Description
-Balance sheet is grossly overcapitalized with (3Q99q) 115m in cash, 51m in securities, 17m in rock-solid recv, 20m deferred tax asset (linked to a note payable), and only 89m in total liabilities. This nets out to a +114m, and with other adjustment I net it to +122m. It could be even higher, depending on how you want to value the assets.
-Great business. Money management is a high cash flow business with minimal capital expenditures which are purely discretionary expenses. GBL doesn't have a long enough public history to estimate normal CapEx expenses, but - using EV and JNC as examples - it should be below 5m unless Mr Gabelli builds a monument to himself.
-Pro-shareholder management. All I can say is Mr. Gabelli damn well better be. He's provided more definite proof with a buyback plan soon after the IPO last year. The balance sheet could provide for more aggressive measures if the company so chose.
-Current earnings momentum. GBL recently reported that eps would come in ahead of expectations for Q4, and AUM stood at 22b at that time. Here's the most recent AUM history:
3Q98: 13.9
4Q 16.3
991Q 17.0
992Q 18.8
993Q 18.6 (9.4% higher than Q4 last year)
994Q 22? (29% higher than Q1 last year)
-Valuation. This thing is dirt-cheap. Using Q399 net income (net income is distorted by pre-IPO activities before that) of 10.2m gives you 40.8m, so on a trailing basis the PE is a low-ball 11.5. Throw in the balance sheet and it is obviously far cheaper. TROW trades at 19x trailing, EV 16x (my estimate), JNC 12.5x, BEN 16.8x. My estimates above for 12m revenue and earnings are estimates based on Q3, though I should note that Q4 earnings will be higher than Q3.
-Solid Performance From the Funds. Several of the Gabelli funds have superior Morningstar rankings, the measure which drives investor dollars into funds. Gabelli is a prominent member of the Barron's roundtable and appears frequently on CNBC.
Negatives:
-GBL is almostly purely an equity shop, and AUM figures will change accordingly.
-GBL is completely linked image to Mr. Gabelli, though manager diversification efforts are obviously underway, with the most noteable including Gabelli's son.
-Limited public history. You never know what stupid thing management might do with their cash flow, but with Mr. Gabelli's investment history and philosophy you have to derive some comfort.
-the 'Employement Agreement'.
Catalyst
You've got me. As long as the buyback is in place and management uses its assets wisely, I'll be patient. Normally, however, investors recognize AUM growth when they see it, though GBL's current progress hasn't been noticed.