JEF - Jefferies Group

[dwy000]

Great summary Orchard.  Thanks for posting.

[gfp]

Thanks for the notes.  Can somebody tell me what HRG is doing with Fidelity Guarantee?  Is it being spun off, sold, or what?  What did they decide?

[Txvestor]

Thanks for the notes.  Can somebody tell me what HRG is doing with Fidelity Guarantee?  Is it being spun off, sold, or what?  What did they decide?

 

It is being sold to Anbang insurance co. out of China for 1.6B. I beleive this to be a very decent price for a life insurance company, at above book value in a low return environment. I think it is going through the approvals process and looks like they expect the sale to close later this year. Interesting that the arbitrage spread has increased quite dramatically over the past month or so. I have no insight into whether this is rational or not, given the news this oast week, but just note it to be almost $4 or roughly 17% based on current FGL quote and the $26.8 agreed price.

I believe that since LUK/Steinberg became more active in the operations of the HRG, they have been looking to derisk the company, and planning to sell off FGL as part of that.

[scorpioncapital]

http://www.scmp.com/business/companies/article/1962372/anbang-prepares-second-bid-buy-us-insurer-fidelity-guaranty-life

 

"Foreign media reported on Wednesday that Anbang was to put on hold its purchase of Fidelity & Guaranty Life after the New York finance regulator sought more detailed information about the Chinese company’s funding and shareholder structure."

 

 

[gfp]

Thanks Txvestor & scorpioncapital

[Foreign Tuffett]

Thanks Txvestor & scorpioncapital

 

Seconded. You have both done this board's many LUK watchers a great service by posting your notes.

[MrB]

Re National Beef

Weekly Beef Production seems to be picking up.

Pricing still anemic

https://www.ams.usda.gov/mnreports/lswwcbs.pdf

 

 

[arcticfox]

Would be interested to hear feedback on a question for LUK management. I have read in the annual meeting notes and as demonstrated by their actions, they haven't bought back stock to keep cash and please the rating agencies. That makes sense to me, however why wouldn't they sell their HRG position at a profit, which has one good asset SPB and some mediocre assets and buy back stock with those proceeds. I find it a bit hard to believe they like HRG stock better than their own at these prices, unless they expect to hold or outright own Spectrum Brands for 5-10 plus years.

 

Any thoughts or feedback on this or other capital allocation ideas would be appreciated.

[muscleman]

I started looking at LUK but can't figure out what to like about it.

JEFF is in financial services and they are trying to get to double digit returns, which means they are not yet there and the optimistic return on equity is 10-15% if they do get there.

JEFF is about 40% of LUK based on tangible equity.

 

The remaining business are mostly capital intensive commodity businesses. Trading below tangible book along would not be a good reason to long. Also note that due to methods of consolidation accounting, the tangible book on SEC filing would be overstated, though not a big difference.

 

•

National Beef, 79% (beef processing);

•

HRG, 23% (diversified holding company);

•

Vitesse Energy, 96% (oil and gas exploration and development);

•

Juneau Energy, 98% (oil and gas exploration and development);

•

Garcadia, about 75% (automobile dealerships);

•

Linkem, 56% fully-diluted (42% voting) (fixed wireless broadband services);

•

Conwed Plastics, 100% (manufacturing);

•

Golden Queen, 35% (a gold and silver mining project); and

•

Idaho Timber, 100% (manufacturing)

[ebdem]

There are good reviews on seeking alpha: http://seekingalpha.com/symbol/LUK

To put it short: LUK is more or less a (value) play on the quality of the new management. Might work...

 

I see your point. If you look deeply, there is more quality for a comparable price in the market.

[colinwalt]

Mecham likes it... over 12% of his portfolio +

Handler bought a ton around 14-15 (25m I think)

 

Tracking Allan Mecham's Arlington Value Capital Portfolio - Q1 2016 Update

 

http://seekingalpha.com/article/3977840

[sae85400]

$LUK is skating by on old management, new management has done nothing to inspire they are anywhere near the caliber of Cumming or Steinberg

[ScottHall]

I started looking at LUK but can't figure out what to like about it.

JEFF is in financial services and they are trying to get to double digit returns, which means they are not yet there and the optimistic return on equity is 10-15% if they do get there.

JEFF is about 40% of LUK based on tangible equity.

 

The remaining business are mostly capital intensive commodity businesses. Trading below tangible book along would not be a good reason to long. Also note that due to methods of consolidation accounting, the tangible book on SEC filing would be overstated, though not a big difference.

 

•

National Beef, 79% (beef processing);

•

HRG, 23% (diversified holding company);

•

Vitesse Energy, 96% (oil and gas exploration and development);

•

Juneau Energy, 98% (oil and gas exploration and development);

•

Garcadia, about 75% (automobile dealerships);

•

Linkem, 56% fully-diluted (42% voting) (fixed wireless broadband services);

•

Conwed Plastics, 100% (manufacturing);

•

Golden Queen, 35% (a gold and silver mining project); and

•

Idaho Timber, 100% (manufacturing)

 

Why would it be overstated? There are three separate line items for noncontrolling interests and preferred shares.

[ukvalueinvestment]

Decent results.  Buyback.  Looks good.

[Junto]

For those interested: http://mobile.nytimes.com/2016/08/10/business/dealbook/jefferies-free-of-the-restraints-of-bigger-banks-is-emboldened.html?_r=0&referer=

[petec]

$LUK is skating by on old management, new management has done nothing to inspire they are anywhere near the caliber of Cumming or Steinberg

 

I believe precisely the opposite.  I found Cumming and Steinberg fairly uninspiring for their last decade and I believe they found it increasingly hard to work together.  Handler and Friedman, by contrast, both have exceptional individual records going back to the mid-80's, and did a great gob working together to build Jefferies over the last 15 years.  They have also done a good, maybe great job getting rid of some of the dross at Leucadia, laying out the future strategy, and making some new investments (FXCM).  I think they've earned some faith.

[Ballinvarosig Investors]

$LUK is skating by on old management, new management has done nothing to inspire they are anywhere near the caliber of Cumming or Steinberg

 

I believe precisely the opposite.  I found Cumming and Steinberg fairly uninspiring for their last decade and I believe they found it increasingly hard to work together.  Handler and Friedman, by contrast, both have exceptional individual records going back to the mid-80's, and did a great gob working together to build Jefferies over the last 15 years.  They have also done a good, maybe great job getting rid of some of the dross at Leucadia, laying out the future strategy, and making some new investments (FXCM).  I think they've earned some faith.

Agreed. Cumming and Steinberg wanted out, and to get out they did a deal that stank for shareholders and left the company lobsided towards Jefferies.

 

 

Current management aren't to blame, they inherited a whole pile of cyclical businesses at the bottom of the market. If they were to go to market to get rid of National Beef or some of their exploration companies, any offers are likely to be derisory given the current market. So for now, they are stuck with what they have. I don't know how long the bear market for Leucadia's businesses will last, but at a guess, I reckon if you bought and held this for 5 years, you would get a very nice return.

[petec]

I'm not so sure I think the deal stank.  Both C & S remain significant shareholders and the deal allied LUK's capital with JEF's deal flow.  It *is* unfortunate that JEF has been in a cyclical slump since the deal that shows no signs of ending.  But personally I disliked the macro/commodity bent of LUK in the late 2000's and I thought National Beef was silly, so I far prefer the current mindset and deals.  It's a bit harsh of the WSJ to say that performance has tanked since the deal when the stock price peaked at over $40 several years before the deal!

[Foreign Tuffett]

Leucadia-backed Folger Hill has not bee a success thus far.

 

http://www.businessinsider.com/folger-hill-hedge-fund-stumbles-after-pedigreed-start-2016-8

 

[WhoIsWarren]

Yah, looks like a struggle there.  Leucadia management had always presented this venture as one that had limited downside and lots of upside.

 

Although LUK invested c.$500m (and maybe a follow-on $400?), there were hedges put in place to protect that capital.  Therefore the downside was really funding operating costs - let's say $20m over a couple of years.

 

Fund performance and momentum in raising capital was key to the success of the project.  If the article is accurate, I would seem likely that management will close Folger Hill soon, unless fortunes reverse quickly.

[Foreign Tuffett]

More detail on Folger Hill's move into Asian markets. Go east young man!

 

http://www.bloomberg.com/news/articles/2016-09-20/kumin-s-folger-hill-hedge-fund-said-to-hire-first-asia-managers

 

 

Does anyone have any general thoughts on LUK's valuation at the current price?

 

 

 

 

[benhacker]

Does anyone have any general thoughts on LUK's valuation at the current price?

 

My view on valuation hasn't change(d) much recently.  I think a higher valuation than most had been assuming for Nat Beef is probably much more real given results.

 

LAM is not doing well, and JEF continues to suck.

 

Not sure if I have much to add outside of that.

[Guest roark33]

Ben--I enjoy your honest assessment. 

[KinAlberta]

I sold my short term position in it yesterday to take a small profit. In the 1990s I feel it held real promise but in the 2000s it was holding like iron ore and the like that drove up valuations (the luck of cheap optionality coinciding with a China driven commodity boom).  Today I just don't see much in Leucadia that makes me want to hold it long term, though the future credit market could eventually really do interesting things with it.

[undervalued]

http://www.cnbc.com/2016/09/22/china-to-reopen-beef-market-to-american-producers-after-13-years.html