Immersion Investment Partners, an investment management company, released its second quarter 2023 investor letter. A copy of the same can be downloaded here. The fund returned 22.3% in the second quarter compared to 5.21% for the Russell 2000 Index. The firm is happy with its broad-based year-to-date performance. The fund returned 29.73% year-to-date compared to 8.09% for the benchmark. In addition, you can check the top 5 holdings of the fund to know its best picks in 2023.
Immersion Investment Partners highlighted stocks like Franklin Covey Co. (NYSE:FC) in the second quarter 2023 investor letter. Headquartered in Salt Lake City, Utah, Franklin Covey Co. (NYSE:FC) offers training and consultation services in organizational performance improvement areas. On August 4, 2023, Franklin Covey Co. (NYSE:FC) stock closed at $48.36 per share. One-month return of Franklin Covey Co. (NYSE:FC) was 11.45%, and its shares lost 7.60% of their value over the last 52 weeks. Franklin Covey Co. (NYSE:FC) has a market capitalization of $638.56 million.
Immersion Investment Partners made the following comment about Franklin Covey Co. (NYSE:FC) in its second quarter 2023 investor letter:
“Despite significant fears surrounding exposure to cyclical corporate spending trends, Franklin Covey Co. (NYSE:FC) continues to post strong results, highlighting the durability of the business post-transition to its subscription model – the All Access Pass (AAP).
Franklin Covey is a consulting business that sells leadership training geared towards managers at mid-to-large corporations. We think of the FC business as “culture in a box”. Leveraging the lessons derived from Stephen Covey’s 7 Habits of Highly Effective People, Franklin Covey has grown into a $300 million revenue business serving companies across the globe. Today, the business offers nearly thirty different training modules from the original 7 Habits to the ‘4 Disciplines of Execution’, ‘Leading at the Speed of Trust’, ‘Change: How to Turn Uncertainty into Opportunity’, etc. The current customer list includes multiple multinational companies like PepsiCo, API Group, and Ferguson PLC. In addition to the Enterprise training division, Franklin Covey has crafted a leadership program for the education market called ‘Leader In Me’, which is currently used in more than 3,000 schools in the U.S. and Canada.
Historically, Franklin Covey was a lumpy, highly cyclical business, geared to one-time sales and training seminars. Starting in earnest in 2017, management began to bundle all of the company’s corporate trainings into a single package called the All Access Pass. The AAP program is deployed digitally through a web portal and customers agree to annual, seat-based contracts. Increasingly, customers are opting for multi-year contracts. Today, nearly 45% of the company’s consolidated revenue is derived from multi-year contracts vs. effectively 0% in 2016 (the year AAP was first introduced). AAP has the dual benefit of improving revenue visibility and margins, limiting the cost of deployment and lowering the amount of in-person travel and resources required to deliver trainings. Despite Franklin Covey’s progress towards improving the quality and durability of its business, FC continues to trade at an objectively low forward-looking valuation range of 12x EBITDA and 15x free cash flow. We think this valuation disparity persists over fears of a corporate spending slowdown, driven by global macroeconomic volatility, and the fact that most haven’t done the work to understand Franklin Covey’s transition from a lumpy, low-margin consulting shop to a highly recurring, high margin subscription business. There is also very little visibility on the name. Banking coverage is thin, and liquidity isn’t great for a company of its size. We’ve introduced the idea to several large funds and their initial reaction is usually, “Yeah, I worked on it a decade ago and it was pretty low-quality and lumpy. It didn’t seem like a very good business.” This perception takes time to fix but should become increasingly obvious over time. In the meantime, management is gobbling up shares. Year-to-date through June, the company has bought back 4% of outstanding shares.”
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Franklin Covey Co. (NYSE:FC) is not on our list of 30 Most Popular Stocks Among Hedge Funds. As per our database, 17 hedge fund portfolios held Franklin Covey Co. (NYSE:FC) at the end of first quarter which was 21 in the previous quarter.
We discussed Franklin Covey Co. (NYSE:FC) in another article and shared Tourlite Capital Management’s views on the company. In addition, please check out our hedge fund investor letters Q2 2023 page for more investor letters from hedge funds and other leading investors.
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Disclosure: None. This article is originally published at Insider Monkey.
