FBRC - FBR & Co

[scorpioncapital]

What do you guys think about this stock? Here is a mini-investment bank with nothing but tangible assets and a 30 million deferred tax asset (mostly cap loss carryforwards). It seems to be trading at roughly 1x book value and most of that is pretty tangible. 80 million or so of the 130 million are just bond and stock investments. They have purchased a ton of stock back and now have 12 million shares outstanding. They have been trying to do tender offers but nobody is biting and they don't want to buy above tangible book which is about $2.30/share less than the current price if you back out the tax asset.

 

 

[Phaceliacapital]

There is an old VIC write up:

 

http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/80664

 

I didn't pull the trigger then, unfortunately

[scorpioncapital]

I sold a number of put options at a close to 20% return and a strike of $17.5 ( which is equal to cash in the bank after all debts paid off!) on FBR & Co. recently. Great opportunity... They just bought back 650,000 shares from their principle shareholder at about $25/share for a total 11.3 million shares outstanding.

 

 

[ItsAValueTrap]

Great opportunity... They just bought back 650,000 shares from their principle shareholder at about $25/share for a total 11.3 million shares outstanding.

 

Isn't that a red flag?  The problem is that insiders may be dumping overpriced stock onto the company.  The company should treat all shareholders fairly by repurchasing shares on the open market or doing a tender offer.  Insiders should not get a sweet deal here.  Normally, insiders have to do a secondary offering if they want to dump a large volume of shares.  They take a huge hit with the secondary offering in underwriting fees and selling the shares at a discount.

 

Some of the Chinese reverse mergers which repurchased shares from insiders have been exposed as frauds.  (Obviously FBR & Co isn't a Chinese reverse merger.)

[scorpioncapital]

"The company should treat all shareholders fairly by repurchasing shares on the open market or doing a tender offer"

 

I believe they tried a tender offer a few months ago. The problem was there were no tenders from shareholders.

[schin]

FRBC is a local company to me in the DC area. One of their founders came from University of Maryland, College Park -- so, I must admit I have a soft spot in my heart for them.  They are not necessarily a world beater, but I think they have a good CEO in place that understands capital structures and run conservatively.  I think they have been very prudent in using their capital to return value to shareholders.

 

1) They have no debt.

2) They have a tangible book value of $29.10 and have been aggressively buying back their shares. This past quarter was in the $22 region. Prior to that, they have an offer at ~$26. All under tangible book with free cash flow.

3) The shares have been retired in an aggressive rate. I've never seen anything like it. It had 15.9M shares in Dec. 2010 (from GuruFocus) and as of September 2015, it's down to 7.5M. That's roughly 50% retirement. During the calls, the CEO and BoDs continue to authorize share buy backs. I know people talking about IBM and Allied Capital here.. but, they're lightweights compared to what FBRC is doing on buybacks.

 

I know their earnings are lumpy, but they do not over hiring... and they focus on the middle market offerings.  There are not a lot of financials trading below tangible book (Citibank is another), but not 31% below tangible book.