OPY - Oppenheimer Holdings, Inc.

[Homestead31]

your points are well taken and should be considered by all who are considering an investment in OPY.

 

Personally, this type of situation is one of my favorite investment setups.  A presumably self-interested owner operator and/or controlling share holder has the power to either 1) maximize the earnings power and value of their business by killing off or other wise separating and under-performing division or 2) continue to throw good money after bad.  Joel Greenblatt refers to this set up as one of his favorites in "stock market genius" as well.

 

in my view, when this setup is encountered, the question becomes, "is the control person rational, or are they a sociopath?" I personally believe that the sociopath option is very plausible, especially if we are talking about self made millionaires.  After all, people who achieve incredible success do not achieve said success because they are built the same as everyone else.  there is definitely something "different" about them. 

 

However, i think as analysts we would all benefit from Munger's advice, "never underestimate the power of incentives."

 

Private market value for OPY is likely 2x where it is trading right now, and since Lowenthal owns about 22% of the company, that puts the pre tax value of his stock at about $150M.  If memory serves, he took home around $4M last year, and his son took home something like $2.3M, so total of $6.3M.

 

Bud is an old man, and his lifetime earnings potential is far lower than that of a $150M portfolio.  His incentives are clear - he should sell in order to maximize economic value.

 

It is different for his son - he is a young man, and could possibly inherit the CEO seat and have tremendous potential life time earnings.  there is no way to know if he would inherit the company and become a tremendous CEO, or if he is really not interested in the pressure that comes with running a company like this, and he would rather sell and live the life of a millionaire playboy.

 

in summary, there is no way to know what will happen.  HOWEVER, the sale situation is just upside - we should all look at the downside first - and it is very difficult to see a downside here.  the stock is cheap on P/TBV, and industry fundamentals will give further downside support b/c the potential value in a sale is always just beneath the surface.

 

From my perspective, anything that has limited downside, and 100% potential upside is a good investment.  we may never see that sale, but i also really doubt we are going to see an owner operator ground his ship just to fuel his ego as Ratiman seems to think.

 

that being said Ratiman - i do value your take (even though your post count makes it seem that you joined the site specifically to talk negatively about OPY) and you brought up an interesting point earlier about people here being suckered by Cuyler's comments on VIC.  i assume this means you are a member of VIC, and personally i would be very curious to hear what Cuyler and others over on VIC would have to say about your concerns regarding Lowenthal torching capital on the bank, so could you please pose the question to Cuyler and share his response with us?

 

thanks in advance.

[no_thanks]

Earnings are out. 

 

Albert G. Lowenthal, Chairman and CEO commented, "Operating results for the period were affected by a general slowdown in market activity affecting both our Private Client and Capital Markets results.  This was partially offset by improved results from Investment Banking.  Operating results were also favorably impacted by a significant reduction in provisions related to legal and regulatory matters compared to the same period last year.  The Company will continue to invest in its people and technology to further its culture of compliance throughout the enterprise. We were also pleased with the continued strong performance of our Commercial Mortgage Banking business. Our asset management and fee-based business remained strong as a result of the high level of assets under management during the period."

 

http://www.newswire.ca/en/story/1578376/oppenheimer-holdings-inc-reports-second-quarter-2015-earnings-and-announces-quarterly-dividend

[Guest notorious546]

any idea why the share count jumped 5.75% ? doesn't seem like too much reason why that would be the case?

 

still looks cheap on a tangible book value basis, marginally lower AUM is a bit concerning if the trend continues.

 

"At June 30, 2015, book value per share was $38.68 (compared with $38.71 at December 31, 2014) and tangible book value per share was $26.34 (compared with $26.27 at December 31, 2014). "

 

[morningstar]

any idea why the share count jumped 5.75% ? doesn't seem like too much reason why that would be the case?

 

still looks cheap on a tangible book value basis, marginally lower AUM is a bit concerning if the trend continues.

 

"At June 30, 2015, book value per share was $38.68 (compared with $38.71 at December 31, 2014) and tangible book value per share was $26.34 (compared with $26.27 at December 31, 2014). "

 

Dilutive impact of share-based comp was higher. Actual share count is roughly flat, though the company is a serial issuer over time and has never been a meaningful buyer of its stock.

 

As for the client withdrawals from AUM, nearly 5% withdrawals in the quarter is certainly below the peer group but at this level of scale I would think lumpy results are to be expected.

[Txvestor]

any idea why the share count jumped 5.75% ? doesn't seem like too much reason why that would be the case?

 

still looks cheap on a tangible book value basis, marginally lower AUM is a bit concerning if the trend continues.

 

"At June 30, 2015, book value per share was $38.68 (compared with $38.71 at December 31, 2014) and tangible book value per share was $26.34 (compared with $26.27 at December 31, 2014). "

 

Dilutive impact of share-based comp was higher. Actual share count is roughly flat, though the company is a serial issuer over time and has never been a meaningful buyer of its stock.

 

As for the client withdrawals from AUM, nearly 5% withdrawals in the quarter is certainly below the peer group but at this level of scale I would think lumpy results are to be expected.

 

 

 

A5.75% dilution for a 5% decrease in AUM certainly does not look attractive from the shareholder perspective. The shares are certainly cheap but maybe they are cheap for a reason. As some posters pointed out earlier, he might be runnin the ship for reasons other than purely shareholder returns.

I'll point out that the long term stock price graph of OPY does not speak to a very attractive longer term holding.

[ratiman]

After doing some research on Wikipedia,

 

Anyone taking investment advice from people who do "some research on Wikipedia" deserve the losses they will incur.

 

Read the filings, do your own work on the valuation, and invest accordingly.  There are no certainties in life, but there is a certain amount of anger in your tone that indicates you are hoping for a poor outcome.  These are investment guys - they want to make money.  It's that simple.

 

 

Indeed.  Some people do deserve the losses they incur. Couldn't have said it better. It's that simple! 

[Guest notorious546]

adding here is probably an okay idea imo

[Picasso]

http://advisorhubinc.com/oppenheimer-is-a-dying-wealth-management-brand/

[Homestead31]

i saw that article as well... i personally wouldn't read to  much into it.  go to glassdoor.com and look up any company and you'll see negative reviews.  i think the "second level" way to think about this is that it would be cheaper for an acquirer to buy ALL of OPY's advisors than to try to pick them off one at a time.  i would also suggest that if the article is true and this is a melting ice cube, management is surely aware of it, and is more inclined to sell.

[Picasso]

I don't think that is second level thinking at all.  The financial performance at Oppenheimer Holdings has been dismal and it seems extremely unlikely that management will sell. 

 

What investors are missing is the revenue per producer in the private wealth division.  It's the lowest that you'll see among any publicly traded competitors.  That is exactly the type of business that potential acquirers are selling not looking to buy.

 

This has been and will be dead money at best. 

[rpadebet]

 

investing takes more than counting. Anybody can count.

 

This has got to be the best quote I read this year.....very well put. It's signature material  :)

 

No opinion on OPY sorry.

[Homestead31]

it is a mistake to look at the company company out of a series of mis steps and declare that it is undesirable or dead money.  they have under earned in recent quarters, which is why it is so cheap.  at something like 70% of tangible book value it is hard to see the downside, and the upside is large if they just get back on track, and huge if they do sell.

 

looking back through the last several years, tangible book value alone has grown at a nice rate, AUM has grown, and # of advisors have grown.  to be clear, i am not a huge cheer leader here - there are clearly problems here, and recent mis steps may have eroded brand value - but at current prices this risk is more than priced in. 

 

if you want to buy cheap stocks, there almost has to be some hair on them.  if the down side is protected though, you'll do fine over time.

[Homestead31]

also worth noting that when dealing with a less than stellar company, margin of safety is of the utmost importance.

 

recent deals in this space have gone for ~2% of AUM.  If this were sold at 1% of AUM it would sell at close to $50.

 

That is a huge margin of safety from today's less than $20 price. 

 

I'm not arguing that this is a great business or even a good business - but I do believe that if you own stocks at 20-30% discounts to tangible book value and 60% discounts to private market value, good things tend to happen if you are patient.

[Guest notorious546]

NEW YORK, Sept. 15, 2015 /CNW/ - Oppenheimer Holdings Inc. (NYSE: OPY) today announced that its board of directors approved a share repurchase program that authorizes the Company to purchase up to 665,000 shares of the Company's Class A non-voting common stock, representing approximately 5% of  its  13,348,369 currently issued and outstanding shares of Class A non-voting common stock.  This authorization replaces the share repurchase program covering up to 675,000 shares of the Company's Class A non-voting common stock, which was announced on October 7, 2011.

 

Any such share purchases will be made by the Company from time to time in the open market at the prevailing open market price using cash on hand, in compliance with the applicable rules and regulations of the New York Stock Exchange and federal and state securities laws and the terms of the Company's senior secured debt.  All shares purchased will be cancelled.  The share repurchase program is expected to continue indefinitely.  The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements and capital availability. The share repurchase program does not obligate the Company to repurchase any dollar amount or number of Class A non-voting common shares.  Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice. 

[undervalued]

You mentioned they issued 5.75% shares back in July. Now they're buying back 5%.

 

NEW YORK, Sept. 15, 2015 /CNW/ - Oppenheimer Holdings Inc. (NYSE: OPY) today announced that its board of directors approved a share repurchase program that authorizes the Company to purchase up to 665,000 shares of the Company's Class A non-voting common stock, representing approximately 5% of  its  13,348,369 currently issued and outstanding shares of Class A non-voting common stock.  This authorization replaces the share repurchase program covering up to 675,000 shares of the Company's Class A non-voting common stock, which was announced on October 7, 2011.

 

Any such share purchases will be made by the Company from time to time in the open market at the prevailing open market price using cash on hand, in compliance with the applicable rules and regulations of the New York Stock Exchange and federal and state securities laws and the terms of the Company's senior secured debt.  All shares purchased will be cancelled.  The share repurchase program is expected to continue indefinitely.  The timing and amounts of any purchases will be based on market conditions and other factors including price, regulatory requirements and capital availability. The share repurchase program does not obligate the Company to repurchase any dollar amount or number of Class A non-voting common shares.  Depending on market conditions and other factors, these repurchases may be commenced or suspended from time to time without prior notice.

[Homestead31]

interesting.  according to a post on VIC last week at a conference they said they would pay down debt before buying back stock.

 

 

[ratiman]

Any share buybacks are only going to consolidate Bud's control. And once his "investments" in the bank drive the share price down further, he will announce a cheap buyout and then fund it by selling off the advisor and asset management businesses, leaving his family in sole control of the bank. Shareholders will be lucky to get tangible book. Worst case, this whole process takes years and years as the shareholders continue to bleed.

[Lowlight]

OPY seems to be trading at an incredibly low valuation at ~60% of tangible book.  Even if you believe that management is awful and is only interested in expanding the under performing IB at the expense of the valuable business lines of asset management and commercial mortgage, I feel like the only way to make 60% of tangible book value make sense is to believe that the company will lose advisors (and AUM) at an increasing rate over the next few years.  I know there have been some advisors leave the platform, but I don't believe it has been nearly as catastrophic as would be required to justify the current price.  Further, an increase in the FF rate helps OPY's earnings without increasing costs.  I'm still in the camp that the FOMC will raise the FF rate next week, so seeing all of these advisors and highly asset sensitive banks trade down (specifically the ones with zero exposure to Energy) strikes me as crazy.

[WeiChiLoh]

If all the AUM/AUA leave immediately and the company goes into liquidation, wont the equity holder gain access to that tangible book? On some level, revenue decline is value crystallization?

[WeiChiLoh]

If all the AUM/AUA leave immediately and the company goes into liquidation, wont the equity holder gain access to that tangible book? On some level, revenue decline is value crystallization?

 

ROE = 5%

CoE = 8%

G = 0%

 

IV P/TBV = (ROE - G)/(CoE - G) = 5%/8% = 0.625x TBV

 

ROE = 5%

CoE = 8%

G = -10%

 

IV P/TBV = (ROE - G)/(CoE - G) = 15%/18% = 0.833x TBV

 

It seems two negative, low ROE and negative growth, creates a positive here.

[Guest notorious546]

NEW YORK, June 22, 2016 /PRNewswire/ - Oppenheimer Holdings Inc. (NYSE: OPY) today reported the completion of the sale by its subsidiary, Oppenheimer Multifamily Housing & Healthcare Finance, Inc. ("OMHHF") of OMHHF's  permanent loan mortgage servicing portfolio to Walker & Dunlop, Inc. for cash proceeds of approximately $45 million.  The sale, consisting of over 480 permanent loans insured by the U.S. Department of Housing and Urban Development, represents a sale of substantially all of the assets of OMHHF.  The sale of the remainder of OMHHF's operating assets is expected to be completed in the near future.  As previously reported, the Company had determined that OMHHF was a non-core business of the Oppenheimer financial services franchise and the Company's board of directors had approved the sale of assets of OMHHF.

 

Albert G. Lowenthal, Chairman and CEO commented, "We formed OMHHF in 1998 and successfully grew the business into one of the top ten commercial mortgage loan servicers in the U.S.  I would like to thank Jim Moore, President of OMHHF, for his many years of service.  We believe that the sale of this non-core business will allow us to continue to focus on growing our core banking and wealth management franchise."

 

SOURCE Oppenheimer Holdings Inc.