Pelham Capital’s Top Q1 Picks Dominated by Fast-Growing GrubHub Inc. (GRUB)

Ross Turner, the youngest ever partner at Alex Snow’s Lansdowne Partners (one of Europe’s largest hedge fund firms), founded Pelham Capital in 2007 at the age of 29. Mr. Turner’s Pelham is a high-conviction equity long/short fund, with its top-ten positions usually accounting for most of the value of the fund’s equity portfolio. The promising hedge fund manager presented his bullish investment thesis on Irish business services group DCC at the world-renowned Sohn Investment Conference in 2013, which turned out to be a brilliant recommendation, as DCC has returned a whopping 145% over the past three years. Pelham Capital recently submitted its 13F filing for the first quarter of this year, disclosing ten equity positions aggregately valued at $270.76 million on March 31. With that in mind, the following article will discuss the London-based firm’s five highest-conviction investment ideas as of the end of the March quarter.

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#5. Paypal Holdings Inc. (NASDAQ:PYPL)

 – Number of shares held by Pelham Capital (as of March 31): 133,300

 – Value of Pelham Capital’s holding (as of March 31): $5.15 Million

Pelham Capital upped its stake in Paypal Holdings Inc. (NASDAQ:PYPL) by 28,300 shares during the March quarter, which marks an increase of 26% quarter-over-quarter to 133,300 shares. The $5.15 million stake accounted for 1.90% of the fund’s equity portfolio on March 31. The payments processor has seen its shares gain 5% since the beginning of the year. At the end of March, Paypal received a Civil Investigative Demand from the Federal Trade Commission as part of an investigation to determine whether the global payments company has engaged in “deceptive or unfair practices” through its free digital wallet Venmo, in violation of the Federal Trade Commission Act. Venmo customers use the app to send peer-to-peer payments, and the service’s first quarter payments volume increased by 154% year-over-year to $3.2 billion. However, Venmo accounts for only a tiny portion of Paypal’s top-line figure, so the issues surrounding this app, which are unknown to the general public as of now, are not expected to have a material impact on the company’s financial performance. In the meantime, Paypal’s core payments business continues to grow steadily, with first quarter net revenue increasing to $2.54 billion from $2.14 billion a year earlier. Columbus Circle Investors, managed by Clifford G. Fox, increased its position in Paypal Holdings Inc. (NASDAQ:PYPL) by 28% during the first quarter, to 2.59 million shares.

The next two pages of this article will detail Pelham Capital’s top four equity investments as of March 31.

#4. Bank of America Corp (NYSE:BAC)

 – Number of shares held by Pelham Capital (as of March 31): 385,000

 – Value of Pelham Capital’s holding (as of March 31): $5.21 Million

Mr. Turner’s London-based hedge fund increased its holding of Bank of America Corp (NYSE:BAC) by 15,000 shares during the January-to-March quarter, to 385,000 shares which were worth $5.21 million at the end of March. The shares of the second-largest U.S lender by assets have dropped by 15% year-to-date despite having gained 7% in the past month, which was attributable to the company’s first quarter financial results. Bank of America’s net income for the quarter was $2.68 billion, a decrease from $3.10 billion recorded for the same quarter of 2015. The decline in the company’s bottom-line figure was partly driven by higher provision for credit losses, which were mostly related to energy loans. Meanwhile, Bank of America’s revenue declined to $19.73 billion from $21.13 billion in the first quarter of 2015, partly due to a decline in trading activity. The shares of the bank are currently changing hands at 8.9-times expected earnings, below the forward P/E multiple of 13.8 for the financial sector. Andy Redleaf’s Whitebox Advisors acquired a new stake of 591,400 shares of Bank of America Corp (NYSE:BAC) during the March quarter.

#3. Visa Inc. (NYSE:V)

 – Number of shares held by Pelham Capital (as of March 31): 82,000

 – Value of Pelham Capital’s holding (as of March 31): $6.27 Million

Mr. Turner’s long/short fund had 82,000 shares of Visa Inc. (NYSE:V) in its equity portfolio at the end of the March quarter, up by 21,000 shares or 34% quarter-over-quarter. The stake was valued at $6.27 million on March 31 and accounted for 2.32% of the value of the fund’s equity portfolio. The shares of the credit card issuer were trading near their all-time high of $81.73 ahead of the release of the company’s financial results for the second quarter of fiscal year 2016 that ended March 31. However, Visa shares have slightly retreated since that earnings release on April 21 and are now down by nearly 1% year-to-date. In November, the California-based company announced the acquisition of its European counterpart Visa Europe, but the completion of the acquisition may be extended beyond the end of the company’s fiscal third quarter, after amending the initial terms of the deal. The two companies split in 2007 ahead of Visa’s initial public offering. Visa also lowered its fiscal year 2016 top-line growth to a range of 7%-to-8% from the previous range of high single-digit to double-digit growth. Ken Fisher’s Fisher Asset Management owns 14.79 million shares of Visa Inc. (NYSE:V) as of March 31.

#2. Liberty Global plc (NASDAQ:LBTYA)

 – Number of shares held by Pelham Capital (as of March 31)1: 769,356 Class A and 1.92 Million Class C Ordinary Shares

 – Value of Pelham Capital’s holding (as of March 31): $29.62 Million and $72.05 Million

Pelham Capital owned 769,356 Class A ordinary shares of Liberty Global plc (NASDAQ:LBTYA) and 1.92 million Class C ordinary shares, which are traded under the ticker “LBTYK”, at the end of March. The London-based hedge fund did not make any adjustments to its investments in the European operator of cable systems during the March quarter. In November 2015, the international provider of video, broadband internet, fixed-line telephony and mobile services announced plans to acquire Cable & Wireless Communications plc, which offers integrated telecommunications-based services in more than 40 countries, mainly in Latin America and The Caribbean. The cable-TV company has seen its Class A ordinary shares sink by 11% in value since the beginning of 2016. Warren Buffett’s Berkshire Hathaway owned 12.54 million Class A ordinary shares of Liberty Global plc (NASDAQ:LBTYA) at the end of December, as well as 7.35 million Class C shares of the company.

#1. GrubHub Inc. (NYSE:GRUB)

 – Number of shares held by Pelham Capital (as of March 31): 5.77 Million

 – Value of Pelham Capital’s holding (as of March 31): $144.89 Million

Pelham Capital lifted its position in GrubHub Inc. (NYSE:GRUB) by 30% during the first quarter of 2016, ending the three-month period with 5.77 million shares. The upped stake was valued at $144.89 million at the end of March and was worth roughly 54% of the value of Pelham’s equity portfolio. The shares of the leading online and mobile food delivery company are down by 7% in the past five trading sessions, after the company disclosed its first quarter financial results. While GrubHub’s bottom-line results were in-line with analysts’ estimates and top-line results were ahead of expectations, the comments made by the company’s CEO during the conference call might have alarmed some investors. Precisely, CEO Matt Maloney said that “Uber and Amazon are the new boogiemen in the market”, acknowledging that the competition in the online food delivery space has been intensifying lately. Uber recently launched a food delivery app named UberEATS, while Amazon’s PrimeNow food-delivery service adds to the already-tough competition. GrubHub shares are down by 38% in the past 12 months. In a fresh 13G filing, Steadfast Capital Management LP, managed by Robert S. Pitts Jr., disclosed ownership of 4.31 million shares of GrubHub Inc. (NYSE:GRUB).

Disclosure: None