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| Quarter | Letter Date | Fund Name | QTD | YTD | Tickers | Themes | Quick Take |
|---|---|---|---|---|---|---|---|
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"Small-cap value manager returned 10% in 1Q23 led by nuclear waste processor PESI up 200%. Added new position MTRX, an E&C company trading at 70% discount to pre-COVID valuation, positioned for industrial construction recovery driven by energy transition infrastructure needs."
LCA returned 10% in 1Q23, driven primarily by PESI which increased over 200% as a top contributor alongside DAIO, CCRD and ENVX. PESI operates one of only three DOE-licensed nuclear waste treatment facilities and has significant upside potential from processing Hanford cleanup waste following recent regulatory approvals. The manager initiated a new position in MTRX, an engineering and construction company trading at $120M enterprise value versus $400M pre-COVID. MTRX is positioned to benefit from industrial construction demand driven by new energy infrastructure needs including hydrogen and biofuels, plus deferred traditional energy CAPEX. The company is currently completing COVID-era work booked at aggressive pricing but management indicates new work is being booked at historical margins. The manager views this as an opportune time to invest in E&C companies when income statements appear worst but backlog growth lies ahead. Both investments reflect the strategy of buying fixed-cost businesses with significant operating leverage during cyclical troughs.
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Algorithmic conviction, macroeconomic posture, and risk appetite signals extracted from this quarterly letter with qualitative explanations.
Market Conviction
High conviction evidenced by concentrated portfolio with named positions, specific price targets ($30 for PESI), detailed fundamental analysis, and willingness to make first investment in previously avoided sector. Manager provides specific enterprise value calculations and margin expectations.
Growth Outlook
Manager expresses constructive view on industrial construction pipeline and energy infrastructure spending, noting robust pipeline of pending work and opportunities in new energy sectors. Positive on nuclear waste processing opportunities over 10-year period.
Risk Appetite
Manager is actively deploying capital into new positions including first hydrocarbon-adjacent investment, showing willingness to expand into previously avoided sectors. Maintains concentrated positions in high-conviction names with significant upside potential.
Capital Deployment
Manager recently purchased two new investments including MTRX, indicating active deployment. However, no specific cash level changes mentioned and deployment appears selective rather than aggressive, suggesting moderate deployment activity.
Forward Guidance
Manager indicates intention to continue deploying capital in E&C and energy-adjacent opportunities, expressing confidence in timing to buy when income statements appear worst. Specific catalyst timing mentioned for nuclear waste processing by end 2024.
Language Signal
Language includes positive terms like robust pipeline, strong pipeline, significant cash flows, and pathway to profitability, balanced with acknowledgment of delays, frustrating industry dynamics, and project loss risks.
Perceived Risk
Manager acknowledges specific risks including weather impact on E&C business, potential delays in nuclear programs, and project losses in construction. However, risks are presented as manageable industry dynamics rather than systemic concerns.
Opportunity Density
Manager sees robust pipeline of opportunities in industrial construction, energy transition infrastructure, and nuclear waste processing. Describes strong pipeline of pending work and multiple sectors with attractive prospects.
Time Horizon
Manager discusses 10-year cash flow potential for nuclear waste processing and multi-year cycles in E&C business. References building generational wealth and durable business, indicating long-term investment horizon with patience for cyclical recovery.
