ericd1 Posted November 18, 2012 Share Posted November 18, 2012 I've been following BGCP for some time and hold a very small position. The stock recently hit a 52-week low primarily the result of declining, profits and dividend cut. The company appears to be financially stable, but continued share dilution from partner compensation is a negative. The company diversified into commercial real estate this year, which boosted revenues. The current uncertainty with dividend taxes is also likely weighing down the stock. From the earnings call -- "BGC's third quarter revenues were up 17.1% year over year, driven largely by Newmark Grubb Knight Frank, which produced $141.1 million in revenues and $16.1 million in pre-tax earnings. Our diversification into commercial real estate is proving a significant contribution to BGC's results as conditions in the global financial markets continue to be challenging." The current share price plus dividend yield ~14% has me digging deeper into the company. My initial thoughts are the company is well-managed, but the industries in which they participate are currently weak. I do not see a short-term catalyst for a quick revenue/earnings boost, but a stronger economy would certainly help their prospects. Further dividend cuts are a possibility, but I believe there's more upside potential for profits/dividend than downside assuming the economy improves. Plus the dividend yield makes waiting for the industry and stock to improve worthwhile. Does anyone else follow BGCP? If so, I would appreciate your comments... Link to comment Share on other sites More sharing options...
Packer16 Posted November 18, 2012 Share Posted November 18, 2012 I looked at this about a year ago and my conclusion was the owners pay themselves alot in shares so the dividend appeared to be the major upside (even if it was chaep at the time). High pay is an issue across the brokerage indusrty. Given the key nature of the brokers, the value of the firms walked out every night with these brokers. I did not buy then and haven't since as a have found enough cheap assets and recurring FCFs in other areas. Packer Link to comment Share on other sites More sharing options...
johnheiderscheit Posted November 19, 2012 Share Posted November 19, 2012 BGCP is not followed by mainstream brokerages for the most part because the accounting is so difficult. They recently picked a fight with Moody's and you can read some of their comments but here is the crux of the reason for the downgrade . . . it is conventional wisdom but might be helpful to you. The downgrade to Cantor Fitzgerald's ratings reflects weakened profitability that Moody's expects will persist. Over the past several years, Cantor Fitzgerald has added sales, trading and banking capabilities in an effort to supplement its traditional inter-dealer brokerage franchise (conducted through its BGC Partners affiliate) which has faced margin pressure. In response, management has added and diversified revenues but has also modestly increased the capital intensity of its business mix as its market-making activities have grown. Compensation expenses reported under GAAP have also remained stubbornly high resulting in only modest profitability. Furthermore, Moody's expects the capital markets operating environment to be challenging for all participants for the medium term. Moody's profitability concerns are tempered by Cantor Fitzgerald's disciplined approach to managing market and credit risk. When making markets, the firm emphasizes distribution, avoids concentrated positions and riskier products, while sharply limiting accumulation of aged inventory. In conducting its matched book activity, Cantor typically accepts only the most liquid collateral and assigns conservative haircuts to these positions. The firm also maintains a substantial pool of liquid assets sufficient to cover increased collateral requirements from counterparties and clearing houses in event of stress. All of these disciplines are reinforced by the firm's partnership structure, therefore Moody's expects this conservative approach to continue and this view supports the stable outlook on the ratings. The downgrade to Ba2 from Ba1 on BGC Partners reflects its modest profitability and less diversified business mix compared to Cantor Fitzgerald - but also incorporates the less balance-sheet intensive nature of the entity's commission-driven inter-dealer brokerage business. The two firms are closely integrated. Cantor has provided financing to BGC Partners in the past and the two firms also have reciprocal service agreements whereby each firm provides administrative services to each other. Accordingly, we anticipate that the ratings will likely move together in the future. Link to comment Share on other sites More sharing options...
ericd1 Posted November 20, 2012 Author Share Posted November 20, 2012 Packer and John, Appreciate your responses. They dovetail with my (not as well articulated) thoughts. Yes, the accounting is complex, but I take some comfort knowing it is a conservative operated business - which I surmised from Moody's commentary and the large diversification across products, including commercial real estate. Also given the partners' large stake in the company; investors' interests would be aligned with the partner/managers. The exception being the high level of partner's compensation. The parent/sibling company (Cantor/Fitz) relationship provides (perhaps unfounded) an additional level of 'comfort' in owning the shares. Because I don't see any glaring negatives -- with the high yield in my tax-advantaged accounts plus upside potential I'm going to add to my position. Thanks guys... Link to comment Share on other sites More sharing options...
ericd1 Posted February 20, 2013 Author Share Posted February 20, 2013 “BGC’s 4Q revenues improved by 19.4% year-over-year, driven by the continuing success of Newmark Grubb Knight Frank,” said Howard W. Lutnick, Chairman and CEO. “Our Real Estate Services segment’s quarterly revenues more than doubled to $148.7M yoy, while its pre-tax distributable earnings grew by 32.6% to $12.6M.” 4Q revenues were $482.2M with net income of $0.09 per share. Distributable earnings were $28.4M, or $0.10 per share. BGCP declared a $0.12 quarterly dividend payable March 15th. That’s a 10.8% yield at the stock current price. BGCG is up 46% from its November low. I should have bought more! Link to comment Share on other sites More sharing options...
ericd1 Posted April 3, 2013 Author Share Posted April 3, 2013 BGCP had a nice pop today moving up 48%. They sold a unit of the company for more than their current market capitalization. The espeed bond trading business produced only 6% of last year's sales but could bring the company more than 1B. http://www.bloomberg.com/news/2013-04-02/bgc-partners-jumps-as-lutnick-sells-espeed-unit.html?cmpid=yhoo Same comment as last time -- should have bought more! I'm long BGCP. Link to comment Share on other sites More sharing options...
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