Summers Value Partners LLC’s Q2 2019 Investor Letter

Summers Value Partners LLC is a Denver-based boutique value manager founded in 2018 by Andrew Summers. The firm’s fund, Summers Value Fund LP, is invested in the animal and consumer health care industry and other related industries. Summers has over 16 years of experience in long/short investing and over 21 years of investing experience in the global health care sector. His investing career started in 1998 when he worked at INVESCO Funds Group as a Portfolio Manager. Summers founded Silvergate Capital Management LLC in 2004 and worked with Janus Henderson Investors in 2008 where he co-managed the Janus Opportunistic Alpha Fund and the Janus Contrarian Fund. He holds a bachelor’s degree from the University of Wisconsin-Whitewater and a master’s degree from the University of Wisconsin-Madison.

According to the firm’s July 2019 Investor Letter, The Summers Value Fund LP generated a 1.2% return during the second quarter, which compares to 3.8% return for the S&P 500 Index and 1.7% return for the Russell 2000 Index. The fund generated a 1.3% net return for the first half of 2019. In the letter, Summers Value Partners explained the factors that negatively affected the fund’s performance.

“Dear Fellow Partners,

The Summers Value Fund LP (“the Fund”) generated a net1 return of 1.2% during the second quarter of 2019, which compared to the S&P 500 Index return of 3.8% and the Russell 2000 Index return of 1.7%. The Fund returned 1.3% net1during the first half of 2019, which lagged the S&P 500 Index return of 17.3% and the Russell 2000 Index return of 16.2%. Our performance during the first half of the year was negatively affected by a 42% sell-off in the shares of Scott’s Liquid Gold (SLGD) following a string of weaker-than-expected quarters. Since inception (13 months), the Fund has returned 5.0% net1 , which underperformed against the S&P 500 Index return of 7.6% but compares favorably to the Russell 2000 Index return of -4.9%. We remain confident that the Fund is well-positioned to generate attractive risk-adjusted returns over the long term driven by the compressed values and special situations that are held in the portfolio today.

A Marathon; not a Sprint

My middle son is an avid swimmer, and as a result, my wife and I attend many swim meets during the summer months. One skill my son has been working on this summer is “getting off of the block” at the start of each race. The speed at which a swimmer starts a race can mean the difference between winning and losing especially in a short distance, sprint event. So far in 2019, the Fund has struggled to get off of the block. Fortunately, we participate in a long-distance event where stamina and focus are more important. As we have often discussed, the Fund will be out of sync with the major indexes in certain periods of time, which could include years. The first half of 2019 was one of those periods of time, but given our long-term orientation, we can patiently wait for the value in our portfolio to be recognized by the market. Investing is a marathon; not a sprint. Since the Fund’s inception 13 months ago, the picture looks brighter and we would encourage our limited partners to stay focused on the long-term.

1H19 Portfolio Commentary

At the end of June, the Fund consisted of 11 long positions and four short positions, within our investment parameters of up to 15 longs and five shorts. The portfolio consisted of 14 domestic securities and one foreign security. The Fund ended June with 90% long exposure and 9.5% short exposure. The top five long positions represented 57% of the portfolio at the end of the period reflecting our concentrated nature.

The Fund produced a small loss on the long side of the portfolio in the first half of the year. The biggest contributor during the period was an unnamed long position, which we began purchasing in the first quarter. We continue to be selective buyers of the stock and will provide transparency to our limited partners when the position is full. The biggest detractor during the period — by a wide margin — was Scott’s Liquid Gold (SLGD). Scott’s began the year as the Fund’s largest position, so the year-to-date selloff has been particularly painful. The company experienced a difficult first quarter of the year driven by lower 7th Heaven face mask sales and reduced skin care sales to China while awaiting key regulatory Top 3 Contributors YTD (Gross) % Impact Undisclosed Long 4.33% Undisclosed Short 3.93% Eagle Pharmaceuticals (EGRX) Long 3.88% Top 3 Detractors YTD (Gross) % Impact Scott’s Liquid Gold (SLGD) Long -12.55% Covetrus (CVET) Long -4.81% Undisclosed Short -1.09% July 2019 Summers Value Partners LLC | | approvals. At the current price of $1.50 per share, Scott’s has roughly 35% of its market cap in cash with zero debt based on the first quarter ending cash level of $6.6 million. In addition, we materially trimmed our position in Anika Therapeutics (ANIK) during the second quarter at prices above $40 per share. Anika shares appreciated on the back of stronger-than-expected first quarter results and the announcement of a large share buyback program, which highlighted the strength of the company’s balance sheet.

The Fund generated a gain on the short side of the portfolio in the first half of 2019. The biggest driver of performance in the period was our largest short position, which depreciated 35% against our average cost. Despite the year-to-date weakness, we are maintaining the position as we believe that the company is poised to miss its full year sales forecast. The company’s new product launch is not meeting expectations and prescription trends continue to track poorly. Longer-term, we believe the company has going concern risk given the company’s over-leveraged balance sheet and history of operating losses. Lastly, the company has recently experienced turnover in both the CEO and CFO positions, which we believe underscores the growing risks the company faces.”

You can download a copy of Summers Value Partners LLC’s Q2 2019 Investor Letter here:

Summers Value Partners LLC’s Q2 2019 Investor Letter

You can also see the list of our 2019 Q2 investor letters and download them on this page.