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Bandera Partners AUM, Performance, Holdings

While following many hedge funds can be a good idea to identify profitable investment opportunities, following activist investors can be even more rewarding and often in a shorter period of time as compared to following passive investors, who usually focus on the long-term horizon. Activists don’t invest in companies with solid financials, strong business models and great management, but pick companies that are undervalued due to some issues that are often overlooked by other shareholders. They acquire substantial positions and then try to push for changes that could unlock the shareholder value.

Because often activists urge companies to replace management and board members, they can be met with opposition from the said board of directors and management. This is why, activist shareholders usually go public with their proposals and make sure to explain their case extensively in order to win the support of as many shareholders as possible. In addition, activists can get more coverage than other investors and they can have more impact on stock prices. It is especially the case with investors that have long track records of successful campaigns that managed to increase the shareholder value.

One activist fund that is worth following is Bandera Partners, managed by Jeff Gramm and Greg Bylinsky. Prior to joining Bandera, Gramm was employed as an analyst at HBV Capital, a distressed debt hedge fund in New York. Gramm graduated from Columbia Business School, where he attended renown investor Joel Greenblatt‘s Security Analysis Classes and where he is currently also teaching Applied Value Investing.

Vintage Tone/

Vintage Tone/

Gramm founded Bandera in 2006 with a focus on microcap companies. The fund’s first investment was UCI Medical Affiliates, in which the fund became the second-largest shareholder and in 2011 negotiated its sale for $65 million, or $6.50 per share, which represented a 141% premium to the stock price before the announcement. Another bet was Peerless Systems Corp. (NASDAQ:PRLS), which the fund acquired at a big discount to cash. Bandera joined the board and pushed the company to return capital to shareholders.

Bandera Partners is a highly-concentrated, long biased fund with regulatory assets under management of around $196 million. The fund focuses on long-term investments in companies that are priced significantly below their intrinsic value and invests in special situations such as reorganizations and spin-offs. In its latest 13F filing the fund disclosed an equity portfolio worth $110 million as of the end of June. The portfolio contains just 13 positions, including one new investment made during the second quarter. In this article, we are going to take a closer look at some of the companies in which Bandera Partners holds long positions.

1. Star Gas Partners LP (NYSE:SGU)

In Star Gas Partners LP (NYSE:SGU), Bandera Partners increased its stake by 2% to 2.46 million shares worth $26.64 million during the second quarter. Star Gas Partners LP (NYSE:SGU) is a distributor of home heating oil and propane, whose stock has advanced by over 22% in the last 12 months. At the end of July, the small-cap company posted a net loss of $0.24 per share for the second quarter, down from a loss of $0.06 posted a year earlier, while its revenue of $225.80 million inched up by 3.5% on the year. Star Gas Partners LP (NYSE:SGU) should focus on its other areas of business and reduce costs, as warm weather might further affect its performance in the future. Nevertheless, earlier this year, the company raised its dividend to $0.11 from $0.10 and its stock currently sports a yield of 4.10%. Another investor bullish on Star Gas Partners LP (NYSE:SGU) is Alexander Captain’s Cat Rock Capital, which boosted its stake by 82% to 2.33 million shares during the second quarter.

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2. Fiesta Restaurant Group Inc (NASDAQ:FRGI)

Jeff Gramm’s fund cut its position in Fiesta Restaurant Group Inc (NASDAQ:FRGI) by 29% during the second quarter and held 281,932 shares worth $5.82 million at the end of June. Fiesta Restaurant Group Inc (NASDAQ:FRGI)’s stock has slid by 41% since the beginning of 2017 amid the company posting worse-than-expected profit and revenue for the last four quarters. Fiesta Restaurant Group Inc (NASDAQ:FRGI) operates and franchises two fast-casual restaurant brands, Pollo Tropical and Taco Cabana. As the company has been facing declining sales, the management embarked on a plan to renew its strategy. Aside from Bandera Partners, Fiesta Restaurant Group Inc (NASDAQ:FRGI) is facing criticism from another activist, JCP Investment Management, which in May issued a letter to the company’s shareholders, highlighting the company’s underperformance and seeking to replace two board members. However, in June, shareholders re-elected all three Fiesta’s nominees. Ian Cumming and Joseph Steinberg’s Leucadia National, Daniel Beltzman and Gregory Smith’s Birch Run Capital, and Jim Simons’ Renaissance Technologies also own shares of Fiesta Restaurant Group Inc (NASDAQ:FRGI).

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3. Famous Dave’s of America, Inc. (NASDAQ:DAVE)

During the second quarter, Bandera Partners boosted its position in Famous Dave’s of America, Inc. (NASDAQ:DAVE) by 31% over the quarter to 1.09 million shares valued at $3.94 million. Charles Davidson’s Wexford Capital is another shareholder of Famous Dave’s of America, Inc. (NASDAQ:DAVE), with a stake containing 1.33 million shares as of the end of June. Bandera acquired a stake in Famous Dave’s of America, Inc. (NASDAQ:DAVE) at the beginning of January 2016 and has increased it to the current position, which represents 15.6% of the company’s outstanding stock. Famous Dave’s of America, Inc. (NASDAQ:DAVE)’s stock has decreased by 17% year-to-date. The company posted EPS of $0.16 for the second quarter, higher than the expected $0.09, but its revenue of $25.30 million was slightly lower than expected and declined by nearly 10% over the year.

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4. Peregrine Pharmaceuticals (NASDAQ:PPHM)

Peregrine Pharmaceuticals (NASDAQ:PPHM) is the only new position in Bandera Partners’ equity portfolio as of the end of June. The fund disclosed an $864,000 position containing 203,000 shares. Since the beginning of 2017, the share price of Peregrine, a microcap biopharmaceutical company engaged in cancer treatment, has surged by over 50%. Earlier this month, Peregrine Pharmaceuticals (NASDAQ:PPHM) announced plans to downsize its operations by firing 20% of its workforce. The company expects the move to save between $3.7 and $4.3 million in 2018 and over $7 million in the following years. Two other large shareholders of Peregrine Pharmaceuticals (NASDAQ:PPHM) are Prasad Phatak and Chris Koranda’s Tappan Street Partners, which increased its stake by 82% to 11.59 million shares between April and June, and Renaissance Technologies, which holds 3.37 million shares.

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Disclosure: none