SCC Portfolio Update (Year End 2024)
Seven Corners Capital's equity portfolio finished 2024 up ~17%, versus up ~25% for the S&P 500, representing an underperformance of ~8% during the year. Since the beginning of 2020 (i.e., on a "Pandemic stacked basis"), the SCC Portfolio has appreciated ~135% versus up ~97% for the S&P 500, in each case including all dividends received, representing outperformance of 3,800 basis points versus the index:
SCC | S&P 500 | SCC vs S&P 500 | |
2024 Return | 17% | 25% | -8% |
2023 Return | 17% | 26% | -9% |
2022 Return | 6% | -18% | 24% |
2021 Return | 11% | 29% | -18% |
2020 Return | 46% | 18% | 28% |
Pandemic Period | 135.4% | 97.0% | 38% |
“Lethargy, bordering on sloth, remains the cornerstone of our investing style.” --Warren Buffett
The SCC portfolio (top-5 holdings) is currently positioned as follows:
The following is an update regarding earnings and other news for SCC's top-5 equity positions (PSHZF, TPB, GNW, SD & CART):
Pershing Square Holdings (PSHZF), 28% position (Cost Basis: $15.75)
PSHZF, led by billionaire hedge fund manager Bill Ackman, finished the 2024 up 5.4% (including dividends), underperforming a 9% increase in its NAV (thus, PSH's discount to NAV increased to 32%):
The long thesis continues to be two-fold: (1) a bet that Bill Ackman will outperform the overall market with his stock picking and uncanny ability to make huge sums via hedging; and (2) more importantly over the near to intermediate term, the closing of the sizable NAV discount. Simply closing the current discount would result in a ~47% appreciation in the stock, assuming NAV were to remain constant. Ackman hinted in 2022 that PSH could become a Berkshire Hathaway-type vehicle via a US listing: "As PSH grows in market capitalization and its ownership stakes in its portfolio companies increases, one can envision a world in which over time PSH becomes a controlling owner of one of more businesses that comprise the substantial majority of our assets and income. We expect to continually evaluate PSH and its operations, and consider whether in the future it may be able to operate not as an investment company in the U.S., but rather as an operating company that could be listed in the U.S."[source]
On this front, a few months ago PSH made overtures to Howard Hughes Corporation (HHH) regarding a possible business combination, in response to which HHH formed a special committee:
Interestingly, just as this 2024 SCC update post was "going to press", Bill Ackman put out a 14-page buyout proposal whereby a subsidiary of Pershing Square Holdco (the parent of the PSQ management co & not to be confused with PSH itself) would acquire a majority stake in HHH at $85/share, with existing HHH holders (including PSHZF) rolling their current HHH equity into the newly-formed acquiring entity. In the proposal, Ackman states that HHH would eventually become a Berkshire Hathaway-type entity:
"Post Merger Howard Hughes Holdings Business Plan and Operations. While HHC would remain unchanged, HHH, the holding company to HHC, would become a diversified holding company. As a result, we would expect that HHH and its HHC subsidiary would operate largely independently with oversight from the HHH board and its new senior leadership team. With apologies to Mr. Buffett, HHH would become a modern-day Berkshire Hathaway that would acquire controlling interests in operating companies."
SCC will shortly perform a more detailed analysis of the proposed HHH deal (and what it means for PSHZF holders over the longer term) and post this as a separate blog post. Suffice it to say that any holder of PSH should read the above proposal document closely, as it appears to confirm my above thesis for PSH that domiciling in the US as a BRK-style holdco is the ultimate solution to the NAV discount with which we are currently saddled.
Linked are the most recent NAV performance statistics and monthly performance reports for PSHZF
Pershing Square Capital Management's 13-F holdings can be found here. In addition, PSH continues to repurchase shares under its repo program (see PRs here).
Lastly, PSH's Annual Investor Presentation is expected to occur in February 2025.
Turning Point Brands (TPB), 15% position (Cost Basis: $25.60)
Turning Point Brands, up 130% in 2024, is an old standby in the SCC portfolio, having originally been purchased back in Q3 of 2016 (via SCC's investment in Standard Diversified [SDI], which then owned a majority stake in TPB and subsequently merged into TPB in mid-2020). The investment thesis remains that the company enjoys the benefit of a steady compounding business model via its Zig-Zag and Stoker's brands (the waters have recently been muddied by the struggles of its NewGen brands segment, which is now a de minimis portion of the overall pie at TPB). Stoker's FRE brand of smokeless tobacco is currently growing at a triple-digit rate (see TPB's Q3 results announcement from early November), with sales in the quarter quadrupling versus the prior year.
In my opinion, despite the substantial stock price appreciation in 2024, the company could become the target of one or more activist investors, with the thesis possibly involving (A) the separation of TPB's legacy cashflowing business (i.e., its Stoker's MST / chewing tobacco and Zig Zag rolling paper businesses) from its perpetually struggling "New Gen" vaping business and/or (B) a substantial increase in the dividend, along with a consequent decrease in TPB's practice of taking equity stakes in other companies.
Genworth Financial (GNW), 14% position (Cost Basis: $3.75)
GNW underperformed the market, up only 4.5% in 2024.
GNW trades at a ~15% discount to the sum of its parts, principally its 80.6% ownership stake in Enact Holdings (ticker ACT) , which as of 12/31/2024 was valued at $4 billion, versus GNW's enterprise value of $3.4 billion:
GNW SotP | 12/31/2024 |
ACT Shares Owned by GNW (12/30/24) | 123,761,372 |
ACT Shares O/S (11/5/24) | 153,589,264 |
%age ACT Shares Owned (12/30/24) | 80.6% |
ACT Stock Price (DATE ABOVE) | 32.5 |
ACT Stake Value (DATE ABOVE) | 4,022,244,590 |
GNW Net Debt (9/30/24) | 452,000,000 |
GNW Shares O/S (10/31/24) | 427,032,000 |
GNW Stock Price (DATE ABOVE) | 6.99 |
GNW Market Cap (DATE ABOVE) | 2,984,953,680 |
GNW EV (DATE ABOVE) | 3,436,953,680 |
GNW EV / ACT Value (DATE ABOVE) | 85.4% |
The SCC underlying thesis on GNW involves the eventual (i.e., 1-3 years from now) separation of GNW's ACT stake from GNW's generally unprofitable long-term care & life and annuity operations (the market currently ascribes zero value to the latter). Longer term value could be unlocked by a de-stacking transaction involving GNW's Life & Annuity business (L&A). Currently L&A is trapped below the long-term care business in the org chart, hence no funds may dividended up from that entity to the holdco; however, L&A could become valuable if and when the applicable insurance regulators give their blessing to GNW liberating it from the LTC stranglehold.
The company has been actively repurchasing its stock in recent quarters.
SCC's discussion of the corporate governance issues plaguing GNW in recent years can be found here.
Sandridge Energy (SD), 7% position (Cost Basis: $5.53)
Sandridge is SCC's largest energy holding and was basically flat in 2024 (including $1.94/share in dividends received during the year). The long thesis here remains that the secular decline in O&G drilling, combined with the revival of inflation generally, will support carbon-based energy prices going forward (in other words, if you own O&G assets, then ESG is your friend). With legendary investor Carl Icahn as its largest shareholder (he owns 13%) and Icahn's former lieutenant Jonathan Frates as SD's CFO, Sandridge did an admirable job steering the company away from the abyss of bankruptcy in April 2020 (when, recall, the price of oil dropped to NEGATIVE $40/bbl). The company has cut unnecessary expenses to the bone ("high-grading" SD's well inventory in fact, not just as a management talking point), thereby maximizing free cash flow conversion. SD has also done a great job recompleting and reactivating dormant wells. SD's annual PDP decline is expected (by the company) to average approximately 8% over the next 10 years.
In Q3 2024, SD acquired additional production and acreage in the Western Anadarko basin (in Oklahoma) for a cost of $144MM, which is equal to 68% of their cash balance of $211MM as of the end of Q2 2024 (see PR here). Should oil prices increase over the next 3-5 years, this acquisition will redound to SD's benefit.
Instacart (Maplebear Inc.) (CART), 6% position (Cost Basis: $30)
Instacart's stock appreciated 76% in 2024, outperforming the S&P 500 by about 50%, reflecting the continued success of the company's underlying business model. In Q3 2024, CART increased its Gross Transaction Value (GTV) by 11% year-over-year to $8.3B, which resulted in Q3 revenues increasing 12% y-o-y to $852MM. Advertising and other revenues in Q3, meanwhile, were up 11% y-o-y to $246MM. Net income for Q3 2024 came in at $118MM, or $0.42/diluted share.
The more consumers realize that ordering their groceries and other household items via CART is saving them large chunks of time (and time, of course, is money) without any meaningful sacrifice in the quality of selection, the more often they use the service. On the other hand, the greater the use of CART's service, the better the speed and quality of selection becomes (as CART's designated shoppers' skills increase). This virtuous circle results in increased shareholder value. While many other public companies experienced a temporary COVID boost to their operations that subsequently dissipated (think Peloton, for example), the inherent robustness of CART's business model appears to have been maintained and the company has incrementally built upon the foundation it created during the 2020-2022 pandemic period.
CART's Q3 2024 shareholder letter may be found here.
Date Posted: January 13, 2025.
DISCLOSURE: Long all of the above.
