Nebula Capital Management’s Biggest Q1 Moves

Nebula Capital Management is a long/short equity hedge fund based in Connecticut. The fund was founded in 2008 by Aleem Mawji, who was a Senior Portfolio Manager and Managing Director in JPMorgan’s Proprietary Trading Business prior to starting Nebula Capital. According to the fund’s latest submitted Form ADV, its assets under management (AUM) as of March 24 stood at $203.65 million. The fund recently submitted its 13F filing with the SEC for the reporting period ending March 31, revealing a U.S equity portfolio worth $140.97 million, 10.6% less than what it was worth at the end of 2015. The filing also revealed that during the first quarter, Nebula Capital initiated a stake in four stocks and sold out of four stocks. In this post, we will be discussing the five most notable moves made by the fund during the first quarter.

We track prominent investors and hedge funds because our research has shown that historically their stock picks delivered superior risk-adjusted returns. This is especially true in the small-cap space. The 15 most popular small-cap stocks among a select group of investors delivered a monthly alpha of 80 basis points between 1999 and 2012 (see the details here).

#5 FleetCor Technologies, Inc. (NYSE:FLT)

 – Shares held by Nebula Capital Management (as of March 31): 12,000

 – Value of Holding (as of March 31): $1.78 million

FleetCor Technologies, Inc. (NYSE:FLT) was a new addition to Nebula Capital Management’s equity portfolio during the first quarter. The financial services company’s shares started 2016 on a weak note, like the shares of most of its peers, but managed to recoup all of those losses by the end of the first quarter and are currently trading up by 7% year-to-date. Earlier this year, the company announced that it has agreed to acquire Brazilian electronic toll payment company STP for $1.05 billion. On May 4, FleetCor Technologies, Inc. (NYSE:FLT) reported its first quarter results, declaring EPS of $1.53 on revenue of $414.30 million for the period, beating analysts’ EPS expectations of $1.49, but missing revenue estimates of $417.86 million. Following the earnings release, analysts at Barclays boosted their price target on the stock to $160 from $150 on May 5, while keeping their rating on it unchanged at ‘Overweight’. Brad Dunkley and Blair Levinsky‘s Waratah Capital Advisors also initiated a stake in FleetCor Technologies, Inc. (NYSE:FLT) during the first quarter, purchasing 9,950 shares of the company.

#4 Dollar Tree, Inc. (NASDAQ:DLTR)

– Shares held by Nebula Capital Management (as of March 31): 36,845

– Value of Holding (as of March 31): $3.04 million

Nebula Capital Management reduced its stake in Dollar Tree, Inc. (NASDAQ:DLTR) by 70% during the first quarter, relegating the company to the 21st position in its portfolio, down from the third spot at the end of 2015. Dollar Tree, Inc. (NASDAQ:DLTR)’s stock has been range-bound for the last five months, though it currently boasts year-to-date gains of 4.28%. When the Dollar Tree/Family Dollar merger was completed last year, most analysts were optimistic about the prospects of the new company, but the high level of debt on its balance sheet and increasing competition in the discount retail industry has now made some analysts skeptical about the company’s growth over the long-term. Nevertheless, the majority of analysts still remain bullish on  the company. Dollar Tree currently sports an average rating of ‘Overweight’ and an average price target of $88.01 from the 25 prominent analysts and brokerage houses on the Street that cover it. Hedge funds that increased their stake in the company during the first quarter included Barry Dargan‘s Intermede Investment Partners, which brought its holding up by 41% to 467,419 shares.

Three more moves made by Nebula Capital during the first quarter are discussed on the next page.

#3 Valeant Pharmaceuticals Intl Inc (NYSE:VRX)

 – Shares held by Nebula Capital Management (as of March 31): 120,000

 – Value of Holding (as of March 31): $3.16 million

The 74% drop in Valeant Pharmaceuticals Intl Inc (NYSE:VRX)’s stock during the first quarter was used by Nebula Capital Management to boost its holding in the company by 70%. Valeant Pharmaceuticals Intl Inc (NYSE:VRX) has been in the news constantly over the past few months, especially after the company reported dismal fourth quarter numbers and lowered its 2016 guidance on March 15. That coupled with the massive amount of debt on the company’s balance sheet, sent its stock tumbling during the first quarter. Following the crash in the stock, billionaire activist investor Bill Ackman, whose Pershing Square is among the largest shareholders of Valeant, swung into action by joining the company’s board, which announced major changes shortly afterwards, which included the hiring of former Perrigo CEO, Joe Papa, as the new CEO of the company. Despite the measures taken by Mr. Ackman and the company’s Board, Valeant Pharmaceuticals’ stock is showing little signs of recovery. Moreover, the company has received a lot of flak from influential investors like Jim Chanos, Warren Buffett, and Charlie Munger recently. According to a recent presentation by Pershing Square, the fund owned a nearly 9% stake in the company (including options), as of April 21.

#2 Travelport Worldwide Ltd (NYSE:TVPT)

 – Shares held by Nebula Capital Management (as of March 31): 281,600

 – Value of Holding (as of March 31): $3.85 million

Travelport Worldwide Ltd (NYSE:TVPT) was another new addition to Nebula Capital Management’s equity portfolio during the first quarter. Shares of the Georgia-based travel commerce platform provider have gained 5.45% so far this year, but are still trading down by 14.18% from their IPO price of $16. On April 12, analysts at Sterne Agee CRT initiated coverage on the stock with a ‘Buy’ rating and $19 price target. The company recently reported its first quarter financial results, declaring EPS of $0.42 on revenue of $609 million, easily beating analysts’ EPS estimate of $0.32, but missing their $613.71 million revenue estimate. For the same quarter of the previous financial year, Travelport Worldwide Ltd (NYSE:TVPT) delivered EPS of $0.24 on revenue of $572 million. Another fund that initiated a stake in the company during the first quarter was Ben Levine, Andrew Manuel, and Stefan Renold’s LMR Partners, which purchased 199,200 shares.

#1 Concordia Healthcare Corp (NASDAQ:CXRX)

 – Shares held by Nebula Capital Management (as of March 31): 197,000

 – Value of Holding (as of March 31): $5.04 million

Though Nebula Capital Management increased its stake in Canada-based Concordia Healthcare Corp (NASDAQ:CXRX) by 25% during the first quarter, the company dropped three spots in the fund’s portfolio during that time due to a 37.3% decline in its stock during the quarter. Before the rout in its stock, some analysts had criticized Concordia Healthcare for following the same growth-by-acquisition strategy which its fellow Canadian peer Valeant Pharmaceuticals was using. Needless to say, their concerns have been validated in the past couple of months, as shares of both companies have plummeted significantly from the levels they were trading at last year. However, shares of Concordia Healthcare Corp (NASDAQ:CXRX) spiked by 10% on April 21 after the company announced that it had formed a special committee of board members to explore strategic alternatives, which led to rumors that private equity behemoth Blackstone Group LP (NYSE:BX) might be interested in acquiring the firm. According to recent reports, the company is working with Greenhill & Co. to search for potential acquirers and is in early stage talks with buyout firms including Apollo Global Management LLC and TPG. However, no offers have been made as of yet.

Disclosure: None