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T2 Accredited Fund Letter to Investors-Nov 11

T2 Accredited Fund Letter to Investors-Nov 11

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Published by VALUEWALK LLC
Whitney Tilson, T2 partners, hedge fund letters
Whitney Tilson, T2 partners, hedge fund letters

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Published by: VALUEWALK LLC on Dec 16, 2011
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The GM Building, 767 Fifth Avenue, 18
Floor, New York, NY 10153
Whitney R. Tilson and Glenn H. Tongue phone: 212 386 7160 Managing Partners fax: 240 368 0299www.T2PartnersLLC.com
December 1, 2011Dear Partner,Our fund fell 0.6% in November vs. -0.2% for the S&P 500, +1.2% for the Dow and -2.3% forthe Nasdaq
. Year to date, it’s down 2
5.0% vs. +1.1% for the S&P 500, +6.7% for the Dow and-0.5% for the Nasdaq.On the long side, our three winners of note were Grupo Prisa (B shares) (18.9%), Iridium (stock 11.8% and warrants 4.0%), and AB InBev (8.2%). These gains were more than offset by Netflix(-21.4%), Sears Canada (-16.7%), Citigroup (-13.0%), Goldman Sachs (-12.5%), and dELiA*s(-10.7%).Our short book did well during the month and is now in the black on the year (meaning that all of our losses are on the long side). Our biggest winners in November were Career Education(-56.2%), Green Mountain Coffee Roasters (-19.4%), Nokia (-14.0%), Lululemon (-12.0%), ITTEducational Services (-11.3%), and Salesforce.com (-11.1%). Our only loser of note wasInterOil (+15.1%).
Tax Estimates
Tax estimates through the end of October will soon be available, so if you would like to receiveyours please email or call Kelli at KAlires@T2PartnersLLC.com or (212) 386-7160.
’s stock jumped
after the company reported very strong earnings on November 8
. Thecompany soundly beat analysts
’ estimates and its own guidance
for revenue, margins, EBITDA,and subscriber growth, with particular strength in both the machine-to-machine and legacycommercial voice product lines. Operational EBITDA margin hit a new high of 53.5% andmanagement raised its 2011 outlook for subscriber growth (up 25% year over year) andoperational EBITDA (up 20% year-over-year to ~$190 million). As an added bonus, the
company said it would pay “
negligible cash taxes from 2011 to approximately 2020
 We think this earnings report should assuage the co
ncerns we’ve heard from investors and
analysts, and are optimistic that it will prove to be a turning point for the stock, which we believeis deeply undervalued.
Grupo Prisa
Grupo Prisa received a boost in November when Mexican billionaire Carlos Slim acquired a3.2% stake (see article in Appendix A). We think the stock will receive another boost in the nextfew weeks when the company announces that it has successfully refinanced its debt.
As background, this is what we wrote in our September letter: 
Spain and Portugal are going through a crisis similar to the one the U.S. went through in late
2008, so it’s not surprising that the stock of a company with 77% of its revenues in
these two
countries is suffering. It’s also not surprising that the company’s operating performance has been
affected by the deep recession in its primary markets, though the company is holding upremarkably well in light of this: in the first half of 2011, revenues were down only 1.2%, adjusted
EBITDA rose 3.6%, and the company’s restructuring and cost
-cutting is on track.Prisa, however, needs to refinance its debt to give it breathing room to get through the currentcrisis. Our discussion with management and others
plus our own experience
leads us to havea high degree of confidence that Prisa will be able to do so successfully, but the uncertainty isweighing heavily on the stock.
Netflix and Green Mountain Coffee Roasters
A couple of weeks ago we sent you an article we published entitled
“Why We’re Long Netflix
Short Green Mountain Coffee Roasters,” which is attached in Appendix B.
Since then, bothstocks have moved against us, making them even more attractive in our opinion.
gh we haven’t discussed it in some time, InterOil remains one of our largest
short positions.Our bearish thesis is being validated as the company continues to miss deadlines on itsunrealistic promises, which will likely never be fulfilled, yet the company still has a $2.6 billionmarket cap. We believe intrinsic value is zero.The government of Papua New Guinea appears to finally be waking up to this giganticpromotion
 because it’s
demanded that InterOil
find an “internationally
-recognized LNG[liquefied natural gas] operating partner
which is highly unlikely ever to occur, forreasons that are well articulated in this article,and will certainly not happen anytime in the near future. InterOil bulls are hoping for a partnership similar to the one between Oil Search and Exxon Mobil, but this deal took 
 five years
to reach final investment decision(FID). Real energy companies do not quickly make multi-billion dollar commitments in
one of the world’s
poorest, most corrupt countries, so even if InterOil has discovered a major natural gas field (which we highly doubt), it will take years to sign a deal with an
-recognized LNG operating partner,
yet InterOil has promised this in thevery near future.Here is a laundry list of what InterOil has promised by year-end:-
Secure FID with Mitsui for condensate stripping plant (CSP)-
Secure FEED [front-end engineering design] and FID with Energy World Corp.for modular LNG plant-
Secure FEED and FID with Flex LNG on floating LNG plant-
Sign definitive agreement with Noble Group for offtake of 1MTPA [million tonsper annum]-
Secure “internationally
recognized LNG operating partner”
Sign additional Heads of Agreement for 1-2MTPA offtake
With less than a month to go in the year, the only one of these that IOC has delivered on is thelast one, announcing recently
that it had signed “a Heads of Agreement (HOA) with Gunvor 
Singapore Pte. Ltd., for the supply of one million tonnes per annum (mtpa) of liquefied natural
gas (LNG).”
However, Gunvor, according to Wikipedia,has unsavory ties: Following the major Wikileaks release of US State Department cables in November 2010, it was reported by the London Daily Telegraph
 that the wealth of Russian PrimeMinister Vladimir Putin is linked to a "secretive Swiss-based oil trading firm" called Gunvor. It said that John Beyrle,the United States Ambassador to the Russian Federation  stated that close connections exist between Gunvor and the Russian Government and thathe reported: "its secretive ownership is rumoured to include prime minister Putin."The whole point of an offtake agreement is so lenders will provide the billions of dollars that thisproject would cost
but we question whether anyone would lend such a large amount of moneyagainst an agreement with a firm like Gunvor.For the most in-depth expose of InterOil, see this article,which links to 12 pages starting here.  For a more recent take, see this article. 
 Thank you for your continued confidence in us and the fund. As always, we welcome yourcomments or questions, so please don
t hesitate to call us at (212) 386-7160.Sincerely yours,Whitney Tilson and Glenn TongueThe unaudited return for the T2 Accredited Fund versus major benchmarks (including reinvesteddividends) is:November Year-to-Date Since InceptionT2 Accredited Fund
net -0.6% -25.0% 113.9%S&P 500 -0.2% 1.1% 27.9%Dow 1.2% 6.7% 76.8%NASDAQ -2.3% -0.5% 24.2%
Past performance is not indicative of future results. Please refer to the disclosure section at the end of this letter. The T2Accredited Fund was launched on 7/1/04.

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