JEF - Jefferies Group

[Sportgamma]

Does anybody have the old Leucadia shareholder letters handy? The Leucadia site seems to be redirected to Jeffries now and only has recent letters.

[NeverLoseMoney]

At the bottom of this page there is a .zip file with the letters from 1978-2015: https://www.valuewalk.com/2016/04/leucadia-national-letters-1978-2015/

[Sportgamma]

Fantastic. Thank you NeverLoseMoney.

[greenwave]

Just a heads up...the old LUK and JEF threads have now been merged into this thread.  Cheers!

---

" Jefferies Financial Group Inc. Announces Second Quarter 2018 Results

Business Wire Business Wire•July 26, 2018

NEW YORK--(BUSINESS WIRE)--

 

Increases Share Buyback Authorization by Additional 25 Million Shares,

Having Repurchased over 24 Million Shares in the Second Quarter

 

Increases Quarterly Dividend by 25% to 12.5 Cents Per Share....."

-------

 

Hopefully the buybacks and dividend increase are indicative of a long term sustainable trend towards intrinsic value .

 

greenwave

 

-----

'At December 31, 2017 , we have recognized net deferred tax assets of $743.8 million. '

 

Maybe this finally becomes a useful asset over the next few years .

[spark411]

JEF is down quite a bit in the last two days.  More than the market.  Does anyone have thoughts on the drop?

[ukvalueinvestment]

They had an investor day recently, didn't they?

[greenwave]

Yes , the investors day presentation is posted on Jeffries

Investor Relations web link .

 

http://jefferiesfinancialgroupinvestorrelations.jefferies.com/presentations

 

Very detailed ...

 

greenwave

[spark411]

I read through the presentation when it came out.  This is why I'm so perplexed the stock is going down so much.  The presentation is positive and the direction is solid.  My biggest question mark on this stock is Richard Handler the CEO.  I wonder if he is interested in making the stock go up or if he is only interested in paying himself through the company.    If he is interested in growing the stock price, they should be aggressively buying back stock.  Hope to see it in their next earnings report.

[ValueMaven]

Most IB's havent done much lately, and JEF has historically been a value trap IMHO.  With that said - at a 5 year low, you now have me interested!

[Spekulatius]

Most IB's havent done much lately, and JEF has historically been a value trap IMHO.  With that said - at a 5 year low, you now have me interested!

 

It’s mildly interesting, but also note that GS trades at 1.1x book and is a far better business. also note that GS has a huge wealth management business that would be worth a much higher multiple stand alone. JEF does not have a wealth management business, it’s a second grade investment bank.

[greenwave]

Jeff reported today after market close results through November 30 ,2018 .

 

"Fully diluted tangible equity per share increased by 22% from $20.48 at the beginning of the fiscal year to

$24.90 at November 30.2018 "

 

greenwave

[greenwave]

 

-- Interview commentary by a longer term noted institutional investor in Jef / Luk …

 

“You're a fan of Jefferies Financial Group ( JEF ) [JEF], the former Leucadia. Why?

 

Jefferies operates a strong broker-dealer and a successful merchant bank. A common variable of a lot of what we own is the good quality of a business -- even if it's a turnaround -- combined with good operators. All the better if they're owner-operators who have their money invested alongside ours. Jefferies had success creating value through timely investments in the merchant bank and opportunistically repurchasing their shares at a sizable discount to net asset value.

 

This company met earnings expectations last year. They enhanced net asset value by reducing their majority stake in National Beef. Jefferies aggressively repurchased 13% of its shares in 2018, and, despite that, the stock price declined 35%.

 

It now trades at less than 80% of its tangible book value, and at about a 30% to 35% discount to our conservative low-$30s assessment of net asset value.

 

Is CEO Rich Handler taking it private?

 

He has a long way to go, but he recently wrote about the stock price being out of sync, and said "it was as if we were getting the call from our own company about a compelling new investment opportunity." In 2018, Jefferies was their single largest investment. He said the investment story "is becoming more focused and straightforward," meaning he's cleaning up some of the merchant banking stakes, including the National Beef stake.”

 

 

 

[arcticfox]

Is anyone headed to the Jefferies annual meeting this week? If so anything anyone learns or shares it would be greatly appreciated.

 

Not sure if it will be short or long but given the stock price I would expect a few questions.

[Scunny Bunny]

Jefferies poached about 30 folks from CLSA in Australia to start new insto broking firm.  Hasn't been a new one in over 15 years. Because they lose money in a really competitive market. Suspect another hopeless ego-effort from Handler & Friedmann. Spending money when the shares are at decent discount to most NAV type assessments. Long and so disappointed.

[petec]

Jefferies poached about 30 folks from CLSA in Australia to start new insto broking firm.  Hasn't been a new one in over 15 years. Because they lose money in a really competitive market. Suspect another hopeless ego-effort from Handler & Friedmann. Spending money when the shares are at decent discount to most NAV type assessments. Long and so disappointed.

 

Then why not sell?

[Scunny Bunny]

Jefferies poached about 30 folks from CLSA in Australia to start new insto broking firm.  Hasn't been a new one in over 15 years. Because they lose money in a really competitive market. Suspect another hopeless ego-effort from Handler & Friedmann. Spending money when the shares are at decent discount to most NAV type assessments. Long and so disappointed.

 

Then why not sell?

I am hoping given the value disconnect that there will be enough aggression from other investors to make the management see sense.  I don't see it as a vlaure trap - yet. Hence, don't feel like leaving my $1 on the table for ~$0.60-$0.70 just yet.

[ukvalueinvestment]

What would "seeing sense" represent? 

 

Increasing the buyback, selling portfolio companies?

 

How much is this CLSA move costing and is it actually material to the overall group?  Seems to me that Jefferies have always been opportunistic growers and this may be a limited downside move for them...

 

I think the big worry here is what happens if there is a US recession and blow up in the leveraged loans space.  I haven't looked into it but suspect that would cause some real value destruction ... ?

[Spekulatius]

Just buy GS, if you want to have a stake in an investment bank. Better  ROI and trading below tangible book. Why bother with these also rund that arn‘t even close to earning their cost of capital in a great economic environment? What do you think will happen, if the economy turns down?

[petec]

What would "seeing sense" represent? 

 

Increasing the buyback, selling portfolio companies?

 

 

Ha ha, quite.

[Scunny Bunny]

Gee - how to get trolled on CoBF: just post about JEF. OK in response to a few comments:

 

(1) I also own GS - much bigger position than JEF.

(2) The deal in Australia will cost money - 30 folks in one of the world's more expensive economies for rent and people. In addition, it's what it continues to say about Handler's empire building. Australia is one of the world's more overworked markets, five bank stocks and four resource stocks make up around half the index. The former (exception MQG) are under the pump divesting stuff, the latter four have money coming out of their ears but extreme discipline due to past misdemeanours.  It's the worlds 4th largest pension market but has been picked over extensively and boutique managers are closing at a rate of knots as the massive not-for-profit super funds bring things in-house and index

(3) Look at all the stuff on JEF's balance sheet which can be freed up: Minority stake in Nat Beef (~$590m my numbers), Linkem (going nowhere - $140m again my #), Vitesse, using JEF undervalued scrip to buy HomeFed at a premium, and the never ending saga of Spectrum Brands/HRG ($470m worth). All this effectively funded by the >$1billion of parent debt;

(4) I reckon the shares are worth ~$25 so the economics of continuing down the path of selling off non/low yielding stuff is compelling.

(5) The more so when you think where we are in the market cycle - move some of this stuff while you can and be conservative for the near future.  You'd have thought some investment banker types might get that.

 

Totally accept GS is a far superior business; in my portfolio JEF is a smaller "value" play on an ongoing liquidation back to the broker - a bit silly it's below the level pre the NBF announcement in April 2018. However, for me, GS, KKR and BX are bigger positions, superior businesses and management. FWIW.

 

 

 

[petec]

Scunny Bunny - I for one wasn't intending to troll and apologies if it came across that way.

 

FWIW I'm buying JEF in the 17's and 18's (but I'm not in a hurry because I'll get an even better opportunity if we get another risk off period). I have no position in GS, which I don't know at all well.

 

Re: your specific points:

- Aus deal - I have no real thoughts on this.

- National Beef - I'd love them to have sold the whole thing but it's a pretty big ticket in a narrow market and they got a good price. What they're left with is a cash flowing stub with sale options. That's not so bad.

- Linkem - bit harsh to describe this as going nowhere when the subs are growing like a weed, spectrum is increasingly valuable, and third party valuation has only ever gone up. I don't want them selling this before it's reached the top of the valuation S-curve.

- Vitesse seems to be building value quite smartly. Do you have a different view?

- Homefed might have been at a premium to last trade, but not to where it had traded for most of the last year and not to underlying value.

- Spectrum/HRG - we agree on this.

 

I think the Merchant Bank side has some attractive assets that will sell at fat premiums over the next few years. If the shares continue trading at a discount then that means a lot more buybacks, but I rather hope not - I would rather see them maintain a permanent capital base and deploy the cash into new investments in a downturn.

 

This thing has been transformed since the original deal and none of that has turned up in the stock price. I like that. The one thing I am not sure on is the criticism of Handler et al. What they've done with Jefferies over the long term has been impressive, but more recently they have come in for a lot of criticism, at least on here. I need to do more work and thinking on whether that is justified. I can't help but feel that this is one of those threads where people are pissed off because they share price hasn't performed, rather than because of what management has actually done, e.g. in untangling legacy Leucadia. Measured commentary like yous re Australia is very useful to me for assessing that. Thanks.

 

 

[Spekulatius]

The problem is they JEF is a terrible business and they keep building it up, even though it clearly isn’t earning its cost of capital. What good does it do to slowly liquidate non-core assets, when the core operation isn’t a good business. The $25 value/sharemay be correct, but I think it is going to still be $25 in 5 years.

[petec]

That terrible business compounded BVPS at 14% from 1990 to 2012. I am aware much has changed, but still...

[Parsad]

That terrible business compounded BVPS at 14% from 1990 to 2012. I am aware much has changed, but still...

 

Steinberg and Cumming picked Rich Handler as their successor.  He did a fantastic job at Jefferies over the years.  Problem was that Jefferies and Leucadia were two very different types of businesses...one was an investment bank, the other a merchant bank.  It would seem like a no-brainer to combine the two and provide a worthy protege to take over as S&C got older, but it wasn't...markets had a hard enough time valuing Lecuadia...combine it with Jefferies and it became even more confusing for them.  Where one business succeeded on conservative distressed investments, the other operated more conventionally based on leverage.

 

Finally now, after nearly a decade, Jefferies is a Rich Handler vehicle and he's moved it back into more of the conventional investment banking business he built his reputation on.  The good thing is that after the financial crisis, Jefferies finds itself one of the few mid-sized investment banks in the arena...everyone else is on the large size now merged into various large banks since 2008.  Handler was always known for his innovative ability to target the mid-size and smaller market...go after business that the larger institutions didn't care as much for, and now there are even fewer competitors in that space in terms of smaller investment banks.  I think the next decade will be much better for Jefferies than the past decade.  Cheers!

[Mungerish]

The stock price sucks in part because they really suck at Investor Relations and as shareholder stewards. Jamie Dimon can make time to do Quarterly calls and be the ambassador of a great bank... but not Handler. Jamie's even called out the Health Care Banker at JEF on the January call as doing a hell of a job. How is this good for JEF?

Handler chalks it up to not wanting to give guidance, etc but that is BS in my opinion. Guidance and visibility are two different things

Ever since the MF Global and subsequent shorting campaign that drove them into merging with LUK, they have acted like a black box with no quarterly calls and one investor day per year. Value is not always its own catalyst and even  LT shareholders suffer the opportunity costs of sitting in dead money and having to chose to either sell below liquidation value or just keep grinding it out. The one saving grace is that they raised the dividend some and now there is some yield at the current depressed price

I believe that the attitude on "the street" is something like: "What professional manager in his/her right mind wants to buy a black box/value trap that's going to kill their performance numbers for god knows how long?"

 

If it weren't for Handler's compensation news, the only time they would get any press for themselves ( excluding analysts appearances) is when Tilman Fertitta and Handler announce something in their Bromance.

They got one analyst to cover JEF a while back....But then he changed jobs...so that ended. Really? You're an investment bank and can't get any coverage of your own bank?

 

Kind of hard to believe that it isn't tough on morale to be an investment bank and have your own stock trading at 70% of TBV. They do their own NAV every year that shows substantial upside, but obviously no one is buying in to it, even after they have executed well on monetizing some assets in the merchant bank recently

 

It's worth $27 per share at TBV. Typically that would be a great buy for a bank without huge problems.

It's one of my longs and has been a big disappointment for all of the above