Cowen Group
Cowen Group is a mid market investment bank and alternative asset manager.
Hedge fund Ramius reverse merged into Cowen. The asset management side of business will not make any money from incentive fees until investors get back their losses from the fund. The value is in the company’s cash assets invested in their hedge fund and future earnings from incentive fees.
This idea came from an article on Seeking Alpha. A few quotes are below:
Cowen Group is transforming itself from a small boutique investment bank into a complete financial services company with >$7 billion in assets under management. Ramius, a privately-held alternative investment manager, recently acquired Cowen Group in a reverse merger that closed at the end of 2009. The Company has more net cash and investments than market cap despite a) stabilized asset flows on the Ramius side of the business, and b) a dramatic increase in leads and wins and on the investment banking side.
Cowen trades at 0x EV/AUM, below book value and at about 5x normalized earnings. Peers trade at 7% EV/AUM, 1.3x-2.0x BV and anywhere from 6x-30x 2011 earnings. It is probably best to value this as a sum-of-the-parts as the business drivers are somewhat different and so are the peers. We think the shares are worth a minimum of $9 (shares were near $9 last summer and near $8 in November) valuing Ramius at 2.5% AUM and the investment bank at 1.0x book.
Vodafone
The first company in my list of 2o investments is Vodafone.
The thinking being Vodafone has a hidden asset in the form of a 45% stake in Verizon Wireless. This is likely to be realised when the Verizon Wireless starts paying a dividend to shareholders.
Below is some of the places where I found this idea.
Vitaliy Katsenelson – Contrarian Edge
- Verizon Wireless has not paid dividends to Vodafone since 2005 and thus the street puts almost zero value on Vodafone’s stake in Verizon Wireless.
- Verizon does need the dividend from Verizon Wireless, as Verizon’s wireline business doesn’t generate enough free cashflow to cover Verizon’s (the public company) dividend payments.
- Verizon Wireless is the cash cow, generating about $10 billion of free cashflow a year, and is responsible for a large portion of Verizon’s free cashflow.
Manual of Ideas – 28 January 2010
- In summary we add the estimated value of Vodafone’s 45% stake in Verizon Wireless and the estimated equity value of the rest of Vodafone, i.e. the current stock price, to arrive at a fair value for all of Vodafone operations of £1.85 to £2.11.
Manual of Ideas – 27 August 2010 (pdf)
- Estimated value of Vodafone’s 45% stake in Verizon Wireless is between £0.51 – £0.78 per Vodafone share.
- Using a current share price (as at August 2010) of £1.50 that gives a total value of £2.01 – £2.28 per share.
Vodafone remains at a large position in the portfolio.
The basic thinking there is that the share price does not reflect a full valuation or even maybe even any valuation for Vodafone’s 45% interest in Verizon Wireless. Because right now, Vodafone doesn’t get any cash from Verizon Wireless, so it doesn’t show up in any of their cash flow metrics or in their dividend yield which tend to be some of the kinds of things that some of the sell side and buy side analysts look at. What’s interesting about it is as most of the cash from Verizon Wireless has been going to repay inter-company debt to Verizon. And that debt has been a substantial amount over the last couple of years which is now almost complete. Within the next month or two, all of that inter-company debt be repaid and then it will be interesting to see how Verizon and Vodafone work out what to do about the Verizon Wireless cash flows at that time. So, we’re hopeful that that – however that is resolved, it will be in a way that will more fully reflect Vodafone’s substantial ownership in Verizon Wireless and we hope that that will reflect in Vodafone’s share price.
20 Investment Ideas
20 investment ideas, sources and links to follow.
- VOD – global mobile provider. Hidden asset from 45% stake in Verizon Wireless, likely to be realised when the Verizon Wireless starts paying a dividend to shareholders.
- COWN – mid market investment bank and alternative asset manager. Hedge fund Ramius reverse merged into Cowen, asset management side of business will not make any money from incentive fees until investors recoup their losses. Value is in the company’s cash assets invested in their hedge fund and future earnings from incentive fees.
- SONC – real estate and tourism assets. Business spun off from a Portuguese conglomerate, founder went with the spin off. Trading significantly below value of real estate, business will be easier to understand after non-core assets are sold off.
- SATS – cash, satellites and set top box business. Company spun off from Dish Networks. Having legal battle with TIVO, Dish covering cost of any settlement.
- PSD – owner of data used for oil and gas exploration. Recent acquisition to boost future earnings.
- PMIC – demutualised insurance company. Trading below book value, expect business to be profitable now it is accountable to shareholders.
- SIGA – creator of smallpox antiviral (stops it spreading). Won large contract with US govt, currently in legal battle with other companies that claim they are entitled to some of the contract. Expect small (if any) settlement, and conformation of large govt order.
- IFT – listed infrastructure fund. Cheap based on sum of parts, recently added to share index. Have been selling legacy assets and reinvesting. Brought Shell’s NZ assets at low multiple during bottom of the cycle earnings.
- LOV – online dating site. Niche market, generates a lot of cash.
- DLAR – bank note printer. Recent problems with major customer, and PE bid refused by board. High quality business, customers unlikely to leave.
- PRXI – museum quality shows, assets of the Titanic. Operator of The Bodies and Titanic shows, recently won ownership of artefacts from Titanic, will either get cash value or artefacts from the courts.
- PNI – software platform that runs online photo printing services. Expect growth to fall to bottom line, as more sales run across the same fixed costs.
- PHNX – roll up of closed end life funds. Complicated capital structure that is being simplified, expect announcement of dividend to increase share price
- PFD – food producer and brand owner. Has large amount of debt, currently selling assets to reduce it. Likely to survive and be able to refinance debt at lower cost, while maintaining ownership of high quality food brands.
- YNG – gold miner. Mine closed down, now operating. Expect increase in amount of gold produced.
- SHLD – retailer that owns a collection of assets. Expect Chairman Eddie Lampart to allocate cash flow to best use for shareholders (not maintaining stores).
- SCHE – operator of retirement homes. Concerns over debt (lease obligations) and fees from govt.
- WINN – supermarket. Came out of bankruptcy debt free, hoping to improve margins to industry level.
- NFLX (short) – provider of rental DVDs by mail and streaming movies over the internet. Overvalued based on assumption streaming will be as profitable as existing DVDs by mail.
- IOC (short) – oil and gas company. Very promotional mgmt team, even if resources found it will be too expensive to recover.
Tracking Employee Relationships
Inc has an article about Amazon buying Zappos. Interesting comment from Zappos CEO, about how they try to track employee relationships.
In the first quarter of 2010, net sales at Zappos were up almost 50 percent, and we’ve added several hundred new employees. The growth has made Amazon very happy, but it’s also creating new challenges. I’ve noticed that at company happy hours, you don’t see as many employees from different departments hanging out with one another.
To address that, we’ve begun tracking employee relationships. When employees log in to their computers, we ask them to look at a picture of a random employee and then ask them how well they know that person — the options include “say hi in the halls,” “hang out outside of work,” and “we’re going to be longtime friends.” We’re starting to keep track of the number and strength of cross-departmental relationships — and we’re planning a class on the topic. My hope is that we can have more employees who plan to be close friends.
Whitney Tilson and Glenn Tongue
Notes from the Value Investing Congress Twitter feed.
Whitney Tilson and Glenn Tongue
- We are in the midst of a range-bound market and S&P is currently at 20.4x inflation-adjusted trailing earnings. Market avg is 16.3x
- Mortgage market has been nationalized; all house price indices above 2000 but way below the peak.
- Of the homeowners in this country who haven’t made a payment in 1 year, 24% have not been foreclosed on
- The great idea today: Anheuser-Busch InBev (BUD) trading for 8.5x 2012 free cash flow.
- Amazing how unfamiliar the market is with the management story behind AB-InBev; like Rose Blumkin at Nebraska Furniture Mart
- Way to look at BUD is take FCF attributable to it net of AmBev minority interests + synergies + deleveraging + 50% of Modelo’s FCF.
Lei Zhang, from Hillhouse Capital Management, runs largest hedge fund in China
Notes from the Value Investing Congress Twitter feed.
Lei Zhang, from Hillhouse Capital Management, runs largest hedge fund in China
- $4 billion AUM, started with $30 million
- 52% annualized returns since inception (8/2005) through 3/2010
- Zhang runs concentrated portfolio, fundamental bottom up research
- Uses team based research process
- 3 to 5 year avg holding period on long positions
- Zhang focuses on people and organization behind the business
- Currently 50% cash, adds 3 to 5 names/year
- Zhang currently negative on shipping
- Zhang-common investment mistakes in China: short term orientation, over excitement about short term growth, concentrated bets
- Zhang generally does not like small caps
- Zhang discussing Changyu Corp, Chinese wine company, with massive distribution
- 2008 ROE 35%
- Zhang owns B shares
- No license needed in China to sell liquor, little regulation
- Zhang now taking questions
- Zhang’s favorite shorts are the “frauds”
- Consumer debt just 16% of Chinese GDP, savings rate high, net savings of $35 trillion Yuan
Tom Russo of Semper: global value equity investing.
Notes from the Value Investing Congress Twitter feed.
Tom Russo of Semper: global value equity investing.
- International markets very attractive because of emerging market growth
- No way out: American companies are exposed to foreign currencies and you’ll have the same fluctuations as foreign businesses.
- Allocated a lot of capital to emerging markets when they collapsed in late 2008.
- Nestle has the ability to invest large sums of money at very high rates of return in emerging markets.
- Pernod Ricard: tremendous leadership in China and leading positions in brands around the world. Became #1 shorted stock in Euronext in 2008.
- SABMiller has burdened EBITDA margins in Africa because of investments. Commendable: not many companies can think long term.
David Nierenberg of D3 Funds
Notes from the Value Investing Congress Twitter feed.
David Nierenberg of D3 Funds
- D3 invests in microcap growth companies, takes concentrated positions, and engages constructively with management
- Nierenberg talking about opportunities in emerging markets
- Six of Nine public companies Nierenberg holds have Emerging Market exposure
- Nierenberg holds RadiSys (RSYS), a leader in embedded computing
- Sells into telecomm, multi media, defense, medical mkts
- RSYS #1 mkt share in Media Server and ATCA
- RSYS has made 3 acqs since 2006
- RSYS strong balance sheet
- $3+ per share net cash
- RSYS followed by just 2 analysts
- Revenues have been stagnant, but “next generation” revenue is growing rapidly
- Sees continual gross margin improvement
- RSYS will have outsourced 100% production by Q2
- Sees 39% 3 year earnings CAGR
- Nierenberg now taking questions with partner Cara Denver
- Denver says thesis on MOVE is still intact
- D3 owns 18% of MOVE
Eric Sprott: Investing in Precious Metals.
Notes from the Value Investing Congress Twitter feed.
Eric Sprott: Investing in Precious Metals.
- We live in a world with a busted formula, and the formula is that governments spend money solely to boost GDP.
- Race to the bottom on currencies. Right now the US Dollar is winning but it may not win forever. Beware of fiat currencies.
- Quantitative easing: as a gold bull, those are my favorite words.
- Interesting idea: East Asia Minerals Corp. Could be a 10-bagger or more based on gold reserves discovered.
Mohnish Pabrai
Notes from the Value Investing Congress Twitter feed.
Mohnish Pabrai
- Pabrai presenting: “Leveraging Checklists to Dramatically Improve Investing Results”
- Pabrai contrasts success of Federal Aviation Administration, which has adapted to tragedys, vs US Nuclear Industry which has not
- Pabrai has developed investment checklist base on mistakes made by other value investors
- Pabrai has 80 mistakes on his checklist so far
- No comapnies will pass all of Pabrai’s 80 questions on checklist
- Checklist has helped Pabrai with position sizing
- Pabrai-prop and casualty market very soft, but value to be found there; cites Markel
- Pabrai says checklist would have changed some of his prior decisions had it been in place
