Packer16 Posted April 2, 2014 Share Posted April 2, 2014 This is a private equity asset manager with alot of underlying investments in Brazil. It is trading at a discount to estimate FMV of R$9.73 per share. It has underlying assets of R$6.85 per share with the asset manager valued at R$2.88 per share based upon a 15x EBIT multiple or about 3.6% of AUM (US$5.1 b). (These are typical asset manager valuations, however, alternative AMs (KKR and OAK) typically sell for 10 to 12% of AUM.) If 10% is used (as in BAMs estimate of NAV) then the value is R$14.74. They plan to raise a US$1b infrastructure fund this year which should increase the AM value even more. They have purchased 13% of the equity back in the past 15 months. Third Ave and Ruane Cundiff each own 10% of the equity with RC purchasing the stake late last year. Not only is this cheap it is in a good market (Brazil) that is temporarily depressed where they can pick up some cheap assets. So you have a cheap stock with experienced folks and a growth story. These guys had a conference call today for the earning release and no on was on the call. Packer Link to comment Share on other sites More sharing options...
PJM Posted April 2, 2014 Share Posted April 2, 2014 If you didnt know, Jorge Paulo Lemann (co-founder of 3G Capital) and partner of Buffett in Heinz deal was the co-founder and partner of GP Investments until 2004. Link to comment Share on other sites More sharing options...
ukvalueinvestment Posted April 2, 2014 Share Posted April 2, 2014 Interesting. Do the present management have any connection with Lemann? Packer: Am interested in your assertion that Brazil is a good market, temporarily depressed. What makes you say that? I have no opinion either way, but don't like to make macro calls. Link to comment Share on other sites More sharing options...
Packer16 Posted April 2, 2014 Author Share Posted April 2, 2014 I don't like making macro calls either but the following are my observations about Brazil. First, the country has improved in terms of folks moving into the middle class and becoming more of a consumer led economy. Second, the amount of intervention by the government into the economy has been less than 10 to 20 years ago. Third, with capital flight out of Brazil equities have been hit and interest rates have risen to protect the real. Given that I think disinflation will continue around the world, it will arrive in Brazil and reduce interest rates and provide an incentive to own equities. Fourth, in Brazil more of the companies are in private family hands than in the US and a firm like GP Investments can provide an exit for these families in addition to providing capital for infrastructure development. Another observation is that the AM unit is generating a nice profit as it appears some of the operational leverage is becoming evident (revenue have increased from 44 to 57m with EBIT going from a loss of 3m to a profit of 12m over the same period (2011 to 2013)). Packer Link to comment Share on other sites More sharing options...
tombgrt Posted April 2, 2014 Share Posted April 2, 2014 Looks interesting. Like your thoughts on disinflation and how it will impact Brazil. As always many thanks Packer. I don't think I can buy this through IB or any European broker so this will be a pass anyway but will follow how this goes. ;) Link to comment Share on other sites More sharing options...
yadayada Posted April 2, 2014 Share Posted April 2, 2014 It is interesting, I read about it on VIC. I didnt 100% follow what you said in your post, but basicly it is trading to a discount of the market value of the underlying equities right? ANd you could make a good argument that most of these equities are also too cheap. Link to comment Share on other sites More sharing options...
giofranchi Posted April 2, 2014 Share Posted April 2, 2014 Looks interesting. Like your thoughts on disinflation and how it will impact Brazil. As always many thanks Packer. I don't think I can buy this through IB or any European broker so this will be a pass anyway but will follow how this goes. ;) +1 Thank you very much for this idea! :) Gio Link to comment Share on other sites More sharing options...
ywt Posted April 2, 2014 Share Posted April 2, 2014 Other than through ADRs, how do you trade Brazilian stocks through US brokerages? Link to comment Share on other sites More sharing options...
AtlCDore Posted April 2, 2014 Share Posted April 2, 2014 Packer, Are you able to buy it in your account? If so, who is your broker? I asked Schwab about a month ago and the person said I was unable to buy in my Schwab account. Thanks, AtlCDore Link to comment Share on other sites More sharing options...
Packer16 Posted April 2, 2014 Author Share Posted April 2, 2014 I was able to buy through Fidelity. As to value, you can divide the value into two segments (investments and asset management). Investment can be valued at book if the book is conservative enough (which I think it is - the companies are marked at a discount to publicly traded multiples and publicly trade firms at a 10% discount to trading price). The AM can valued on an income approach (a multiple of EBIT) or % of assets under management (AUM). This is same way you would value BAM, OAK or KKR. Packer Link to comment Share on other sites More sharing options...
Gamecock-YT Posted April 2, 2014 Share Posted April 2, 2014 These guys use Bob Fifer's Double Your Profits: In Six Months or Less as their bible. It's a really interesting book, The Brooklyn Investor had a post on it recently. I just finished reading Double Your Profits in 6 Months or Less by Bob Fifer. I read in an article related to the BRK/3G acquisition of Heinz that this book is handed out to 3G company managers and it is sort of a bible there. I put it on order at the local library and didn't really think much of it. I just thought it's another cost cutting book like many others. For whatever reason, I finally decided to read it and it is a really great book. I thought it was just about cost cutting and things like that, but it is much more than that. For example, Fifer tells you to cut costs that don't produce anything but increase spending on things that do bring in business. He talks about how paying the high producers well may upset the non-producers, but it's better to keep the producers happy and non-producers unhappy than vice versa. I have seen this happen first hand. Some things may seem a bit aggressive, like not paying bills until they are demanded multiple times and things like that. But there is plenty of really good stuff in here too. I have never been a manager so don't spend too much time reading "how to" books on management so maybe this is not such a great book compared to others, but I have to say I was impressed. This is a well-known classic in the management world (an Amazon reviewer noted that Sandy Weill handed this book out after taking over Travelers in 1993). Link to comment Share on other sites More sharing options...
giofranchi Posted April 2, 2014 Share Posted April 2, 2014 These guys use Bob Fifer's Double Your Profits: In Six Months or Less as their bible. It's a really interesting book, The Brooklyn Investor had a post on it recently. Wonderful book! I keep it constantly on my desk. And reread at least 1 step each day! Can this be a good enough definition of 'bible'? ;) Gio Link to comment Share on other sites More sharing options...
argonaut Posted April 2, 2014 Share Posted April 2, 2014 Packer, Are you buying the ADR: GPIIF through Fidelity? I don't see Brazil listed as an exchange they trade through unless perhaps offline through a rep? Link to comment Share on other sites More sharing options...
Packer16 Posted April 2, 2014 Author Share Posted April 2, 2014 I have to call there international desk as I have an IRA and cannot use the online brokerage with an IRA. I believe I am purchasing the underlying in Brazil. Packer Link to comment Share on other sites More sharing options...
AtlCDore Posted April 2, 2014 Share Posted April 2, 2014 Just spoke with the international desk at Schwab again and they said they can't trade in Brazil. Funny when I asked him about Fidelity, he said he didn't think Fidelity could trade Brazilian stocks. What are the commissions on the intl trades with Fidelity? Link to comment Share on other sites More sharing options...
Packer16 Posted April 2, 2014 Author Share Posted April 2, 2014 You need to check with them. They have different fees in the price you pay so it is not totally transparent. For the last block of GP, I paid $33 but I think there is more fees imbedded in the price. Packer Link to comment Share on other sites More sharing options...
argonaut Posted April 2, 2014 Share Posted April 2, 2014 Fidelity's international trading desk is able to route orders to a Brazil broker. For those who were asking...fees: $32.95 commission, +$50 settlement, +$50 local broker, + approx .03% foreign currency and some misc fees...most are embedded in the price. I bought some and we will see how it plays out. Thanks for the idea, Packer! Link to comment Share on other sites More sharing options...
Stevieoopsie Posted April 3, 2014 Share Posted April 3, 2014 I remember watching this a few months back and thought they were quite impressive. Does anyone know if it's possible to buy the ADR on InteractiveBrokers? Thanks, SCS Link to comment Share on other sites More sharing options...
jeremykgold Posted April 3, 2014 Share Posted April 3, 2014 Is there a margin of safety? Link to comment Share on other sites More sharing options...
Tranloi Posted April 3, 2014 Share Posted April 3, 2014 Is GPIIF the same company? Link to comment Share on other sites More sharing options...
argonaut Posted April 3, 2014 Share Posted April 3, 2014 yes, it is the ADR Link to comment Share on other sites More sharing options...
plato1976 Posted April 4, 2014 Share Posted April 4, 2014 If 3.6% of AUM corresponds to 15x EBIT; 10% will corresponds to near 45x EBIT This is ridiculously high valuation ? I think it simply means the earning power is not that high for their alternative AM business and they charge a pretty low fee ? Is there any room to improve ... This is a private equity asset manager with alot of underlying investments in Brazil. It is trading at a discount to estimate FMV of R$9.73 per share. It has underlying assets of R$6.85 per share with the asset manager valued at R$2.88 per share based upon a 15x EBIT multiple or about 3.6% of AUM (US$5.1 b). (These are typical asset manager valuations, however, alternative AMs (KKR and OAK) typically sell for 10 to 12% of AUM.) If 10% is used (as in BAMs estimate of NAV) then the value is R$14.74. They plan to raise a US$1b infrastructure fund this year which should increase the AM value even more. They have purchased 13% of the equity back in the past 15 months. Third Ave and Ruane Cundiff each own 10% of the equity with RC purchasing the stake late last year. Not only is this cheap it is in a good market (Brazil) that is temporarily depressed where they can pick up some cheap assets. So you have a cheap stock with experienced folks and a growth story. These guys had a conference call today for the earning release and no on was on the call. Packer Link to comment Share on other sites More sharing options...
Packer16 Posted April 4, 2014 Author Share Posted April 4, 2014 What you are missing from current EBIT is any carry that is implicit in the value as a % of AUM. As a comparison traditional AM with no carry trade from 2% to 4% of AUM but alternative AM's trade higher due to the carry. Most of the US based funds have earned carry whereas GP has not because Brazil's market has declined. If Brazil's market rebounds then the carry will re-appear. Also, GP for its size has alot of platforms (PE, RE and Infrastructure) and should be able to leverage these into a much larger AUM based then they currently have. You have seen some of that over the past year but I think there is a lot for future AUM growth. Packer Link to comment Share on other sites More sharing options...
yadayada Posted April 4, 2014 Share Posted April 4, 2014 For people outside the USA, at what broker do you buy this? Link to comment Share on other sites More sharing options...
plato1976 Posted April 5, 2014 Share Posted April 5, 2014 Pretty sad it seems I cannot access this pick through interactive brokers For people outside the USA, at what broker do you buy this? Link to comment Share on other sites More sharing options...
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