Associated Capital Group, Inc. AC
April 25, 2016 - 1:40pm EST by
2016 2017
Price: 30.20 EPS 0 0
Shares Out. (in M): 25 P/E 0 0
Market Cap (in $M): 769 P/FCF 0 0
Net Debt (in $M): 196 EBIT 0 0
TEV (in $M): 578 TEV/EBIT 0 0

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  • Event-driven
  • Discount to book
  • Spin-Off


Company : Associated Capital Group, Inc.


Ticker: AC


Investment Thesis:  Undervalued spinoff currently trading at a ~30% discount to book value.


Company Overview:

Associated Capital Group, Inc. (“AC”) manages assets in equity event-driven value strategies, across a range of risk and event arbitrage portfolios, provides institutional research and sponsorship of industry conferences.


AC earns advisory fees (management and incentive fees), and income (loss) from trading and investment portfolio activities. At December 31, 2015 AC managed a total of $1,080MM in assets ($869MM in event-driven arb / $145MM in event-driven value / $66MM in other – which includes private equity, merchant banking, non-investment-grade credit and capital structure arbitrage).


AC has an Institutional Research Services (G.research) with revenues generated from institutional research services, underwriting fees and selling concessions and hosts industry conferences.


Mario J. Gabelli is the current Executive Chairman and Chief Executive Officer of AC. One year post the spin-off he will resign as Chief Executive Officer, AC’s success is dependent on finding a suitable replacement.


Event: Spinoff, GAMCO (“GBL”) distributed all the outstanding shares of each class of common stock of AC Group on a pro rata one-for-one basis to the holders of each class of GAMCO's common stock.


Spinoff Date: On November 30, 2015


Spinoff Reason: GBL was not receiving credit for its small $1bn AUM alternative asset management business as investors only payed attention to the larger ~$40bn mutual fund business.


Current Price: $30.20


Target Price: $41.00


Why Opportunity Exists:

1)   Small market cap of $775MM.

2)   Recent spin-off.

3)   Lack of sell side coverage.

4)   AC doesn’t screen very well. Total GAAP book equity ($29.60/sh) as reported omits a $250MM 4% PIK ($9.84/sh) to AC from GBL. Adjusted economic book value is $39.41. Our own book value computation is at $41.20, which includes the PIK loan and mkt value of GBL stock AC holds, with some other minor adjustments.

5)   AC plans to build out its hedge fund seeding business, currently not a proven business for AC.

6)   AUM is small at $1,080MM at 12/31/15.


Future areas of growth

AUM Build out via - Lift-outs, Seeding,  Partnerships, Joint Ventures, etc…

Capitalizing on Acquisitions, Alliances and Lift-outs



AC’s management disclosed their adjusted book value, including the value of the GAMCO note.



Using a real time value for AC’s 4.4MM GBL stock holdings and excluding the small goodwill value results in a slightly higher book value per share.



Results above are as of 12/31/15. On 4/21/16 AC announced that book value as of 3/31/16 will be in the range of $30.09 - $30.19, with adjusted Economic Book Value of $39.95 to $40.05.



With a market cap of $762MM, AC is trading less than 1x the AUM in its event driven strategy, and well below total AUM. At 12/31/15, 5% of total AUM was below a high-water mark. Assets grew in Q1’16, with a total AUM of $1.13bn at 3/31/16.


Under earning?

On 2015 results, AC was EPS breakeven, for Q1’16 AC estimates EPS of $0.05 to $0.07. With AC now spun out and a CEO search underway, there is a case to be made that AC was neglected and under earning. For 2015, AC had $4.3MM in incentive fees, implying the funds were up 2.0% for the qtr on the end of year AUM, an improvement from $2.7MM in 2014, implying 1.3% performance for 2014.  



AC owns a 93.9% interest in Gabelli Securities, Inc. (“GSI”). GSI and its wholly owned subsidiary, Gabelli & Partners, collectively serve as general partners or investment managers to investment funds including limited partnerships, offshore companies and separate accounts.



AC’s AUM is relatively small in the alternative asset management sector and the stock’s performance is in part dependent on AC’s ability to ramp its AUM.


As an alternative asset manager,  AC is dependent on the market, especially as the majority of its investments are in equity.


Small size.


Low trading volume.


AC is an ‘emerging growth company,’ while it trades at a large discount to book value, it is a small cap w/ minimal earnings.


Liquidity is limited as Mario J. Gabelli owns 98.59% of the class B shares (the B make up 76% of total shares) and Frederick J. Mancheski (GBL’s second largest stock holder and an early backer of Gabelli) owns 27.5% of the class A shares.  The main difference between classes is B shares get ten votes per share, while A shares get one.




I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


Deployment of capital, performance, AUM growth, sell side coverage, earnings calls. 

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