Julian Robertson Sells Half of Stake in John Paulson-Backed Company

Hedge fund pioneer was fourth largest shareholder of 'medical foods' company

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Jul 01, 2016
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Roughly a year after starting to invest in the company, Julian Robertson (Trades, Portfolio) has chopped half his stake in Enzymotec Ltd. (ENZY, Financial), a maker of nutritional ingredients and medical foods.

Robertson sold 565,738 shares in the company on July 1, retaining 577,407 shares, or 2.5% of the company. He had started an Enzymotec position in the third quarter of 2015 with 804,854 shares, and increased it to 1,162,854 shares the next quarter, making him fourth largest shareholder. The stake brought him little if any return, trading for an average of $9 during his original purchase and around $8 for his recent sell. Enzymotec ended the trailing 12 months down 5% and is down 13% year to date.

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Robertson is one of the early shapers of the long-short hedge fund model and founder of Tiger Management. On investing, he is known for saying, “Hear a [stock] story, analyze and buy aggressively if it feels right." His portfolio is valued at $399 million, and his top positions are Alphabet (GOOGL, Financial) and Delta Airlines (DAL, Financial).

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Robertson’s Fellow hedge fund manager John Paulson (Trades, Portfolio) is the second biggest shareholder of Enzymotec with an 18.6% stake as of Dec. 31.

Headquartered in Israel, Enzymotec started in 1998 and develops proprietary technologies that manufacture ingredients based on lipids, molecules necessary for functioning cells. It runs in two segments: VAYA Pharma, focused on specialty pharmaceuticals; and Nutrition, focused on compounds used in infant products and nutritional supplements.

The company has had fluctuating growth over the years. For the year 2015, its net revenue increased 7% from the previous year to $50.4 million and in 2014, dropped 27.5% to $47.1 million compared to 2013.

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For 2015, revenue in its Nutrition segment also declined by 3% caused mainly by sales of infant formula in China shifting from physical stores to online and a decrease in demand for krill products. VAYA Pharma net revenues jumped 50.2% as the company increased sales in the U.S. and Singapore.

Enzymotec noted in its 10-K that its infant formula ingredient accounted for almost 28% of sales, and most of it was to China. It listed import tax disadvantages and the slow shift to online sales as primary risk factors to its business. The company also has 12 top customers accounting for almost half of revenues and they do not have long-term contracts, subjecting it to large swings in sales at any changes in customer orders.

The company’s earnings shrank for the past two consecutive years, falling to $6.7 billion in 2015. It ended the year with no debt and cash of $21.99 million on its balance sheet, predicting the amount would meet operational needs for 12 months, after which it would have to raise more funding through debt or equity financing.

In the first quarter Enzymotec revenues jumped 23.6% to a record $14.0 million compared to first quarter 2015, with net income down 1.5% to $2.1 million, or 9 cents per diluted share for the same periods. It also generated $3.3 million in operating cash flows.

The company’s CEO, Dr. Ariel Katz, said the company planned to into new markets in Asia, the Far East and South America, and expected a productive sales team and investments in research and development to fuel growth.

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Paulson’s stake in the company appeared when it went public in 2013 and its average price was $24. He sold the 1,733,030 shares at a high average price of $27 the next quarter, but bought back in during the fourth quarter when the price averaged $17 at an even higher stake of 4,224,139, which he continues to hold.

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Enzymotec has a price-earnings ratio of 30.5, price-sales near a one-year low of 3.48 and price-book near a one-year low of 1.29.

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