market folly

Bill Ackman's Pershing Square has put out its mid-year report which includes commentary on their investments.  They also disclose that they previously owned a stake in Hilton (HLT) but recently sold it after the spin-offs took place.

In the letter, they also write about their latest investment, Automatic Data Processing (ADP):

"ADP is a classic Pershing Square investment. It is a simple, predictable, free-cash-flow generative business that has under performed its potential. As a conservatively financed, capital-light business with long-term customer relationships in a sector with substantial positive growth, we believe it has modest downside. If it is able to achieve its potential, we believe it offers substantial upside. We acquired ADP for the funds along with a co-investment vehicle (PSVI) which we recently raised to increase our ownership of the company.  We believe that ADP is one of the highest quality businesses we have owned, and one which offers an enormous opportunity for operational improvement.

They also provide an update on their stake in Chipotle (CMG), noting that the company has battled another setback with a norovirus incident in Virginia.  That said, Pershing feels that the company is still on the right track.  They write,

"We made our investment in Chipotle anticipating that the sales recovery would be neither smooth nor predictable,but with a belief that the key drivers of Chipotle’s powerful economic moat and long-term success would remain intact. With the steps that the company has taken to improve its business, we continue to believe there is an enormous long-term growth opportunity for Chipotle given: (1) the significant potential to drive sales per restaurant higher through mobile and digital ordering, menu innovation, catering, and improved operations, (2) the opportunity to expand its vastly under penetrated restaurant base in the U.S., and (3) the considerable potential to build the brand internationally."

Their letter also touches on Mondelez (MDLZ), Howard Hughes (HHC), Air Products (APD), Restaurant Brands (QSR), Platform Specialty Products (PAH), Nomad Foods (NOMD), and Fannie Mae/Freddie Mac, as well its short position: Herbalife (HLF).


Embedded below is Pershing Square's Q2 letter:



You can download a .pdf copy here.