Kian Ghazi, founder of Hawkshaw Capital Management, is scheduled to make a presentation at the Value Investing Congress West taking place on May 3 and 4 in Pasadena, California. According to the Value Investing Congress website, Mr. Ghazi employs a “concentrated, value-driven, research-intensive approach” underscoring the firm’s emphasis on deep-dive investigative research.
Case for Core-Mark at 2009 Value Investing Congress
In October 2009, Mr. Ghazi presented the case for Core-Mark at the 5th annual Value Investing Congress in New York. According to the Value Investing Congress blog, the bullish case for Core-Mark was based on the following points:
• Second largest distributor to convenience stores
• $300 million market cap
• $30 million net debt
• Trading at 12 times est 2009 earnings, 8 times TTM earnings
• Admits that this is a low margin business with low ROC, but is well capitalized, difficult to replace, underfollowed
• Highly fragmented industry
• Cigarette sales account for 70% of revenue, but just 29% of gross profit
• Company moving toward providing more fresh foods, which have much higher margins. This should more than supplant potentially declining cigarette sales.
• Believes company may ultimately be worth $45-$50
Core-Mark closed at 29.62 on October 22, 2009, the day of the presentation, and currently trades around $34.05 with a fifty-two week high of $37.19 over the past year. Based on Hawkshaw’s latest 13F, discussed below, Core-Mark is not currently part of the portfolio.
As an interesting aside, Core-Mark’s larger competitor is none other than McLane, the Berkshire Hathaway subsidiary. While we are not familiar with Core-Mark, we can underscore the fact that this type of business is very low margin. McLane typically has net margins near the 1 percent level. A Morningstar analysis of Core-Mark published last year claims that Core-Mark may have important advantages over McLane particularly in the distribution of fresh foods. We cover McLane’s activities as part of our recently released report on Berkshire Hathaway: In Search of the Buffett Premium.
Hawkshaw Portfolio at December 31, 2010
According to Hawkshaw’s latest 13F filing, listing positions owned as of December 31, 2010, Mr. Ghazi runs a concentrated portfolio with the top ten holdings accounting for 76.3 percent of the $147.9 million portfolio. Top positions include Symantec, Electronic Arts, Dell, Corporate Executive Board, and Abercrombie & Fitch. The portfolio also includes a put option on the S&P 500 index, accounting for 2.3 percent of the portfolio and probably intended to hedge the portfolio positions against a general decline in the market.
The exhibit below lists all positions Hawkshaw reported in the latest 13F:
The following chart displays the top ten holdings visually:
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