GPIV33.SA - GP Investments

[cobafdek]

Why aren't the ADRs (GPIIF) trading, and haven't traded since 4-4-14?

[argonaut]

That's the downside of some smaller caps/ADRs ...liquidity...they only trade when there is enough interest.

[cobafdek]

So it's hit-and-miss as to whether the ADRs trade on any particular day?  Would frequent calls to our discount brokers help?

 

Given the steep commissions and miscellaneous trading costs to trade on the local Brazilian exchange, the ADRs would be preferable.  Unless, of course, the ADRs in this particular equity have equivalent or other disadvantages.  Does anyone know of any disadvantages here?

 

I may end up going through my Fidelity account (Roth) for the trade on the Brazilian exchange.

 

 

[cobafdek]

(This post qualifies as TMI, or "More Than You Ever Wanted To Know About Trading On A Local Emerging Market," so feel free to skip this):

 

Except for Fidelity, none of the discount brokers I use (TDAmeritrade, Etrade) have access to GPIIF on the OTC grey market.  Therefore, no way to buy with a $7.95 commission online.

 

So I bit the bullet and swallowed my pride to pay the relatively hefty transaction fees to buy the security through Fidelity.  Hearkening back to olden times when one had to phone a full-service broker (not to mention be filthy rich), I called the international trading desk.  If I understood correctly, Fidelity gets the commission of $32.95, plus an additional $50 fee for their access to the Brazilian exchange.  The local market maker charges an additional $50, and the Brazilian government tacks on 2.5 basis points as their tax.  The latter two fees are embedded in the price, and will not show up itemized on a Fidelity trade confirmation statement.

 

With my available trading funds of approximately US$30,000, and while the ask price was R$3.67, I placed a "working limit" order to purchase as many shares of GPIV33.SA up to a limit price of R$3.85 per share.  I was pleased to see my order filled at lots priced no higher than R$3.70.  My average price was R$3.695, or US$1.6724, for 18,779 shares.

 

I was surprised to see the trade show up as GPIIF, and not GPIV33.SA in the Fidelity trade confirmation statement.  GPIIF is a BDR (Brazilian Depository Receipt), not an ADR (American Depository Receipt).  Which perhaps therefore explains why you can't place an online order with TDAmeritrade, Etrade, IB, or other popular online discount American broker, with whom you can buy ADRs, which trade on our American exchanges, but BDRs do not.  (For further fun confusion, one GPIIF BDR, which trades on the Brazilian exchange Bovespa, represents one share of GP Investments's Class A shares, ticker symbol GPIX.LX, which are listed and trade on the Luxembourg Stock Exchange.)

 

Today, GPIV33.SA had a trading volume of 187,900 shares on Bovespa, while  GPIIF had a trading volume of 18,779, i.e., THEY WERE ALL MINE.  You can look it up on Yahoo Finance, Bloomberg, etc.  This explains the "thin trading" of the BDRs:  it's a bizarre roundabout access to GP Investments on the "OTC grey market."

 

So which one of you guys on the board accounts for the previous trade of GPIIF on 4-4-2014, for 11,900 shares at 1.8075?

[rukawa]

Have any Canadians gotten this to work?

[rukawa]

Hmm...according to the wikipedia the stock is actually trading on the Luxembourg stock exchange. The BDR actually represents a stock in Luxembourg. Maybe its easier to see if the stock can be purchased in Europe then.

[yadayada]

i do see a pattern here, alot of these foreign cheap stocks are just hard to buy. Korean stocks, a few micro caps on the british exchange and south american stocks. Greek stocks.

[ukvalueinvestment]

I find the UK micro caps quite easy to buy:)

 

Out of interest, which ones are you looking at?

[yadayada]

lombard risk. I cannot buy that one with IB or e trade. I have to sign up with a uk broker.

[ukvalueinvestment]

Thanks for the heads up.  Wasn't aware of this stock. Just taken a quick look. Thesis is that it's a high growth company in secularly growing industry, at super cheap price?

[yadayada]

they provide risk analysis software for  banks. They are tiny, but their clients are big banks and they have 5 year contracts. With a 95% renewal rate. And their costs are pretty fixed. So more then 75% of revenue will flow down to the bottom line. So all that, and the fact that costs of using this software is a tiny expense for banks, makes me really like this business. And it is trading at less then 10x earnings now. Could be a multibagger.

 

Reason it is cheap is because they generated v little FCF. I guess the thesis here is that will change in the future. The CEO is also v promotional because he doesnt like debt. He owns like 40% or so tho. There are some write ups on several blogs if you want to know more.

[ukvalueinvestment]

Got it. Can you explain what you mean by: "the CEO is very promotional because he doesn't like debt"??

[yadayada]

he hypes up his stock and then issues shares instead of debt. He hypes it up so he has to issue less shares (because he is a major shareholder himself)

[NoCalledStrikes]

GP investments is passing my filters except for management alignment with shareholders.  It seems like they earn a big paycheck whether the shareholders do well or not. 

 

Have you guys read this article? 

http://dealbook.nytimes.com/2013/08/16/brazilian-fund-under-fire-has-a-defender/?_php=true&_type=blogs&_r=0

 

Has anyone looked at the size of their paychecks vs their personal stake in the company?  Perhaps they are paid nicely but would earn much much more through capital appreciation of their shares, or perhaps not...

 

[Packer16]

They are paid peanuts compared to there American counterparts and they do much more in that they actual run some of the these companies versus the US investors.  If you watch the YouTube video in an earlier post you will see they are different then most PE firms.

 

Packer

[moody202]

they provide risk analysis software for  banks. They are tiny, but their clients are big banks and they have 5 year contracts. With a 95% renewal rate. And their costs are pretty fixed. So more then 75% of revenue will flow down to the bottom line. So all that, and the fact that costs of using this software is a tiny expense for banks, makes me really like this business. And it is trading at less then 10x earnings now. Could be a multibagger.

 

Reason it is cheap is because they generated v little FCF. I guess the thesis here is that will change in the future. The CEO is also v promotional because he doesnt like debt. He owns like 40% or so tho. There are some write ups on several blogs if you want to know more.

 

Can you provide links to the blogs you were referring to?

[jouni1]

back on GP Investments:

 

looks really interesting. almost all of the businesses are doing great, and they are in sectors that might have some windfall in the near-medium term.

 

their book values for investments seem pretty conservative for businesses growing and making profits.

 

what are the reasons for the decline? i didn't find anything else than the depreciation of investments and the real. some people complain about the wages but it seems like the asset management side has reached critical mass and might make profits from now on. if it's sold down just because paper losses on investments, this is a no brainer. been looking at this since yesterday and haven't found any red flags.

 

i like that they collected funds when people loved brazil. now they're deploying those funds in RE/infrastructure and buybacks. if brazil keeps on going (even at a slower rate) and these guys are interested in growing the per share value, this might be the real thing. the key people are all very young and have decades to go in the industry.

 

NCH and Third ave interviewed about the wages and their opinions on the company.

http://dealbook.nytimes.com/2013/08/16/brazilian-fund-under-fire-has-a-defender/

what i found interesting is that the NCH dude is buying even though he thinks they're paid too much and he won't get any votes.

 

also two of the third ave letters here where they mention GP shortly:

 

http://static.squarespace.com/static/52314aabe4b07589293175dd/t/52770642e4b0b76523559d2f/1383532098317/tavixu%20-%20q4%202012%20report.pdf

 

http://www.thirdavenuecapitalplc.com/ucits/docs/shareholderletters/Q1%202012%20UCITS%20Letters.pdf

 

would love to hear some bearish views on this and brazil in general.

[jouni1]

gp has hired itau bba to sell sascar stake. if it's valued at the bottom of the 700-800m range, the stake owned by GP would be worth a bit over 130 million. it's valued in the books at 62 million.

 

http://exame.abril.com.br/negocios/noticias/sascar-contrata-itau-bba-para-vender-participacao

 

edit: sascar sales in 2013 were 128m usd with ebitda at 50m. 700m seems pretty optimistic, even taking into account the margins and growth of the company.

 

also worth noting that 130 million is about half of GP's market cap.

[investor-man]

Does anybody have any suggested reading for coming up to speed on private equity? How it works and how to value it? TIA

[plato1976]

Most their investments are private investments so the valuation is not really linked to the market valuation

 

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.

[Packer16]

If you look at how they value the investments discussed in the last conference call, they appear to be below marker multiples.  This is true for 2 investments but if this is indicative of other marks, I feel comfortable.  The quote about pricing at a premium to mark below also is consistent with conservative marks.

 

Packer

[plato1976]

I agree it seems pretty conservative

 

The only thing I feel uneasy about this investment is that I really know nothing about brazil

One bad thing I heard about Brazil is that its manufacture cost is actually very high - partly due to the high human cost (a small surprise b/c I think it's still an emerging economy), and its public education system is quite terrible.

 

If you look at how they value the investments discussed in the last conference call, they appear to be below marker multiples.  This is true for 2 investments but if this is indicative of other marks, I feel comfortable.  The quote about pricing at a premium to mark below also is consistent with conservative marks.

 

Packer

[plato1976]

Hi, Packer:

 

What kind of account do you have at Fidelity ?

I don't see Brazil listed as a market Fidelity international trading can access to

 

 

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

[krazeenyc]

Hi, Packer:

 

What kind of account do you have at Fidelity ?

I don't see Brazil listed as a market Fidelity international trading can access to

 

 

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

 

I am able to buy at fidelity as well. You have to call the international trading desk.

[yadayada]

Have any non us people been able to buy this so far? Emailed a few brokers, but none of them offered them strangely. Not even the OTC one