JEF - Jefferies Group

[Foreign Tuffett]

Here's an oversimplified way of valuing JEF:

 

Tangible book value per fully diluted share: $26.49

Net present value of corporate overhead per fully diluted share: -$5.30 ($100 million per year w/ a 15X multiple = $1.5 billion NPV)

Fair value per JEF share of $21.19

 

 

Someone tell me why I'm wrong.

[petec]

Here's an oversimplified way of valuing JEF:

 

Tangible book value per fully diluted share: $26.49

Net present value of corporate overhead per fully diluted share: -$5.30 ($100 million per year w/ a 15X multiple = $1.5 billion NPV)

Fair value per JEF share of $21.19

 

 

Someone tell me why I'm wrong.

 

Playing devils’s advocate: because it’s capable of doing annualized 17% ROTE in the worst 9 months (economically) since WW2 So 1x TBV isn’t the right starting point.

[bizaro86]

Here's an oversimplified way of valuing JEF:

 

Tangible book value per fully diluted share: $26.49

Net present value of corporate overhead per fully diluted share: -$5.30 ($100 million per year w/ a 15X multiple = $1.5 billion NPV)

Fair value per JEF share of $21.19

 

 

Someone tell me why I'm wrong.

 

In a zero interest rate world a long term stream of payments that is almost certainly going to increase is worth more than 15x.

 

 

[Foreign Tuffett]

Here's an oversimplified way of valuing JEF:

 

Tangible book value per fully diluted share: $26.49

Net present value of corporate overhead per fully diluted share: -$5.30 ($100 million per year w/ a 15X multiple = $1.5 billion NPV)

Fair value per JEF share of $21.19

 

 

Someone tell me why I'm wrong.

 

In a zero interest rate world a long term stream of payments that is almost certainly going to increase is worth more than 15x.

 

That's a good point. Since Handler, Friedman, and Steinberg are likely to pay themselves more over time, not less. If we slap a 20X multiple on $100 million of corporate costs the stock is right around fair value at its current level.

[scorpioncapital]

Here's an oversimplified way of valuing JEF:

 

Tangible book value per fully diluted share: $26.49

Net present value of corporate overhead per fully diluted share: -$5.30 ($100 million per year w/ a 15X multiple = $1.5 billion NPV)

Fair value per JEF share of $21.19

 

True! However we should consider relative comparison in that case. There are a substantial amount of high ROIC businesses with value attributes trading at a sub 20x ratio. Then we have to ask the same question really. Perhaps a basket of such stocks would work out, to minimize risks of one management team.

 

 

Someone tell me why I'm wrong.

 

In a zero interest rate world a long term stream of payments that is almost certainly going to increase is worth more than 15x.

[petec]

Here's an oversimplified way of valuing JEF:

 

Tangible book value per fully diluted share: $26.49

Net present value of corporate overhead per fully diluted share: -$5.30 ($100 million per year w/ a 15X multiple = $1.5 billion NPV)

Fair value per JEF share of $21.19

 

 

Someone tell me why I'm wrong.

 

In a zero interest rate world a long term stream of payments that is almost certainly going to increase is worth more than 15x.

 

That's a good point. Since Handler, Friedman, and Steinberg are likely to pay themselves more over time, not less. If we slap a 20X multiple on $100 million of corporate costs the stock is right around fair value at its current level.

 

Right, but then (if you hold the equity risk premium steady) then in a low rate world a stock is worth a higher p/BV for the same ROE.

[Parsad]

Here's an oversimplified way of valuing JEF:

 

Tangible book value per fully diluted share: $26.49

Net present value of corporate overhead per fully diluted share: -$5.30 ($100 million per year w/ a 15X multiple = $1.5 billion NPV)

Fair value per JEF share of $21.19

 

 

Someone tell me why I'm wrong.

 

In a zero interest rate world a long term stream of payments that is almost certainly going to increase is worth more than 15x.

 

That's a good point. Since Handler, Friedman, and Steinberg are likely to pay themselves more over time, not less. If we slap a 20X multiple on $100 million of corporate costs the stock is right around fair value at its current level.

 

No offense, but you guys need to go back and read Securities Analysis...your analysis is so far off, it's not even funny.  The annual presentation day slideshow last year provided a more accurate way to value the parts of the business.  You also are negating their cash flow from the leverage they use when examining tangible equity.  For example, banks earn 1-1.5% of their assets using their leverage, so it is ridiculously stupid to value a bank at tangible equity and estimate that as fair value.  Cheers!

[scorpioncapital]

the stock is the same price as ~16 years ago. i think you can either throw security analysis out the window or have to admit their management is a bit of a failure.

 

 

[Foreign Tuffett]

No offense, but you guys need to go back and read Securities Analysis...your analysis is so far off, it's not even funny.  The annual presentation day slideshow last year provided a more accurate way to value the parts of the business.  You also are negating their cash flow from the leverage they use when examining tangible equity.  For example, banks earn 1-1.5% of their assets using their leverage, so it is ridiculously stupid to value a bank at tangible equity and estimate that as fair value.  Cheers!

 

Can you be more specific? Like I said in the post that started this whole conversation, I want someone to tell me why I'm wrong, but advising me to re-read Security Analysis and peruse the last IR presentation isn't terribly helpful.

 

At the end of the day, this idea is all about how much the investment bank is worth, given that it is much, much larger than any other single JEF asset. Results and ROE were pedestrian pre-COVID, so I think 0.9 - 1.1 TBV is probably about right.

[coc]

Hey guys, valuing JEF is not any harder than valuing a lemonade stand.

 

Let's suppose you think their ROA will average 1% over time. Then say you think they will be about 10x levered to equity. That's a 10% ROE.

 

Only question left is: How much will JEF retain and how much will they reinvest? If they pay out *all* of their earnings and do not grow, and you think a fair return is 9%, then JEF is worth 1/0.09 = 11x earnings. At a 10% ROE that's 1.1x book value. ($1 of earnings on $10 BV = $11 price)

 

If you think they will retain 40% of their earnings, they will grow at 0.4 x 10% = 4%. You'd need a 5% current yield in addition to that 4% to get your 9% total return, so it'd be worth 12x earnings (1/.05 = 20 * 60% distributed earnings). At a 10% ROE that's 1.2x book value. ($1 of earnings on $10 BV = $12 price)

 

The difficulty is not the valuation method, which is basically fingers and toes. The question is what will JEF's normal earnings power and ROE actually *be* over time. The stock is flat because their earning power has not grown.

 

As another example, a bank that earns 15% ROE and can retain 1/3 its earnings will grow at 5% and would trade around 16.5x earnings (1/.04 x 66%), which is ~2.5x book ($1.5 of earnings on $10 BV = $25 price) - again, if 9% was your discount rate.

 

Higher growth rates would require a two stage model but very few banks are growing any faster than this.

[Parsad]

the stock is the same price as ~16 years ago. i think you can either throw security analysis out the window or have to admit their management is a bit of a failure.

 

I don't think their management is a failure.  I think Handler was brought in to run Jefferies, but instead he was running Leucadia.  Two very different companies and it took Handler years to realize he's not Cummings and Steinberg, but an exceptional investment bank manager, and years for them to understand he wasn't them. 

 

In the last three years, he's turned the business around, simplified it and now is running what he should have been running 7 years ago.  Cheers!

[scorpioncapital]

I agree with that - return to circle of competence is always a good idea. Perhaps it was a long distraction. still, for the bucks they are paid you'd expect them to see the light a little faster and a little cheaper )

[Parsad]

I agree with that - return to circle of competence is always a good idea. Perhaps it was a long distraction. still, for the bucks they are paid you'd expect them to see the light a little faster and a little cheaper )

 

Definitely agree with that!  Cheers!

[A_Hamilton]

the stock is the same price as ~16 years ago. i think you can either throw security analysis out the window or have to admit their management is a bit of a failure.

 

I don't think their management is a failure.  I think Handler was brought in to run Jefferies, but instead he was running Leucadia.  Two very different companies and it took Handler years to realize he's not Cummings and Steinberg, but an exceptional investment bank manager, and years for them to understand he wasn't them. 

 

In the last three years, he's turned the business around, simplified it and now is running what he should have been running 7 years ago.  Cheers!

 

I agree with this. I think too though, LUK overpaid for JEF. Until this year Jefferies' investment bank has struggled to earn a high single digit ROTCE, let alone a 10%+ ROE. I don't know if this was a factor of timing/a string of expensive investment banking team adds that didn't bring in the expected business or due to Jefferies using less leverage in the Ibank post 2008. In any case, the truncation in multiple over the last 16 years leads to the opportunity today, and I think Handler can eke out 'ok' returns that at least from here returns should be midteens per annum over a 7-10 year holding period.

[A_Hamilton]

Another 3.8 million shares repurchased from Sep 1 through October 8th. 1.5% of shares out. A 30% reduction in less than three years. This has to work at some point.

[Parsad]

Another 3.8 million shares repurchased from Sep 1 through October 8th. 1.5% of shares out. A 30% reduction in less than three years. This has to work at some point.

 

Yes, at the prices they are buying...tangible book or less.  But it doesn't work when you buy them back like Eddie Lampert did with Sears!  ;D  Cheers!

[petec]

The thing I love about Jefferies is that while TBVPS compounds slowly away over time, the market reliably panics and oversells the stock every time the macro sh1t hits the fan. It’s my go-to name for adding “risk” in a sell-off.

[greenwave]

Mon, January 4, 2021, 4:15 PM EST·

 

All-Time Record Quarterly and Annual Results at Jefferies Group

 

Quarterly Cash Dividend Increase of 33% to $0.20 per Jefferies Common Share

 

Share Repurchase Authorization Increased to $250 million

 

Jefferies Financial Group Inc. (NYSE: JEF) today announced its financial results for the three and twelve month periods ended November 30, 2020. In addition, the Jefferies Board of Directors declared a quarterly cash dividend equal to $0.20 per Jefferies common share payable on February 26, 2021 to record holders of Jefferies common shares on February 12, 2021. The Jefferies Board of Directors also increased the Company's stock buyback authorization by $193 million to a total of $250 million. We expect to file our Form 10-K on or about January 28, 2021.

 

Highlights for the three months ended November 30, 2020:

 

Jefferies Group LLC recorded record quarterly net revenues of $1,609 million, record pre-tax income of $406 million, record net earnings of $307 million and return on tangible equity of 26.2%1

 

Record quarterly Investment Banking net revenues of $916 million, including record Equity Underwriting net revenues of $341 million, record Advisory net revenues of $357 million, and record Debt Underwriting net revenues of $209 million

 

Combined Capital Markets net revenues of $590 million; record quarterly Equities net revenues of $327 million and Fixed Income net revenues of $263 million

 

Asset Management revenues (before allocated net interest2) of $83 million

 

Merchant Banking recorded pre-tax income of $33 million, reflecting record quarterly results from Idaho Timber and mark-to-market increases in the value of several of our investments in public companies

 

Net income attributable to Jefferies Financial Group common shareholders was $307 million, or $1.11 per diluted share

 

We repurchased 9.5 million shares for $193 million, or an average price of $20.34 per share; 249.8 million shares were outstanding and 273.6 million shares were outstanding on a fully diluted basis3 at November 30, 2020; Jefferies book value per share was $37.65 and tangible book value per fully diluted share4 was $27.38 at the end of the fourth quarter

 

Jefferies Financial Group had parent company liquidity of $1.9 billion at November 30, 2020. Jefferies Group had a record liquidity buffer of $8.6 billion of cash and unencumbered liquid collateral at November 30, 2020, which represented 18% of its total balance sheet............

----

greenwave

 

(  To borrow a thought  from Parsad ) CHEERS !

 

[petec]

Good results but the gap between SHO and FDSHO bothers me. Lots of that buyback is being given away in options, no?

[gfp]

Berkadia acquired Moran & Company's Apartment Brokerage for institutional clients -

https://www.berkadia.com/aboutus/newsroom/berkadia-acquires-moran-companys-apartment-brokerage-practice-to-further-expand-its-institutional-investment-sales-capabilities/

 

At the bottom of the press release there is a little summary of Berkadia's past two years of acquisition activity.

 

Doubt it's material to either firm but Berkadia is more important to JEF than BRK so I put it here.

[greenwave]

Anyone  have any current insight on this Jeffries / Leucadia Union Station Washington D C air rights asset?

 

I emailed Jeffries investor relations some time ago asking about the status of these  air rights ,but have yet to receive any response.

 

greenwave

___________________________

 

Jeffries (Leucadia)..Union Station air rights ...the commentary below was from ~ July, 2012

 

.........

"...If they paid $10 MM for the right, and are Leucadia's JV partner, I guess LUK doesn't own the rights in their entirety?

 

 

I read the quote to mean that "they" - meaning the joint venture in total - paid that much for the rights, although you raise a good question. Disclosure seems minimal ... LUK has minority interests on the balance sheet."

 

--

"If this report is accurate, Leucadia's air rights may be getting more valuable. I don't know the website but it was linked to by American Association of Railroads so it's probably legitimate ... "

 

 

http://www.progressiverailroading.com/amtrak/news/Amtrak-for...

.........

"...If they paid $10 MM for the right, and are Leucadia's JV partner, I guess LUK doesn't own the rights in their entirety?

 

I read the quote to mean that "they" - meaning the joint venture in total - paid that much for the rights, although you raise a good question. Disclosure seems minimal ... LUK has minority interests on the balance sheet."

 

 

[Parsad]

Really!?  No comment on the fully ass kicking, supernova 1st Q Jefferies had:

 

https://finance.yahoo.com/news/jefferies-financial-group-announces-first-201600590.html

 

Half a billion in profit in the 1st Q!  Just destroying it in every line of business...and still not at book value!  Cheers!