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The following segment was excerpted from this fund letter.
Silvergate Capital Corporation (NYSE:SI)
Our largest new position is Silvergate Capital Corporation, a regulated and FDIC-insured commercial bank and an emerging leading service provider for the crypto space. Silvergate has followed cryptocurrencies lower throughout the year falling 56% YTD vs Bitcoin down 59%, and Ethereum down 65%. The company started as a deposit service provider for the crypto space but has since developed their own proprietary Silvergate Exchange Network (SEN)).
SEN is a global payment network that enables real-time transfer of USD between its digital currency exchange customers (COIN, Genesis) and institutional customers 24/7/365. The company continues to innovate with its push to add stablecoins to its business mix following the acquisition of the Diem stablecoin project from Meta Platforms (META) earlier this year. While the market is overly focused on a crypto winter, SI will benefit from increasingly becoming the partner of choice for both exchanges and institutions in this rapidly evolving market.
Furthermore, 90% of Silvergate’s $13B assets are floating-rate with zero-cost deposit funding. This makes Silvergate one of most interest rate-sensitive financial services companies in the market today. Management has noted that for every 25bp increase in interest rates, their net interest income (NII) would increase by $16M over a 12-month period. It is not often that Mr. Market allows the opportunity to invest in a business growing the top line at a 40% CAGR for the next two years, while it is trading at 13x this year’s earnings and 8x next.
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The Opportunity Equity composite performance figures reflected above include the deduction of a model investment management fee of 1% (the highest fee for separate accounts under our fee schedule), paid quarterly and certain other expenses. For important information about Opportunity Equity Strategy performance, please click on the Opportunity Equity Strategy Composite Performance Disclosure . Past performance is no guarantee of future results. All holdings and portfolio data are reflective of a representative Opportunity Equity account. Contributors detailed above represent the top five securities that contributed positively to performance during the quarter. Detractors detailed above represent the top five securities that detracted from performance during the quarter. Information detailed above is provided gross of fees, includes cash, and is based on a representative Opportunity Equity account. Contribution listed above represents the period when the security was held during the quarter. For additional information on how Top Contributors and Top Detractors were determined and/or to obtain a list showing every holding’s contribution to the representative Opportunity Equity account performance contact us. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. References to specific securities are for illustrative purposes only. Portfolio composition is shown as of a point in time and is subject to change without notice. The views expressed in this commentary reflect those of Miller Value Partners analyst(s) as of the date of the commentary. Any views are subject to change at any time based on market or other conditions, and Miller Value Partners disclaims any responsibility to update such views. The information presented should not be considered a recommendation to purchase or sell any security and should not be relied upon as investment advice. It should not be assumed that any purchase or sale decisions will be profitable or will equal the performance of any security mentioned. Past performance is no guarantee of future results. |
Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors.
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