INVESTMENT SCORECARD
Financial engineering and Mergers & Acquisitions (M&A) added significantly to returns during the quarter. Grupo Televisa (+62%, 0.4% of net assets as of June 30, 2021) announced that it had agreed to sell its Mexican content operations to the U.S.’ leading Spanish language broadcaster, Univision, for $3 billion cash, a 45% stake in the new company, supporting Televisa’s efforts to extend broadband in Mexico while better positioning new Univision to deploy its direct-to-consumer service. Macquarie Infrastructure (+20%, 0.5%) will efficiently liquidate after agreeing to sell its remaining private aviation and utilities operations. Finally, specialty pigments company Ferro (+28%, 0.2%) will be taken private. Although several re-opening winners shed gains in Q2, spirits makers Diageo (+17%, 1.6%) and Brown Forman (+11%, 2.3%) benefited from a return to bars and airport commerce while American Express (+17%, 1.4%) acted as a surrogate for increased consumer spending, particularly related to travel. On the other hand, the announced combination of Discovery (-21%/-29%, 0.7%/0.2%) and AT&T’s Warner Entertainment, home of HBO Max, the Warner Bros. studio and Turner cable networks, weighed on returns. The deal scales Discovery’s streaming efforts, but was sold on concerns that the stock would be “dead money” until the merger closed in mid-2022. Other detractors from performance included Sony (-8%, 2.4%), whose disappointing earnings forecast included a drag that chip shortages are likely to have on sales of its popular new PS5 gaming platform, and Deere & Co. (-5%, 2.8%), which followed a decline in commodity prices.
LET'S TALK STOCKS
The following are stock specifics on selected holdings of our Fund. Favorable earnings prospects do not necessarily translate into higher stock prices, but they do express a positive trend that we believe will develop over time. Individual securities mentioned are not necessarily representative of the entire portfolio. For the following holdings, the percentage of net assets and their share prices stated in U.S. dollar equivalent terms are presented as of June 30, 2021.
AMETEK (AME, Financial)(3.0% of net assets as of June 30, 2021) (AME – $165.23 –NYSE) is a diversified supplier of highly engineered equipment used in a broad array of industrial end markets. The company offers a diverse product portfolio including test and measurement, metrology, and precision motion control equipment in addition to specialty materials and aftermarket services. Orders grew a strong 9% organically yearover-year in Q1 2021, led by AMETEK’s defense, automation, and process businesses. Additionally, the leadership positions of AMETEK’s businesses in niche markets affords the company pricing power, which should more than offset higher cost inflation this year. Finally, management has been able to effectively deploy $1.9 billion of capital on five acquisitions thus far this year (including Abaco Systems, a leading provider of military computer boards, for $1.5 billion in April 2021) and has a total of $1.8 billion of remaining cash and revolver availability that can be further deployed on deals this year.
Dana Inc. (DAN, Financial) (0.4%) (DAN – $23.76 – NYSE) is a Maumee, Ohio-based supplier of axles, drivelines, and thermal products forthe automotive and trucking industries. Dana CEO Jim Kamsickas has set into motion a new enterprise strategy that has levered Dana’s expertise in driveline technology to create significant profitable opportunities and drive considerable increases in backlog across each of the company’s end markets. The company has made considerable investment in electric propulsion technologies for On- and Off-Highway vehicles that should bolster growth and possibly improve the valuation multiple assigned to DAN by the market. We expect the market to better appreciate these factors as global production improves post-COVID.
Grupo Televisa (TV, Financial) (0.4%) (TV – $14.28 – NYSE) is Mexico’s largest media company with operations in television broadcasting,cable networks, television production, satellite distribution (through its 58.7% ownership of Sky Mexico) and cable distribution. Televisa also has a 36% interest in Univision Communications, the fifth largest overall and most popular Spanish language broadcast network in the U.S. In April 2021, TV announced it would combine its content operations with Univision, in the process increasing its ownership in Univision to 45% and reducing leverage to less than 2x EBITDA. With a dominant position in Spanish language content, new Univision will be poised to launch a streaming service addressing 600 million Spanish speakers around the world. Meanwhile, Televisa is increasing their investment in Mexican broadband where penetration of 60% lags the U.S. We expect the continued recovery in post-COVID Mexican advertising spending as well as growth in pay-television and broadband penetration to benefit Televisa over time.
Sinclair Broadcast Group Inc. (SBGI, Financial) (0.1%) (SBGI – $33.22 – NASDAQ) operates through two segments, Sinclair Broadcasting Group(STG), which operates 190 television stations in 88 markets across the U.S., and Diamond Sports Group (DSG), which owns and/ or operates 23 regional sports network brands (RSNs) acquired from Fox in 2019, the Marquee Sports Network JV, and a 20% equity interest in the Yankee Entertainment and Sports Network (YES Network). The RSNs and YES Network own the exclusive rights to air, among other sporting events, the games of professional sports teams. While Sinclair’s net debt looks significant at just under $12 billion, roughly $8 billion is tied to the RSN business, and is non-recourse to Sinclair Television Group. As the advertising market rebounds and sports return to a more normalized schedule, Sinclair should benefit. Further, the company will soon begin participating in the monetization of sports betting through its partnership with Bally’s. As part of the deal, Sinclair also received warrants to acquire an equity stake directly in Bally’s.
Returns represent past performance and do not guarantee future results. Investment returns and the principal value of an investment will fluctuate. When shares are redeemed, they may be worth more or less than their original cost. Current performance may be lower or higher than the performance data presented. Visit www.gabelli.com for performance information as of the most recent month end.
