In a recently-amended 13D filing with the Securities and Exchange Commission, Jeffrey Smith’s Starboard Value disclosed a 9.0% ownership stake in The Brink’s Company (NYSE:BCO), which amounts to 4.37 million shares. Starboard Value increased its stake in the global security service provider by 401,760 shares since the fund’s most recent 13D filing on Brink’s (read more details).
Starboard Value is a New York-based activist hedge fund co-founded by Jeffrey Smith in 2002. The investment firm invests in deeply undervalued companies and attempts to make changes at these companies by actively engaging with their management teams and board of directors. Starboard Value mainly focuses its strategy on small-to-mid-cap stocks, which has proven to very successful during the course of the fund’s existence. Reportedly, Starboard has earned money on 88% of its activist investments, delivering an annualized return of 22% since its inception in 2002. As a result, Jeff Smith’s investment firm has outperformed the S&P 500 by three times over the past 13 years, with less risk and volatility. Jeff Smith, the current Chief Executive Officer and managing member of Starboard Value, was named as the “the most feared man in corporate America” in December, according to Fortune magazine. The fund’s most recent 13F filing with the SEC reveals that the market value of its public equity portfolio stands at $4.81 billion as of March 31.
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Following activist funds like Starboard is important because it is a very specific and focused strategy in which the investor doesn’t have to wait for catalysts to realize gains in the holding. A fund like Starboard can simply create its own catalysts by pushing for them through negotiations with the company’s management and directors. In recent years, the average returns of activists’ hedge funds has been much higher than the returns of an average hedge fund. Furthermore, we believe do-it-yourself investors have an advantage over activist hedge fund investors because they don’t have to pay 2% of their assets and 20% of their gains every year to compensate hedge fund managers. We have found through extensive research that the top small-cap picks of hedge funds are also capable of generating high returns and built a system around this premise. In the 32 months since our small-cap strategy was launched it has returned over 123% and beaten the S&P 500 ETF (SPY) by more than 66 percentage points (read more details).
The Brink’s Company (NYSE:BCO) is an American security and protection company that is widely-known for its bullet-resistant armored trucks used to carry money and other valuable goods. Put it differently, Brink’s is a provider of security services to banks, retailers, governments, mints and jewelers, among others. The company has evolved from an armored transportation service company to one of the main providers of logistics solutions and secure transportation in the world. The shares of Brink’s have grown by over 21% since the beginning of the current year, but the 9.0% ownership stake of activist hedge fund Starboard Value suggests that there is more upside potential for the stock.
The armored vehicle transportation, automated teller machines, and international transportation of valuable goods offered by Brink’s will always be in demand. And they are in demand indeed. The largest five markets Brink’s is currently operating in, which include the U.S., France, Mexico, Brazil, and Canada, generated 25% more profits over the second quarter of 2015 than the same quarter a year ago. However, there should be some activities and operations in which the company has not been doing so well thus far, otherwise, Starboard Value would not have channeled its capital towards acquiring the 9.0% ownership stake. Brink’s has been attempting to reorganize and restructure its activities since the end of 2014 so as to deliver $45 million to $50 million in cost savings year-over-year. This is probably where Starboard Value sees more potential in Brink’s. It’s quite obvious that the company should work more on its cost savings program, as its operating margins were at 3.7% in 2014. Some officials at Brink’s have already claimed that the company remains on track to deliver the cost savings figures mentioned above, but the fact that Jeffrey Smith’s firm has been stacking more shares after the company posted its financial results for the second quarter of the current year might indicate that something is not working according to the plan. Brink’s intends to improve its operating margins to a range of 5.3% to 5.8% by the end of the current year, but it’s not quite sure whether the company will be successful in reaching that goal. Only time will tell.
Meanwhile, let’s take a moment to look at the financial results Brink’s delivered in the second quarter of 2015. Brink’s posted revenues of $760 million compared to a figure of $859 million reported in the same quarter a year ago. Moreover, the company posted an operating loss of $15 million for the quarter, compared to an operating profit of $9 million reported a year ago. Finally, Brink’s posted a diluted loss per share from continuing operations of $0.26, compared to diluted earnings per share of $0.02 reported in the second quarter a year ago. All these figures have been impacted by persistent currency headwinds, as the majority of the company’s activities and operations are outside of the United States.
Considering the fact that Starboard Value has made money on 88% of its activist investments, it is highly likely that Brink’s will be successful in delivering greater shareholder value in the upcoming months and years. So keep a close eye on the following stock. Mario Gabelli’s GAMCO Investors is another activist firm that is bullish on The Brink’s Company (NYSE:BCO), holding an ownership stake of 3.46 million shares.
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