"Tracking Bill Ackman’s Pershing Square Portfolio – Q4 2017 Update"
"Bill Ackman’s 13F portfolio value increased ~15% from $5.11B to $5.87B this quarter.Pershing Square added Nike while increasing Mondelez International.The largest three 13F positions are Restaurant Brands International, Automatic Data Processing, and Mondelez International and together they account for ~62% of the portfolio.This article is part of a series that provides an ongoing analysis of the changes made to Pershing Square’s 13F portfolio on a quarterly basis. It is based on Ackman’s regulatory  filed on 02/14/2018. Please visit our  article for an idea on how his holdings have progressed over the years and our  for the fund’s moves during Q3 2017.Ackman’s US long portfolio value increased ~15% from $5.11B to $5.87B this quarter. The number of positions increased from 6 to 7. The portfolio remains heavily concentrated with a few huge bets. The top three positions account for 62.25% of the total portfolio value: Restaurant Brands International, Automatic Data Processing, and Mondelez International.In addition to partner stakes, the fund also invests the capital from Pershing Square Holdings (PSHZF), a public entity that debut in Euronext Amsterdam in October 2014. This was set up primarily to increase the amount of capital invested that is permanent. Pershing Square Holdings has widely underperformed the S&P 500 since its EOY 2012 inception. Their original flagship fund’s (2004 inception) track record is outstanding with cumulative returns at ~500% compared to ~220% for the S&P 500 index.To learn more about Bill Ackman, check-out the book “”.New Stakes:Nike Inc. (NKE): NKE is a 6.22% of the portfolio stake established this quarter at prices between $51 and $65 and the stock currently trades above that range at $67.96. Part of thesis is on the idea that there is significant margin expansion opportunity due to new manufacturing processes & rapid growth in distribution channels.Stake Disposals:None.Stake Increases:Mondelez International (MDLZ): MDLZ is a large (top three) ~17% of the 13F portfolio stake established in Q3 2015 at a cost-basis of ~$39. Q1 2016 saw a ~47% reduction at prices between $36.50 and $45. H1 2017 had seen another ~37% selling at prices between $42.50 and $47. This quarter saw an about turn: two-thirds increase at prices between $39.30 and $43.50. The stock currently trades at $42.96.Note: Pershing Square’s latest regulatory filings on MDLZ show them holding a huge position in American style OTC call options. Including that, the ownership stake is at ~5% of the business (~75M shares).Stake Decreases:None.Kept Steady:Restaurant Brands International (QSR): QSR is currently the largest 13F position at ~28% of the portfolio. Pershing Square’s cost-basis is ~$16. Last quarter saw a ~32% selling at prices between $59 and $66. The stock currently trades at $57.71.Note 1: Recent regulatory filings show them owning 30.45M shares (12.3% of the business) of QSR. This is compared to 26.5M shares in the 13F.  The filing includes ~3.95M shares of exchangeable units held.Note 2: The QSR stake came about through the merger of Tim Hortons and Burger King Worldwide. Pershing Square had a huge investment in Burger King and those shares got exchanged for QSR shares.Automatic Data Processing (ADP): ADP is a top three ~18% of the 13F portfolio stake established in Q2 2017 at a cost-basis of $97.30 and increased by roughly four-times last quarter at prices between $101 and $119. The stock is now at $113.Note 1: Ackman expects tax-reform to drive ~13-15% increase in earnings. Also, $24B float balance would increase profits as interest rates rise.Note 2: Regulatory filings show Pershing Square’s beneficial ownership at 36.8M shares (8.3% of the business). The 13F report only lists 8.8M shares that are directly owned. The rest are in American Style OTC Call Options.Note 3: In November 2017, Pershing Square lost a proxy battle at ADP – his three (including him) board nominations were rejected.Chipotle Mexican Grill (CMG): CMG is a large (top five) 14.19% of the portfolio stake established in Q3 2016 at a cost-basis of ~$405 per share. The stock currently trades at $290. For investors attempting to follow Pershing Square, CMG is a good option to consider for further research.Note: Ackman controls ~10% of CMG.Howard Hughes Corp (HHC): HHC is a ~11% of the US long portfolio position that was established in 2010 as a result of its spin-off from General Growth Properties (GGP). The stock has returned over 3x since the spinoff. Last quarter saw a one-third increase as a result of the conversion of warrants held. The stock is currently at ~$122.Note 1: Recent regulatory filings show them having an economic interest of 7.6M shares of HHC (17.7% of the business) including 5.4M notional common share exposure thru swaps that are not listed in the 13F. This is down from 23.5% economic interest as of last quarter: 2.5M shares were sold at $127.86 per share early last month (underwriting agreement). The transaction was prompted to address FIRPTA issues at PSH.Note 2: Ackman  at the Ira Sohn conference in May 2017 - the thesis was focused around how Master Planned Communities (MPC) when developed patiently over a long period of time could create substantial value to shareholders.Platform Specialty Products (PAH): On 01/23/2014, Ackman disclosed a huge new stake in Platform Specialty Products Corporation (PAH) in a 13G filing. Pershing Square was a PAH investor prior to its NYSE IPO. Q4 2014 saw a ~30% stake increase at prices between $21 and $28. Ackman’s cost-basis is around $14. The stock currently trades at $10.13. Ackman controls ~20% of the business.Note: The stock was down ~45% in 2015 and has been flat since.Fannie Mae (FNMA) and Freddie Mac (FMCC) are other US long positions in the partnership - the holdings were disclosed in 13D filings on November 15, 2013 - as they are not , they are not listed in the 13F report. Ackman held just under 10% of the outstanding shares of both these businesses - 115.57M shares of FNMA at a cost-basis of $2.29 and 63.5M shares of FMCC at a cost-basis of $2.14. The combined investment outlay was ~$400M. FNMA & FMCC currently trade at $1.79 and $1.71 per share respectively.Bill Ackman also has a short book. Herbalife (HLF) is the only one that is publicly known. As of last quarter, the capital allocation to HLF short was 9%. During this quarter, the position was converted to in-the-money puts representing ~2% of capital.Note: There is no regulatory requirement to disclose short positions and so only ones that Ackman voluntarily discloses are known.The spreadsheet below highlights changes to Pershing Square’s US stock holdings in Q4 2017:12/6/2017 – Pershing  dated 11/15/2017: Performance: From 1/1/2013 inception thru Q3 2017, returns net-of-all-fees at 1.4% compared to 100.1% for the S&P 500 index. ADP – although we lost proxy, we do believe the commitments made by management should serve our investment well: a) accelerated revenue growth – 6% to 7% organic growth over the next three fiscal years, b) Margin Improvement: 500-600 basis point improvement over the next three fiscal years despite deceleration in the first fiscal year, and c) Enterprise Product Launch – Enterprise HCM product aimed at recovering market share lost in that area. Still believes they are undervalued despite ~15% appreciation (~$111 PPS at the time) since they started accumulating – also, a reduction in corporate tax should increase ADP’s valuation by ~20% by their estimate. HLF – entire position now in puts. MDLZ – at 18x 2018 earnings believes it is trading at a significant discount (PPS ~$42 at the time) due to the following factors: (1) uncertainty regarding the US grocery landscape; (2) concerns about the company’s growth potential; and (3) apprehension regarding the upcoming CEO transition later this month – investor apprehension about a potential earnings “rebase” but Pershing doesn’t think that will happen. Pershing plans to engage with new CEO Mr. Van de Put as soon as practicable. QSR – views it as a high-quality, capital-light, growing annuity that generates high-margin brand royalty fees from its three brands: Burger King, Tim Hortons and Popeyes – considers it undervalued at 21x 2018 free cash flow estimate – should be able to growth that at mid-to-high teens for the foreseeable future. HHC – continues strong performance - large land ownership and entitlements provide decades of high-return investment opportunities without the need to acquire any new assets - should be a huge US-tax reform beneficiary. CMG – still expects an eventual turnaround despite interim volatility – also should be a huge beneficiary of US tax reform. Fannie/Freddie – saw several favorable steps in both the political & regulatory fronts in the quarter – thinks a resolution will occur before Senator Corker’s term ends in 2018 – bi-partisan resolution would be highly profitable for both government & shareholders. HLF short – allocation is ~5% of capital in deep-in-the-money puts – compared to allocation time premium is very small – as such, if price stays at current level, loss is minimal – if it goes up, capital will be lost – if it goes down, could earn multiples. EXITS: APD & NOMD exited & generated substantial gains. ADP position generated 104.7% total shareholder return over the course of the 4.5 years – this is compared to 69.9% for the S&P 500 index – under their director nominee Seifi Gasemi as CEO, the company transformed from a laggard to a leader – increased profit margins from 15% to become the most profitable industrial gas company at 22%. NOMD - We sold our entire Nomad investment in September for $14.16 per share, an increase of 35% from our average cost in just over two years. Share Repurchase – Repurchased ~3.33M shares for $47.65M (PPS ~$14.31) at an average discount of 19.2%.– 10/10/2017 – Proxy battle related. Earlier this month, Ackman lost the proxy battle in his bid to replace three board members.CNBC ~9/20/2017 – ADP  – old payroll business – need to modernize. Increase margins is 80% of the issue to be more in line with competition (Paychex, etc.). Talked about CDK which doubled margins after spinoff in 3 years and the stock doubled. Lot of handholding, etc. is unnecessary – it is because they are old tech. Great company, but the issue is what is in the future – greatly underperformed its potential – no debt, profitable business, dominant market share – these are the types of businesses that become less efficient over time. No competition in 68-year history – has increased and accelerated in the last five years. ADP lost his way in the last decade – it is about business potential – it is at risk of becoming IBM if they do not run the business efficiently –Cooperman says it is an incredibly high-touch business (his attitude may have changed after Ackman’s report on ADP). CEO Carlos Rodriguez – 100-200 basis points margin improvement over three years vs 1200 they foresee – if they get 1 seat, he will work with others to make this happen – 2.4B commitment is huge. Three directors being put up in total (2 replacement proposals). On P&G – big proud company – treats Nelson like a virus - 100M spending to fight Nelson is crazy. 25x forward multiple currently. National account – losing marketshare to Workday’s of the world. That area needs fixing – Ceridian – sold to TH LEE ten years ago – old fashioned company that merged with Dayforce – best in class national account software – they might plan to IPO next year but TH Lee might much rather have ADP acquire them.Regulatory Filings thru 11/15/2017: 13D/A – 10/6/2017 – MDLZ – 74.98M shares – 4.97% of business – 13.64M common shares & the rest in American style call options. 13D/A – 9/27 – 84M shares – 5.6% of business – 13.93M shares in common shares & the rest in American style call options. 13D/A – 9/7 & 15/2017, 8/31 – ADP – 36.8M shares – 8.3% of business – 8.8M shares in common stock and the rest in American style call options. 13G/A – 9/12/2017 – NOMD – 0 shares."