1221 Avenue of the Americas, Suite 4200

New York, NY 10020

(212) 920-4207
Thursday, April 2, 2015
Dear GreenWood Investor:
In last quarters letter, we re-characterized last year as Much Ado About Europe, instead of Much Ado About Nothing, as
the returns did not reflect the progress we had made. In the first quarter of this year, our much-discussed outstanding
opportunities in Europe have started to manifest satisfactory returns for our portfolio. Our consolidated accounts have
returned 15.0% and our Global Micro strategy returned 18.7%, with much of the lag in the consolidated returns due to
inability of multiple accounts to hedge currency. We owe our gratitude for the returns in the quarter entirely to the great
managers running our European investments, as nearly all of the performance came from Sergio Marchionne and John
Elkann at Fiat and Exor, Mauro Moretti at Finmeccanica, Carlos Ghosn at Renault, Rodolfo DeBenedetti at CIR Group, and
the Tonnards at Audika, who agreed to sell their company during the quarter for a satisfactory take-over premium that was
63% over our cost basis. While an emerging recovery in Europe helped most of these companies, these managers have
been outperforming their European and global peers. Our performance has been determined more by these special
situations than by the macroeconomic fundamentals in Europe. All of them remain significantly undervalued and price in no
recovery of any significance in Europe. Furthermore, European markets are dramatically less competitive than the US
market, as we explained in our most recent vignette (click here to watch). We continue to have a robust pipeline of high
quality and cheap companies and are optimistic that we can refresh the portfolio with opportunities that have even better
risk-adjusted return characteristics.
Exhibit 1: GreenWood Performance1 vs. SPDR S&P 500 ETF (SPY)
2010
GW

SPY

January
February
March
April
May
June
July
August
September
October
November
December

3.1%

Year to Date

3.1%

Correlation

2011

2012

2013

2014

2015

GW
4.4%
-0.8%
-1.1%
-3.8%
-1.8%
-1.2%
3.0%
4.2%
-0.6%
-3.7%
-5.2%
1.7%

SPY
4.6%
4.3%
3.2%
-0.7%
-6.0%
4.1%
1.2%
2.5%
2.5%
-1.8%
0.6%
0.9%

GW
3.8%
-4.9%
0.7%
6.1%
6.8%
-8.0%
6.6%
-4.5%
2.4%
2.4%
0.6%
2.6%

SPY
5.1%
1.3%
3.8%
1.9%
2.4%
-1.3%
5.2%
-3.0%
3.2%
4.6%
3.0%
2.6%

GW
4.7%
3.8%
0.7%
-1.2%
-2.1%
0.4%
-3.9%
0.3%
-3.7%
1.7%
1.8%
-1.0%

SPY
-3.5%
4.6%
0.8%
0.7%
2.3%
2.1%
-1.3%
3.9%
-1.4%
2.4%
2.7%
-0.3%

GW
SPY
3.4% -3.0%
10.5% 5.6%
0.6% -1.6%

1.3%

GW
SPY
0.5% 2.3%
0.5% 3.5%
-0.4% 0.0%
-0.2% 2.9%
-2.1% -1.1%
-0.7% -1.7%
-1.6% -2.0%
-1.7% -5.5%
0.2% -6.9%
4.2% 10.9%
0.6% -0.4%
-0.7% 1.0%

1.3%

-1.6%

-5.2%

16.0%

14.3%

32.3%

1.1%

13.5%

15.0%

NM

1.9%

75.3%

43.3%

72.2%

22.5%

0.9%

NM

Cumulative

27.8% 81.2%

Annual Compounded Rate

5.8%

14.7%

What a difference a year makes. At the beginning of the same quarter last year, Fiat acquired the remaining minority
interest in Chrysler, at what effectively was an all-in price of 1.1x Chryslers cash flow. Since then, Chryslers cash-flow has
risen 8%, its net cash position has increased 69%, and the dollar has appreciated by 26%. Thus, thanks to Sergio
Marchionnes unrivaled capital allocation ability, even if 1.1x cash-flow was a reasonable valuation (its not!), and we hold
this multiple steady, the value of Chrysler to Fiat has risen 48% in just one year. Even after Fiat-Chryslers (FCA) terrific
recent performance, it remains the cheapest global OEM, aside from Renault, yet also happens to have the best margin
GreenWood Investors LLC claims compliance with the Global Investment Performance Standards (GIPS) and has prepared and presented this report in compliance with
the GIPS standards. GreenWood Investors LLCs composite has not been independently verified. The composite includes all managed accounts following the Oak, Pine, and
Cypress strategies since the firms inception, and net returns are measured in US dollars, net of any commissions, wire fees or management fees. The firms list of composite
descriptions is available upon request. Due to market volatility, each accounts performance may be different. Differences in account size, timing of transactions and market
conditions prevailing at the time of investment, may lead to different results among accounts. In very infrequent circumstances, some accounts have securities that are not
contained in the model portfolio, which also influence variation between account performances. Past performance is no guarantee of future results.
1

improvement trajectory of the lot. As the euro declines, some market participants are predicting that the euro will reach
parity with the dollar. Because nearly all of Fiat-Chryslers profits are generated outside of the eurozone, and it will
increasingly export vehicles from Italy, if such a scenario were to come true, we believe Fiat will be able to produce over
10 per share in annual cash-flow in the near future (2016-2017). In short, without any heroic assumptions, substantial
upside remains in shares of FCA, which will be spinning off Ferrari later this year. Accordingly, we have not sold any shares.
Instead, in order to mitigate some of the near-term risk that shares pull back, we covered our euro short which was
partially hedging our position in Fiat-Chrysler as well as our other European holdings.
It became apparent during the quarter that the precipitous rise in shares of FCA was directly correlated to the trading
performance of the sinking euro. If the euro continues to fall, we will be happy because the competitiveness of our
holdings will continue to improve against US peers, yet if the euro stages a come-back rally, well also enjoy the
appreciation which will probably offset much of the stock declines if traders decide to ignore the underlying improvement
in the fundamentals at FCA, Finmeccanica, and Renault, among the others.
Related to Fiat is our investment in the holding company Exor, which recently began exploring a sale of its controlling
position in Cushman Wakefield, a leading commercial real estate broker and manager. Despite the fact that C&W is
growing much faster than its peers, if a sale were to fetch only an equivalent valuation to industry-leader CBRE, it would
net Exor $1.5 billion (tax free). Such a valuation would put Exors discount to net asset value (NAV) near 40%, where the
company has bought back stock in the past. Thus, Exor shares continue to remain attractive even after its run.
Exhibit 2: GreenWood Model Portfolio Composition2 as of 3/31/15

Risk-Adjusted Return Profile*

1:1

10%

3:1

5:1

Cash

SDS

8:1

13:1

DUG

ADI FP
Bought Out

CIR IM

25%

HRTX

RESI

UHAL

Research

Research

50%

TRGT

65%
International

EXO IM
Research

RNO FP
Research

Research (8/14)
Video (9/14)
Video (1/14)

MCF

Research PTNT

RHK GR
FNC IM
Video (12/14)
Update (3/15)
Rebuttal (2/15)

FCA IM

ABCP

>80%

-->

AREX

MSTX

Better

ROOIC
NM

2.1

Biotech
Co.
UK Small
Cap

CNE LN
Research
Note (6/14)

Special Situation

Better
*Represents GreenWoods approximate estimate of fair value versus downside risks as of the date listed above.

Special situations and deep value are not descriptors that one would characterize many US stocks these days, hence our
continued focus on generating foreign opportunities. Even still, from pockets of extreme euphoria, such as in biotech
valuations today, the inevitable despair will come. Given frothy valuations often collapse at the onset of the first piece of
bad news, we believe the outlook for biotech blowups is turning up. Just yesterday we started buying shares of a recent
blowup, as traders have lamented the setback the companys latest stage cancer drug has had, even though we dont
think the program is six feet under already. The most exciting program in the companys pipeline is a compound that, if
early evidence repeats itself in subsequent data we will receive later this year, could be on a path to being able to
effectively constrain energy to nearly any solid cancer tumor. Yes, it sounds like a moonshot, but one that were getting for
Each accounts balance may vary due to differences in strategy, account sizes and rounding of positions, as well as inclusion or exclusion of certain illiquid securities and
currency hedges. New accounts will not conform to the model account in cases where securities no longer fit GreenWoods initial investment criteria.
2

free. The companys medical efforts are run by the former head of Genentechs envied (and later acquired) cancer
programs of Herceptin, Tarceva, and Avastin. Given our limited downside over the next year, floored by the companys
healthy cash position, we are quite happy with the price weve paid for this moonshot pipeline of cancer drugs with a very
able manager overseeing their development.
In a couple of quarters, we will own shares of Ferrari as FCA spins out the shares to us. The valuation premium given to
Ferrari will be interesting to watch, as brands of comparable strength are either private (Lego, Red Bull and Rolex) or are
wrapped into much larger companies (Coca Cola, Disney, or Nike), where the brand premium is less apparent. The
valuation could get quite ridiculous given Ferraris tremendous global fan base, yet even if it is priced at only 10x cash-flow
(EBITDA), in line with transactions of weaker comparables such as Aston Martin and Ducati, shares should be worth 3.50
per FCA share. Backing this out of FCAs recent share price, the company is trading at just 2.9x this years cash-flow,
roughly half of where peers trade. Additionally, having crystalized and separated the value of Ferrari from its less valuable
siblings, FCA will be in a better position to merge with an Asian competitor that wishes to gain the scale of a top ten OEM.
Additionally, we know that numerous automotive companies have attempted to poach Marchionne away from the helm of
Fiat-Chrysler in order to work his magic on other other turn-arounds. After a Ferrari spin-off, we wouldnt be surprised if
FCA agrees to a takeover by a company in desperate need of better management. Winterkorn of Volkswagen is the most
obvious underachiever in the world, and the company has a controlling family in love with red cars from Italy. We need no
buyout to do well in shares of both companies, in fact, a buyout would likely rob us of the robust margin expansion at Fiat
in 2017-2018, but just like Audikas recent acquisition, and Rhn Klinikums likely take-out, sometimes very public gestures
turn into definitive agreements.
The early performance of our investment in Finmeccanica has been quite satisfactory, as shares have risen over 44%, but
the valuation has risen only 5-15% (which we detailed in this recent update). Judges selected by SumZero, a website
which the professional investment community uses to share research and ideas, chose Finmeccanica as the first place
winner of its special situations contest, As profiled in this piece on CNBC, Finmeccanica received the most votes of any
contest the website has ever run, and we were thankful for both the feedback and exposure. And despite an anonymous
bear trying to poke holes in our investment rationale on Seeking Alpha, the author reinforced our confidence in the
soundness of the investment, which is still undervalued after the recent appreciation. Mauro Moretti has yet to meaningfully
implement his restructuring plan, which has the potential to lift the companys free-cash-flow to over 2 per share without
any improvement in the companys end markets. Given the typical peer trades at a 5% FCF yield, this means Morettis plan
provides a roadmap to shares reaching up to 40 per share. Weve detailed our rebuttal to the bearish argument in a
twenty-page response, which can be read by clicking here.
Last month we began acquiring shares in Europes largest stand-alone regional airline, Flybe Group PLC (FLYB LN). While
we know decades of Warren Buffet's criticism of airlines have conditioned that a red flag be thrown up at the news of any
airline investment, Flybe's operating model has avoided all of the problematic aspects of the industry. Its plan emulates the
flight paths that other highly successful and profitable carriers such as Ryanair, Allegiant and Dart Group have taken to
generate solid and defendable returns on invested capital. Flybe has no direct competition on 90% of its routes, so the
typical price competition that large airlines face is absent on nearly all of its routes. Quite often, Flybe is competing against
a five hour drive or a much slower train ride that's only a few quid cheaper. Shares were cut in half when it announced its
quarterly results in January, in line with guidance, but included a non-cash impairment in conjunction with the company's
exit from an unprofitable joint venture (which alone, is of course accretive and good news). The CEO of Flybe, who
previously served as the CCO of easyJet, has completely transformed the business over the past year, ridding the airline of
customer concentration, a stretched balance sheet, excess employees, and unprofitable routes. These are the major
factors which have driven airlines into restructuring.
Instead, Flybe is constantly testing new routes, and is set to expand its fleet and routes significantly in the coming years.
This growth will come at a perfect time, as the company will be able to lock in $60-70 oil. Given it has no price competition
on nearly all of its routes, the increased capacity, coupled with better profitability from lower oil prices will lift Flybe's fair
valuation to over ten times its current price. Should the average British household's disposable income finally start to grow
after a stagnant decade, and this increased capacity comes during a recovery in British travel, fair value could be worth
more than twenty times todays trading levels. Given Flybe raised capital through a rights offering (at twice today's price), it
has a very clean balance sheet, allowing it to weather any turbulence that the CEO's transformation plan could produce.
As easyJet, Ryanair and many others show, being a low cost provider of transportation on routes with no competition can
offer abnormally high returns. With both airline and turn-around experience, the CEO is going where the competition is low
(or nonexistent) with no need for additional capital in an industry with significant operating leverage that few try to master.
No wonder he and other managers and board members have been buying stock recently. Even ahead of British elections,
3

we thought it was a fairly decent time to join them. Conveniently, Flybe also offers a natural offset to a likely increase in our
oil & gas exposure in the coming months, as too many high-quality names have plummeted to valuation discounts not
seen since 2009. While we are sanguine as to the direction in the oil price, some companies are now pricing in $25-30 oil,
a level at which nearly every oil field in the world cannot earn a positive return on capital.
We are doing diligence on numerous other British companies and are keen to see some turbulence in London markets
around the national election in May. When we began the quarter, our portfolios risk-adjusted return profile was 13.8x and
the return on our invested capital was 60%. Through selling down some of our less attractive positions, and adding a
couple compelling opportunities, weve managed to maintain a return profile of 11.0x and a return on our invested capital
of 55% despite our core positions rising. Were working harder than ever to force out lower-return prospects and replenish
the portfolio with better candidates. While our cash position has gone down to 11% of the portfolio, adding the cash that
will be returned to us through Audikas take-out and Targacepts reverse-merger, the portfolios cash position rises to 17%.
Additionally, because our companies are conservatively capitalized, cash net of debt sitting within the companies we own
represents an additional 13%. Even with this conservative positioning, well still opportunistically continue to prune the
portfolio to ensure the odds are stacked heavily in our favor.
In the coming days, well release our report on Flybe, with a one-page summary of the opportunity, as weve done for all of
our reports recently. Were continuing our efforts to keep you knowledgable and up to date on all of our holdings without
creating a significant reading burden. Our videos have been incredibly well received, and the audience reach has been
logarithmically larger than that of our old conference calls. Financial blogs have been very supportive of our research, to
which we are very thankful. Yet given the responsibility that comes with keeping public ideas up to date, we are confining
the reports of the smaller companies to our email distribution list only, or anyone who emails us asking for the report.
Eventually, well have a password-protected website, but until then, well send these reports out via email.
In the mean time, please dont hesitate to email or call with observations, questions or concerns. Thank you for your
patience and support, it has helped us create a truly unique investment management firm that we will keep innovating.
Please let us know immediately if you see any area for improvement or innovation!
Annuit cptis,

Steven Wood, CFA

This letter has been distributed for informational purposes only. Neither the information nor any opinions expressed constitute a recommendation to buy
or sell the securities mentioned, or to invest in any investment product or strategy related to such securities. It is not intended to provide personal
investment advice, and it does not take into account the specific investment objectives, financial situation or particular needs of any person or entity that
may receive this letter. Persons reading this letter should seek professional financial advice regarding the appropriateness of investing in any securities
discussed in this article. The authors opinions are subject to change without notice. Forecasts, estimates, and certain information contained herein are
based upon proprietary research, and the information used in such process was obtained from publicly available sources. Information contained herein
has been obtained from sources believed to be reliable, but such reliability is not guaranteed. Investment accounts managed by GreenWood Investors
LLC and its affiliates may have a position in the securities discussed in this article. GreenWood Investors LLC may re-evaluate its holdings in such
positions and sell or cover certain positions without notice. No part of this letter may be reproduced in any form, or referred to in any other publication,
without express written permission of GreenWood Investors LLC. Past performance is no guarantee of future results.