Charles M. Royce is known as one of the pioneers of small-cap investing. He has been the CEO of The Royce Funds since 1972. For more than 40 years, the company has used a disciplined, value-oriented approach to select micro-cap and small-cap companies and it has approximately $30 billion in total assets under management as of 3/31/15. Royce is confident that he can create portfolios that can grow commendably, especially in the more historically typical market climate that he saw in the second half of 2012.
His portfolio is composed of 1,233 stocks with a total value of $26,432 Mil.
During the month of June 2015, the investor sold out his stake of UCP Inc (UCP). He bought the company during Q3 2013, and in the first quarter of 2015 he reduced his stake by 21%. He then closed his position, selling the other 79% during the second quarter of 2015, closing its holding with a total loss of 43%.
UCP is engaged in acquiring land, entitling and developing it for residential construction and selling residential lots to third-party homebuilders. It operates in two segments: homebuilding and land development. It competes with numerous national and regional homebuilding companies and with smaller local homebuilders and land developers for home buyers, financing, desirable land parcels, raw materials and skilled management and labor resources.
UCP is trading with a forward P/E of 16.84 and it doesn’t look cheap compared to the other companies in the Global Residential Construction industry that have an average P/E ratio of 11.57. Over the past five years, the stock dropped by 45% and almost all of this loss has been accumulated during the last 12 months, when the stock has been as high as $14.35 and as low as $7.14. Nowadays, the price is -46.27% from its 52-week high and +7.98% from its 52-week low.
The company's consolidated revenue grew by 69.9% and revenue from homebuilding operations increased 67.6% that was due to increased number of homes delivered. New homes deliveries grew by 134.6% and net new home orders improved by 202.4% as the result of an increase in average active selling communities. The company also reported more expenses; sales and marketing expenses rose $1.6 million more than same quarter in the prior year due to the significant increase in homes delivered and the number of selling communities being marketed. As a percentage of total revenue, sales and marketing expense was 9.6% in the first quarter, compared to 10% in the prior year period, primarily as a result of a lower transaction cost per home.
The company has a profitability and growth ratio of 4 out of 10, with few negative returns (ROE -4.92%, ROA -1.34% and ROC -3.21%) that are underperforming the 80% of the Global Residential Construction industry.
While Chuck Royce (Trades, Portfolio) sold out his stake, Arnold Van Den Berg (Trades, Portfolio) (now holder of 8.61% of outstanding shares) increased his stake by 10.13% during the same quarter. Another active Guru with shares of UCP is Third Avenue Management (Trades, Portfolio) that now holds 2.82% of shares outstanding.
Looking forward
As the company move forward in 2015, UCP is looking to become a larger and more efficient homebuilder in the West Coast and Southeast markets by achieving improvement in the gross margins for the second half of the year and driving additional leverage on the fixed costs.
