JEF - Jefferies Group

[Mungerish]

I did not mean to say that I thought buybacks were the best use of capital or ideal....but they are better than the status quo.

 

I have owned LUK off and on for a long time and followed them much longer.

It's currently one of my largest positions.

 

The issues are mainly that it was NEVER run for quarterly taxable income and instead was always focused on value creation...a good thing over many years.

It's been chronically undervalued since the JEFF merger because the old methods of being totally anti-promotional do not work anymore without Ian Cumming and Joe running the show ( no quarterly meetings, no web cast of annual meeting, practically needing a search warrant to get in to investor day, etc.)

 

BV/Share has been stagnant since 2010, but I would argue that value creation has been anything but:

1. Conweb sold for $295mm +up to $40mm over 5 years compared to $46mm as TBV of the investment. The pretax gain was $176-185mm exclusive of the earnout because the net investment was $104mm

2. Nat Beef interest sold for a valuation of $1.875B + ( (900mm for 48% interest) . With cash distributions and the sale they rec'd $1.6B and have a 31% remainder interest carried at $590mm. They originally invested $868mm and it was being carried at $713mm on the books.

3. Garcadia: Net sale of LUK interest $425mm verus $200mm on books...but not counting cumulative distributions of $394mm Prior to sale. So essentially $820mm return on total investment of $321mm.

 

On the down side, part of cleaning up legacy LUK has been closing Sangart, LNG and Lake Charles. I am assuming a total loss of $500mm investment there.

 

I don't do long write ups because time is so scarce, but simply think about the following remaining merchant banking investments: Linkem, Berkadia, Idaho, HRG, LAM, Home Fed, Vitesse, etc. Not all deserve a premium to book, but some definitely deserve a significant premium.

The bottom line is that whether one uses a conservative P/BV ratio of say 1.25X when all other banks except C trade at that or mostly much higher.......Or whether I take the time to guesstimate value of each holding...I still come up with the same range: $38-41 per share.

Should the range be lower? Say $34-38?

These things are debatable but I am very confident it is worth more than $24 and that the down side is limited.

 

 

[ABM]

On deferred tax assets my reading of page F-90 of the 10K is as follows:

- the net deferred tax asset is $743m

- of this $600m is NOLs

- the total NOL is actually $2.4m, $1.2m of which can be used to offset the taxable income of any subsidiary and $1.2m of which can be used to offset the taxable income of specific subsidiaries. Given this wording around taxable income I assume it cannot be used to offset capital gains.

- the full $2.4bn is not recognised on the balance sheet as it is currently considered unlikely to be realised (expiry starts 2023) - they may be writing some of this back onto the balance sheet given the comments in yesterday's release but actually I think this wording probably refers to part or all of the $93m valuation allowance detailed in the table.

 

Does this look right?

 

My understanding is NOLs can offset capital gains for corporates so by math this has no impact on BV accretion but does convert a portion of the DTA into cash.  About 1/3rd of their NOL will be monetized resulting in a higher cash mix as a % of book value. 

 

Tough to find support but this paper confirms this

https://pdfs.semanticscholar.org/1531/129c8ed8786de5bf3ee9a1f73b0d9c0478cc.pdf

[petec]

Mungerish - I suppose my point is that if you have $xxx in liquidity and you spend $x on buybacks and then you find a great idea for $xxx you feel like a bit of a twit. This business is about deploying cash, not spending your optionality for a small discount to TBV. Now, if your fair value is $40 then that's different. Mine's $29, which might explain the difference in view. Would you share how you get to $40?

 

ABM - thanks - very useful and very good news. Frankly, if my understanding that there is another $1.8bn of NOLs behind the $599m they have recognised on the balance sheet is right, it's quite possible they start bringing that asset back. I'll be interested to see the details of reversing the valuation allowance when the 1q is published.

[Mungerish]

They have authorized 25mm shares to be repurchased. AT $25 this is only $625mm....Which of course they will never do all at once and it could take years.

If the parent company has $2.8B of liquidity pro forma with the transactions scheduled to close Q2, I don't see that as bad capital allocation honestly.

 

It's hard have a chronically undervalued currency and attract good people in finance. They have had 5 years to clean up the B/S and now they need to perform both in underlying value creation and gain the respect of their peers and business partners. A 5 year chart of LUK compared to MS, GS, JPM or even BRK-B is very ugly from the LUK/JEF perspective.

[petec]

Yes, it is. I'm just saying that they won't fix that by buying back at a discount to tbv - partly because they can't move the price much before they get it back to tbv and partly because the bigger Jefferies gets in the mix the lower the tbv multiple the market will pay.

 

They can fix it by doing some awesome deals with all that lovely cash (or by surfacing value in current investments and showing that your NAVPS estimate is more accurate than mine!).

 

I've no issue with a small buyback but I don't see the point. I see the point of the big buyback but I'd view it as evidence that they're not seeing the deal flow that I'd like them to see.

 

However, each to their own and I think we have done this one to death. I'd still love to see your $40 NAVPs summary though if you are willing to share.

[ABM]

Yes, it is. I'm just saying that they won't fix that by buying back at a discount to tbv - partly because they can't move the price much before they get it back to tbv and partly because the bigger Jefferies gets in the mix the lower the tbv multiple the market will pay.

 

They can fix it by doing some awesome deals with all that lovely cash (or by surfacing value in current investments and showing that your NAVPS estimate is more accurate than mine!).

 

I've no issue with a small buyback but I don't see the point. I see the point of the big buyback but I'd view it as evidence that they're not seeing the deal flow that I'd like them to see.

 

However, each to their own and I think we have done this one to death. I'd still love to see your $40 NAVPs summary though if you are willing to share.

 

They have authorized 25mm shares to be repurchased. AT $25 this is only $625mm....Which of course they will never do all at once and it could take years.

If the parent company has $2.8B of liquidity pro forma with the transactions scheduled to close Q2, I don't see that as bad capital allocation honestly.

 

It's hard have a chronically undervalued currency and attract good people in finance. They have had 5 years to clean up the B/S and now they need to perform both in underlying value creation and gain the respect of their peers and business partners. A 5 year chart of LUK compared to MS, GS, JPM or even BRK-B is very ugly from the LUK/JEF perspective.

 

I am not sure I agree it will not make a material difference on the per share NPV.  We have two things supporting the equity 1) asset value > BV 2) leverage to equity . This transaction unlocked >15% of value on TBV and likely more since a piece of the DTA will move b/c the high cash mix of BV due to taxes.

 

My point is the repos could add significant value if you think Jefferies is the last remaining assets and fair value is 1.25x TBV.  Also they could always tender for a block of the shares which is not uncommon or offer to exchange HRG/SPB shares for LUK shares at a slight premium to incentvize shareholders to participate.  Similar to how GE completed the Synchrony spin a few years back.           

 

[greenwave]

I did not mean to say that I thought buybacks were the best use of capital or ideal....but they are better than the status quo.

 

I have owned LUK off and on for a long time and followed them much longer.

It's currently one of my largest positions.

 

The issues are mainly that it was NEVER run for quarterly taxable income and instead was always focused on value creation...a good thing over many years.

It's been chronically undervalued since the JEFF merger because the old methods of being totally anti-promotional do not work anymore without Ian Cumming and Joe running the show ( no quarterly meetings, no web cast of annual meeting, practically needing a search warrant to get in to investor day, etc.)

 

BV/Share has been stagnant since 2010, but I would argue that value creation has been anything but:

1. Conweb sold for $295mm +up to $40mm over 5 years compared to $46mm as TBV of the investment. The pretax gain was $176-185mm exclusive of the earnout because the net investment was $104mm

2. Nat Beef interest sold for a valuation of $1.875B + ( (900mm for 48% interest) . With cash distributions and the sale they rec'd $1.6B and have a 31% remainder interest carried at $590mm. They originally invested $868mm and it was being carried at $713mm on the books.

3. Garcadia: Net sale of LUK interest $425mm verus $200mm on books...but not counting cumulative distributions of $394mm Prior to sale. So essentially $820mm return on total investment of $321mm.

 

On the down side, part of cleaning up legacy LUK has been closing Sangart, LNG and Lake Charles. I am assuming a total loss of $500mm investment there.

 

I don't do long write ups because time is so scarce, but simply think about the following remaining merchant banking investments: Linkem, Berkadia, Idaho, HRG, LAM, Home Fed, Vitesse, etc. Not all deserve a premium to book, but some definitely deserve a significant premium.

The bottom line is that whether one uses a conservative P/BV ratio of say 1.25X when all other banks except C trade at that or mostly much higher.......Or whether I take the time to guesstimate value of each holding...I still come up with the same range: $38-41 per share.

Should the range be lower? Say $34-38?

These things are debatable but I am very confident it is worth more than $24 and that the down side is limited.

 

---

+1  Mungerish ,

 

Thank you for your outstanding overview of where we are now from a probable valuation range of the company after the announcement of the recent sales and the Re-Branding of the two separate business units.

 

From my perspective as a long term holder of over 10 years -- the reorganization into the two business units should definitely make the overall entity much easier for new and existing investors to understand.

 

I have long thought that LUK was one of the most difficult companies in this size range to value and understand, and was likely thrown in the “too hard pile” by many value oriented investors.

 

I agree with your valuation of the company in the range of $35 to $ 40 per share.  We shall see.

 

greenwave

 

[petec]

Yes, it is. I'm just saying that they won't fix that by buying back at a discount to tbv - partly because they can't move the price much before they get it back to tbv and partly because the bigger Jefferies gets in the mix the lower the tbv multiple the market will pay.

 

They can fix it by doing some awesome deals with all that lovely cash (or by surfacing value in current investments and showing that your NAVPS estimate is more accurate than mine!).

 

I've no issue with a small buyback but I don't see the point. I see the point of the big buyback but I'd view it as evidence that they're not seeing the deal flow that I'd like them to see.

 

However, each to their own and I think we have done this one to death. I'd still love to see your $40 NAVPs summary though if you are willing to share.

 

They have authorized 25mm shares to be repurchased. AT $25 this is only $625mm....Which of course they will never do all at once and it could take years.

If the parent company has $2.8B of liquidity pro forma with the transactions scheduled to close Q2, I don't see that as bad capital allocation honestly.

 

It's hard have a chronically undervalued currency and attract good people in finance. They have had 5 years to clean up the B/S and now they need to perform both in underlying value creation and gain the respect of their peers and business partners. A 5 year chart of LUK compared to MS, GS, JPM or even BRK-B is very ugly from the LUK/JEF perspective.

 

I am not sure I agree it will not make a material difference on the per share NPV.  We have two things supporting the equity 1) asset value > BV 2) leverage to equity . This transaction unlocked >15% of value on TBV and likely more since a piece of the DTA will move b/c the high cash mix of BV due to taxes.

 

My point is the repos could add significant value if you think Jefferies is the last remaining assets and fair value is 1.25x TBV.  Also they could always tender for a block of the shares which is not uncommon or offer to exchange HRG/SPB shares for LUK shares at a slight premium to incentvize shareholders to participate.  Similar to how GE completed the Synchrony spin a few years back.         

 

Of course a buyback below tbv would add value if Jefferies was the last remaining asset and was worth 1.25x tbv. That’s just maths. But it’s not and it (probably) isn’t.

[arcticfox]

Petec: during investor day in October they discussed the recent growth in their investment banking franchise and their desire for that to be the part of Jefferies they want to grow as it is more stable than equities and fixed income trading. Right now they have some of the highest expenses in IB versus peers and claim they can grow their revenue and grow out of it to increase the ROE.

 

I saw this headline http://www.businessinsider.com/folger-hill-hedge-fund-and-schonfeld-are-merging-2018-4, which is an unlucky example of below average capital allocation- or "delay of game"

 

Rich and Brian have done a decent job with past investments in building out the merchant bank

but if they focus primarily on Jefferies and LAM then the stock itself is very market sensitive compared to a diversified holding company like Berkshire or Markel, etc.

 

I am positive on the stock and glad they finally got book value growing again. A couple of more wins or value creation/realizations and I don't see why the stock couldn't trade at a premium to book value in the mid 30's.

[petec]

Hi arcticfox

 

I perhaps should have been clearer. Growing IB by pushing more revenues over the same cost base is one thing and I would welcome that.

 

Growing Jefferies - any part of it - by adding equity is another thing and I don't think Jefferies has done well enough recently to justify that. I will change my mind if the facts change.

 

My point is/was that this deal has shrunk Jefferies as a % of the asset value. Lots of the commentary on here suggested people viewed this deal and name change as a dramatic strategy shift towards Jefferies. I don't. Sure, they will do everything they can to grow Jefferies profitably (it would be madness not to) and it may retain some of its profits to grow. But they're not putting capital into it, which is what matters. In fact, they're taking dividends out of it.

 

What is growing as they realise gains on prior investments is the book value of, and the cash available within, the merchant banking arm. That's why I was surprised when people on here seemed to think that Jefferies was growing in the mix and that the recent announcement signalled a return back to "old Jefferies" type activities.

 

By the way the distinction between "diversified financial services" and "merchant banking" is not new. You can see it on the breakout of tangible value table in the 10k. They have thought about the business this way for a long while - another reason why I don't see a big change.

 

Like you I am positive on the stock and I am excited to see what they do with the cash. As you say a couple more big wins and we might be at a premium.

 

Thanks for the link btw - just need to find a way round the paywall!

[petec]

At first glance Schonfield look like a pretty good outfit to be partnered with.

[arcticfox]

They are liquidating and laying off most of Folger hill in the United States due to poor returns. The folger hill Asia funds are being acquired and Sol Kumin is becoming the head of strategy at Leucadia asset management. Leucadia rolling funds into Folger hill Asia. Sounds like the good performers are being kept and the others let go. Basically no returns on this money since 2014.

[ABM]

I do not believe LUK ends in the near term with just the JEFF asset.  I do believe JEFF deserves higher multiple as it is overcapitalized and under-earning.  I see growth without need for more capital and you can note their capital levels and leverage ratios for context relative to competitors and the company's past.   

 

JEFF is also big beneficiary from European bank struggles (e.g. DB) and industry regulatory shift as most of their competitors converted to BHCs during crisis.  They benefit from lower funding costs but must live with must tighter regs and lower risk appetite.  This drives opportunity for JEFF and other mid market shops to steal share. 

[undervalued]

I do not believe LUK ends in the near term with just the JEFF asset.  I do believe JEFF deserves higher multiple as it is overcapitalized and under-earning.  I see growth without need for more capital and you can note their capital levels and leverage ratios for context relative to competitors and the company's past.   

 

JEFF is also big beneficiary from European bank struggles (e.g. DB) and industry regulatory shift as most of their competitors converted to BHCs during crisis.  They benefit from lower funding costs but must live with must tighter regs and lower risk appetite.  This drives opportunity for JEFF and other mid market shops to steal share.

 

I do believe JEFF deserves higher multiple as it is overcapitalized and under-earning.

Under-earning and overcapitalized deserves higher multiples?

[ABM]

No I was disagreeing with previous comment they need capital to support growth. I do not believe they do. Further, the dividend up to LUK is about a 50% payout ratio so still retaining large % of income. I believe the normalized tangible ROEs are higher and this translates into the higher multiple. 

[petec]

No I was disagreeing with previous comment they need capital to support growth. I do not believe they do. Further, the dividend up to LUK is about a 50% payout ratio so still retaining large % of income. I believe the normalized tangible ROEs are higher and this translates into the higher multiple.

 

I don't think anyone was arguing that Jefferies needed more capital. I'm sure we'd all be delighted to see it grow over the existing cost/capital base.

 

I remember looking into the BHC/nonBHC advantage a few years ago and thinking that while regulation may be less onerous as a non-BHC, the ratings agencies actually hold everyone to the same standards so there isn't much of a capital advantage to being a non-BHC. I haven't done the comparison recently but that, combined with the fact that they are retaining 50% of net income, makes me sceptical that Jefferies is overcapitalised.

[Scunny Bunny]

Spent a bit of time on this. Followed the company for years and now feel more excited than in some time.

 

It's now a bit easier to divide the company out into investments + Jefferies.

 

If we assume the Nat Beef, garcadia & Vitesse deals all settle, parent cash should be ~$2.1bn partly offset by $990m of parent debt. The company is talking larger numbers by $200m and there are $200m of other undisclosed investments within the "associates" which I have left out.

 

If you add the 13 investments as follows (DYOR on the valuations): Linkem ($192m), HRG ($540 being 46.6m shares at $11.59 way down on last year), Vitesse/JETX (562 = bv + new $145m injection), Nat Beef (31% remaining at uplifted value = $580m), Garcadia prefs (50), HomeFed (586 = 10.852m shares at $54), Berkadia (730 versus book of 210 - the 730 = 10x (21% tax) x (5 year average pre tax earnings for their 50% of $93.4m sourced from BRK annual report), Idaho Timber (81 - bv), FXCM ($158 - their bv), Golden Queen (74), LAM (571 per Dec 17), Foursight (99), 54 Madison (123). Total that lot up gives you $4,346million.

 

Add in the parent cash & deduct $200m of tax for the NB/Garcadia deals = investments, DTA and cash of $5,955m.  (invs 4346 + DTA 501 + net cash 1308 - tax 200). I have seen the discussion re the DTA. I've transparently left it in, take it out if you wish.  There are 361.4m shares on issue (including the 4.162m dilution from the $125m redeemable prefs), so the investments + cash are $16.50 a share.

 

Hence, at $24.30 you are paying $7.80 a share for Jefferies or $2.8billion. That's about 6.7x 21% taxed TTM earnings of ~$415million. Jefferies should be worth more than tangible book of $3.656bn but maybe not stated book of $5.5billion. Funnily enough, 11x post tax earnings get you somewhere in the middle at ~$4.6billion. (GS & MS average out at that as prospective P/E's and average trade at ~1.25x BV; that shows what a poor retiring business JEF still is versus the biggest boys). 

 

Take my middle valuation gets you to just under $30 or over 20% upside on a conservative valuation.  I think the risks are lowish in the short term but might be greater medium term if markets dislocate. The upside comes from my hopefully sensible valuations, continuing to liberate cash (HRG once merged with SPB but SPB earnings downgrade has cost LUK ~ $250m), oil assets, Berkadia (note the massive uplift in value of Garcadia on a deal), Linkem where there are no financials available but the last stated EV was $700m.  There could be upside in Jefferies valuation but that's a whole different debate which I won't win.

 

LUK should be buying back this stock like no tomorrow rather than the paltry $2.7m spent in Q1.  Downsides: bad positioning or curtailed volumes in bond market dislocation, a period of apathy after the frenetic recent activity, using the excess capital for a very long term deal which is hard to understand. Can't rule that out! Hope this helps any interested parties.       

[benhacker]

Thanks for sharing your thoughts.

 

Note the 10m share buyback after Q1 close.  Also, note JEF now upstreaming dividends which I think lowers some folks risk about the perception that this becomes a "doubling down" on Jefferies...

[Foreign Tuffett]

Spent a bit of time on this. Followed the company for years and now feel more excited than in some time.

 

It's now a bit easier to divide the company out into investments + Jefferies.

 

If we assume the Nat Beef, garcadia & Vitesse deals all settle, parent cash should be ~$2.1bn partly offset by $990m of parent debt. The company is talking larger numbers by $200m and there are $200m of other undisclosed investments within the "associates" which I have left out.

 

If you add the 13 investments as follows (DYOR on the valuations): Linkem ($192m), HRG ($540 being 46.6m shares at $11.59 way down on last year), Vitesse/JETX (562 = bv + new $145m injection), Nat Beef (31% remaining at uplifted value = $580m), Garcadia prefs (50), HomeFed (586 = 10.852m shares at $54), Berkadia (730 versus book of 210 - the 730 = 10x (21% tax) x (5 year average pre tax earnings for their 50% of $93.4m sourced from BRK annual report), Idaho Timber (81 - bv), FXCM ($158 - their bv), Golden Queen (74), LAM (571 per Dec 17), Foursight (99), 54 Madison (123). Total that lot up gives you $4,346million.

 

Add in the parent cash & deduct $200m of tax for the NB/Garcadia deals = investments, DTA and cash of $5,955m.  (invs 4346 + DTA 501 + net cash 1308 - tax 200). I have seen the discussion re the DTA. I've transparently left it in, take it out if you wish.  There are 361.4m shares on issue (including the 4.162m dilution from the $125m redeemable prefs), so the investments + cash are $16.50 a share.

 

Hence, at $24.30 you are paying $7.80 a share for Jefferies or $2.8billion. That's about 6.7x 21% taxed TTM earnings of ~$415million. Jefferies should be worth more than tangible book of $3.656bn but maybe not stated book of $5.5billion. Funnily enough, 11x post tax earnings get you somewhere in the middle at ~$4.6billion. (GS & MS average out at that as prospective P/E's and average trade at ~1.25x BV; that shows what a poor retiring business JEF still is versus the biggest boys). 

 

Take my middle valuation gets you to just under $30 or over 20% upside on a conservative valuation.  I think the risks are lowish in the short term but might be greater medium term if markets dislocate. The upside comes from my hopefully sensible valuations, continuing to liberate cash (HRG once merged with SPB but SPB earnings downgrade has cost LUK ~ $250m), oil assets, Berkadia (note the massive uplift in value of Garcadia on a deal), Linkem where there are no financials available but the last stated EV was $700m.  There could be upside in Jefferies valuation but that's a whole different debate which I won't win.

 

LUK should be buying back this stock like no tomorrow rather than the paltry $2.7m spent in Q1.  Downsides: bad positioning or curtailed volumes in bond market dislocation, a period of apathy after the frenetic recent activity, using the excess capital for a very long term deal which is hard to understand. Can't rule that out! Hope this helps any interested parties.     

 

Thanks for sharing your valuation. Maybe I missed it, but are you factoring in the NPV of their corporate-level expenses?

[ABM]

Spent a bit of time on this. Followed the company for years and now feel more excited than in some time.

 

It's now a bit easier to divide the company out into investments + Jefferies.

 

If we assume the Nat Beef, garcadia & Vitesse deals all settle, parent cash should be ~$2.1bn partly offset by $990m of parent debt. The company is talking larger numbers by $200m and there are $200m of other undisclosed investments within the "associates" which I have left out.

 

If you add the 13 investments as follows (DYOR on the valuations): Linkem ($192m), HRG ($540 being 46.6m shares at $11.59 way down on last year), Vitesse/JETX (562 = bv + new $145m injection), Nat Beef (31% remaining at uplifted value = $580m), Garcadia prefs (50), HomeFed (586 = 10.852m shares at $54), Berkadia (730 versus book of 210 - the 730 = 10x (21% tax) x (5 year average pre tax earnings for their 50% of $93.4m sourced from BRK annual report), Idaho Timber (81 - bv), FXCM ($158 - their bv), Golden Queen (74), LAM (571 per Dec 17), Foursight (99), 54 Madison (123). Total that lot up gives you $4,346million.

 

Add in the parent cash & deduct $200m of tax for the NB/Garcadia deals = investments, DTA and cash of $5,955m.  (invs 4346 + DTA 501 + net cash 1308 - tax 200). I have seen the discussion re the DTA. I've transparently left it in, take it out if you wish.  There are 361.4m shares on issue (including the 4.162m dilution from the $125m redeemable prefs), so the investments + cash are $16.50 a share.

 

Hence, at $24.30 you are paying $7.80 a share for Jefferies or $2.8billion. That's about 6.7x 21% taxed TTM earnings of ~$415million. Jefferies should be worth more than tangible book of $3.656bn but maybe not stated book of $5.5billion. Funnily enough, 11x post tax earnings get you somewhere in the middle at ~$4.6billion. (GS & MS average out at that as prospective P/E's and average trade at ~1.25x BV; that shows what a poor retiring business JEF still is versus the biggest boys). 

 

Take my middle valuation gets you to just under $30 or over 20% upside on a conservative valuation.  I think the risks are lowish in the short term but might be greater medium term if markets dislocate. The upside comes from my hopefully sensible valuations, continuing to liberate cash (HRG once merged with SPB but SPB earnings downgrade has cost LUK ~ $250m), oil assets, Berkadia (note the massive uplift in value of Garcadia on a deal), Linkem where there are no financials available but the last stated EV was $700m.  There could be upside in Jefferies valuation but that's a whole different debate which I won't win.

 

LUK should be buying back this stock like no tomorrow rather than the paltry $2.7m spent in Q1.  Downsides: bad positioning or curtailed volumes in bond market dislocation, a period of apathy after the frenetic recent activity, using the excess capital for a very long term deal which is hard to understand. Can't rule that out! Hope this helps any interested parties.     

 

How do you think about the "mgmt fee" charged to the LUK asset base each year?

 

The holdco comp benefits and SG&A was $132M / $112M net of 1 time items in 2017. Per my calc it has averaged 1.25% of tangible equity over past 3 years but was higher in 2017 @ 1.6%.  If you were to capitalize the 1.25% amount at say 10% cost of capital the NPV of this cost reduces tangible equity by 12.5% or more if you assume a growth factor. Just interested in how others are thinking about this expense in their NAV models.

[Scunny Bunny]

didn't factor that in on the basis of it being an "asset" rather than "earnings" type valuation with obvious rough edges. My general assumption is that this should be absorbed in the JEF component but accept your thinking.

[MrB]

Been following this for decades and bought it for the first time from 2015-2016 and then sold everything in 2017 when I couldn't answer the question, "If management will not buy back stock at $14 and change then when will they?". It seems that question has now been answered, "at $24" Brilliant capital allocation :-(

 

Seems the "management fee" ABM alluded to explains it. Under current management LUK is just another asset gatherer, talking a good game.......and for those reasons, I'm out! ;-)

[petec]

Been following this for decades and bought it for the first time from 2015-2016 and then sold everything in 2017 when I couldn't answer the question, "If management will not buy back stock at $14 and change then when will they?". It seems that question has now been answered, "at $24" Brilliant capital allocation :-(

 

 

It's not quite that simple though, is it? When the stock was at $14 they had a ton less cash, there were questions over Jefferies being downgraded, and some of their big holdings were still bleeding cash (NB). A buyback could have been very irresponsible. I might even go so far as to suggest that that's *why* the stock was at $14.

[scorpioncapital]

I have no argument with the state of the assets as is, but I feel a management discount is in order for reasons of compensation, control issues , and past , future business decisions which have not been too hot.

[tol1]

How does Leucadia Investment Management sit within LUK? Is it a multi-manager platform such as Millenium?