McIntyre Partnerships 1Q21 Commentary

McIntyre Partnerships 1Q21 Commentary

McIntyre Partnerships commentary for the first quarter ended March 31, 2021.

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Q1 2021 hedge fund letters, conferences and more

McIntyre Partnerships

Odey Special Situations Fund took on several new positions in March

Crispin OdeyOdey Asset Management’s Special Situations Fund was down 3.2% in March, compared to its benchmark, the MSCI World USD Index, which was up 3.3%. Through the end of March, the fund is up 8.7%, beating the benchmark’s return of 4.9%. Q1 2021 hedge fund letters, conferences and more Odey’s Special Situations Fund deploys arbitrage and Read More

Performance and Positioning Review – Q1 2021

Through Q1 2021, McIntyre Partnerships returned approx. 31% gross and 29% net. This compares to S&P 500, S&P 600, and Russell 2000 returns including dividends of 6%, 13%, and 13% respectively. Our investments in CC and GTXMQ are “big bet” investments, which given our concentration makes market comparisons less useful at present.

Our Q1 performance was both strong and robust, with our top five positions all posting double digital gains. The quarter’s biggest news was the positive development in GTXMQ’s bankruptcy. The company plans to emerge from bankruptcy in Q2, and as part of the plan, GTXMQ received a $6.25 buyout offer, a 50% premium to its 2020 year-end price, or the right to participate in a convertible preferred equity offering at $5.25 per share. I will be updating partners on our GTXMQ position once it formally emerges, but that the equity has received anything, a rarity in bankruptcy cases, let alone a cash takeout and a recap proposal at a 200-300% premium to its share price on the day of its filing, speaks to my belief that GTXMQ is a rare special situation with substantial reward potential. Beyond GTXMQ, our portfolio has benefitted from a mixture of improving fundamentals, stock specific catalysts, and a general rotation from large-cap growth to small-cap value stocks. MCS, TPHS, CAAP and our “Cruise Options” basket are all benefiting from lessening covid restrictions and vaccine optimism. Our Permanent Bank investment also had specific and potentially transformational news regarding a highly accretive merger with another Irish bank. On the growth vs. value rotation, the fund certainly correlates more with small-cap value than large-cap growth. The rotation has been a pleasant tailwind, and I hope that continues. However, I would not overemphasize its long-term influence. Given the fund’s concentration, single-stock selection will drive the majority of our returns. Ironically, our largest position entering the year, CC, is a relative laggard. As discussed below, I believe CC’s conservative guidance into a strongly improving TiO2 market creates a favorable backdrop for shares and the fund maintains a large position.

The only notable change in our positioning since my last update has been an increase in GTXMQ and its related securities, and a modest decrease in other investments to make room. I believe I have identified numerous reinvestment opportunities and anticipate that a rotation later this year may be warranted, but for now, I believe our investments have both significant upside and positive momentum. As such, I am “letting our winners ride.”

In the winners’ column, GTXMQ, CC, and MCS each contributed 500-1000bps of performance, while TPHS, CAAP, Permanent Bank, and our “Cruise Options” portfolio contributed 100-500bps each. In the losers’ column, no investment had a greater than 100bps impact.

Portfolio Review – Exposures and Concentration

At quarter end, our exposures are 95% long, 6% short, and 89% net. Our investment in CC has a significant options component and our GTXMQ investment is in the midst of a significant rights offering, which make our exposures less meaningful versus the market at present.

Our five largest positions are China Chemical Corp (OTCMKTS:CHCC), Garrett Motion Inc (OTCMKTS:GTXMQ), Corporacion America Airports SA (NYSE:CAAP), Marcus Corp (NYSE:MCS) and Permanent tsb Group Holdings PLC (FRA:IL0A), and account for roughly 80% of assets.

Portfolio Review – Existing Positions


The biggest Q1 news was the further improvement in CC’s fundamentals – specifically the significant rally in TiO2 prices:

McIntyre Partnerships

At present, Chinese TiO2 prices, a rough proxy for the low-end of the TiO2 price curve, are rallying towards previous cyclical highs. Importantly, current capacity additions are minimal, and any further additions would take several years to impact supply, implying current conditions could last for a few years. There are a lot of puts and takes between low-quality, Chinese sulfate TiO2 and CC’s high-quality, North American chloride product – most significantly CC’s shift to “value stabilization” contracts. However, the positive backdrop is clear for both CC’s spot pricing and continued market share recapture.

Despite the improving fundamentals, CC’s shares have risen only modestly this year, which I attribute to CC guiding 2021 EBITDA in-line with the consensus estimate of $1.1B. After several tough years with minimal bonuses, I believe CC’s management has simply guided conservatively and that the consensus is still significantly underestimating CC’s earnings potential. I expect CC’s earnings results to positively surprise over the next few quarters. In 2018, CC generated $1.1B and $1.8B in TiO2 segment and whole company EBITDA, which compares to 2021 Street estimates of $550MM and $1.1B, respectively. Conservatively, I believe CC should earn close to $1.5B in 2022 EBITDA and generate over $4 in FCF/share. A still discounted 12x multiple yields $50 per share.

Permanent Bank (PTSB)

In early February, Ulster Bank, the fourth largest bank in Ireland, announced its widely anticipated exit from Ireland and, as a result, its intention to sell off its loan book. While discussions are preliminary, PTSB, the third largest Irish bank, appears in line to either acquire a significant portion of the loans or substantially merge with Ulster. PTSB has been a smaller but long-held position of the fund. The core investment thesis is that the bank is over-capitalized yet exceptionally cheap at ~0.25x TBV. PTSB trades at such a steep discount due to an ~0% ROE, which is primarily attributable to low interest rates and an oversized cost base. Over time, I expect PTSB, through higher rates, loan growth and/or cost cuts, to eventually earn a higher ROE and substantially reweight. A significant acquisition of Ulster’s loan book or a merger has the possibility of “jump starting” PTSB’s ROE improvement. It is too early to know what exactly the pro-forma entity will be, and in particular how PTSB will fund the transaction is a question mark, but I believe PTSB could earn a high-single digit ROE within three years, which at 12x P/E and 1.0x TBV would yield ~300% upside.

I am currently holding our smaller position, but should a positive deal emerge, I believe PTSB could become a significant bet.

As always, please feel free to contact me with any questions.


Chris McIntyre

[email protected]

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