SEC - Senvest Capital

[giofranchi]

What do people on the board think about the idea in attachment?

 

Thank you! :)

 

giofranchi

senvest-capital-40-discount-to-NAV.pdf

[matts]

oddball also had a good write up

 

http://www.oddballstocks.com/2013/04/anyone-can-invest-in-this-above-average.html

 

I own it, but the managers pay themselves very richly, hence the discount to NAV. Their performance has been extremely good lately but who knows if it will continue.

 

[serendibz]

I think you should ignore the discount to NAV as a form of "margin of safety". This big discount will likely persist unless management does something to close the gap such as repurchase stocks or dividends, which they have not done any so far.

 

You are really buying into management's ability to grow NAV and should expect to earn a similar return as the growth in NAV if you buy this stock, unless you have some strong reason to think that the gap will narrow. This stock is also extremely illiquid which could explain part of the large discount and also since it is majority owned by insiders you may be taken advantage of as a minority shareholder and may not be able to do anything.

[oddballstocks]

matts, thanks for the shout-out.

 

I own it as well, I think the seeking alpha author is extremely bullish, possibly overly so.  That said I think this is still a good opportunity. 

 

In terms of cons, the exec comp as mats mentioned, as well as the lack of buybacks.  The company is cheap, and management knows it, so why the lack of buybacks?

[Laxputs]

Anyone still following Senvest or have updates on AUM or NAV/BV? Do the fund fees cover all expenses?

 

Thanks

[writser]

I spent a little time on this name yesterday. One thing I'm not sure about and I wanted to share it with you guys.

 

RIMA mgmt LLC (Richard Mashaal) manages the hedge funds for the company, charging 1.5% + 20%. Senvest receives 60% of the fees earned by RIMA, Richard Mashaal keeps the other 40%. Also, Senvest itself awards 3.5% of pre-tax income to their employees, plus another 3.5% if they beat the benchmark. Now I'm not quite sure if RIMA also charges Senvest itself 1.5% + 20% for the money it invests in its own funds. If that were true, Richard Mashaal would effectively skim the equity holders twice, first earning 0.6% + 8% through RIMA and then earning a salary +7% of pre-tax income through Senvest. That would be a bit over the top for me.

 

My own guesswork: according to the annual Richard Mashaal earned ~$12m in fees through RIMA in 2013, so total fees earned by RIMA for the year were $30m. Liabilities for redeemable units (AFAIK these are AUM under the new accounting rules) were $190m at the start of the year and the fund returned 70%. So fees earned from outside investors would at least be roughly $190 * 1.5% + 190 * 70% * 20% = ~$36m. Thus, it looks like they don't charge fees to the company itself. Agreed?

 

All I could find in the AR was this:

Certain employees and related parties that have invested in the Funds do not pay management fees that are charged to outside investors. The invested amount by these participants total $38,000

 

which probably explains why my estimate of $36m is slightly off.

[writser]

Stuff I like so far (if my analysis is correct):

 

- They charge outside investors 1.5% + 20%, 60% of that flows back to equity holders and that covers a lot of expenses. So you can basically invest in a hedge fund without paying the usual fees.

- Upside in management fees if they attract more outside investors.

- Trades at a ~30% discount.

- Buying back shares (although at a very slow pace).

 

Stuff I don't like so far:

 

- Portfolio doesn't look very special. Highly diversified, $7m transaction costs in 2013.

- Related party constructions (insiders pay no fees, zero interest loans to insiders, Richard Mashaal receiving 40% of management fees).

- $6m operating expenses for what basically is a four person shop.

- Some black box investments on the balance sheet:

 

This REIT investment is an investment in an entity in which the Company has significant influence and is accounted for using the equity method.The carrying value of this investment was $11.3 million as at December 31, 2013. The Company made an additional investment in the property of over $9 million in the current year. However the value of the investment experienced a decline based on a valuation as at the end of 2013 and as a result the Company booked a loss of roughly $10 million in the fourth quarter.

 

I'm wondering though why anybody would invest in the fund when they can also buy the common stock. Ok - the latter is not very liquid.

[oddballstocks]

Stuff I like so far (if my analysis is correct):

 

- They charge outside investors 1.5% + 20%, 60% of that flows back to equity holders and that covers a lot of expenses. So you can basically invest in a hedge fund without paying the usual fees.

- Upside in management fees if they attract more outside investors.

- Trades at a ~30% discount.

- Buying back shares (although at a very slow pace).

 

Stuff I don't like so far:

 

- Portfolio doesn't look very special. Highly diversified, $7m transaction costs in 2013.

- Related party constructions (insiders pay no fees, zero interest loans to insiders, Richard Mashaal receiving 40% of management fees).

- $6m operating expenses for what basically is a four person shop.

- Some black box investments on the balance sheet:

 

This REIT investment is an investment in an entity in which the Company has significant influence and is accounted for using the equity method.The carrying value of this investment was $11.3 million as at December 31, 2013. The Company made an additional investment in the property of over $9 million in the current year. However the value of the investment experienced a decline based on a valuation as at the end of 2013 and as a result the Company booked a loss of roughly $10 million in the fourth quarter.

 

I'm wondering though why anybody would invest in the fund when they can also buy the common stock. Ok - the latter is not very liquid.

 

If you talk to management they have a belief that the stock is so illiquid that only crazy investors would own a stake.

 

They owned a bug stake in Talmer which recently went public. I believe they have a few other private investments that are similar. For such a vanilla portfolio these guys are absolutely hitting it out of the ballpark.

 

My thesis is simply this. I get to invest in a great hedge fund for almost nothing at a discount.  I'm still long.

[Laxputs]

I have a couple questions when calculating NAV of Senvest:

 

1. Should "equities sold short and derivative liabilities" of 296mm be subtracted from assets given that the company could just close out those positions and not take a loss? They aren't really money owed in a traditional sense are they? Or once they sell that position short, do they add a corresponding amount to "equity investments and other holdings" under assets?

 

2. In addition to NAV, does it make sense to value the company based on a multiple of its earnings from its managed funds (like GP Investments)?

 

TIA

[Laxputs]

Take Net Assets on the right column and divide by shares of 2.8mm.  https://www.senvest.com/pages/otherfinancial

 

50% Discount to liquid BV, not taking into account what happens to their NAV in Oct.

 

Anyone interested?

 

 

[Picasso]

Take Net Assets on the right column and divide by shares of 2.8mm.  https://www.senvest.com/pages/otherfinancial

 

50% Discount to liquid BV, not taking into account what happens to their NAV in Oct.

 

Anyone interested?

 

Been watching this, I need to update the estimated book value on the stock based on October.

 

Edit:  Did a quick calculation of discount to NAV from Jan 2013 to today, assuming NAV took a 10% hit in October.  Stock might be trading for a 38% discount to NAV.  And let's be honest, the market has not been kind to small/mid-caps.

[ItsAValueTrap]

They finally got a website!

 

Thanks for bumping this thread, I forgot about this company.

[cheerlee]

Anyone attended SEC annual meeting? I missed this year's, but will attend next year. How's you feel about management? thanks.

[writser]

I agree with Picasso. Since the latest quarterly all their large holdings have been doing great (RDWR +17%, TTWO +17%, CEVA +22% GCAP +43%) except for Senomyx which is getting slaughtered. Combined with a small currency tailwind I have NAV at ~$234 while the stock itself is at $143. By my estimate Senvest now trades at a 40% discount which is larger than where it usually trades at. I might have to buy a bit more ..

 

FWIW I made a small sheet to track their largest holdings and my live estimate of NAV: link.

[no_free_lunch]

Do you have any idea what the traditional discount to NAV is?

[leftcoast]

Do you have any idea what the traditional discount to NAV is?

 

Year P/B

2004 0.8

2005 0.5

2006 0.7

2007 0.7

2008 0.6

2009 0.6

2010 0.6

2011 0.7

2012 0.6

2013 0.7

Now   0.6

 

In April of this year, P/B was at 0.8. Since then, price has come down and NAV has increased.

[no_free_lunch]

Thanks leftcoast.

 

This is probably my kind of stock then.  Good performance, diversified, large discount to book, easy to understand.  I just need to dig into the details, see where their comp is at.

[no_free_lunch]

Looking at their long-term track record, it is very inconsistent.  It looks like book was around $15 back in 1997 or so, and oscillated between $10 & $20 until about 2009.  From 2009 until present it just exploded upwards.  Why do people believe the latest string of results is the norm when there was such an extended period of under-performance?  Has there been a change to their strategy?

 

From my very superficial inspection, it looks like the company has had a good run, attracted some media attention, and now we are piling in on it.

 

There is a decent margin of safety on account of the heavy discount to book but beyond that I am skeptical.

[leftcoast]

Here's their long-term track record, from my notes:

 

        Book Value  1 Yr  5 Yr  10 Yr

1996    35,503           

1997    42,138      19%     

1998    60,861      44%     

1999    68,422      12%     

2000    55,506      -19%     

2001    54,115      -3%    9% 

2002    42,094      -22%    0% 

2003    45,569      8%    -6% 

2004    59,757      31%  -3% 

2005    129,710      117%  19% 

2006    153,004      18%    23%    16%

2007    163,779      7%    31%    15%

2008    96,897      -41%    16%    5%

2009    252,111      160%  33%    14%

2010    372,636      48%    23%    21%

2011    284,685    -24%    13%    18%

2012    358,831      26%    17%    24%

2013    630,632      76%    45%    30%

 

It's around 18% since inception (17 years), with some periods significantly better or worse than that. The 5-year period starting in 2009 was definitely better than average for them, as it was for most value investors.

 

My biggest concern with Senvest isn't their investing track record, although it's true the next 5 years are unlikely to look as great as the last 5. My concerns are:

• Management pay themselves very richly. Almost all of their comp comes from performance-based bonuses, so that's a good thing. But still, in a good year, up to 7% of pre-tax income goes to their bonus pool.
  
• Management owns most of the company and dominates the executive compensation committee. If they want to enrich themselves at the expense of other shareholders, I can't see anything that would stop them from doing so.
  
• Like others, I find it weird they've never bought back stock at these huge discounts to NAV.
  

[no_free_lunch]

You are not considering share dilution.  There were 3M shares outstanding in 96, 8.4M in 2009.  So NAV per share was ~$12 in 96, and peaked around $20 in 2007 before falling with the market to around $11-12 in 2008.  From 96-2007, they significantly underperformed the S&P 500.

[leftcoast]

Hmm. I see the share count holding steady at roughly 3M shares as far back as I can go. Where are you seeing 8.4M shares outstanding? The company's website also shows NAV per share at $87 in 2009.

[no_free_lunch]

Maybe I don't know what I'm looking at then.  Here is an example.  Look at page 4.  It says Capital Stock is 8,381,595.

 

http://www.sedar.com/GetFile.do?lang=EN&docClass=5&issuerNo=00003228&fileName=/csfsprod/data78/filings/01076820/00000001/z%3A\SEDAR\SenvestCapitalInc\A123106FS_v.pdf

[leftcoast]

That Capital Stock number on the balance sheet is dollars, not shares. If you go to note 9 (on page 9), it states there are ~2.7M shares outstanding at the end of FY 2006.

[no_free_lunch]

Ahh.. You are right.  I still don't quite understand what the capital stock represents but that is irrelevant to the discussion.  Thanks for the clarification.

[no_free_lunch]

Would anyone know what "non-controlling interests" is all about?  It looks like these interests received $11.1M last quarter while there was no dividend to regular share-holders.  Is that related to management compensation?

 

Edit:  Never mind, I think I found it. 

 

The Company consolidates the RIMA Senvest Mangement LLC, entity that serves as the investment manager of Senvest Partners and Senvest Israel Partners. The portion of the expected residual returns of the entity that does not belong to the Company is reflected as non-controlling interest on the statement offinancial position. This non-controlling interest is owned by an executive of the Company and totalled $64.8 million as at September 30, 2014 from $64.9 million as at December 31, 2013.