JEF - Jefferies Group

[ukvalueinvestment]

Do these recent results change anyone's views.

 

They are now earning 10% on tangible equity, one of their key competitors (Deutsche) is exiting the market.

 

Trading at big discount to tangible, still, and still buying back shares.

 

If they can have another good quarter of improvement, they will be earning more than their cost of equity, and this surely starts to trade nearer book?

[Parsad]

Do these recent results change anyone's views.

 

They are now earning 10% on tangible equity, one of their key competitors (Deutsche) is exiting the market.

 

Trading at big discount to tangible, still, and still buying back shares.

 

If they can have another good quarter of improvement, they will be earning more than their cost of equity, and this surely starts to trade nearer book?

 

They have also acquired some top teams from their competitors since the beginning of the year, fortifying their offerings and ability going forward. There is alot to like at Jefferies in the last couple of years.  Cheers!

[ABM]

Any views on the updated comp plan?  Unusual move to clawback prior year awards and revise targets and $ amounts of PY incentive plan.  Still a lower hurdle but added relative stock return component and boosted ROTE targets.  Not sure how the homefed TBV accretion impacts comp calc, though.  As a one-time accounting gain, my view is it should be adjusted out because with this transaction alone the 2019 hurdle is met.

 

Also, on the I banking biz, any strong views on their leverage levels? They seem to be heavily window dressing the QEs. 

 

 

 

 

[thepupil]

good thing I hold JEF in mostly tax deferred accounts...

 

I approve of this move, but don't love the tax inefficiency, doesn't effect me much personally, but if I was similarly sized in taxable accounts it certainly would.

 

Jefferies to Distribute Spectrum Brands Stock to Holders in Div.

By Nick Lichtenberg

(Bloomberg) -- Jefferies Financial, which currently owns 7.51 million shares, or about 15.4% of Spectrum Brands, approved a distribution to its shareholders of these Spectrum Brands shares.

Jefferies holders will get about 0.025 of a share of Spectrum Brands stock for each share of Jefferies stock held

Based on closing market prices on Sept. 13, dividend reflects distribution of about $1.50 per Jefferies share

 

 

Jefferies Financial Group Announces Special Dividend of Spectrum Brands Common Stock

Business Wire

NEW YORK -- September 16, 2019

Jefferies Financial Group Inc. (NYSE: JEF or Jefferies), which currently owns 7,514,477 shares, or approximately 15.4%, of the common stock of Spectrum Brands Holdings, Inc. (NYSE: SPB or Spectrum Brands), announced today that its Board of Directors has approved a distribution to stockholders of Jefferies of these Spectrum Brands shares. Jefferies will distribute the 7,514,477 Spectrum Brands shares through a special pro rata dividend (the “Distribution”) effective on October 11, 2019 (the “Distribution Date”) to Jefferies’ stockholders of record as of the close of business on September 30, 2019 (the “Record Date”). Stockholders of Jefferies will receive approximately 0.025 of a share of Spectrum Brands common stock for each share of Jefferies common stock held as of the Record Date. Based on closing market prices on September 13, 2019, the dividend reflects a distribution of approximately $1.50, or 7.4%, per Jefferies share.

Rich Handler and Brian Friedman, CEO and President, respectively, of Jefferies, said “The Distribution is consistent with our goal of maximizing long-term value for our shareholders. We continue to focus on growing our financial services businesses, simplifying our structure and returning excess capital to our shareholders in whatever form is appropriate. Including the Distribution, Jefferies has returned approximately $2.2 billion to its shareholders over the past 17 months through share repurchases and dividends.”

“We worked closely with Harbinger Group Inc. (“HRG”) to simplify HRG and then merge with Spectrum Brands to maximize value for all stakeholders. We feel the Distribution allows Jefferies’ shareholders to realize the benefit of this investment in the most efficient and effective manner. We wish Spectrum Brands much success going forward.”

The Spectrum Brands shares to be distributed will be delivered in book-entry form, subject to certain exceptions, at the effective time of the Distribution, and Jefferies’ stockholders who hold their shares through brokers or other nominees will have their Spectrum Brands common shares credited to their accounts by their brokers or other nominees. No fractional shares will be distributed, and stockholders will receive cash in lieu thereof. The Distribution will be taxable for Jefferies’ stockholders.

In connection with the Distribution, Jefferies will send information detailing the Distribution to its stockholders of record on the Record Date. Jefferies will post the information on its Investor Relations website at http://ir.jefferies.com/notices-disclosures/Index?KeyGenPage=1073753799. No vote or action is required by Jefferies’ stockholders in order to receive the distribution of shares of Spectrum Brands common stock in the Distribution.

 

[benhacker]

Disappointing... I would have liked to defer the tax impact here as well.

[scorpioncapital]

Could they have sold the stake, used the loss carryforward, and distributed the cash instead?

 

 

[gfp]

Sure, but the cash dividend would still be taxed the same as this dividend.  Plus they would have had to liquidate an enormous block of SPB stock at a price they may not think represents full value.  I would have expected the spin out of shares to be tax free, but I guess they couldn't figure out a way to do it

 

Could they have sold the stake, used the loss carryforward, and distributed the cash instead?

[thepupil]

I'm not sure if NOL's shield investment gains; they potentially only shield operating income. I could be wrong though. Also, who wants to buy 15% of SPB? A stockpicker doesn't want to own that big of a slug, a strategic or PE wants control.

 

It is annoying, but in general it represents distribution of tangible book value (less a tax haircut on shares held in taxable). That tax haircut is much lower than the healthy discount paid relative to tangible/book/intrinsic value, so I consider it a positive and a nice realization of discount paid. And SPB is arguably cheap, so there's that too.

 

Also, one can actively swap into tax advantaged accounts to the extent they have shares in taxable that aren't up too much.

 

Ideally I would've preferred they dribble out (or sell entirely if they could find a buyer) those shares and buy back stock rather than triggering investor level tax, but I'll take it.

 

I would note, that this makes the bonds incrementally less safe.

[Foreign Tuffett]

I'm not sure if NOL's shield investment gains; they potentially only shield operating income. I could be wrong though. Also, who wants to buy 15% of SPB? A stockpicker doesn't want to own that big of a slug, a strategic or PE wants control.

 

It is annoying, but in general it represents distribution of tangible book value (less a tax haircut on shares held in taxable). That tax haircut is much lower than the healthy discount paid relative to tangible/book/intrinsic value, so I consider it a positive and a nice realization of discount paid. And SPB is arguably cheap, so there's that too.

 

Also, one can actively swap into tax advantaged accounts to the extent they have shares in taxable that aren't up too much.

 

Ideally I would've preferred they dribble out (or sell entirely if they could find a buyer) those shares and buy back stock rather than triggering investor level tax, but I'll take it.

 

I would note, that this makes the bonds incrementally less safe.

 

Do you think we'll see any forced selling of SPB given the spinoff-like dynamic here?

[thepupil]

I'm not sure if NOL's shield investment gains; they potentially only shield operating income. I could be wrong though. Also, who wants to buy 15% of SPB? A stockpicker doesn't want to own that big of a slug, a strategic or PE wants control.

 

It is annoying, but in general it represents distribution of tangible book value (less a tax haircut on shares held in taxable). That tax haircut is much lower than the healthy discount paid relative to tangible/book/intrinsic value, so I consider it a positive and a nice realization of discount paid. And SPB is arguably cheap, so there's that too.

 

Also, one can actively swap into tax advantaged accounts to the extent they have shares in taxable that aren't up too much.

 

Ideally I would've preferred they dribble out (or sell entirely if they could find a buyer) those shares and buy back stock rather than triggering investor level tax, but I'll take it.

 

I would note, that this makes the bonds incrementally less safe.

 

Do you think we'll see any forced selling of SPB given the spinoff-like dynamic here?

 

7.5 million shares of a company that trades 200K to 900K shares a day, average 500K for 2019. 15% of a $2.7 billion company is being distributed to a diffuse group of owners of a $6 billion company. If anything, I would say that it should help SPB's re-rating potential over the long term. It's down 5% today, so I guess it could happen, but my guess of additional downside is no better than the next guy's. my gut is it won't be too dramatic, because the only folks who own JEF are value schmucks like me, same constituency that owns SPB.

 

 

 

[ABM]

To an extent this was not unexpected. The company redesigned its mgmt comp for Handler & Friedman in 2019 including going as far as clawing back or increasing 2018 target levels. 

 

Long story short, $16M 2019 RSU comp for each person tied to TSR with 9% target (3Y target ending 11/30/2020 and beg 11/30/2017).  This is adjusted for any dividends and distributions.

 

So between the 7% SPB dividend and the current dividend yield you reach the 9% target, without breaking a sweat, despite the stock being down since PYE (11/30/18). 

 

For reference, inclusive of divs & SPB distribution, mgmt is now within 12% of reaching minimum target (6% CAGR) to qualify for some piece of the $16M.  Below 6% CAGR all is forfeited.

 

See excerpt from proxy

 

https://i.imgur.com/EycwxPK.png

[thepupil]

http://ir.jefferies.com/file/Index?KeyFile=399877785

 

3Q out, made a little dough despite the writedown of very profitable investment in WeWork.

 

buying back shares, distributing SPB, blah blah blah

[ratiman]

Did they already sell a portion of their WeWork or did they ride it from $9M to $250M to zero?

 

Edit: OK it looks like they invested $9M, cashed out $31, valued it last year at ~$250, and now should be ~$0.

[thepupil]

$9mm IC, ~3x realized 0-10x+ unrealized depending if you think We is worth $0-$15B.

 

A great outcome no matter what.

 

 

Net income attributable to Jefferies Financial Group common shareholders of $48 million, or $0.15 per diluted share, reflecting solid results at Jefferies Group and certain of our merchant banking investments, offset by a non-cash fair value reduction of $146 million to our investment in The We Company (we invested $9 million in We, have received $31 million in cash and continue to own approximately 0.8% of We's fully diluted shares)

[mcliu]

Just wondering, what is considered the cost-basis (for Canadian-tax purposes) of the SPB shares being paid as a dividend?

[thepupil]

I can't speak from a Canadian perspective, but I would imagine its as if you received any dividend in cash. It's a normal taxable dividend, not a distribution, from my understanding.

[ukvalueinvestment]

What did people think of the investor day.  Management obviously have are frustrated that, in their opinion, they have done all the right things in terms of simplifying the company, but they have been somewhat stymied by headwinds in two of their biggest businesses (energy banking and LevFin).  They also called out a lack of interest in "Value".  All of this makes sense to me.  I am inclined to give them the benefit of the doubt and hold.

[scorpioncapital]

They're frustrated...but handler goes home to a very nice mansion in new York. Frustration is a narrative to their benefit. Also there's a saying, I paraphrase, if you're incompetent and keep doing the same thing over and over again it's called insanity.

 

 

[thepupil]

They're frustrated...but handler goes home to a very nice mansion in new York. Frustration is a narrative to their benefit. Also there's a saying, I paraphrase, if you're incompetent and keep doing the same thing over and over again it's called insanity.

 

what precisely is "the same thing over and over again"?

 

 

[Parsad]

Jefferies selling remaining 31% stake in National Beef for $970M!

 

https://finance.yahoo.com/news/jefferies-agrees-sell-remaining-31-010200783.html

 

Not sure when the market will recognize the value in the company if it can't do it now!  Should be priced at tangible book at the very least in almost any environment...in this market, should be trading at 1.25 times book value. 

 

Cheers!

[petec]

Jefferies selling remaining 31% stake in National Beef for $970M!

 

https://finance.yahoo.com/news/jefferies-agrees-sell-remaining-31-010200783.html

 

Not sure when the market will recognize the value in the company if it can't do it now!  Should be priced at tangible book at the very least in almost any environment...in this market, should be trading at 1.25 times book value. 

 

Cheers!

 

Wow.

 

WOW.

 

 

[scorpioncapital]

I used to see many biotechs trade below cash. If market thinks management is so dense as to lose money in the future it will discount even cash itself. Ie the worth more dead than alive phenomenon.

[petec]

I used to see many biotechs trade below cash. If market thinks management is so dense as to lose money in the future it will discount even cash itself. Ie the worth more dead than alive phenomenon.

 

That's an entirely rational thing to do with a biotech if you don't think it has an asset, because the cash will be burnt trying to develop an asset that turns out to be worthless.

 

Somewhat less rational when analysing a profitable company where most of the cash is being used for buybacks well below BV (even if you think JEF is worth well below BV).

 

 

[petec]

FWIW my back of the envelope valuation is now $30, or $32 if they use the proceeds to buy back shares at the current price. This largely uses their fair value numbers, plus Jefferies Group equity excluding goodwill but including other intangibles. I am happy applying 1x to this equity figure given the inclusion of Berkadia, LAM, Jefferies Finance, Advisory, etc. (A couple of years back Handler said he wouldn't sell Berkadia for $1bn.)

[scorpioncapital]

Their core business is still running a leveraged bond and equity desk right ? Means that higher rates advantage them like brokers and regulated banks ?