A $622M Divestiture, a Venezuelan License, and Three Earnings Updates
Five portfolio names. Both January theses played out. Here's what comes next.
Some portfolio companies have already posted results in February, and two names I pitched in January have had significant developments. I want to update on five names in total. Two of them played out in a way that’s worth unpacking in detail, one better than expected, one a rollercoaster that ended well. Both are still live positions with meaningful upside remaining, and that’s what paid subscribers are getting today. The other three are earnings updates.
Frontera Energy (FEC:TO) — From Spin-Off to Divestiture (Disclosure: I am long)
When I pitched Frontera in January, the thesis was straightforward: the market was pricing the stock as a struggling Colombian E&P company and assigning almost no value to its infrastructure assets, a 35% stake in the ODL pipeline and a majority-owned deep-water port, Puerto Bahía. A planned spin-off of those assets, I argued, would force the market to recognize that hidden value. Conservative sum-of-the-parts suggested 90–180% upside.
Although it didn’t play out quite the way I expected, it actually turned out even better.
On January 30, ten days after I published, Frontera announced it had agreed to sell its entire Colombian E&P business to GeoPark for a firm value of US$622 million. The proceeds will fund a special dividend of approximately CA$7.18 per share. When I pitched the stock, shares were trading at CA$6.36. The special dividend alone covers more than the share price.
What remains after closing is the infrastructure business. I increased my position the morning the news dropped, as the market was slow to react. I’m still holding.
The question now is exactly how much the remaining stub is worth. I'll walk through my valuation model and what the specific upside looks like from here below the paywall.
The Second Idea from January
In early January I also pitched a small-cap with direct exposure to a potential Venezuelan oil reopening. The thesis at the time was that this company was on the cusp of receiving a license in Venezuela, something the market wasn’t pricing in. You were essentially getting a well-run company at a fair valuation, with a free option on one of the most politically charged macro trades of the year.
The license saga was somewhat of a roller coaster. I'll cover what it means for the valuation below.