Smaller Companies Update

We added Navigant Consulting (NCI) to the Smaller Companies portfolio.  Navigant, market capitalization $700 million, provides consulting services to government and corporate entities in four main areas:  Disputes, investigations, and economic; Financial, risk, and compliance; Health care; and Energy.  Navigant had a return on tangible invested capital (ROIC) of 37% in 2012.  NCI has been a consistent generator of free cash flow ($55 million in 2012) and economic profits ($45 million in 2012 per our assessment).  At our purchase price, NCI was trading at an unlevered operating income to market value of invested capital (OP/MVIC) yield of 13.6% compared to approximately 8.8% for the S&P 500.

In many cases you will see us trimming back or completely selling CoStar Group, Inc (CSGP).  We not only owned CSGP in the Smaller Companies portfolio but it purchased our holding in Loopnet in 2012.  CSGP currently trades, based on our estimates, at a OP/MVIC of approximately 3% compared to approximately 8.8% for the S&P 500 and 13.6% for Navigant Consulting.