JEF - Jefferies Group

[Grenville]

Open letter posted on Jefferies website from management to clients, shareholders, etc.

 

http://www.jefco.com/html/OurFirm/NewsRoom/PressReleases/2011/JefGrp_Letter%20to%20Shareholders.pdf

 

The letter is not in the site. Does anyone have a copy?

 

http://jefferies.api.edgar-online.com/efx_dll/edgarpro.dll?FetchFilingConvPDF1?SessionID=WNlVFyi4eZWuIUE&ID=8256100&logo=JEF_2C_CMYK_POS_std.gif

 

http://jefferies.api.edgar-online.com/efx_dll/edgarpro.dll?FetchFilingHTML1?SessionID=WNlVFyi4eZWuIUE&ID=8256100

 

It's filed as an 8K.

[PlanMaestro]

Thanks!

[orion]

Good article about Jefferies: http://www.economist.com/node/21557761

[Grenville]

Good article about Jefferies: http://www.economist.com/node/21557761

 

Thanks for posting!

[Grenville]

Good article about Jefferies: http://www.economist.com/node/21557761

[rogermunibond]

Burnham Place the major redevelopment of Washington's Union Station looks like it is finally getting the go ahead.

 

http://www.globest.com/news/12_402/washington/infrastructure/Union-Station-to-See-8B-in-Development-323697.html

 

http://www.bizjournals.com/washington/news/2012/07/25/amtrak-unveils-7-billion-union.html

 

Akridge is LUK's partner in the development.

[Parsad]

Burnham Place the major redevelopment of Washington's Union Station looks like it is finally getting the go ahead.

 

http://www.globest.com/news/12_402/washington/infrastructure/Union-Station-to-See-8B-in-Development-323697.html

 

http://www.bizjournals.com/washington/news/2012/07/25/amtrak-unveils-7-billion-union.html

 

Akridge is LUK's partner in the development.

 

They are also moving ahead with the $3B clean energy gasification project in Chicago that LUK is funding.  Cheers!

[berkshiremystery]

Some interesting video from Leucadia's favorite company JEF.

 

Battle of the Paychecks: Jefferies Vs. Goldman

 

http://www.bloomberg.com/video/battle-of-the-paychecks-jefferies-vs-goldman-dgsIMaSbR8GlVRM1u8IkiQ.html

 

and articles:

http://www.bloomberg.com/news/2012-07-26/jefferies-vies-with-goldman-for-highest-wall-street-pay.html

 

http://www.businessweek.com/news/2012-07-26/battle-of-the-paychecks-jefferies-vs-dot-goldman

[PlanMaestro]

http://www.bloomberg.com/video/79511734-egan-interview-11-3-on-jefferies-credit-grade-downgrade.html

 

http://dealbook.nytimes.com/2011/09/22/chief-sells-25-million-in-shares-of-jefferies/

 

http://www.bloomberg.com/video/80931404-tchir-cohan-debate-jefferies-strategy-nov-22.html

 

http://www.bloomberg.com/video/79636214-jefferies-is-not-out-of-the-woods-cohan-says.html

 

http://www.bloomberg.com/video/79889310-tchir-on-outlook-for-jefferies-group.html

 

http://www.bloomberg.com/news/2011-11-02/jefferies-says-it-s-no-mf-global-as-handler-shuns-large-proprietary-bets-.html

 

http://www.bloomberg.com/video/79511734-egan-interview-11-3-on-jefferies-credit-grade-downgrade.html

 

http://www.foxbusiness.com/markets/2011/11/07/jefferies-cuts-certain-europe-positions-by-half/

 

http://www.bloomberg.com/video/81699844-epic-errors-in-egan-s-jefferies-note-kotowski-says.html

 

http://video.foxbusiness.com/v/1281550910001/egan-jones-president-defends-report-on-jefferies

 

http://www.businessweek.com/news/2012-04-24/sec-says-egan-jones-made-false-claims-in-regulatory-application

 

http://www.scribd.com/doc/96232599/Egan-Jones-vs-SEC

 

 

 

 

[ubuy2wron]

Are you suggesting that Egan Jones is highly conflicted cuz as a casual observor that is what I always thought.

[Rabbitisrich]

EJ's errors were so easy to catch that it was likely just a mistake. It was a rare opening to push his company to the big three.

[Grenville]

Good article on Jefferies growth in commodities and its recent application to upgrade to ring dealing membership on the LME.

 

http://in.reuters.com/article/2012/07/31/idINL2E8IP9SY20120731

[racemize]

10-Q is out.

 

http://www.sec.gov/Archives/edgar/data/96223/000009622312000025/lnc2ndqtr2012form10q.htm

 

BVPS = 24.97

 

still doing work, so don't have much time to analyze if anything significant happened.

[Parsad]

It's nice to see exactly how big a business National Beef is.  Take a look at LUK's revenues with Beef in there.  Gives new meaning to "Where's the Beef?"  Cheers!

 

 

[bookie71]

Keep in mind that their gross on beef is affected by the price of beef.  More important is that the gross profit has gone from 2.28% to 4.45%.

just a thought.

[jeffmori7]

Sure LUK is cheap right now, but I'm considering selling it to buy more BAC. I'm not sure where LUK is going into the next few years, but I have a tought time deciding to sell under book...

 

I would like to add to BAC, but for that I have to make choice, and LUK is probably the stock in my ortfolio I am less comfortable holding it. I'm not sure about the succession plan, about their inflation/deflation view, and everything about LUK rely on the capacity to make deal, it has nothing to do with the inherent quality of the business they have, but I haven't seen deals that interesting recently..Maybe I don't show enough patience here!

[Kiltacular]

I'm suprised by the market reaction to this report.  Perhaps it is the headline loss (which is meaningless).

Nat'l Beef -- which, granted, they say is highly cyclical -- produced very solid pre-tax numbers of almost $50 million in the first 6 months.  Plus, you can add back the amortization of intangibles for another $12 million in the first half.

 

Fortescue note produced almost $100 million in first 6 months.  Granted, this could drop if Iron ore pricing gets hammered but off-setting that is huge expansion of Chirstmas Creek.  Since LUK gets their cut off of revenues, this note looks hugely undervalued on the books.

 

On succession, let's not forget that only Cummings is leaving and that's about 3 years away.  I didn't get the sense at all that Steinberg was on the move.  They both still have an enormous stake in the business.

 

Anyone else follow this one?  Please let me know if I'm missing something big.

[tombgrt]

I am with you Kiltacular. I sold my position some time ago at break-even in pursuit of other investments but will be looking to buy LUK again at some point.

 

Besides the current stock price discount to BV, LUK also has a great hidden asset with the FMG note.  Adjusted BV is materially higher than stated on the BS. Steinberg and Cummings are great owner-operators and I don't believe that the fact that Cummings will quit in 2015 will be that big of a deal. I also have faith in Justin Wheeler, he's obviously in great hands.

 

Steinberg and Cummings are always looking at the bigger picture and I think it shows again in their "recent" investments in various metals, beef processing,... They are riding some big trends and are not alone in their convictions. It will all take time to play out but I believe that overall, they will be proven right once again.

[Kiltacular]

Tombrgt...Thanks for the input.  I completely agree on the Fortescue deal...they carry the note and prepaid mining interest for something under $300 million.  It seems like they could easily collect more than $1 billion (and possibly much more) over the next 7 years.  They pay no tax. 

[giofranchi]

It's nice to see exactly how big a business National Beef is.  Take a look at LUK's revenues with Beef in there.  Gives new meaning to "Where's the Beef?"  Cheers!

 

Parsad,

first of all, it is a real pleasure to meet (well, actually, “quote”) you!

 

I think that LUK’s investment in National Beef is one of the best way I have come across, to play Mr. Grantham’s theme of the coming food crises.

 

“In October the number of people on the globe reached 7 billion and is expanding exponentially.

Humans need protein, we have it!”

- Cummings and Steinberg

 

I would like to know your opinion about it!

Thank you very much,

 

giofranchi

[giofranchi]

Fortescue note produced almost $100 million in first 6 months.  Granted, this could drop if Iron ore pricing gets hammered

 

Actually, I am not that comfortable with the Fortescue investment: when something I own is "mentioned" by Mr. Chanos (see attachment), usually that makes me worry...

Any particular insights to prove me wrong?

 

giofranchi

VALUExVail-2012-James-Chanos.pdf

[JRH]

Leucadia has sold most (~90%?) of their common stock in Fortescue, which makes me worry a lot less ($153m market value remaining).

 

The "royalty" note ("looks like a royalty, acts like a royalty, but in this case isn't") is unsecured and thus is probably right above  the common in the capital structure.  From the 10q (top of page 16):

 

"The aggregate book values of the various components of the FMG Note, net of accrued withholding taxes on

interest, totaled $294,616,000 and $290,415,000 at June 30, 2012 and December 31, 2011, respectively"

 

http://leucadia.com/10q_docs/luk_2012q2.pdf

 

$153 + $294 = $447m, about $1.82/share.

 

Not meant to "prove you wrong" that Fortescue is risky; just trying to put the size of the investment into context.

 

Also, as mentioned before, the money is positively pouring in relative to this valuation.

[prevalou]

Leucadia sold the remaining Fortescue stocks in july.

[Kiltacular]

As prevalou already pointed out, the recent filing indicates that LUK sold the rest of it's common position in Fortescue stock -- in all, I think this was a 5 bagger.

 

What is left is the note/pre-paid mining interest with a total carrying value of around $294 million. 

 

Linked ( http://www.fmgl.com.au/UserDir/FMGPresentations/ASX%20Release%202012%2005%2031%20-%20Australian%20Stockbrokers%20Association%2031%20May%20201253.pdf ) is a recent presentation from Fortescue which shows the huge ramp-up at Christmas Creek (among other mines).  LUK gets paid 4% of revenues (less taxes to Aussie gov't) on two mines -- Chirstmas Creek and Cloud Break.  Eyeballing page 6, you can see that as of June '12, these two mines were producing about 55 mtpa.  But, by the end of this year, they're expecting these two mines to be producing about 90 mtpa.

 

You can therefore conclude that even if there is an enormous crash in iron ore prices, LUK should still be collecting enough from Fortescue that the note is likely undervalued on their books. 

 

Of course, there is the lawsuit -- now two years old -- regarding Fortescue's attempts to change dilute LUK's potential on this deal.  But, at the annual meeting, Cummings and Steinberg said that they would be "shocked" if that happened.  There is also the risk that financing / funding falls through for expansion but X-mas Creek is likely far enough along that it won't be affected.

 

There is no question that there is huge new supply of iron ore coming on in the years ahead and I make no guesses about whether the price could come way down.  But, there appears to be a very large margin of safety w/r/t Leucadia's position.

[cogitator99]

@tombgrt,

 

curious as to what other opportunity you saw that made you sell off LUK. Because the valuation seems very undemanding at this point? With the sale of the FMG position, they've removed the portion of the port I didn't like. (I think China will slow materially from here.)

 

@giofranchi,

 

it sounds good on paper, but I wonder what the cost structure for National Beef will look a few years out, if grain prices are truly on an upward trend, which i think Grantham fears? anyone have insight as to how the beef industry works, government support, etc?