Silver Ring Value Partners LP is a Boston-based investment management firm that specializes in delivering long-term value by utilizing an intrinsic and robust approach to investing. The company was founded in 2016 by Chief Investment Officer and Managing Partner Gary Mishuris. Recently, Silver Ring Value Partners released its Q1 2020 Investor Letter – a copy of which can be downloaded here. In its Q1 2020 Investor Letter, Silver Ring Value Partners LP reported 15 investments with a 0.0% cash level and a 57% option-adjusted net exposure. At the end of the quarter, the fund reached a 46% price to base case value estimate.
In the said letter, Gary Mishuris highlighted a few stocks and Covetrus Inc. (NASDAQ:CVET) is one of them. Covetrus is a global leader in animal-health technology and services. Year-to-date, CVET stock lost 39.2% and on April 23rd it had a closing price of $7.92. Its market cap is of $894.82 million. Here is what Gary Mishuris said:
“I covered the initial thesis in-depth in the Q4 2019 letter. Since then, a few positive things have happened:
• Core North American distribution revenues have stabilized
• Management familiar with the animal distribution business was appointed to run the North American division
• The company got debt covenant relief for a year
• The SaaS business, Vets First Choice, continued to meet or exceed expectations, growing revenues 30%+ and continuing to add new practices at a healthy clip
• The company sold a non-core EU diagnostics business for over $100M, providing a nice liquidity cushion
These factors combined made me decide that the balance sheet was in a much better place since the risk of a rapid sales decline has meaningfully decreased and cash availability was higher. Given the unique nature of the investment (it’s not often that you find 2 businesses for the price of 1, especially when one of them is healthy and growing rapidly) I decided that a Medium position was appropriate and the put option hedge no longer necessary.
As the crisis unfolded in late February and March, the stock sold off to levels well below my Worst Case. I continued to act rationally, in accordance with my process, and kept adding at much lower prices to bring the position size back to the Medium, 10% size.”
In Q3 2019, the number of bullish hedge fund positions on CVET stock increased by about 5% from the previous quarter (see the chart here).
Silver Ring Value Partners comments on Owens-Illinois
In the said letter, Gary Mishuris also highlighted O-I Glass Inc. (NYSE:OI) stock. O-I Glass specializes in container glass products. Here is what Gary Mishuris said:
“I kept adding to the investment to restore the Medium position size as the stock price declined well below my Worst Case. I believe my balance sheet analysis to be correct and the company will be able to withstand the current downturn. Furthermore, the company provided an update in early March saying business has not been affected thus far. It provided another update in early April saying that the quarter is tracking to a Q1 sales decline of less than 1%, and that the last 2 weeks in March, the period most affected, saw sales off by 7% y/y.
The company has ample liquidity, and at these levels of declines (or even somewhat higher ones) for a full year it should be able to survive a recession without substantial value dilution. It is possible for the company to go bankrupt given its debt levels, but it is very unlikely. Furthermore, an economic environment that causes such an event is also very likely to cause a bankruptcy for Hertz and Mattel, two components of the Tail Risk hedge basket of put options, offsetting at least some of our losses on OI in this unlikely event.”
In Q4 2019, the number of bullish hedge fund positions on OI stock decreased by about 17% from the previous quarter (see the chart here).
Do you think it is appropriate to buy OI stock?
Disclosure: None. This article is originally published at Insider Monkey.