Herbalife because we believe intrinsic value is meaningfully below the current share price
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Full slides below
