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FPA Capital Fund, Inc. (FPPTX)
First Half 2017 Webcast Presentation
Presented by:
Arik Ahitov, Portfolio Manager
Dennis Bryan, CFA, Portfolio Manager
First Pacifi
c Advis
ors, LLC
■ Absolute value – Seek genuine bargains among smaller companies and hold cash when opportunities are scarce
■ Benchmark indifferent – True active management, do not follow a benchmark to construct the portfolio
■ Bottom-up – Select and value companies based on fundamentals. Buy market leading companies with a history of
profitability and strong balance sheets
■ Downside focused – Seek to avoid low quality and high leverage. Buy only when we see a compelling risk/reward
■ Research-based – We perform deep due diligence and we do that not only prior to purchase but throughout the life of
the investment
■ Concentrated – Always focus on best ideas but be nimble around sizing
■ Shareholder aligned approach – Portfolio managers invest alongside clients in their strategies
Fund highlights
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Performance – net of fees
* Inception of FPA management: July 11, 1984. Performance is presented using August 1, 1984 as the benchmark comparison is not available based on Fund Inception. Periods
greater than one-year are annualized. Expense ratio as of most recent prospectus. is 0.80%.
Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents
past performance and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it
may be worth more or less than its original cost. Current month-end performance data may be obtained at www.fpafunds.com or by calling toll-free, 1-
800-982-4372.
**Total return calculations are based on a $10,000 investment
Please refer to the end of the presentation for important disclosures.
Source: Morningstar Direct.
Periods greater than one year are annualized. See disclosures at the bottom of the page.
3
Trailing Performance (%)
As of Date: 6/30/17 Since 8/1/84* 20 Years 15 Years 10 Years 5 Years 3 Years 1 Year YTD QTR
FPA Capital 13.20 8.35 7.23 3.66 5.58 -4.98 14.56 -5.00 -1.32
Russell 2500 11.77 9.19 9.98 7.42 14.04 6.93 19.84 5.97 2.13
$0
$100,000
$200,000
$300,000
$400,000
$500,000
$600,000
$700,000
FPA Capital**
$584,580
Russell 2500
$390,013
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Outlook
Past performance is no guarantee of future results. Please refer to the end of the presentation for important disclosures.
We are optimistic about the future because:
■ Our process remains the same as we deployed over the past three decades
■ Our portfolio is cheap
‒ The portfolio is trading at multiples that are substantially lower than those of Russell 2500
‒ The average portfolio company of the Fund is 32.7% off its 5-year high vs. Russell 2500 at all-time high
■ Strong operational performance
‒ Many of the portfolio companies are operating per our expectations and are positioned well
‒ We view the balance sheets of our portfolio companies as strong
■ Our pipeline is strong
‒ We are prepared to deploy more of the Fund’s liquidity into good businesses selling at cheap valuations
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The market is expensive
Source: Bloomberg.
Mark
et
cap
Mark
et
cap
EV
/EB
ITD
A R
atio
EV
/Sale
s R
atio
The Rally In the Russell 2500 Is Not Driven By Improvements In Fundamentals For Companies With Market Caps Between $1-4b The Contrast Is Even More Stark
Source: FPA Analysis & CapIQ Source: FPA Analysis & CapIQ
$4.0t
$0.5t$1.3t
$4.8t
$0.0t
$1.0t
$2.0t
$3.0t
$4.0t
$5.0t
$6.0t
Dec-14 Net IncomeDecline
MultipleExpansion
Jun-17
31x
42x
$1.9t
$0.4t $0.8t
$2.2t
$0.0t
$1.0t
$2.0t
$3.0t
$4.0t
$5.0t
$6.0t
Dec-14 Net IncomeDecline
MultipleExpansion
Jun-17
31x47x
>35% Multiple Expansion
>50% Multiple Expansion
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Our portfolio is significantly cheaper than the market
Source: Bloomberg, Cap IQ and Mellon. Portfolio composition will change due to ongoing management of the Fund. Past performance is no guarantee of future results. Please
refer to the end of the presentation for important disclosures.
As of June 30, 2017.
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FPA Capital Russell 2500
Number of holdings 24 2509
Weighted average market cap
(billions) $6.3 $4.5
Median market cap (billions) $3.8 $1.2
Price to earnings (12 months trailing) 15.2x 32.8x
Price to book 1.8x 2.5x
Return on Equity 11.0% 10.9%
Dividend Yield 1.0% 1.5%
Cash 34.2% 0.0%
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Top & bottom contributors
The list of top and bottom 5 holdings should not be considered a recommendation to purchase or sell a particular security, represents only a small percentage of the entire portfolio
and the securities purchased and may not remain in the portfolio at the time you receive this report. Based on weighted contribution to the Fund’s trailing three month and twelve
month performance as of June 30, 2017. Contribution is presented gross of investment management fees, transactions costs, and Fund operating expenses, which if included, would
reduce the returns presented. Past performance is no guarantee of future results. Please refer to the end of the presentation for important disclosures.
7
2017 – Q2
Top Contributors
Performance
Contribution
Percent of
Portfolio Bottom Contributors
Performance
Contribution
Percent of
Portfolio
Aaron's 0.99% 3.8% Rowan Companies -0.94% 2.2%
Babcock & Wilcox 0.78% 4.6% Cimarex Energy -0.77% 3.6%
Western Digital 0.63% 5.9% Avnet -0.75% 4.3%
Houghton Mifflin Harcourt 0.57% 3.5% Noble Energy -0.68% 4.0%
Akorn 0.42% 0.0% SM Energy -0.65% 2.4%
2017 - YTD
Top Contributors
Performance
Contribution
Percent of
Portfolio Bottom Contributors
Performance
Contribution
Percent of
Portfolio
Western Digital 2.02% 5.9% Rowan Companies -1.24% 2.2%
Aaron's 0.71% 3.8% Cimarex Energy -1.14% 3.6%
Akorn 0.54% 0.0% SM Energy -1.05% 2.4%
DeVry 0.44% 0.0% Noble Energy -1.05% 4.0%
Dana 0.38% 2.0% Babcock & Wilcox -0.97% 4.6%
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Energy sector performance much worse than what the underlying commodity would suggest
Source: Bloomberg, Bernstein Analysis.
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Cimarex Energy Co. (XEC)
This case study is being shown only as an illustration of FPA’s investment process and is not a recommendation for any particular type of transaction or sector. It should not be
assumed that any transaction in the future will be profitable.
FPA Analysis of Cimarex Energy Co. (XEC)
■ E&P based in Denver w/ operations in W. Texas and
Oklahoma
■ Top-tier management team, from capital allocation to
geoscience
■ Lots of core inventory capable of solid returns in a low
oil price environment
■ Focused on ROIC, not blind production growth
■ Well development requires 10%+ fully burdened ROIC
at $40 WTI
■ Compensation is driven by generating full cycle returns
■ Low leverage at just 0.7x net debt to annualized
EBITDA
■ Short term issues:
‒ Lower commodity prices, energy sector sell off
‒ Light commodity hedging
‒ Overblown concerns surrounding gas takeaway
capacity
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SM Energy Co. (SM)
This case study is being shown only as an illustration of FPA’s investment process and is not a recommendation for any particular type of transaction or sector. It should not be
assumed that any transaction in the future will be profitable.
FPA Analysis of SM Energy Co. (SM)
■ E&P based in Denver w/ principal operations in TX and
ND
■ Major transition to become a core Permian Basin
producer
■ Significant potential for high margin inventory gains
■ Investors are over-discounting newly acquired acreage
■ Short term issues:
‒ Lower commodity prices, energy sector sell off
‒ Net leverage at 3x is on the high side; less of a
concern due to maturity ladder, projected cash flow
growth, and hedging coverage
‒ Limited well production history on new acreage;
momentum is positive Source: SM Investor Presentation, Jun-2017
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Western Digital (WDC)
This case study is being shown only as an illustration of FPA’s investment process and is not a recommendation for any particular type of transaction or sector. It should not be
assumed that any transaction in the future will be profitable. Percentages are based on the absolute number of shares and do not take into account the impact of contributions and/or
redemptions. Please refer to the end of presentation for important disclosures.
FPA Analysis of Western Digital (WDC)
■ Largest data storage component company in
the world
■ Agnostic to storage device type given
exposure to both HDD & SSD
■ Cost-leader in both HDDs (#1 market share)
& SSDs (#2 market share)
■ Large self-help opportunity as synergies
recognized from HGST & SanDisk
acquisitions
■ Potential acquisition of Toshiba Memory
could further consolidate the SSD market
improving competitive dynamics
■ Believe the stock price does not yet reflect
FCF potential post integrations or the change
in growth profile post the acquisition of
SanDisk
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New Securities Added to Exisiting Securities Reduced Securities Eliminated Securities
Allegiant Travel Babcock & Wilcox Aaron's Akorn
Undisclosed 1 Cimarex Energy AGCO Apollo Education Group
Undisclosed 2 Foot Locker ARRIS International DeVry
Helmerich & Payne Arrow Electronics Undisclosed 3
Houghton Mifflin Harcourt Avnet
Rowan Companies Cubic
SM Energy Dana
Vista Outdoor InterDigital
Noble Energy
Oshkosh
Patterson-UTI Energy
Veeco Instruments
Western Digital
Security changes in portfolio (net) – YTD
Please refer to the end of the presentation for important disclosures.
From December 31, 2016 to June 30, 2017
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Holdings as of June 30, 2017
Sector classification scheme reflects GICS (Global Industry Classification Standard). Portfolio composition will change due to ongoing management of the Fund. Please refer to the
end of the presentation for important disclosures.
13
INFORMATION TECHNOLOGY 24.1% ENERGY 17.4%
ARRIS International 6.1% Noble Energy 4.0%
Western Digital 5.9% Cimarex Energy 3.6%
Avnet 4.3% Patterson-UTI Energy 2.8%
Veeco Instruments 2.6% Rowan Companies 2.2%
Arrow Electronics 2.8% Helmerich & Payne 2.4%
InterDigital 2.4% SM Energy 2.4%
CONSUMER DISCRETIONARY 13.3% INDUSTRIALS 10.3%
Aaron's 3.8% Babcock & Wilcox 4.6%
Houghton Mifflin Harcourt 3.5% Cubic 1.8%
Dana 2.0% AGCO 1.8%
Vista Outdoor 1.5% Allegiant Travel 1.6%
Foot Locker 1.4% Oshkosh 0.5%
Undisclosed 1 1.1%
FINANCIALS 0.7%
Undisclosed 2 0.7%
CASH 34.2%
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Market Commentary
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The shift from active to passive
Source: https://www.ft.com/content/6dabad28-e19c-11e6-9645-c9357a75844a.
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Market volatility
Source: MacroMavens – June, 2017.
Index R
etu
rn
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Household financial assets relative to disposable income
Source: TheFelderReport.com
Household
Fin
ancia
l A
ssets
to D
isposable
Incom
e (
Ratio
)
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Value is underperforming growth
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Core U.S. oil inventory trends
Source: Bloomberg, EIA – July, 2017.
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OECD inventory change
Source: Cornerstone Analytics – July, 2017.
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Days of oil supply
Source: 2017 Raymond James Oil Macro Report 06/21/17.
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Trends in vehicle efficiency
Source: 2017 Raymond James Oil Macro Report 06/21/17.
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EV & PHEV Penetration
Source: Albermarle – May 17, 2017.
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Appendix
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Dedicated team
Investment Team Investment
Experience
Year Joined
FPA
Arik Ahitov ■ Partner
■ Portfolio Manager
19 2010
Dennis Bryan, CFA ■ Partner
■ Portfolio Manager
30 1993
Chris Moreno, CFA ■ Vice President
■ Research Analyst
13 2014
Sean R. Pompa, CFA ■ Vice President
■ Research Analyst
2 2016
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New Securities Added to Exisiting Securities Reduced Securities Eliminated Securities
Allegiant Travel Cimarex Energy Aaron's Akorn
Undisclosed 1 Foot Locker AGCO DeVry
Undisclosed 2 Helmerich & Payne ARRIS International Undisclosed 3
Rowan Companies Arrow Electronics
SM Energy Avnet
Babcock & Wilcox
Cubic
Dana
Houghton Mifflin Harcourt
InterDigital
Noble Energy
Oshkosh
Patterson-UTI Energy
Veeco Instruments
Vista Outdoor
Western Digital
Security changes in portfolio (net) – QTD
Please refer to the end of the presentation for important disclosures.
From March 31, 2017 to June 30, 2017
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Source: Capital IQ. Sector classification scheme reflects GICS (Global Industry Classification Standard). Portfolio composition will change due to ongoing management of the Fund.
Please refer to the end of the presentation for important disclosures.
Sector Weightings as of June 30, 2017
27
Our portfolio makeup is very different than Russell 2500
13%
0%
17%
1%0%
10%
24%
0% 0% 0% 0%
34%
12%
3%4%
18%
15% 15%
17%
4%
7%
1%
4%
0%0%
5%
10%
15%
20%
25%
30%
35%
40%
FPA Capital Russell 2500
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Recent additions (past three years: 6/30/14 – 6/30/17)
Source: Cap IQ. Represents all new equity positions added to portfolio during last 3 years (June 30, 2014 – June 30, 2017) as of initial purchase; current data may vary materially.
1 If company is in a net cash position, we reflect 0%.
2 Sold in Q2 2017
3 Sold in Q1 2016
4 Split in Q3 2015
5 Sold in Q2 2017
6 Sold in Q3 2015
7 Sold in Q1 2016
Please refer to the end of the presentation for important disclosures.
28
Market Cap
(MM) TEV
TEV/
EBITDA P/E P/BV P/S ROE
Net Debt/
Capital1
Akorn2 $2,542 $3,176 6.8x 13.7x 3.1x 2.2x 26% 39%
Allegiant Travel $2,660 $3,134 6.7x 12.1x 5.5x 1.9x 44% 34%
Barnes & Noble3 $1,607 $1,476 4.3x NM 1.3x 0.2x 3% 0%
Babcock & Wilcox4 $3,213 $3,277 5.7x 11.2 2.9x 1.1x 26% 6%
Dana $3,475 $3,916 5.4x 13.7x 2.9x 0.5x 20% 11%
Helmerich & Payne $6,604 $6,323 4.1x 9.4x 1.3x 1.8x 16% 0%
Houghton Mifflin Harcourt $2,650 $2,925 12.2x NM 1.8x 2.0x -7% 12%
Patterson-UTI Energy $2,008 $2,804 3.1x 31.8x 0.7x 0.7x 2% 21%
Undisclosed 15 $737 $708 5.5x 11.0x 2.4x 0.8x 21% 0%
Undisclosed 26 $1,661 $1,552 7.3x 22.1x 1.5x 0.4x 6% 0%
Undisclosed 3 $2,694 $2,617 7.6x 13.1x 4.4x 2.3x 34% 0%
Undisclosed 4 $4,486 $6,408 6.7x 9.3x 1.8x 0.7x 15% 29%
Sanderson Farms7 $1,457 $1,286 5.7x 5.3x 1.4x 0.5x 31% 0%
Vista Outdoor $2,421 $3,413 10.0x 17.4x 1.5x 1.0x 9% 36%
Average $2,730 $3,073 6.5x 14.2x 2.3x 1.2x 17% 14%
Median $2,596 $3,030 6.2x 12.6x 1.8x 0.9x 18% 9%
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Question & Answer
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Important Disclosures
These slides are intended as supplemental material to the First Half 2017 FPA Capital Fund audio presentation that is posted on our website fpafunds.com.
It is important to understand that the views expressed on these slides and in the accompanying audio presentation are as of the date presented (August 3, 2017) and are subject to
change based on market and other conditions. These views may differ from other portfolio managers and analysts of the firm as a whole, and are not intended to be a forecast of
future events, a guarantee of future results or investment advice. Any mention of individual securities or sectors should not be construed as a recommendation to purchase or sell such
securities, and any information provided is not a sufficient basis upon which to make an investment decision. The information provided does not constitute, and should not be
construed as, an offer or solicitation with respect to any securities, products or services discussed. Future events or results may vary significantly from those expressed and are subject
to change at any time in response to changing circumstances and industry developments. This information and data has been prepared from sources believed reliable, but the
accuracy and completeness of the information cannot be guaranteed and is not a complete summary or statement of all available data.
Portfolio composition will change due to ongoing management of the Fund. Any mention of individual securities or sectors should not be construed as a recommendation to purchase
or sell such securities, and any information provided is not a sufficient basis upon which to make an investment decision. It should not be assumed that future investments will be
profitable or will equal the performance of the security examples discussed. The portfolio holdings as of the most recent quarter-end may be obtained at www.fpafunds.com..
You should consider the Fund's investment objectives, risks, and charges and expenses carefully before you invest. The Prospectus details the Fund's objective and
policies and other matters of interest to the prospective investor. Please read this Prospectus carefully before investing. The Prospectus may be obtained by visiting the
website at www.fpafunds.com, by calling toll-free, 1-800-982-4372, or by contacting the Fund in writing.
Past performance is no guarantee of future results and current performance may be higher or lower than the performance shown. This data represents past performance
and investors should understand that investment returns and principal values fluctuate, so that when you redeem your investment it may be worth more or less than its
original cost. The Fund’s expense ratio as of its most recent prospectus is 0.80%. Current month-end performance data may be obtained at www.fpafunds.com or by
calling toll-free, 1-800-982-4372.
Dennis Bryan and Arik Ahitov have been co-portfolio managers since November 2007 and February 2014, respectively, and manage the Fund in a manner that is substantially similar
to the prior portfolio manager, Robert Rodriguez. Mr. Rodriguez ceased serving as the Fund’s portfolio manager effective December 2010.
Investments in mutual funds carry risks and investors may lose principal value. Stock markets are volatile and can decline significantly in response to adverse issuer, political,
regulatory, market, or economic developments. The Fund may purchase foreign securities, including American Depository Receipts (ADRs) and other depository receipts, which are
subject to interest rate, currency exchange rate, economic and political risks; this may be enhanced when investing in emerging markets. Small and mid-cap stocks involve greater
risks and they can fluctuate in price more than larger company stocks.
Value securities, including those selected by the Fund’s portfolio managers, are subject to the risks that their intrinsic value may never be realized by the market and that their prices
may go down. In addition, value style investing may fall out of favor and underperform growth or other styles of investing during given periods. Securities selected by the portfolio
managers using a value strategy may never reach their intrinsic value because the market fails to recognize what the portfolio managers consider to be the true business value or
because the portfolio managers have misjudged those values.
The information in this publication has been developed internally and/or obtained from sources we believe to be reliable; however, FPA does not guarantee the accuracy or
completeness of such information and is subject to change without notice.
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Important Disclosures – cont’d
Index Definitions
The Russell 2500 Index consists of the 2,500 stocks that cover the small and mid cap market capitalizations. The Russell 2500 is a market cap weighted index that includes the
smallest 2,500 companies covered in the Russell 3000 universe of United States-based listed equities.
The S&P 500 Index includes a representative sample of 500 leading companies in leading industries of the U.S. economy. The index focuses on the large-cap segment of the market,
with over 80% coverage of U.S. equities, but is also considered a proxy for the total market.
Indices do not reflect any commissions or fees which would be incurred by an investor purchasing the underlying securities. You cannot invest directly in an Index.
Other Definitions
Not meaningful (NM) is a standard way to show a P/E for companies with negative GAAP eps.
Enterprise Value (EV), or a measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is calculated as market cap plus debt,
minority interest and preferred shares minus total cash and cash equivalents.
Earnings before Interest Tax Depreciation and Amortization (EBITDA) ) is essentially net income with interest, taxes, depreciation, and amortization added back to it, and can be used
to analyze and compare profitability between companies and industries because it eliminates the effects of financing and accounting decisions.
Price/Earnings ratio (P/E) is the price of a stock divided by its earnings per share. Percentages are based on the absolute number of shares.
Price-to-Book (P/BV) is a ratio used to compare a stock's market value to its book value. It is calculated by dividing the current closing price of the stock by the latest quarter's book
value per share.
Price-to-Sales (P/S) is a ratio valuing a stock relative to its own past performance. Price to sales is calculated by dividing a stock's current price by its revenue per share in most recent
year.
Total Enterprise Value (TEV) is a valuation measurement used to compare companies with varying levels of debt.
The FPA Funds are distributed by UMB Distribution Services, LLC, 235 W. Galena Street, Milwaukee, WI, 53212.
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