Description

Fidelity National Financial Ventures (FNFV) is a tracking stock for FNF's non-core portfolio investments.  It began officially trading on July 1st and is down -12% from its when issued trading price on June 30th.  I believe there is 40% upside to the SOTP value and limited downside.  Importantly, there are several catalysts over the next 1-2 years to unlock value.  The opportunity exists because of significant selling pressure by FNF investors due to FNFV's diverse asset composition outside of real-estate and small market cap ($1.5B). 

In each of the sections below, I describe FNFV's various assets and respective value:

1. American Blue Ribbon Holdings LLC

FNF owns a majority 55% ownership in American Blue Ribbon Holdings LLC (ABRH), which is the 8th largest full service restaurant holding company in the U.S.  ABRH operates more than 690 company and franchise family and casual dining restaurants in more than 40 states under the Village Inn, Bakers Square, Max and Erma’s, O’Charley’s, and Ninety Nine brands.  It also owns and operates 3 bakery facilities that supply its restaurants and other food service and retail customers with a variety of high quality baked goods. 

Comparables for ABRH include Cracker Barrel, Darden (Red Lobster, Olive Garden, LongHorn Steakhouse, The Capital Grill), Brinker International (Chili's and Maggiano's Little Italy), and DineEquity (Applebee's and IHOP). 

                                Forward EV/EBITDA      EBITDA Margin

CBRL                    9.1x                                        10.2%

DRI                        11.1x                                      10.0%

EAT                        8.3x                                        14.6%

DIN                        10.3x                                      41.5%

Median                  9.7x                                        10.2% (excl. DIN) 

Over the last 12 months, ABRH generated $1,200MM of revenue and $66MM of EBITDA (5.5% margin).  ABRH is a turnaround story and FNF has stated that its goal is to double margins over the next 1-2 years. 

                                EBITDA               EBITDA Margin                Multiple                Value

Upside                    $122MM               10.2%                                    9.7x                        $653MM

Downside              $66MM                 5.5%                                       8.0x                        $290MM

2. J. Alexander’s LLC

J. Alexander’s LLC is an upscale casual dining company, consisting of the J. Alexander’s Restaurants and Stoney River Legendary Steaks concepts, that manages 40 upscale casual dining restaurants in 14 states.  FNF owns a majority 87% ownership in J. Alexander’s LLC, and expects to augment organic growth with potential future acquisitions. 

Comparables for J. Alexander's include Del Frisco's, Kona Grill, and Ruth's Chris. 

                                Forward EV/EBITDA      EBITDA Margin

DFRG                     12.2x                                      14.7%

KONA                    19.5x                                      8.2%

RUTH                    8.2x                                        12.0%

Median                  12.2x                                      12.0% 

Over the last 12 months, J. Alexander's generated $189MM of revenue and $17MM of EBITDA (9.0% margin). 

                                EBITDA               EBITDA Margin                Multiple                Value

Upside                    $23MM                 12.0%                                    12.2x                      $141MM

Downside              $17MM                 9.0%                                       8.0x                        $64MM 

3. Cascade Timberlands LLC

FNF owns a 70% interest in Cascade Timberlands, LLC, which was founded in 2004.  Cascade’s business consists of growing and selling timber, and as of 12/31/13, Cascade owned approximately 198,000 acres of timberland in Oregon under active forestry management. 

                                Value

Upside                    $85MM (25% upside)

Downside              $68MM (cost basis)

4. Digital Insurance, Inc.

FNF owns a 96% ownership in Digital Insurance, Inc.  Digital Insurance is the nation’s leading employee benefits agency specializing in insurance for small businesses and mid-sized companies.  Digital Insurance’s national footprint, technology, resources, and benefits expertise help customers control costs and simplify the health care journey.  Digital Insurance offers comprehensive employee benefits plans, including group and individual medical, dental, life, disability and long-term care insurance, as well as accidental death, voluntary benefits packages and whole/term life policies.  In addition, Digital Insurance recommends an array of approaches to coverage, such as high deductible health plans, health savings accounts and other tax advantaged options. 

Comparables for Digital Insurance include Arthur J Gallagher, Aon, and Willis. 

                                Forward EV/EBITDA      EBITDA Margin

AJG                        11.0x                                      15.7%

AON                       11.6x                                      19.5%

WSH                      10.0x                                      23.1%

Median                  11.0x                                      19.5%

Over the last 12 months, Digital Insurance generated $69MM of revenue and $16MM of EBITDA (23.2% margin). 

                                EBITDA               EBITDA Margin                Multiple                Value

Upside                    $16MM                 23.2%                                    11.0x                      $169MM

Downside              $16MM                 23.2%                                    10.0x                      $154MM 

5. Remy International, Inc. 

FNF owns a majority 51% ownership in Remy International, Inc., which is a global market leader in the design, manufacture, remanufacture, marketing and distribution of non-discretionary, rotating electrical components for light and commercial vehicles for OEMs and the aftermarket.  Remy designs and markets products suited for both light and commercial vehicle applications. Remy’s principal products include starter motors, alternators, multi-line products and hybrid electric motors.  Remy also sells new and remanufactured multi-line products which consists of steering gears, brake calipers, and constant velocity axles for light and commercial vehicles. 

Remy is easy to value relative to the rest of FNFV's assets because the other 49% is publicly traded.  Based on the last close price of $22.23, FNF's stake is worth $363MM.  This corresponds to a 5.7x forward EBITDA multiple, which is a discount to many of Remy's auto supplier peers. 

6. Ceridian Holding LLC

FNF owns a minority 32% ownership in Ceridian Holding LLC.  Ceridian operates two subsidiaries: Ceridian HCM, Inc. and Comdata Inc.

• Ceridian HCM is a leading global business services and software solutions company that helps organizations control costs, save time, optimize their workforce, grow revenue, and minimize financial risk.  With more than 100,000 clients in over 50 countries, Ceridian HCM provides a wide range of solutions including human resources, payroll, workforce management, talent management, tax compliance, benefits, employee assistance and wellness programs.
• Comdata is a leading business-to-business provider of innovative electronic payment solutions.  As an issuer and a processor, Comdata provides fleet, corporate payment, healthcare, virtual card, and prepaid solutions to over 30,000 customers. 

HCM Comparables

                                Forward EV/EBITDA      EBITDA Margin

ADP                        13.8x                                      20.8%

PAYX                     12.6x                                      43.2% 

Comdata Comparables

                                Forward EV/EBITDA      EBITDA Margin

ADS                        14.9x                                      28.7%

FLT                        18.0x                                      54.6%

WEX                      12.2x                                      42.2% 

                                HCM Multiple     Comdata Multiple              Value

Upside                    10.0x                      12.0x                                      $751MM

Downside                                                                                              $332MM (book value) 

7. Other 

There are several businesses in this segment including Stillwater Insurance Group, Triple Tree Holdings, Fidelity National Environmental Solutions, Northern California Mortgage Fund, FNF Imaging, and Wine Direct.  The cost basis of all these assets is $159MM. 

8. Cash 

FNF contributed $100MM of cash to FNFV. 

Total Value

Catalyst