ASHTY - Bonhoeffer Capital Management Q4 2023 Letter
2024-02-14 10:15:00 ET
Summary
- The Bonhoeffer Fund, LP, is a value-oriented investment partnership. The fund's objective is to grow capital at a faster rate than market indices over full market cycles and provide minimal.
- Throughout 2023, Bonhoeffer Fund replaced slower-growth firms with durable, growing firms in temporarily depressed sectors and continue to identify similar opportunities in this new year.
- The current Bonhoeffer portfolio has projected earnings/free cash flow growth of about 13.5%.
- There were modest changes within the portfolio in the fourth quarter, which are in line with our low historical turnover rates.
Dear Partner,
Throughout 2023, Bonhoeffer Fund replaced slower-growth firms with durable, growing firms in temporarily depressed sectors and continue to identify similar opportunities in this new year. We have identified opportunities in the following industries: specialized construction, natural resource royalties, distributors, logistics companies, housing, and specialty finance. New investments have a combined expected growth rate (RoE * (1-payout ratio)) plus earnings yield of 30 to 40%.
Turning to the portfolio, I am confident we hold some of the highest-quality businesses in the fund's history. This is due to our focus on adding faster-growing durable companies, with a discount that continues to persist as the market fails to realize the improvement in our firms' positions. We believe high quality is reflected in free cash flow growth with highly recurring revenues (such as in subscription businesses) and returns on equity that are higher than less-risky alternatives, like well-underwritten debt which currently has yields in the low-teens. The Bonhoeffer Fund returned 12.9% net of fees in the fourth quarter of 2023 and 17.0% for 2023 overall.
In the same time period, the MSCI World ex-US, a broad-based index, returned 9.8%, and the DFA International Small Cap Value Fund, our closest benchmark, returned 9.3%. As of December 31, 2023, our securities have a weighted average earnings/free cash flow yield of 13.8% and an average EV/EBITDA of 5.2. The current Bonhoeffer portfolio has projected earnings/free cash flow growth of about 13.5%. The DFA International Small Cap Value Fund had an average earnings yield of 12.3%. Bonhoeffer's and the indexes' multiples are slightly higher than the previous quarter, primarily due to share price increases.
Bonhoeffer Fund Portfolio Overview
Bonhoeffer's investment portfolio consists of value-oriented special situations, as well as growth- oriented firms that exhibit unique qualities when applying a value framework. We are particularly interested in companies that are focused in a market niche and are growing organically and/or through transition or consolidation. We also like to see active capital allocation to fund organic growth, opportunistic buybacks, and synergistic acquisitions. Finally, we like to see durability, as measured by increasing recurring revenues in our portfolio companies....
Bonhoeffer Capital Management Q4 2023 Letter