More than just the food is hot at the Italian Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG). Since the beginning of the year, the stock is up over 38%, and this was the period when Red Mountain Capital Partners began acquiring a stake in the company. The most recent Form 13F by Red Mountain showed ownership of 592,297 shares of Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG) as of March 31, 2013.
Red Mountain began acquiring its stake after the first of the year and has continued to acquire shares of Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG) at prices ranging from $15.43 to $18.00 well into May, when it filed a Schedule 13D with the SEC.
The restaurants
Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG) is the owner and operator of the Italian themed restaurants BRAVO! Cucina Italiana and BRIO Tuscan Grille. According to the company, BRAVO! is an upscale yet affordable full-service Italian restaurant serving classic Italian dishes. BRIO, on the other hand, is an upscale yet affordable Italian restaurant serving northern Italian food in a Tuscan Villa atmosphere.
The company currently operates approximately 103 restaurants with 48 being the BRAVO! concept and 55 being the BRIO concept. The company’s restaurants are located in 31 states, primarily in the eastern half of the United States with 17 located in the company’s home state of Ohio.
The competition
The primary competition for Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG) in the Italian upscale affordable dining segment is Maggiano’s, which is owned and operated by Brinker International, Inc. (NYSE:EAT). Maggiano’s is a restaurant concept originally developed in Chicago and acquired by Brinker International, Inc. (NYSE:EAT) in 1995. Serving classic Italian-American dishes to hungry customers, Maggiano’s has grown to 44 locations nationwide with many located in states where Bravo Brio has a presence. In addition to competing for customers with an appetite for Italian, Bravo Brio Restaurant Group, Inc. (NASDAQ:BBRG) also competes with Maggiano’s and other major chains such as Cheesecake Factory, P.F. Chang’s, and BJs Restaurants for quality real estate locations.
The activist
Red Mountain is led by its managing partner, Will Mesdag. Before forming Red Mountain in 2005, an article appearing on the Financial News website stated Mr. Mesdag spent 21 years at Goldman Sachs, rising to general partner within the investment banking division before retiring in 2002. The strategy of Red Mountain is long-term value investing, primarily in small cap companies. Red Mountain is generally an active partner and typically has board representation.
The Red Mountain portfolio is relatively small with only 11 companies reported in the most recent Form 13F filed with the SEC. The holdings include companies such as Nature’s Sunshine Products, Encore Capital Group, and Marlin Business Services. The largest holding of the fund is currently Air Transport Services Group Inc. (NASDAQ:ATSG) with over 11 million shares, equating to a stake in the company of approximately 17.3%.
Air Transport Services Group Inc. (NASDAQ:ATSG) provides several services to cargo transportation and package delivery companies, including aircraft leasing, aircraft maintenance, airport ground services, as well as contract cargo airline services through three separately certificated airlines. The company has a fleet of 54 aircraft, of which 48 are owned and six are leased. The fleet is primarily made up of Boeing 767-200 and 767-300 aircraft.
Shares of Air Transport Services Group Inc. (NASDAQ:ATSG) have performed strongly, rising over 50% since the beginning of the year on the back of strong earnings due to improved operating margins.
The bottom line
Red Mountain does not have a perfect record, but their overall track record for finding undervalued companies appears solid. A recent win for the fund was when Bed Bath & Beyond Inc. (NASDAQ:BBBY) agreed to acquire Cost Plus just over a year ago for $22 per share in an all cash deal. Red Mountain acquired its initial stake in Cost Plus during 2006 at prices that ranged from approximately $9.30 to $13.94 per share. The fund owned over 3.2 million shares at the time the acquisition was announced.
Red Mountain also took advantage of the 2008-2009 market crash, adding to existing positions including the aforementioned Air Transport in which it scooped up shares for as little as $0.29 per share. Air Transport recently traded in excess of $6 per share.
I firmly believe that every investor should do their own research and due diligence. However, there is certainly nothing wrong in taking a look at what other investors are doing to get ideas for further analysis.
The article Prominent Small Cap Investor Has a Taste for Italian and More originally appeared on Fool.com and is written by Alex Gray.
Alex Gray has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Alex is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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