JEF - Jefferies Group

[benhacker]

I didn't size it up the common big in early 2016, but was pounding the table on the bonds and to a lesser degree the stock in 2016 and there were a lot of vocal, bulled up posters (benhacker comes to mind). I think when I first bought it in the mid 20's I was a bit more optimistic than I am now. I sold the bonds at par and am considering trimming the common to a quasi-permanent smaller position and wait to see how everything evolves. Could still make a credible case for $35-$40, but it's obviously less exciting and priced for less shitty things happening than at $16. At $16 you could writeoff a ton of their assets completely and still be okay (see above)

 

That was a long and self-centric way of saying I don't think the value investing community has at all given up on LUK. I think most have tempered expectations given the  hit rate and frustrating tendency for negative surprises, but "given up" seems too strong.

 

Late 2015/early 2016 and the "Leucadia is not longer loveable" article in barrons/wsj was the point where "the market" had given up, but many here had not.

 

Thanks Pupil.

 

I would also like to thank you for repeatedly pounding on the bonds which I think made me and (maybe) Picasso take a look.  I didn't swap my common to bonds, but I did put huge portions of the two income accounts I manage into the '43's (around $85) and some of the '23's (around $90).  I probably would have been too focused on common if you hadn't hit us all upside the head about the risk / reward which was arguably superior. (I am still holding those bonds for those accounts).

 

I did keep building the common all the way down and some on the way up as well, but it was quite frustrating to see that report for Q4 in early '16 and feel good about a 20% position..... but still, I was buying that day.

 

I tend to agree with you that many will be interested in getting back into LUK as a "compounder" once the financials are cleaner... but either way, been an interesting ride so far.

 

Cheers,

[greenwave]

"I sold the bonds at par and am considering trimming the common to a quasi-permanent smaller position and wait to see how everything evolves. "

 

Pupil,

 

Do you know if both LUK bonds are now trading at ,... - or close to par ? 

 

Thank you ,

 

greenwave

 

 

 

I didn't size it up the common big in early 2016, but was pounding the table on the bonds and to a lesser degree the stock in 2016 and there were a lot of vocal, bulled up posters (benhacker comes to mind). I think when I first bought it in the mid 20's I was a bit more optimistic than I am now. I sold the bonds at par and am considering trimming the common to a quasi-permanent smaller position and wait to see how everything evolves. Could still make a credible case for $35-$40, but it's obviously less exciting and priced for less shitty things happening than at $16. At $16 you could writeoff a ton of their assets completely and still be okay (see above)

 

That was a long and self-centric way of saying I don't think the value investing community has at all given up on LUK. I think most have tempered expectations given the  hit rate and frustrating tendency for negative surprises, but "given up" seems too strong.

 

Late 2015/early 2016 and the "Leucadia is not longer loveable" article in barrons/wsj was the point where "the market" had given up, but many here had not.

 

Thanks Pupil.

 

I would also like to thank you for repeatedly pounding on the bonds which I think made me and (maybe) Picasso take a look.  I didn't swap my common to bonds, but I did put huge portions of the two income accounts I manage into the '43's (around $85) and some of the '23's (around $90).  I probably would have been too focused on common if you hadn't hit us all upside the head about the risk / reward which was arguably superior. (I am still holding those bonds for those accounts).

 

I did keep building the common all the way down and some on the way up as well, but it was quite frustrating to see that report for Q4 in early '16 and feel good about a 20% position..... but still, I was buying that day.

 

I tend to agree with you that many will be interested in getting back into LUK as a "compounder" once the financials are cleaner... but either way, been an interesting ride so far.

 

Cheers,

[benhacker]

'23's are at $105, '43's are at $99.

[greenwave]

Thank you benhacker,

 

Hopefully the spread tightening that much over your holding time period is indicative of more confidence (by the  bond market ) in LUK’s eventual return to sustainable longer term profitability !

 

greenwave

 

 

'23's are at $105, '43's are at $99.

[educatedidiot]

Leucadia Q1 13-F is out: http://www.rocketfinancial.com/Holdings.aspx?fID=378 

 

They bought YHOO, FRGI, RAI, TWX, and sold their MON among others.

[benhacker]

Leucadia Q1 13-F is out: http://www.rocketfinancial.com/Holdings.aspx?fID=378 

 

They bought YHOO, FRGI, RAI, TWX, and sold their MON among others.

 

I don't think the LUK 13-F is relevant.  Note the sizes of the positions you are talking about.  This is JEF prop trading.

[educatedidiot]

A lot of the reported positions on the LUK 13-F are likely JEF prop trading, however I don't believe that the Fiesta Restaurant Group (FRGI) one is.  There are a few others too, but that's the only new one I believe.

[Jurgis]

FYI today's Barron's are pushing LUK as mini-Berk with some SOP valuation.

 

Disclosure: No position, no interest.

[no_free_lunch]

Leucadia National Corp. is exploring a sale of part or all of its stake in its National Beef Packing Co. unit, one of the biggest U.S. meat-processing companies, people familiar with the matter said.

 

Leucadia owns a 79% stake in the Kansas City, Mo.-based beef giant, a 26-year-old supplier of steaks, hamburger and other beef products. A sale would see Leucadia exit a big bet on beef at a time when the industry is rebounding from a rough patch, thanks to rising consumer demand and cheap grain prices.

..

In 2016, National Beef swung to a $329 million profit, and over the first three quarters of 2017 National Beef’s profit jumped 61% to $310 million from the same period in the prior year. In a regulatory filing, Leucadia listed the net book value of its National Beef investment at $629.8 million as of Dec. 31, 2016.

 

https://www.wsj.com/articles/leucadia-exploring-sale-of-meat-processor-national-beef-1515444653

[petec]

FYI today's Barron's are pushing LUK as mini-Berk with some SOP valuation.

 

Disclosure: No position, no interest.

 

Haven't seen the article but my (pretty basic) SOP today is $25/share with decent optionality in several of the units. They need a period of volatility to do some good deals.

[Liberty]

Ian Cummings has died:

 

https://www.sltrib.com/news/business/2018/02/02/financier-utah-ski-resort-owner-and-democratic-activist-ian-cumming-dies-in-wyoming-at-age-77/

[colinwalt]

Ian Cummings has died:

 

https://www.sltrib.com/news/business/2018/02/02/financier-utah-ski-resort-owner-and-democratic-activist-ian-cumming-dies-in-wyoming-at-age-77/

:-\

[LowIQinvestor]

The sale of National Beef should significantly juice reported book value.

 

LUK is carrying Beef at around $700M (BV) & the co did $500M in EBITDA.

 

LUK owns 79% of National Beef.

 

I think a sale is on the horizon.

 

Buying LUK today

[LowIQinvestor]

Allan Mecham - Arlington Value Capital 's 4th largest position is LUK

( right behind IBKR, BRKB, & CMPR)

http://www.dataroma.com/m/holdings.php?m=AV

 

[Spekulatius]

The sale of National Beef should significantly juice reported book value.

 

LUK is carrying Beef at around $700M (BV) & the co did $500M in EBITDA.

 

LUK owns 79% of National Beef.

 

I think a sale is on the horizon.

 

Buying LUK today

 

But they also have $450-500M charge from deferred tax asset revaluation pending that is going to hit the book value.

[VersaillesinNY]

LUK letter 2017

 

https://www.leucadia.com/CMSFiles/Leucadia.com/files/c-p_letters/leucadia_2017_shareholders_letter.pdf

 

You should sit on a porch, watch the world go by and then if you see something succulent, jump on it.

Ian Cumming

 

[scorpioncapital]

LUk is a tricky beast. I read their letters. They use honey words. But their record is atrocious and has resulted in the burning of one's capital. I moved out of LUK almost 10 years ago and cannot ignore that the stock has gone nowhere - if not down, while my new portfolio (including a big chunk of Berkshire) is up over 100%.

I suspect the problem is a disconnect between good intentions but too much of a speculative streak, a bet on inflation, and investing in low quality cyclical businesses or businesses with 'headaches' such as investment banking. Still...their stubborn one-way bet on inflation - a kind of broken clock is right twice - may pay off shortly but missing such a long accumulation of value in stocks is expensive since even if stocks go down by half, they will still be above the purchase price of an investor who bought in a decade ago.

However it is really tempting to perhaps switch into LUK right about now, not because management is good or isn't going to make any more blunders, just the assets they hold have a tailwind :) However I always wonder if management is a liability which is going to make some freak stupid investment.

 

 

 

 

 

 

[mcliu]

Is that what they're good at though? Judging from their history, the founders seem to have a talent for acquiring assets that make no sense at the time, but are extremely valuable 5 or 10 years later.. It seems like they're moving away from this model of betting on home-runs and opportunistically buying/selling to actually operating companies for the long-run.. In which case, you might see more steady increases in BV compared to the past..

[petec]

LUk is a tricky beast. I read their letters. They use honey words. But their record is atrocious and has resulted in the burning of one's capital. I moved out of LUK almost 10 years ago and cannot ignore that the stock has gone nowhere - if not down, while my new portfolio (including a big chunk of Berkshire) is up over 100%.

I suspect the problem is a disconnect between good intentions but too much of a speculative streak, a bet on inflation, and investing in low quality cyclical businesses or businesses with 'headaches' such as investment banking. Still...their stubborn one-way bet on inflation - a kind of broken clock is right twice - may pay off shortly but missing such a long accumulation of value in stocks is expensive since even if stocks go down by half, they will still be above the purchase price of an investor who bought in a decade ago.

However it is really tempting to perhaps switch into LUK right about now, not because management is good or isn't going to make any more blunders, just the assets they hold have a tailwind :) However I always wonder if management is a liability which is going to make some freak stupid investment.

 

10 years ago this was trading on a tbv of 2x based on a brilliant track record. That's seldom a recipe for share price performance because all investment managers go through fallow patches.

 

Both management teams had superb records in the individual entities. That doesn't mean every decision was good but multidecade bvps growth says something.

 

Of course, pretty much every bit of the business was hugely challenged over the last 10 years. So management suddenly looked stupid and the shares derated. But in the background, management transformed the company. JEF isn't spectacular but it is generating reasonable profits and comes at a reasonable price. LAM is very early days but might (might)become the second anchor business - nice option if you don't have to pay for it. The portfolio is very different from what this management team were handed on day 1, and every major business in it is heading the right way and/or is being turned into cash. So is the NOL - remember how they were never going to earn enough profits to use it? Jefferies and National Beef would now beg to differ.

 

Given the dealflow they see at Jefferies, cash could be a very valuable asset. 

 

I kinda like it.

[Ballinvarosig Investors]

LUk is a tricky beast. I read their letters. They use honey words. But their record is atrocious and has resulted in the burning of one's capital.

Book ten years ago was $11.22, the book value today is $28.37. Revenue was $1bn in 2008. Operating income alone in 2017 was $1bn. If that is atrocious, then please don't ever let me have you evaluating my performance.

[scorpioncapital]

Yet the stock is down 50% while the S&P is up 100% for a divergence of 150%. BV doesn't always measure value that's why even Berkshire has started to add a market value/share growth in the columns each year. Imagine all you had to do was buy an index for a decade to not 'lose' half your money. Opportunity cost is expensive.

 

 

[petec]

Yet the stock is down 50% while the S&P is up 100% for a divergence of 150%. BV doesn't always measure value that's why even Berkshire has started to add a market value/share growth in the columns each year. Imagine all you had to do was buy an index for a decade to not 'lose' half your money. Opportunity cost is expensive.

 

Yes but is it management's fault that p/bv went from 2 to 1? Or was the market overvaluing the stock in the first place? It's the market that destroyed value here IMHO. Reminds me of my all time favourite investing quote, from Scott McNealy, the then CEO of Sun Microsystems, in 2002:

 

"But two years ago we were selling at 10 times revenues when we were at $64. At 10 times revenues, to give you a 10-year payback, I have to pay you 100% of revenues for 10 straight years in dividends. That assumes I can get that by my shareholders. That assumes I have zero cost of goods sold, which is very hard for a computer company. That assumes zero expenses, which is really hard with 39,000 employees. That assumes I pay no taxes, which is very hard. And that assumes you pay no taxes on your dividends, which is kind of illegal. And that assumes that with zero R&D for the next 10 years, I can maintain the current revenue run rate. Now, having done that, would any of you like to buy my stock at $64? Do you realize how ridiculous those basic assumptions are? You don’t need any transparency. You don’t need any footnotes. What were you thinking?" 

 

[ABM]

Definitely don't like the change in the comp plan for Friedman and Handler. 

 

Past 2 years, it was modeled generously to give them ~10% of the value creation per year if they hit targets.  2016 and 2017 were 100% RSU based with target payout of $50M per year combined based on 3Y TSR and ROTE.  Looks like in 2018 they are switching back to 

cash/stock mix of 36%/64% per 10K.  2018 is $50M target but $18M cash  /$32M RSU. 

 

I already had issues with the level of incentive comp but thought alignment was strong so I looked passed it as they have to hold RSU for 3 full years after they vest or 6 yrs from grant date. Now things are changing a bit. 

[woltac]

LUk is a tricky beast. I read their letters. They use honey words. But their record is atrocious and has resulted in the burning of one's capital.

Book ten years ago was $11.22, the book value today is $28.37. Revenue was $1bn in 2008. Operating income alone in 2017 was $1bn. If that is atrocious, then please don't ever let me have you evaluating my performance.

 

The favorable ten year performance you describe is not attributable to current management.  Jefferies merged into Leucadia in March 2013 and Jeffries management took the helm.  At year end 2012, the last year Joe Steinberg & Ian Cummings ran Leucadia, book value was $27.67 and net income was $854 million. 

 

I gave up on current management and sold during the January surge in the stock price.  I probably waited too long to sell.

[petec]

I gave up on current management

 

I'd be interested to know why. So far, as far as I can tell, they have, in no particular order:

- simplified the portfolio, selling speculative junk as well as Conwed and Knight and putting Chrome into runoff

- concentrated on likely cash-flowing winners (Berkadia, Linkem, HomeFed, Garcadia. Maybe Vitesse should be in here but I never trust E&Ps to pay out cash rather than DRILL!)

- returned Jefferies to a reasonable level of profitability

- generated spectacular ebitda at National Beef (ok this wasn't their doing, it was the cycle, but they made the right decision to keep it - I'll declare final victory if they sell it well)

- started converting the NOLs to cash given profits at JEF and NB

- restructured HRG/Spectrum to optimise portfolio/sell assets/reduce debt/use NOLs - LUK's stake will potentially be spun to shareholders in 2018

- started LAM and got it to breakeven - clearly something that will be very valuable if it works and fairly low downside if it doesn't

- done one major deal on which they've already profited despite operational problems, and they have most of its cash flows in perpetuity yet to come - great deal structure for us (FXCM)

- positioned LUK to be able to move fast when they see opportunity

 

That's an absolute transformation in 5 years, and while it may not yet have shown up in the financials I think a lot of things are starting to align. Generating cash and converting the NOLs generates huge optionality for the next deal.