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Curtis Jensen, portfolio manager of the Third Avenue Small-Cap Value Fund (TASCX) recently established a position in Un Port fave ManTech International (Nasdaq: MANT). It was one of only two additions to the portfolio in Q1-2011. Here is what Jensen had to say in Third Avenue's latest shareholder report:


The Fund’s new investment in ManTech Common ought to strike a more familiar note. ManTech provides
information technology, cyber security, technical and consulting services primarily to U.S. federal government
agencies, with a large exposure to the Department of Defense and intelligence community. Co-founded in 1968
by the current CEO and grown both organically and through acquisitions, ManTech’s services include network
security engineering, data interoperability, modeling and simulation and maintenance services. With limited
reinvestment needs, the business tends to be highly cash generative and benefits from the stability afforded by
multi-year contracts and from a healthy backlog, a large portion of which has authorized funding. There is
undoubtedly some intangible value in the company’s employee base, as approximately two-thirds have security
clearances (of which, more than a half have top-secret clearances). The company’s healthy cash flows provide a
bulwark to its balance sheet.

Management has assembled an enviable track record of growth since the company went public in 2002. However,
the tailwind created by war time and expansionary government spending during the past decade appears to be
fading. Our government has discovered, a little belatedly, that it can not spend money like a drunken sailor; it is now
time to pay the piper. It appears the Obama administration’s 2012 budget, for example, may reduce
both defense spending and the use of private sector contractors, as the government’s procurement office
attempts to move toward an “in-sourcing” model, developments that have cast a shadow over ManTech’s business and that of its competitors.

Budgetary pressure also has the government looking for cost savings by shifting
from time and materials billings to shorter duration, cost plus type contracts.

The emergence of various industry headwinds suggest ManTech is unlikely to grow at its very attractive historic
rates. Despite the potential down shift to slower growth the company should still have reasonable longer-term business
prospects. For example, ManTech ought to grow in areas such as cyber security and computer network
infrastructure operations, by gains in market share against smaller or conflicted contractors and by bundling services
with new capabilities developed either internally or through acquisitions.

ManTech Common has not performed particularly well in recent years though the business has prospered. The shares
sell at a compelling discount to those of its peers and well below both its own historic valuations and conservative
estimates of private market values. In other words, the market price seems to already account for much of the
“bad news” and investor expectations appear to be quite low. Shares of ManTech were acquired by the Fund at the
following approximate valuation metrics:

• 6.5x EBITDA
• 11.0x – 12.0x cash earnings
• 9% – 10% free cash flow yield

Should management not identify suitable growth opportunities, it would seemingly have ample financial
flexibility to return capital to shareholders, either in the form of a dividend or via share repurchases; though, such
has not been its historic practice. Further budgetary squeezes may also push the industry to consider more
meaningful consolidation.

Good stuff -- sounds right in-line with my original analysis. MANT announces earnings on 4/27.

Bryan
TMF42
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