BFCF - BFC Financial

[yadayada]

http://seekingalpha.com/article/2071223-bfc-financial-a-massively-undervalued-catalyst-driven-equity

 

I hate these financials. Management is shady, but v aligned with shareholders, and not big enough to screw other shareholders. Seems to be alot of upside in this, but didnt read much of it so far. Their annual report is a pain in the ass to read. It also seems to be a v recession unfriendly stock.

 

edit: oh fk posted in the wrong forum :( .

[Daytripper]

BFCF/BFCFB had a great day today.

[Laxputs]

Anyone else looking into this one?

 

Ridiculously cheaply priced fcf and assets. Will take a while to understand. Complex business structure. Some legal concerns. But likely very downside limited with huge upside.

 

Written up here:

http://seekingalpha.com/article/2293135-strong-catalysts-and-sum-of-the-parts-shows-potential-for-bbx-capital

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/114392

 

Owned by a few strong contributors to the value investing blog world.

[Chalk bag]

Guys, I have taken a look over this labor day weekend and it well captured my attention. I think we are indeed looking at a great potential PA name here. Here's my SOTP.

Have also attached a quick-and-dirty model w/ some historical numbers for your review. I think the key is (1) getting comfortable that the deal will close in current terms and (2) getting comfortable w/ the VOIs sale that Bluegreen is currently doing. I don't think a 60-100% upside is impossible over the next 6 months. Let me know what you think. Thanks!

 

BBX_8-30-2014_model.xlsx

[Packer16]

The numbers look reasonable, however, given managements history looking out for themselves vs. third-party shareholders, I would add a 20% holding company discount to account for this and corporate level of expenses.

 

Packer

[magno111]

Guys, I have taken a look over this labor day weekend and it well captured my attention. I think we are indeed looking at a great potential PA name here. Here's my SOTP.

Have also attached a quick-and-dirty model w/ some historical numbers for your review. I think the key is (1) getting comfortable that the deal will close in current terms and (2) getting comfortable w/ the VOIs sale that Bluegreen is currently doing. I don't think a 60-100% upside is impossible over the next 6 months. Let me know what you think. Thanks!

 

nice work,

 

i think your Bluegreen valuation is very low, comps like DRI or Wyndham trade for 9x-12x EBITDA  and 13x-17x P/FCF

 

Also EBITDA ttm is around 120-130M ( look at the latest Q) and FCF will be 90-100M in 2014.

 

Using that valuation i think bluegreen is worth at least 1200-1400M, so that put your base valuation at 10$ for BFCF.

 

i think once the situation is resolved BFCF could see a premium valuation, because DRI tried to acquire Bluegreen in the past.

[racemize]

Guys, I have taken a look over this labor day weekend and it well captured my attention. I think we are indeed looking at a great potential PA name here. Here's my SOTP.

Have also attached a quick-and-dirty model w/ some historical numbers for your review. I think the key is (1) getting comfortable that the deal will close in current terms and (2) getting comfortable w/ the VOIs sale that Bluegreen is currently doing. I don't think a 60-100% upside is impossible over the next 6 months. Let me know what you think. Thanks!

 

nice work,

 

i think your Bluegreen valuation is very low, comps like DRI or Wyndham trade for 9x-12x EBITDA  and 13x-17x P/FCF

 

Also EBITDA ttm is around 120-130M ( look at the latest Q) and FCF will be 90-100M in 2014.

 

Using that valuation i think bluegreen is worth at least 1200-1400M, so that put your base valuation at 10$ for BFCF.

 

i think once the situation is resolved BFCF could see a premium valuation, because DRI tried to acquire Bluegreen in the past.

 

One of the problems I had with the valuation of Bluegreen is that it was taken out from the market at a very low price not too long ago.  The SOTP I've read rely on Bluegreen for a lot of the undervaluation; if it is valued at the take-out price, or anywhere near it, then the undervaluation disappears.  Perhaps they were able to steal it from the market, but that seems odd to me.

[Chalk bag]

Guys, I have taken a look over this labor day weekend and it well captured my attention. I think we are indeed looking at a great potential PA name here. Here's my SOTP.

Have also attached a quick-and-dirty model w/ some historical numbers for your review. I think the key is (1) getting comfortable that the deal will close in current terms and (2) getting comfortable w/ the VOIs sale that Bluegreen is currently doing. I don't think a 60-100% upside is impossible over the next 6 months. Let me know what you think. Thanks!

 

nice work,

 

i think your Bluegreen valuation is very low, comps like DRI or Wyndham trade for 9x-12x EBITDA  and 13x-17x P/FCF

 

Also EBITDA ttm is around 120-130M ( look at the latest Q) and FCF will be 90-100M in 2014.

 

Using that valuation i think bluegreen is worth at least 1200-1400M, so that put your base valuation at 10$ for BFCF.

 

i think once the situation is resolved BFCF could see a premium valuation, because DRI tried to acquire Bluegreen in the past.

 

Thanks Magno, I'm still having some trouble underwriting the high EBITDA margin @ 22%+ w/ strong VOIs sale. It is true that peers trade at much higher multiples, but I'm somewhat skeptical on whether these multiples are reasonable given the strong securitization market & low interest rates. I also hold the view that BG is somewhat of a low-end player (correct me if I'm wrong)  and don't quite deserve the premium multiple.

 

I also think sites like Homeaway, VRBO, and Airbnb offer much better deals. Why folks still got sold into these things still baffle me.

 

On the other end, I think DRII's bid was somewhere around $6.25 / BXG share which put it @ ~$200 mm market cap. BFCF went over the top @ $10.00 / share or $300 mm. They might have gotten a sweet-heart deal at cyclical trough though.

[misterkrusty]

chalk bag-  my own SOTP looks quite similar in many respects.  but i actually think that upside could be better than you estimate.  the main reason is bluegreen: TTM 2014 EBITDA is about $135m and the history of M&A in the timeshare space has been clustered around 9-11x EBITDA with a few outliers to the upside.  frankly I'm not aware of any timeshare operator of bluegreen's size being sold for less than 9x.  so you could haircut the 130m and take the low end of the range and still get a higher valuation than what's in your spreadsheet.

 

further, I think that maybe, just maybe, that 9-11x range could be low given the apparent transformation of Bluegreen to the new capital-light model, which IR tells me could continue indefinitely.  the traditional timeshare business model seems vastly inferior with lots of upfront capex and real estate development risk.  just look at the EBITDA to FCF conversion ratio over the past 10 years or so - pretty impressive.

 

yes, bluegreen was a lot cheaper a while ago.  DRII bought a bunch of timeshare assets at huge discounts around that time.  no surprise that their bid was so far below my valuation range.  as for the winning bid, I suggest that you consider the level of control that Alan Levan and Jack Abdo had over both the acquirer and the target at the time.

 

on the downside, I have a bigger (negative) number for overhead.  I add corporate overhead of $16-17m at BFCF to the ~22m at BBX, then subtract $2m for merger synergies (mainly paying PriceWaterhouseCoopers for one audit instead of two, and only one set of public co. legal fees).  then multiply by (1-40%) to get an aftertax number, then capitalize it by 10x.  sometimes i think 10x is too big a multiple for BBX given that so much of the FAR and CAM and BBX Partners assets will get developed/sold in the next ~3 years. 

 

(side rant: I think it's pretty clear that overhead is bloated by some ridiculous salaries for the guys at the top.  management deserves further ridicule for planning to have a 20-person board post-merger.  I would be shocked if any of these guys aren't just yes-men golfing buddies of Alan's.  this board needs a smaller payroll and more truly independent directors who own a lot of stock.)

 

finally, I have different NOL values, but frankly I'm not sure who is right.  I brought this up to point out that we don't know what would happen to the NOLs at the BBX Capital level and the Woodbridge level ... i.e. would this merger impose section 382 limitations on them?  also, we don't know how much of the $307.9m NOLs at the BFCF holdco are federal vs. state.  when I say "we don't know" I mean that I spoke with IR recently and he couldn't tell me.

 

PS - I recommend BFCF vs BBX despite the merger spread, as insiders have vastly more of their personal $$$ in the former, and given Alan Levan's history.

[magno111]

Guys, I have taken a look over this labor day weekend and it well captured my attention. I think we are indeed looking at a great potential PA name here. Here's my SOTP.

Have also attached a quick-and-dirty model w/ some historical numbers for your review. I think the key is (1) getting comfortable that the deal will close in current terms and (2) getting comfortable w/ the VOIs sale that Bluegreen is currently doing. I don't think a 60-100% upside is impossible over the next 6 months. Let me know what you think. Thanks!

 

 

nice work,

 

i think your Bluegreen valuation is very low, comps like DRI or Wyndham trade for 9x-12x EBITDA  and 13x-17x P/FCF

 

Also EBITDA ttm is around 120-130M ( look at the latest Q) and FCF will be 90-100M in 2014.

 

Using that valuation i think bluegreen is worth at least 1200-1400M, so that put your base valuation at 10$ for BFCF.

 

i think once the situation is resolved BFCF could see a premium valuation, because DRI tried to acquire Bluegreen in the past.

 

One of the problems I had with the valuation of Bluegreen is that it was taken out from the market at a very low price not too long ago.  The SOTP I've read rely on Bluegreen for a lot of the undervaluation; if it is valued at the take-out price, or anywhere near it, then the undervaluation disappears.  Perhaps they were able to steal it from the market, but that seems odd to me.

 

ok i understand your point, but it was during financial crisis, wich turned to be very bad for VOI business in general. so valuations in those days were very low compared to normalized earnings.

 

i think they paid around 5x EBITDA, and 8x P/FCF for BXG, but at that time WYN was also trading for 6x EBITDA( debt ajusted for real state owned). But during the last 3 years VOI industry has improved a lot. Earnings are rising because is a business with operating leverage and Bluegreen is moving towards asset light model like WYN and DRI.

 

they paid a healthy 72% premium, there were lots of bargains still in 2012. and BXG was cheap at that time for the same reasons BFCF/BBX is cheap today.

 

Equity markets have risen more than 50% since 2012, so 8x EBITDA and 12x P/FCF seems reasonable, for a business with growing profits and  a asset-light business model .

 

Valuations today are more reasonable once investors have left away bad memories from 2008...

 

We can blame management and all of that, but the most important thing is that they have a very very piece of this thing, so if they aren't capable of creating value, someone will come with an offer

[Chalk bag]

chalk bag-  my own SOTP looks quite similar in many respects.  but i actually think that upside could be better than you estimate.  the main reason is bluegreen: TTM 2014 EBITDA is about $135m and the history of M&A in the timeshare space has been clustered around 9-11x EBITDA with a few outliers to the upside.  frankly I'm not aware of any timeshare operator of bluegreen's size being sold for less than 9x.  so you could haircut the 130m and take the low end of the range and still get a higher valuation than what's in your spreadsheet.

 

further, I think that maybe, just maybe, that 9-11x range could be low given the apparent transformation of Bluegreen to the new capital-light model, which IR tells me could continue indefinitely.  the traditional timeshare business model seems vastly inferior with lots of upfront capex and real estate development risk.  just look at the EBITDA to FCF conversion ratio over the past 10 years or so - pretty impressive.

 

yes, bluegreen was a lot cheaper a while ago.  DRII bought a bunch of timeshare assets at huge discounts around that time.  no surprise that their bid was so far below my valuation range.  as for the winning bid, I suggest that you consider the level of control that Alan Levan and Jack Abdo had over both the acquirer and the target at the time.

 

on the downside, I have a bigger (negative) number for overhead.  I add corporate overhead of $16-17m at BFCF to the ~22m at BBX, then subtract $2m for merger synergies (mainly paying PriceWaterhouseCoopers for one audit instead of two, and only one set of public co. legal fees).  then multiply by (1-40%) to get an aftertax number, then capitalize it by 10x.  sometimes i think 10x is too big a multiple for BBX given that so much of the FAR and CAM and BBX Partners assets will get developed/sold in the next ~3 years. 

 

(side rant: I think it's pretty clear that overhead is bloated by some ridiculous salaries for the guys at the top.  management deserves further ridicule for planning to have a 20-person board post-merger.  I would be shocked if any of these guys aren't just yes-men golfing buddies of Alan's.  this board needs a smaller payroll and more truly independent directors who own a lot of stock.)

 

finally, I have different NOL values, but frankly I'm not sure who is right.  I brought this up to point out that we don't know what would happen to the NOLs at the BBX Capital level and the Woodbridge level ... i.e. would this merger impose section 382 limitations on them?  also, we don't know how much of the $307.9m NOLs at the BFCF holdco are federal vs. state.  when I say "we don't know" I mean that I spoke with IR recently and he couldn't tell me.

 

PS - I recommend BFCF vs BBX despite the merger spread, as insiders have vastly more of their personal $$$ in the former, and given Alan Levan's history.

 

Mr. Krusty,

 

Thanks for your reply and the word of caution. Are you suggesting that BFCF will materially lower the exchange ratio in some shape or form? what will make them recut the deal? In my mind, their best shot to realize value is to merge the 2 companies -- in a seamless matter as soon as possible. Any hiccups / delays due to shareholder unrest, in my opinion, would be unfavorable. Nor would screwing shareholders again help their case in any sense to re-rate the multiples, in my opinion.

[Wilson-TPC]

Chalk Bag,

 

I'm glad you took a look at this!

 

Here's an article on it.

BFCF.docx

[misterkrusty]

Chalk-  no, i'm not suggesting that mgmt will alter the exchange ratio or anything like that.  I'm saying that given current prices, you'd make a nice little profit if the deal goes through ... BUT despite that fact, I don't think BBX is the best way to "play" this situation. 

 

I'm saying BFCF is the better way, since mgmt owns way more BFCF than BBX (especially after the 10b5-1 selling completes).  Should the merger not go through for some reason, I think you want to be on the same side of the table as Levan.  Look at how many lawsuits people have filed concerning all the various M&A he's done with entities he controls.

 

 

[misterkrusty]

also, I think there could be some hidden value in CAM and BBX Partners.  if memory serves, asset disposals so far have been done at big premiums to book.  I've seen a number of sales at about 3x book value.  a lot of these assets saw huge writedowns during the crisis that basically haven't been reversed despite the rebound in FL real estate.  and there are more assets than what mgmt lists in their presentations. 

[Chalk bag]

Chalk Bag,

 

I'm glad you took a look at this!

 

Here's an article on it.

 

Wilson - thanks! One of the 1st articles I've read regarding the situation. I agree with his framework and it did a very good job laying out what's there.

I find his NOL NAV estimate a bit contentious though -- would imagine that when it comes to the NPV method of loss carryforwards, one would use 35% rather than the full amount when it comes to estimation.

[Chalk bag]

Chalk-  no, i'm not suggesting that mgmt will alter the exchange ratio or anything like that.  I'm saying that given current prices, you'd make a nice little profit if the deal goes through ... BUT despite that fact, I don't think BBX is the best way to "play" this situation. 

 

I'm saying BFCF is the better way, since mgmt owns way more BFCF than BBX (especially after the 10b5-1 selling completes).  Should the merger not go through for some reason, I think you want to be on the same side of the table as Levan.  Look at how many lawsuits people have filed concerning all the various M&A he's done with entities he controls.

 

Mr. Krusty,

 

Thanks for the follow-up. I see your point -- you are saying that conditional on the merger falling apart or any other adverse unknown unknowns occuring, the probability of profiting from the BFCF side is higher than that from the BBX side due to mgmt's protection of own interest.

I do know a smart guy who is knee-deep in BBX though vs. BFCF. I will pick his brain tomorrow on how he got over the hump.

 

Best,

Chalk bag

[Chalk bag]

also, I think there could be some hidden value in CAM and BBX Partners.  if memory serves, asset disposals so far have been done at big premiums to book.  I've seen a number of sales at about 3x book value.  a lot of these assets saw huge writedowns during the crisis that basically haven't been reversed despite the rebound in FL real estate.  and there are more assets than what mgmt lists in their presentations.

 

Mr. Krusty,

 

No doubt about the situation. I recall reading a link where Levan claimed the BV is "hundreds of millions" undermarked. Given the book was marked (have to confirm) back in 07-10, I have little doubt where the NAV is now materially above BV -- which checks out w/ other SFR guys' assessments too (SBY, STWD, SWAY, AMH, etc). I'm a bit hesitant to underwrite it in the bull-case given the lack of information (or rather the granularity of it), but in the back of my mind I have the book marked 10-20% higher.

 

With that said, however, I somewhat hold the belief that they'd have to pay taxes on those capital gains, which wouldn't be so bad given the NOLs in Florida, so the bleed-through might come from that piece after all.

 

Best,

Chalk Bag.

[Wilson-TPC]

I've talk to some guys who are buying BBX instead of BFCF.

 

1. The spread is more attractive on BBX.

 

2. BBX has a lot of hidden real estate assets.

 

3. Merger will (high probability) go through.

 

Other than that, BFCF is the better hold.

[misterkrusty]

thanks Wilson.  for what it's worth, I don't have much doubt that the merger will go through, so my preference for BFCF is admittedly sorta based on my own typical paranoia.

 

agree that BBX has lots of hidden RE assets.  one commentator says he's counted over 3,000 acres of FL land by doing google searches for the 150+ subsidiaries.  But remember that you have BBX exposure thru BFCF

[Chalk bag]

Q's out. $39 mm EBITDA and they are spending a good ton on marketing. Not complaining. Now it's on-track to hit $140 mm+ and stock is still significantly undervalued...continues to baffle me.

[Wilson-TPC]

It's the regulatory noise and the volume that holds this down.

[Chalk bag]

It's the regulatory noise and the volume that holds this down.

 

I know Wilson - just ranting...ha.

[Wilson-TPC]

It's the regulatory noise and the volume that holds this down.

 

I know Wilson - just ranting...ha.

 

Haha I know!

[doc75]

Anyone hearing any scuttlebutt on the trial that began at the beginning of the month?  Shares have been trading down as the trial proceeds but of course this could be completely coincidental.

 

http://www.bizjournals.com/southflorida/news/2014/11/03/bbx-flips-to-loss-sec-vs-levan-trial-starting.html?page=all

 

The article mentions that the outcome of this case could dethrone Levan and shred the merger.  Any thoughts from interested parties?

[unclebaby]

How are folks feeling about the odds of the merger now?

 

http://www.bizjournals.com/southflorida/news/2014/12/15/sec-wins-fraud-verdict-against-bbx-and-ceo-levan.html?page=allπ