Third Avenue Value Fund's Top 4th-Quarter Buys

Value fund invests in Bank of Ireland and offshore drilling

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Jan 08, 2020
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Earlier this week, the

Third Avenue Value Fund (Trades, Portfolio) disclosed its portfolio updates for the fourth quarter of 2019. During the quarter, the fund established a new position in The Drilling Company of 1972 A/S (OCSE:DRLCO, Financial) and sold out of its position in Transocean Ltd. (XSWX:RIGN). The most significant additions to existing positions were in Bank of Ireland Group PLC (LSE:BIRG, Financial) and Subsea 7 SA (OSL:SUBC, Financial), while the biggest reductions were Koninklijke Boskalis Westminster NV (XAMS:BOKA) and Buzzi Unicem SpA (MIL:BZU).

About Third Avenue

Third Avenue Management (Trades, Portfolio) was founded by legendary investor Martin J. Whitman in 1986. The Third Avenue Value Fund started in 1990 as the successor to Whitman’s first mutual fund. In Whitman’s words, the fund is “guided by an adherence to price consciousness and a deep understanding of underlying business fundamentals and asset values. Third Avenue rarely, if ever, invests alongside the galloping herds.” The fund’s investment strategy revolves around those words to this day, with portfolio managers Matthew Find and Michael Fineman seeking stocks trading below intrinsic value that can compound their asset values at double-digit rates.

As of the quarter’s end, the fund owns shares in 28 stocks with a value of $602 million and a turnover rate of 6%. The top holdings are Interfor Corp. (TSX:IFP) at 7.51%, Bank of Ireland Group at 7.4% and Lundin Mining Corp. (TSX:LUN) at 7.03%. In terms of sector weighting, the Fund is most heavily invested in basic materials, financial services and consumer cyclicals.


Bank of Ireland Group PLC

The Third Avenue Value Fund’s largest buy in the fourth quarter was 3,536,277 shares of Bank of Ireland Group, which impacted the equity portfolio by 2.83% and nearly doubled its holding in the company. Shares traded at an average price of 3.75 euros ($4.17) during the period.


Bank of Ireland is one of Ireland’s largest lenders. In terms of its operations, it is a fairly traditional bank that primarily collects deposits to provide retail and commercial loans and provide treasury functions in both Ireland and the U.K.

As of Jan. 8, the company has a market cap of 5.31 billion euros, a price-earnings ratio of 11.51 and a cash-debt ratio of 0.36. In recent years, it has generally decreased its debt relative to cash.


The bank’s stock price has not recovered from the 2008 financial crisis as of the writing of this article, despite its operations and earnings recovering (though not quite to pre-recession levels due to decreased interest rates). According to the fund’s shareholder letter from the 2019 second quarter, “from an earnings yield perspective, the shares currently offer a substantial premium to long-term equity market returns.”


The benchmark interest rate in the eurozone is expected to remain around 0.25% throughout 2020, but 2008 forced many of the Bank of Ireland’s smaller competitors to close their doors, allowing room for it to potentially take over a greater share of the market.

The Drilling Company of 1972 A/S

The fund’s only new holding for the quarter was The Drilling Company of 1972, which it bought 187,335 shares of, impacting the equity portfolio by 1.76%. During the quarter, shares traded at an average price of 383.02 Swedish krona ($40.52).

The Drilling Company of 1972, headquartered in Denmark, was spun out of parent company Maersk A/S (OCSE:MAERSK A), the largest container shipping company in the world, in April 2019. With the drilling sector facing oversupply and reduced demand in the market as Europe continues to up its production of alternative fuel sources, the spinoff aims to make the company more focused on drilling. TDC is considered a strong competitor in the mid-sized rig market, partially because more than half of its rigs have harsh environment jack-ups.

As of Jan. 8, the company has a market cap of 18.8 billion krona, a price-earnings ratio of 3.51 and a cash-debt ratio of 0.24. The company’s process of rebranding and restructuring has reduced its debt and put in in a stronger position to succeed.


According to the Third Avenue Value Fund’s third-quarter shareholder letter, it is buying TDC because it offers “various aspects of special situations investing, a strong financial position and a dominant position in unique niche within offshore drilling.” The spinoff allows investors to take advantage of the drilling company’s potential without the overhead of shipping giant Maersk.

Subsea 7 SA

The Fund upped its stake in Subsea 7 by 622,330 shares, more than doubling its holding and impacting the equity portfolio by 0.97%. Shares traded at an average price of 90.97 krona during the period.


Subsea 7 is a Luxembourg-based contractor operating in the offshore energy industry. It has also diversified into the renewable energy industry through the construction of wind farms.

As of Jan. 8, the company has a market cap of 32.18 billion krona, a price-earnings ratio of 40.65 and a cash-debt ratio of 0.6. According to the fund’s shareholder letters, the company’s strong balance sheet, including a cash position greater than its long-term debt, serves to make the business attractive.


“Recent rampant selling in equity markets gave us an opportunity to purchase a very high-quality company,” reads the fund’s fourth-quarter 2018 shareholder letter in regards to its initial purchase of Subsea 7 shares. A year later, the share price has decreased despite increasing revenue and net income, making it even more of a value buy.


Disclosure: Author owns no shares in any of the stocks mentioned.

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