JEF - Jefferies Group

[Liberty]

Because I can't believe we still don't have an official thread for Leucadia here, I just had to create it. I feel it's better to have a centralized place to put info than have it spread over tons of different threads that get lost after a while...

 

Now is an especially good day for that since the stock is down 8.7% right now ($26.85, close to book), and it does look like a pretty decent buying opportunity if you believe in management's powers to keep compounding (though with BRK.B at 69.35, many will probably pick BRK first).

[menlo]

For what it's worth, and assuming I read their annual report correctly, this week is the first time the stock traded under book value since 1998 (using year-end data).

[Liberty]

For what it's worth, and assuming I read their annual report correctly, this week is the first time the stock traded under book value since 1998 (using year-end data).

 

Seems about right. By my count, it trades at about 1.02 BV today.

[jjsto]

Yeah,  i bought some recently cause it seemed cheap to book (compared to the past) and hopefully the recent volatility gave them a chance to deploy cash.  Nothing too scientific. 

[vn35]

I also bought some LUK, but I still save my ammo for BRK in the low 60s (hoping :-).

[bargainman]

I wonder how the NOLs carry forward played into this.  During the crisis they wrote those down, which killed a significant amount of their reported book value, but since then they've brought them back no?

[woltac]

Based on the 2Q 10Q, I calculate book value per share at $27.80, which includes an NOL per share of $4.73.

 

From the 10Q:

 

As a result, the Company was able to conclude that it is more likely than not that it will have future taxable income sufficient to realize a significant portion of the Company’s net deferred tax asset; accordingly, $1,157,111,000 of the deferred tax valuation allowance was reversed as a credit to income tax expense on December 31, 2010.

 

and

 

In addition to the reversal of deferred tax liabilities related to unrealized gains, the Company will need to generate approximately $4,000,000,000 of future U.S. pre-tax income to fully realize its net deferred tax asset.

[Poor Charlie]

The guys at LUK keep buying Mueller.  Anyone here familiar with MLI?  At first glance it does not look like a bargain: paying 2x book for a company with thin margins and modestly above average ROC.    I believe Buffett was also in MLI at some point.  Buffett, Cumming, & Steinberg are all smarter than me so I must be missing something.  ???

[berkshiremystery]

Based on the 2Q 10Q, I calculate book value per share at $27.80, which includes an NOL per share of $4.73.

 

From the 10Q:

 

As a result, the Company was able to conclude that it is more likely than not that it will have future taxable income sufficient to realize a significant portion of the Company’s net deferred tax asset; accordingly, $1,157,111,000 of the deferred tax valuation allowance was reversed as a credit to income tax expense on December 31, 2010.

 

and

 

In addition to the reversal of deferred tax liabilities related to unrealized gains, the Company will need to generate approximately $4,000,000,000 of future U.S. pre-tax income to fully realize its net deferred tax asset.

 

A good essay on the current valuation of LUK wrote "bryanemail65" on the yahoo boards.

 

Cheers!

 

http://messages.finance.yahoo.com/Stocks_%28A_to_Z%29/Stocks_L/threadview?m=tm&bn=10954&tid=15176&mid=15184&tof=1&rt=2&frt=2&off=1

[berkshiremystery]

The guys at LUK keep buying Mueller.  Anyone here familiar with MLI?  At first glance it does not look like a bargain: paying 2x book for a company with thin margins and modestly above average ROC.    I believe Buffett was also in MLI at some point.  Buffett, Cumming, & Steinberg are all smarter than me so I must be missing something.   ???

 

true,... Cumming & Steinberg increased significantly their MLI

 

http://finviz.com/insidertrading.ashx?oc=96223&tc=7&b=2

 

2011-08-03  --->  5,274,097 shares of MLI

 

2011-08-15  --->  7,779,917 shares of MLI

[txlaw]

Bought some LUK today.

 

Interesting to see that they bought a large slug of JEF stock from Richard Handler at a bargain basement price.  Don't think they can buy any more MLI, so it will be interesting to see if there's anything else they put money into. 

 

Regarding MLI, I believe there are two interesting angles to the story.  First, volumes of their goods have nowhere to go but up if we are at a bottom in housing starts.  Second, a collapse in copper prices due to China slowdown and a global commodities bubble bursting could boost the cost to price spreads on a unit basis so that gross margins go up quite nicely in the next few years (especially if MLI can buy up future copper production at collapsed prices). 

 

So I believe MLI is both a hedge against a bursting of the commodities bubble (something LUK must be well aware of, as they are intimately familiar with commodities like copper and iron ore) and a play on  housing starts being at the bottom.  Thoughts? 

 

[tombgrt]

-8,5%

-6,6%

 

 

I have work to do!  :o

[greenwave]

txlaw-

 

I think you are right on target with the reasons for luk's  large purchases of M L I . I would not be surprised if they eventually attempt to purchase M L I outright .

 

Although I don't post often , I always appreciate your commentary and insight on investing in general !

 

Thank you and all other contributors to this GREAT forum !

 

green wave

[txlaw]

txlaw-

 

I think you are right on target with the reasons for luk's  large purchases of M L I . I would not be surprised if they eventually attempt to purchase M L I outright .

 

Although I don't post often , I always appreciate your commentary and insight on investing in general !

 

Thank you and all other contributors to this GREAT forum !

 

green wave

 

Thanks, green wave.  I appreciate the props.

 

This board is great because people who don't invest for a living (like me) and even some of the professional guys out there are willing to share and bounce ideas off one another.

 

Even though I disagree with a lot of commentary on the board, especially about the macro, I also appreciate hearing the other viewpoints. 

[Munger]

Previous owner of LUK but no current position in LUK or JEF.

 

Will be very interesting to watch the JEF story unfold.  JEF management philosophy over the past few years can be summed up as -- "damn the torpedos, full steam ahead!"  No doubt gutsy but we'll probably learn if smart over the next 12 months, if not sooner. 

 

Just my opinion but the most recent conference call reminded a lot of the perfomance of some other excessively compensated management teams during 2008 (and we know how that turned out) -- analysts having trouble getting straight answers and reconciling the answers they did get with the question asked is never a good sign.

 

For those interested, replay is available -- note questions re:

1) sudden shrinking of the balance sheet at quarter end (four quarters in a row)

2) realized vs unrealized losses in the quarter (i.e., how much bad stuff is still on the books)

3) the health of their European business which they have dramatically increased in size

4) the massive ramp in dfd comp and the implications for future results

5) the surprising lack of any losses in the convert bond business during a period when the corresponding market got destroyed -- note JEF has one of the largest convert businesses on the street, according to analysts

6) the size of the company's direct exposure to European banks (the initial hesitation/stuttering was humorous).

 

I wish I personally had better insights because on the surface, management sounded like they were full of crap -- rarely answered any of the questions directly.  Plus I rarely short stocks (although that could change) -- put me in full agreement with the real Munger, who finds shorting stocks irritating.  So in the case of Jefferies, I have to settle for just grabbing the popcorn and watching this story unfold with great interest at this point.

 

Based on their apparent track record of success, I have respect for the LUK management team but I do find it odd they have gotten themselves knee deep with this company (a second tier IB without a stable source of financing like JPM, BAC, WFC?), unless their intention has long been to ultimately acquire JEF...so obviously the cheaper the better for LUK if they want to own this platform in entirety....

 

[scorpioncapital]

I've been adding to LUK at $23 and change, a decent price indeed at or slightly below book value. That should yield a return on investment in excess of 15%/yr. over time. As an aside, I just saw the movie Moneyball, watching this movie I could only thing of the comparison to Berkshire and Leucadia as the type of game that an investor *should* want to play, careful, methodical, seeing value in the discarded and unrecognized, with partners who know what they're doing, like each other, and are successful in understanding and playing the game. Those in this ballpark can be counted on 2 hands. Of those, only 2-3 are significantly superior to the other great value investors.

[Poor Charlie]

I've been looking for the LUK shareholder letters / annual reports from 1979-2003.  I was planning on contacting LUK Monday but thought I would check here first.  If any of you guys have the letters in PDF or link I would really appreciate it!!

 

whr981@gmail.com

[bargainman]

I've been looking for the LUK shareholder letters / annual reports from 1979-2003.  I was planning on contacting LUK Monday but thought I would check here first.  If any of you guys have the letters in PDF or link I would really appreciate it!!

 

whr981@gmail.com

 

You can get some of this on sec.gov..  Do a search on prior to 2004.  here's a link that should search for all 10-K's prior to 2004..  Doesn't go to 1979, but it gets you a few more at least...

 

http://www.sec.gov/cgi-bin/browse-edgar?action=getcompany&CIK=0000096223&type=10-K&dateb=20040101&owner=exclude&count=40

 

 

[Poor Charlie]

Thanks Bargainman.  I've checked out most all the sec filings.  I'm looking for the C&S shareholder letters which aren't on sec.gov...  Pretty sure they are available in PDF tho.

[beerbaron]

PM me with your e-mail address I'll send 1979 to2004.

 

BeerBaron

[link01]

Based on their apparent track record of success, I have respect for the LUK management team but I do find it odd they have gotten themselves knee deep with this company (a second tier IB without a stable source of financing like JPM, BAC, WFC?), unless their intention has long been to ultimately acquire JEF...so obviously the cheaper the better for LUK if they want to own this platform in entirety....

 

actually, jef's financing has has historically been financed by more long term debt & less of a reliance on short term vs their bigger brethren in the i-bank industry, which explains why the were much less exposed to the decimating losses of 08-09.

 

i doubt c&s have any desire to enter that industry via acquisition of jef or anyone else. like web i've seen them (figuratively) hold their noses when talking about the insane compensation structure prevailing there. the do seem to like & admire handler tho.

 

as far as this point goes: <<6) the size of the company's direct exposure to European banks (the initial hesitation/stuttering was humorous).>> one of their analysts has this very interestiong take:

 

<<The most scathing report describing in exquisite detail the coming financial apocalypse in Europe comes not from some fringe blogger or soundbite striving politician, but from perpetual bulge bracket wannabe, Jefferies and specifically its chief market strategist David Zervos. "The bottom line is that it looks like a Lehman like event is about to be unleashed on Europe WITHOUT an effective TARP like structure fully in place. Now maybe, just maybe, they can do what the US did and build one on the fly - wiping out a few institutions and then using an expanded EFSF/Eurobond structure to prevent systemic collapse. But politically that is increasingly feeling like a long shot. Rather it looks like we will get 17 TARPs - one for each country. That is going to require a US style socialization of each banking system - with many WAMUs, Wachovias, AIGs and IndyMacs along the way. The road map for Europe is still 2008 in the US, with the end game a country by country socialization of their commercial banks. The fact is that the Germans are NOT going to pay for pan European structure to recap French and Italian banks - even though it is probably a more cost effective solution for both the German banks and taxpayers....Expect a massive policy response in Europe and a move towards financial market nationlaization that will make the US experience look like a walk in the park. " Must read for anyone who wants a glimpse of the endgame. Oh, good luck China. You'll need it.

 

Full Report:>>

 

http://www.zerohedge.com/news/jefferies-describes-endgame-europe-finished

 

[Poor Charlie]

Beerbaron,

 

Don't know if my PM went through, I was trying to send it from an Ipad.  In an case my email is: whr981@gmail.com

 

Thanks again!

[scorpioncapital]

The first decade of letters 78 to 88 are actually quite boring and mundane looking. This is what I find extremely fascinating on two fronts. Obviously, the first being the evolution of something so mundane into something so successful. The second, however, is more subtle, which is that it is often hard to tell from early beginnings which capital allocators will be great. The signs are not overt, it's not like they all started writing folksy letters from the start. Likewise, it's amazing how a string of mundane deals can lead to a good end result. You have to be smart, but you don't have to go for the home-run, a series of well planned, under the radar deals can do the trick. Just like you don't need home-runs to win in baseball, just a series of constant walks, runs, or whatever it takes to get on base over and over.

[dwy000]

In addition to the price of JEF, I would guess that the other name position that's weighing on LUK is Fortescue.  They've lightened up on the position over the past few quarters but at June 30 it was worth $1.06bn.  As of today it's worth closer to $750m. 

[Poor Charlie]

The first decade of letters 78 to 88 are actually quite boring and mundane looking. This is what I find extremely fascinating on two fronts. Obviously, the first being the evolution of something so mundane into something so successful. The second, however, is more subtle, which is that it is often hard to tell from early beginnings which capital allocators will be great. The signs are not overt, it's not like they all started writing folksy letters from the start. Likewise, it's amazing how a string of mundane deals can lead to a good end result. You have to be smart, but you don't have to go for the home-run, a series of well planned, under the radar deals can do the trick. Just like you don't need home-runs to win in baseball, just a series of constant walks, runs, or whatever it takes to get on base over and over.

 

 

 

I'm looking forward to reading the letters Scorpion.  Some of the comments they made re the .com years were priceless.

 

They certainly have had their fair share of home runs too.  Barbados Power & Light was incredible; I'd love to know how they found it.  FMG wasn't bad either...

 

My concern over LUK is with some of the newer projects (energy & pharma).  These guys are clearly capable in deep value turnarounds but VC is a totally different animal imho.