JEF - Jefferies Group

[plato1976]

What the estimation of the current book value per share and the tangible book value per share in Q2 ?

I was lucky to get out weeks ago - now feel this one may fall into value zone quickly

 

Any news on LUK lately?  Has come down to almost book value.

 

jefferies net profit dropped 34%. on another note; this is why i read this forum. been beating myself up for missing this ever since the p/b started running away.

 

guess i'll start building a position. i'm almost certain handler can give me 10+% a year at book value.

 

http://blogs.wsj.com/moneybeat/2013/06/18/jefferies-second-quarter-net-drops-34/?mod=yahoo_hs

[Grenville]

LUK reduces stake in INTL FCStone by 700K, now hold 918K shares (4.8%)

 

http://www.sec.gov/Archives/edgar/data/96223/000090951813000164/mm06-1913ifcstone_sc13da7.htm

 

 

[muscleman]

What the estimation of the current book value per share and the tangible book value per share in Q2 ?

I was lucky to get out weeks ago - now feel this one may fall into value zone quickly

 

Any news on LUK lately?  Has come down to almost book value.

 

jefferies net profit dropped 34%. on another note; this is why i read this forum. been beating myself up for missing this ever since the p/b started running away.

 

guess i'll start building a position. i'm almost certain handler can give me 10+% a year at book value.

 

http://blogs.wsj.com/moneybeat/2013/06/18/jefferies-second-quarter-net-drops-34/?mod=yahoo_hs

 

Do you want to wait until it reaches tangible book value? Companies like BAC currently already trade at tangible book, though I understand that the ROE of LUK may be higher than BAC.

Sorry to ask these newbie questions because I started to track LUK only recently. Is there any sum of parts valuation number?

[scorpioncapital]

There is no doubt LUK is in the "recharging the elephant gun phase". It's ROE is pitiful at the moment. It is trading slightly below tangible book. It has sold and liquidated many of its public investments and owns a few large private businesses. Therefore, the thing to watch is what they are going to do with their resources in the next little while both at investing HQ and at Jefferies HQ. With 10 billion in equity, to achieve a 20% ROE which is what would lead to a 20% growth in book value, they must produce $2 billion per year of gains and/or income. They are nowhere close to that...I would say that the current "complex" can produce - in a stretch , no better than 1 billion per year, so the other billion must come from new investments.

[jay21]

Has anyone seen a compelling SOTP valuation analysis on LUK?  If so, could you please post it?  Thanks.

[racemize]

Has anyone seen a compelling SOTP valuation analysis on LUK?  If so, could you please post it?  Thanks.

 

I'm not sure there would be an up-to-date one--LUK has a lot of asset churn, so in the past, you were buying the machine, not really the parts.  If you buy at near NAV, and they compound at anywhere close to historic rates, then you do very well.

 

I find it a bit more uncertain with the old guard leaving, so I haven't added.

[muscleman]

LUK's tangible book per share is around $21, according to the latest 10-Q.

BAC is already trading at tangible book value. Which one is better? Are we sure LUK can continue to compound at 20% per year after Handler takes over?

[racemize]

LUK's tangible book per share is around $21, according to the latest 10-Q.

BAC is already trading at tangible book value. Which one is better? Are we sure LUK can continue to compound at 20% per year after Handler takes over?

 

I don't think it is very easy to compare LUK and BAC directly, at least in this manner.  With BAC, the thesis is that underlying earning's power will emerge, e.g., at the 1.85 to 2.00 range, in the relatively near future, and with that the price should increase to 18-20 dollars correspondingly.  After that occurs, I think we will all have to think pretty hard about whether to keep holding it (probably compounding returns will drop down to 10% range?).  Some may hold until it gets to normalized environment for all banks, but some may drop out sooner.  Holding banks for very long periods seems to be a dangerous thing to do, since they all jump off a cliff every 10 or 20 years.  Thus, BAC is a return to average thesis, which is much shorter term than LUK. 

 

LUK, on the other hand, is a compounding machine, but it isn't based on earnings that much, or at least it wasn't in the past.  Now that they own all of Jefferies, it may be a bit different, and so I'm curious as to what it will be like (but do note that Jefferies was able to compound their book very well, even better than LUK in corresponding time periods).

 

Additionally, I would not estimate that LUK can compound at 20% per year going forward, though it may be possible.  Personally, I view lots of these compounders (e.g., BRK/FFH/MKL) as somewhere in the 12-15% compounding range, over long periods of time, if bought at the right prices.

[muscleman]

LUK's tangible book per share is around $21, according to the latest 10-Q.

BAC is already trading at tangible book value. Which one is better? Are we sure LUK can continue to compound at 20% per year after Handler takes over?

 

I don't think it is very easy to compare LUK and BAC directly, at least in this manner.  With BAC, the thesis is that underlying earning's power will emerge, e.g., at the 1.85 to 2.00 range, in the relatively near future, and with that the price should increase to 18-20 dollars correspondingly.  After that occurs, I think we will all have to think pretty hard about whether to keep holding it (probably compounding returns will drop down to 10% range?).  Some may hold until it gets to normalized environment for all banks, but some may drop out sooner.  Holding banks for very long periods seems to be a dangerous thing to do, since they all jump off a cliff every 10 or 20 years.  Thus, BAC is a return to average thesis, which is much shorter term than LUK. 

 

LUK, on the other hand, is a compounding machine, but it isn't based on earnings that much, or at least it wasn't in the past.  Now that they own all of Jefferies, it may be a bit different, and so I'm curious as to what it will be like (but do note that Jefferies was able to compound their book very well, even better than LUK in corresponding time periods).

 

Additionally, I would not estimate that LUK can compound at 20% per year going forward, though it may be possible.  Personally, I view lots of these compounders (e.g., BRK/FFH/MKL) as somewhere in the 12-15% compounding range, over long periods of time, if bought at the right prices.

 

If BAC can restore profitability and become a WFC type franchise, then it will be very good. Buffet holds WFC for very long term and did pretty well, though I like the shorter term thesis better.

What confuses me about LUK is where the synergy will come from. BRK/MKL/FFH have free insurance float to invest, but LUK does not have that.

[racemize]

If BAC can restore profitability and become a WFC type franchise, then it will be very good. Buffet holds WFC for very long term and did pretty well, though I like the shorter term thesis better.

What confuses me about LUK is where the synergy will come from. BRK/MKL/FFH have free insurance float to invest, but LUK does not have that.

 

That would certainly be ideal (re BAC), but I am still fairly cautious on indefinite holding periods for banks--of course, they tend to pay good dividends, over time, and if you bought at dirt-cheap prices, you are getting a lot of dividends off of your tax-free loan from the government, which might entice you to hold on forever, depending on what type of investor you are.

 

Re LUK's competitive advantage--they've just been really good at moving in and out of investments, in a value-oriented manner, so you have to trust their judgement to do things really, really well.  Since there's management changes, that makes the investment quite a bit different, hence the caution several of us have been talking about.  That being said, Jefferies should beable to eat up all those NOLs that they have, which is very nice and should give some nice returns.  (I guess the NOLs has been some of the secret sauce for LUK, similar to float, to answer your question).

[jay21]

 

If BAC can restore profitability and become a WFC type franchise, then it will be very good. Buffet holds WFC for very long term and did pretty well, though I like the shorter term thesis better.

What confuses me about LUK is where the synergy will come from. BRK/MKL/FFH have free insurance float to invest, but LUK does not have that.

 

Plenty of companies/investment vehicles have high ROEs that do not have float.

[twacowfca]

Following what Parames is doing is a very good strategy.  Based on valuation,  Parames rotates in and out of maybe 80 or so mostly European companies he has identified as being better businesses with family ownership and/or ethical management.  He pretty much does what Buffett did up until the 1980's wham a change in the tax law made it expensive for corporations to flip stock investments.

 

In Europe, there is absolutely no taxable event when funds like Parames sell shares they bought for a profit. Taxation of profits is delayed until an investor in his funds sells his shares in the fund at a profit.  Even then, shares in one of his funds can be rolled over to another fund tax free. 

 

As a result of the favorable tax regime,, Parames gets in and out of the  stocks in the set that he likes a lot more frequently than Buffett did when he employed that same strategy.

**********

 

Twa, this is not quite true for the capital gains.  Some countries, like Spain where Parames is based, have nominal capital gains for funds when they sell their stocks, about 1% if my memory serves me right.  In France, on the other hand there are no such gains.  For European investors it is usually a good thing to hold a top performing fund as you get both market beating performance and much better tax treatment.

 

Parames gets good recognition for good reason but his track record is not as good as Thierry Flecchia leading the Flinvest Entrepreneurs fund and before this a couple Oddo funds.  Flecchia has better net performance than Parames despite higher fees.

 

Thank you for the clarification and the info about Flecchia.  :)

[Christopher1]

Link to the last LUK shareholder letter signed by Cumming and Steinberg:

 

https://materials.proxyvote.com/Approved/527288/20130605/AR_173639.PDF

[muscleman]

There is no doubt LUK is in the "recharging the elephant gun phase". It's ROE is pitiful at the moment. It is trading slightly below tangible book. It has sold and liquidated many of its public investments and owns a few large private businesses. Therefore, the thing to watch is what they are going to do with their resources in the next little while both at investing HQ and at Jefferies HQ. With 10 billion in equity, to achieve a 20% ROE which is what would lead to a 20% growth in book value, they must produce $2 billion per year of gains and/or income. They are nowhere close to that...I would say that the current "complex" can produce - in a stretch , no better than 1 billion per year, so the other billion must come from new investments.

 

Is it trading already below tangible book? From the latest 10-Q, the tangible book is about $7.6 bn. The current market cap is 9.11 bn.

Regarding Rich Handler, I remember Bruce mentioned somewhere before that he thinks Rich is the best investment banker on Wall Street, but I can't find the source anymore. Anyone?

Note that top IBs like GS is currently trading at about 10% above tangible book, while LUK is currently at 19% above book.

[Grenville]

Link to the last LUK shareholder letter signed by Cumming and Steinberg:

 

https://materials.proxyvote.com/Approved/527288/20130605/AR_173639.PDF

 

Awesome! Thanks for posting. They posted the proxy on the sec site as well.

http://www.sec.gov/Archives/edgar/data/96223/000090951813000167/mm06-2413_def14a.htm

[rjstc]

Link to the last LUK shareholder letter signed by Cumming and Steinberg:

 

https://materials.proxyvote.com/Approved/527288/20130605/AR_173639.PDF

 

Great read. Going to miss their reports like we'll someday miss Buffetts.

[giofranchi]

Link to the last LUK shareholder letter signed by Cumming and Steinberg:

 

https://materials.proxyvote.com/Approved/527288/20130605/AR_173639.PDF

 

Grazie Cristoforo! E a presto! :)

 

Giovanni

[rjstc]

From reading the letter it sure looks like Steinberg & Cummings have done a good job of picking their successors and one will still be involved in being there for advice.

[fareastwarriors]

These guys will be missed!

[Grenville]

Link to the last LUK shareholder letter signed by Cumming and Steinberg:

 

https://materials.proxyvote.com/Approved/527288/20130605/AR_173639.PDF

 

Enjoyed the letter! I liked the recap of history along with the stories of their successes and failures. The background adds a bunch to the past letters, a good amount of detail not found in the old letters. Whoever writes the letter is very good!

 

I do wish they had more details on the operating businesses outside of JEF. Each letter has been helpful in assessing the businesses and their potential future value. They do talk about the gasification project briefly and the creation of an auto finance business. Also they talk at length about Jefferies and the new leadership which will be a large chunk of the go forward value of LUK.

 

I am surprised that they still haven't put a link to the new AR and letter on the Leucadia website. Thanks again for posting the proxyvote link.

[mcliu]

Thanks for the link. Has anyone updated their model/valuation of the company and are willing to share? :)

[scorpioncapital]

The wildcard is Handler. From what we know, since he took over management of Jefferies in 1990, he has compounded book value at 22% per year. This is "Buffet" territory returns. I am wondering what the future holds for LUK and his plans. Obviously, investment banking is only one of two major pillars. The other one is investing the large amounts of capital and equity that LUK has into investments that give good returns. In this respect, we don't know his experience outside of investment banking. Another possibility is bolt-on aquisitions in investment banking as opposed to the more electic investing in stocks, and "unrelated" businesses.

[Guest hellsten]

Really good letter and funny too:

Shortly after the acquisition one of us got a call from a gentleman who introduced himself as

David Mitchell, President of “our” power companies. We demurred saying we owned no power

companies, but David insisted, telling us that buried in the files of Baldwin United were stock

certificates representing controlling ownership positions in Barbados Power and Light,

El Salvador Electric, and Bolivia Power. To say the least, we were astounded. We were a utility!

One of us seized the day and became Chairman of all three and for years worked on maximizing

the value of these companies.

 

These guys earned a lot of money on bad businesses like telecom and mining…

[twacowfca]

There is no doubt LUK is in the "recharging the elephant gun phase". It's ROE is pitiful at the moment. It is trading slightly below tangible book. It has sold and liquidated many of its public investments and owns a few large private businesses. Therefore, the thing to watch is what they are going to do with their resources in the next little while both at investing HQ and at Jefferies HQ. With 10 billion in equity, to achieve a 20% ROE which is what would lead to a 20% growth in book value, they must produce $2 billion per year of gains and/or income. They are nowhere close to that...I would say that the current "complex" can produce - in a stretch , no better than 1 billion per year, so the other billion must come from new investments.

 

Is it trading already below tangible book? From the latest 10-Q, the tangible book is about $7.6 bn. The current market cap is 9.11 bn.

Regarding Rich Handler, I remember Bruce mentioned somewhere before that he thinks Rich is the best investment banker on Wall Street, but I can't find the source anymore. Anyone?

Note that top IBs like GS is currently trading at about 10% above tangible book, while LUK is currently at 19% above book.

 

 

I thinkI heard him say that recently on a panel at a conference, maybe Ira Sohn

[racemize]

I wonder if Handler et al. will continue the tradition of picking up NOLs from companies to achieve the tax benefits?