Diamond Hill Capital Comments On New Positions

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Mar 18, 2015

We initiated a position in financial holding company BOK Financial Corp. (BOKF, Financial), a high-quality, Oklahoma-based bank that we have followed for years. BOK Financial has a great franchise, and due to large insider ownership, its shares are infrequently available at an attractive discount to intrinsic value. The shares sold off after oil prices declined reflecting BOK’s larger-than-peer exposure to the energy sector. We believe the market was penalizing the shares more than justified and not respecting the company’s multi-decade track record of sound underwriting in the energy sector.

We initiated a position in pest control services company Rollins, Inc. (ROL, Financial), one of the largest residential and commercial pest extermination businesses in the country. We view Rollins as a very high quality business run by a strong management team. During the broader market selloff in October, the stock declined to a discount to our estimate of intrinsic value. The stock appreciated and quickly reached our estimate of intrinsic value in a short period of time, so we exited our position.

We also initiated a position in Southwestern Energy Co. (SWN, Financial). The shares declined on concerns around the announcement of a sizeable acquisition in the Marcellus shale and the lower natural gas price outlook for the next two years. This decline created an attractive discount to our estimate of intrinsic value. We believe Southwestern has made an attractive acquisition in one of the best natural gas assets in the country and is well positioned to supply low-cost natural gas as demand is expected to increase over the next decade.