H1 2024 Portfolio Review
An update to performance, portfolio positions, and thoughts on the future.
Disclosure: I may add, reduce, or sell any position without notice. This portfolio is strictly informative, includes my opinions and does not constitute as financial advice. Please do your own due diligence.
I’m a couple weeks late to breakdown my 1st half ‘24 portfolio results, but for the sake of staying consistent, I wanted to post them. 2024 has started off as such:
My portfolio: + ~24.6% Money-weighted IRR YTD
S&P 500: + ~18.5% YTD
The SPX is being carried by the MAG7, which has contributed to 63% of gains through the end of June. I’m somewhat pleased with the start of 2024, as I see multiple levers in my portfolio for continued value accretion. I will discuss my top 3 conviction positions in further detail below:
Current Portfolio Sizing:
DRX.TO - 23.4%
XPOF - 19.7%
APP - 15.8%
META - 12.4%
MUSA - 10.8%
CLMT - 9.4%
ADYEY - 8.2%
CUTR - 0.2%
ADF Group (DRX.TO):
This is my largest position, as DRX has performed 90+% YTD. However, I have added to the position after Canadian tax changes and selling from insider, Marshal-Barwick Holdings, have forced a recent pullback. DRX is still trading at ~6x EV/EBITDA, with a large contract backlog, a recent dividend increase, and a share repurchase program of ~9% of float active. There has also been insider purchases from the CFO and Directors, signaling operational optimism. Although I don’t put a strong premium on insider purchases, I feel that ADF will continue to spur more cashflow then they know what to do with, likely leading to continued dividend growth and (hopefully) an increased repurchase agreement, as I think shares are still mis-priced. I believe that ADF Group will continue to be a beneficiary of near-shoring infrastructure expansion in Canada and the U.S. for the next 24 months, driving enhanced capital returns in their future. Admittedly, this trend could persist for longer than 2-years, however, I’m being cautious, and evaluating any minor changes to my thesis as this is notably a cyclical industry.
I am still of the belief that cash flow and growth will persist, driving a multiple re-rating somewhere closer to a conservative 9-10x EBITDA. I’m aware that steel fabrication is not a sexy industry, and faces strong seasonality, but based on peers closer to 10-14x EBITDA, I still think a 50% multiple re-rating is fair, especially given how shareholder friendly management is. I feel comfortable holding shares of DRX in the near-term, as an enticing IRR and favorable downside risk may lead me to add, as the opportunity presents itself.
Xponential Fitness ($XPOF):
XPOF is my second largest position, and a story I’ve been following for nearly two years. I’m a big fan of franchise models, given their scalability potential and cash-flow generation. Xponential is a unique story, as they’ve undergone substantial (perceived) hardship in the last year. First, a short-report was published from Fuzzy Panda Research in June 2023, calling out the illegitimacy of former CEO, Anthony Geisler’s business practices. Additionally, they questioned the accounting measures, leading investors to believe that fraud had been taking place, with much more chaos ensuing on the franchisee side of the house.
Make a long story short, I didn’t buy the validity of these claims, and chose to initiate a position, on the sell-off of the security early in 2024. On May 10, 2024, Founder and CEO, Anthony Geisler was fired, with an interim CEO stepping in. On June 17th 2024, new CEO, Mark King was appointed. King was the former CEO of Taco Bell (under the Yum! Brands Group), bringing experience in scaling franchises, and a pedigree of success.
After the market penalized XPOF for what I deem to be faulty accusations, the board promptly made changes, and brought in a fresh face of the company. Despite this, shares have the highest short interest float in the history of trading. I am comfortable taking the long side of this trade, and find the work of the board to be not only impressive, but decisive, and addressed with a sense of urgency. I may post a writeup breaking down my thoughts in depth, but for now, I see substantial upside, as shares trade at ~10x NTM EV/FCF for a capital light growth story with strong brands, a consumer with high disposable income, and an international presence. Additionally, there’s a buyback in place, and a large opportunity for continued growth in FCF / Share & a large multiple re-rating, given the divisiveness of the security. I’m excited for XPOF to report results on August 1st, and to institute their path for continued growth in the future.
AppLovin Corporation (APP):
APP was my most recent writeup, and a hyper-scaled AI beneficiary ad-tech platform for mobile gaming. Despite the run-up YTD, I believe that APP provides some of the best risk adjusted reward in the market today. I won’t spend time breaking down the business, as you can read about it in-depth here. What I will say is that AppLovin is building an impressive ecosystem for app developers and mediation alike, that appears to be structurally advantaged from competitors in the industry. Trading at what I believe to be ~12-15x NTM FCF, with an already scaled software platform growing 91% year over year… it doesn’t feel like Mr. Market f*cks up like this too often. And unless something material changes in my thesis, I think this will be a winner for years to come.
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God bless.