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Tuesday, July 30, 2013

Third Point Capital Q2 2013 Letter to Investors

Dan Loeb and Third Point Capital are out with their Q2 2013 letter to investors. In the letter he discloses that Third Point is up 12.6% YTD versus 13.8% for the S&P 500. While Dan Loeb has done a truly amazing job keeping up with the market it is hard to outperform a one-way market when you remain hedged. But fret not, his performance since inception is still a jaw dropping 17.8% versus 6.6% for the S&P 500. In the letter he discloses that he sold his gold positions in Q2 due to their seeing greenshoots and believing that the Fed may potentially initiate rising rates in the not too distant future (gold would obviously not perform well in this scenario). He goes on to give a rather scathing review of the Sony position discussing the progress to date and his (appropriate) disappointments. He goes on to make the case for why their suggestion of spinning off the entertainment division would unlock value. He then discloses that they recently initiated a new position in CF Industries. He believes that under onerous assumptions (for natural gas pricing and price per ton of nitrogen fertilizer) CF would still generate around $1.2B in cash flow implying that it is currently trading at an 11% free-cash-flow yield. He suggests buying back shares and issuing a dividend as a way to unlock additional value with CF's copious cashflow (which is growing due to their U.S. natural gas cost positioning). Finally he briefly talks about the Yahoo! position, and how they agreed to sell back 2/3rds of their position to Yahoo! and have achieved an IRR of 50% on those shares since initiating the position. Enjoy.

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