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Chuck Royce's Firm Adds Bristow Group to Portfolio, Boots Pzena Investment Management in June

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GuruFocus.com
·6 min read
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Royce Investment Partners revealed this week it made several changes to its portfolio in June.

The New York-based firm, which was founded in 1972 by Chuck Royce (Trades, Portfolio), specializes in small-cap companies. The portfolio management team picks stocks based on an active, bottom-up, risk-conscious and fundamental approach. They also search for value opportunities among companies trading at a discount to enterprise value.


According to Real-Time Picks, a Premium GuruFocus feature, the firm gained a new position in Bristow Group Inc. (NYSE:VTOL), added to its Universal Stainless & Alloy Products Inc. (NASDAQ:USAP) holding and divested of Pzena Investment Management Inc. (NYSE:PZN) on June 30.

Bristow Group

Royce's firm acquired 515,580 shares of Bristow Group, allocating 0.10% of the equity portfolio to the position. The stock traded for an average price of $13.93 per share on the day of the transaction.

The Houston-based company, which provides helicopter transportation, search and rescue and aircraft support services to government and civil organizations worldwide, has a $405.17 million market cap and an enterprise value of $425.56 million; its shares were trading around $13.07 on Thursday.

On June 11, Bristow announced it had completed its merger with Era Group Inc. (NYSE:ERA) and began trading under a new ticker, VTOL, the following day. The price chart shows the stock has fallen nearly 15% since June 12.

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Prior to the agreement, Royce Investment Partners held a 1.6 million-share stake in Era Group. The structure of the deal was a reverse triangular merger, where each share of legacy Bristow preferred stock issued and outstanding was converted into 5.179562 shares of legacy Bristow common stock. After the deal closed, each share of legacy Bristow common stock was converted into 0.502096 shares of Era common stock. Similarly, prior to the merger's close, Era conducted a reverse stock split, where its common stock was reclassified into a smaller number of shares. As such, shareholders of Era now own one share of common stock of the combined company for every three shares held previously.

Legacy Bristow shareholders now own 77% of the combined company's equity, while legacy Era shareholders own 23%.

Royce Investment Partners has a 1.67% stake in the company.

Universal Stainless & Alloy Products

The firm increased its holding of Universal Stainless & Alloy Products by 26.19%, buying 193,450 shares. The traded had a 0.02% impact on the equity portfolio. Shares traded for an average price of $8.60 each on the day of the transaction.

According to GuruFocus, the firm has lost an estimated 46.31% on the investment.

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The steel manufacturer, which is headquartered in Bridgeville, Pennsylvania, has a market cap of $71.31 million and an enterprise value of $147.35 million; its shares were trading around $8.25 on Thursday with a price-earnings ratio of 43.42, a price-book ratio of 0.3 and a price-sales ratio of 0.31.

The Peter Lynch chart shows the stock is trading above its fair value, suggesting it is overpriced. The GuruFocus valuation rank of 7 out of 10, however, leans more toward undervalued territory.

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Universal Stainless & Alloy Products' financial strength and profitability were both rated 5 out of 10 by GuruFocus. Weighed down by $1.9 million in new long-term debt, the company's Altman Z-Score of 2.07 indicates it is under some pressure. The weighted average cost of capital also surpasses the return on invested capital, suggesting it spends more money than it makes.

The company also has margins and returns that underperform at least half of its competitors, but the moderate Piotroski F-Score of 5 implies operations are stable. Due to a decline in revenue per share over the past 12 months and an operating income loss, the predictability rank of one out of five stars is on watch. According to GuruFocus, companies with this rank typically see their stocks gain an average of 1.1% annually over a 10-year period.

Royce's firm has a 10.59% stake in the company, representing 0.11% of its total assets managed.

Pzena Investment Management

Royce's firm divested of its 400,792 remaining shares of Pzena Investment Management, impacting the equity portfolio by -0.02%. On the day of the transaction, the stock traded for an average per-share price of $5.44.

GuruFocus estimates the firm has lost 23.11% on the investment since establishing it in the second quarter of 2015.

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The New York-based investment management company that was founded by Richard Pzena (Trades, Portfolio) has a $352.94 million market cap and an enterprise value of $391.29 million; its shares were trading around $4.95 on Thursday with a price-earnings ratio of 10.74, a price-book ratio of 16.09 and a price-sales ratio of 2.51.

According to the Peter Lynch chart, the stock is undervalued. The GuruFocus valuation rank of 9 out of 10 aligns with this assessment.

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GuruFocus rated Pzena Investment's financial strength 7 out of 10. In addition to comfortable interest coverage, the company has a robust Altman Z-Score of 5.67 despite having poor earnings quality based on its Sloan ratio and its assets building at a faster rate than revenue is growing. The ROIC surpasses the WACC, however, which indicates it has good profitability.

Despite having declining margins, the company's profitability scored an 8 out of 10 rating. Pzena Investment has strong returns that outperform a majority of industry peers as well as a moderate Piotroski F-Score of 4. As a result of declining revenue per share over the past year, the one-star predictability rank is on watch.

Of the gurus invested in the company, Jim Simons (Trades, Portfolio)' Renaissance Technologies has the largest stake with 1.45% of outstanding shares. Mario Gabelli (Trades, Portfolio) also owns the stock.

Portfolio composition and performance

Nearly half of Royce Investment Partners' $7.34 billion equity portfolio, which is composed of 1,149 stocks, is invested in the industrials and technology sectors as of the end of the first quarter, followed by smaller holdings in the financial services and consumer cyclical spaces.

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According to the firm's website, the Royce Premier Fund returned 34.13% in 2019, outperforming both the S&P 500 Index's return of 31.49% and the Russell 2000's 25.52% return.

Disclosure: No positions.

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This article first appeared on GuruFocus.