Mittleman Brothers Investment Management, an investment management firm, published its fourth-quarter 2021 investor letter – a copy of which can be downloaded here. A quarterly portfolio net return of 3.9% was recorded by the fund for the fourth quarter of 2021. In contrast, its benchmark returned 6.0% for the same period. Spare some time to check the fund’s top 5 holdings to have a clue about their top bets for 2022.
Mittleman Global Value Equity Fund, in its Q4 2021 investor letter, mentioned Revlon, Inc. (NYSE: REV) and discussed its stance on the firm. Revlon, Inc. is a New York, New York-based cosmetics company with a $560.7 million market capitalization. REV delivered a -7.85% return since the beginning of the year, while its 12-month returns are down by -18.55%. The stock closed at $10.45 per share on February 16, 2022.
Here is what Mittleman Global Value Equity Fund has to say about Revlon, Inc. in its Q4 2021 investor letter:
“Revlon, while creeping up enough to make it the 2nd best performer last quarter, was still essentially wallowing around the $10 level where it began the quarter, despite a brief run-up to $17.65 in early November on seemingly speculative activity (the meme stock/Reddit mob have taken a liking to Revlon’s illiquid shares and periodically toy with it). The company remains over-leveraged although it has been making progress on improving sales and margins and thus deleveraging.
MIM started buying Revlon at around $10 in December 2010 and enjoyed a nice run over the first five years, a period during which the business performed well. MIM sold some shares at around $40 in 2015 (only about 20% of MIM’s position, thinking the stock was worth $60+ then), but 2015 marked the last year in which it exhibited what MIM considers normal economics for this business (65% gross margin, 20% EBITDA margin, 3% maintenance cap-ex). So while it has been six years since that interim peak in business performance and stock price, and some hugely disappointing and abnormal results in the interim period, MIM thinks the quality of the business remains largely intact, with Q3 2021 results creeping back towards normal economics (58% gross margin, 17% EBITDA margin). ,A sale of part or all of the company also remains a good possibility. MIM sees Revlon as worth $27, 2.4x its year-end price of $11.34, at 14x EBITDA of $350M for 2022.
There are a number of examples of high quality consumer brand businesses with multi-decade track records of endurance going through prolonged periods of underperformance before finding a way to rejuvenate themselves. Of course, not all once great consumer brands regain their former glory, such as Schaefer beer, but MIM thinks Revlon (and its other owned brands, Elizabeth Arden, Almay, and American Crew among others) has the proven multi-decade resilience from which a resurgence can spring. And while Revlon is multi-national (50% of sales from outside the U.S.), the core U.S. market for colour cosmetics is rebounding strongly from the unprecedented drop in 2020.”
Photo by Highlight ID on Unsplash
Our calculations show that Revlon, Inc. (NYSE: REV) failed to obtain a mark on our list of the 30 Most Popular Stocks Among Hedge Funds. REV was in 31 hedge fund portfolios at the end of the third quarter of 2021, compared to 42 funds in the previous quarter. Revlon, Inc. (NYSE: REV) delivered a -23.72% return in the past 3 months.
In February 2021, we also shared another hedge fund’s views on REV in another article. You can find other letters from hedge funds and prominent investors on our hedge fund investor letters 2021 Q4 page.
Disclosure: None. This article is originally published at Insider Monkey.
