2015 | 2016 | ||||||
Price: | 16.49 | EPS | 0 | 0 | |||
Shares Out. (in M): | 380 | P/E | 0 | 0 | |||
Market Cap (in $M): | 6,266 | P/FCF | 0 | 0 | |||
Net Debt (in $M): | -815 | EBIT | 0 | 0 | |||
TEV (in $M): | 5,451 | TEV/EBIT | 0 | 0 |
Sign up for free guest access to view investment idea with a 45 days delay.
alex981 wrote up LUK in October 2014; since then, Leucadia’s value per share has grown, while its share price has declined.
LUK is an undervalued company led by managers who have a strong capital allocation focus, and which is repurchasing stock currently at a significant discount to intrinsic value. For management’s thoughts on capital allocation, please read http://www.leucadia.com/c-p_letters/leucadia_2014_shareholders_letter.pdf
In my view the stock is particularly depressed currently due to year-end tax loss selling. If the stock goes up from here, owners make money. If the stock stays low for a while, the per share intrinsic value (and long-term upside) rises due to share repurchases and organic growth.
Background
Leucadia National Corporation is a diversified holding company focused on return on investment and long-term value creation to maximize long-term shareholder value. Originally run by the legendary investment team of Joseph Steinberg and Ian Cumming, the company purchased Jefferies in 2013, in part to acquire their current leadership team of Rich Handler and Brian Friedman.
The company is opportunistic in its approach and has profited in the past by providing financial rescues to distressed companies (Knight Trading, FXCM, etc). LUK provides a way to profit from stress in asset markets.
Valuation
Calculation of the value range below is based on SEC filings and the following document: http://www.leucadia.com/luk_investor_day_october_2015.pdf
Jefferies
Full service investment bank.
Low valuation TBV of $3.6 billion. As a reality check, annual after-tax earnings were in the range of $189-298 million in the 2010-15 time-frame, implying a mid-range 15x P/E. Clearly, the company is currently under-earning on its capital, but it continues to focus on improving returns in this business.
High valuation Management publicly stated during its 2015 Investors Day in October that it is targeting a double-digit ROE, which would justify a valuation of 1x BV, or $5.5B.
Berkadia
Originates and services Commercial Real Estate loans. 50/50 JV with Berkshire Hathaway.
Valuation 2015 pre-tax cash earnings estimated at $200 million (1H15:$85; 1H14:$72; 2014:$173 million) x 5 multiple x 50% ownership = $511 million.
National Beef
Beef processor with LTM Revenues of $7.7 billion. 79% ownership.
Low valuation BV of $729 million.
High valuation Cyclical business facing recent cyclical headwinds, with average EBITDA over last five years of $237 million. Last two cycles appear to have been 10 years long each. 6x multiple x 79% ownership = $1.1 billion. A very rough calculation using JBS (a large global meat processor) EV/Revenue of 38% yields a very high end valuation of $7.7 billion x 38% x 79% = $2.3 billion.
Garcadia
Owns and operates 27 auto dealerships in CA, TX, IA and MI. 75% ownership.
Valuation Garcadia 1H15 Revenue = $1.38 billion, Pretax Income = $39 million. Competitors: Lithia Motors EV/1H15 Revenue =1.3x, MV/1H15 Pretax Income = 22.4x; Asbury Group EV/1H15 Revenue =1.0x, MV/1H15 Pretax Income = 14.1x. Using the lowest valuation of these four choices, the Asbury MV/1H15 = 14.1x $39.3 million x 75% ownership yields a value of $415 million.
Conwed
Manufactures lightweight plastic netting.
Low valuation BV of $112 million.
High valuation 8x 2014 pretax income of $13.9 = $112 million
Idaho Lumber
Manufactures and distributes wood products.
Low valuation BV of $74 million.
High valuation 8x 2014 pretax income of $17.8 = $142 million
Leucadia Asset Management
Seeds and develops alternative asset management funds. Assume 50% equity ownership.
Low valuation BV of $531 million, equivalent to LUK capital invested in these funds.
High valuation BV of $531 million plus 50% x 2% (value/AUM) x $8.9 billion in third party AUM = $620 million. Please note that the value/AUM ratio has a minor impact on the total high valuation since most of the value is ascribed to invested LUK capital.
FXCM
Largest retail FX broker in Asia (ex Japan) and US and top 5 in Europe. Publicly traded (FXCM). Two year secured term loan plus variable portion of certain distributions including asset sales proceeds.
Valuation Marked to market. $613 million plus/minus $22 million per $1 change in the FXCM stock price from September 30, 32015. Current value $604 million.
HomeFed
Owns and develops real estate projects. 65% ownership of this public company (HOFD).
Valuation Market value = 10 million shares x $36 per share = $360 million.
Market value of the whole company is $550 million, compared to shareholders equity of $407 million.
For context, one of the company’s assets is land in the Otay Ranch area in San Diego County, which is carried on HomeFed’s books for $42 million as of December 31, 2014. Gross sales proceeds from land sales over time are expected to be:
Single family homes: 3,700 units x $525,000 home price x 30% land value = $583 million
Multi family homes: 9,350 units x $350,000 home price x 20% land value = $650 million
Commercial space: 1.8 million sf = ? land value
Total gross proceeds for the entitled Otay Ranch land are estimated at over $1.23 billion over many years.
HRG Group
Diversified holding company. Publically traded (HRG). 23% ownership.
Valuation 46.6 million shares x $13 = $603 million.
Foursight & Chrome
Purchase and service auto and motorcycle loans.
Valuation TBV of $66 million.
Vitesse & Juneau
Oil and gas exploration and development.
Valuation TBV of $477 million. Profitable at currently depressed energy prices.
Linkem
Fast growing provider of fixed wireless broadband in Italy. 55% ownership.
Valuation TBV of $142 million. For context, current annual revenue is estimated at Euro 25 per month x $1.1 per Euro x 12 months x 281,000 subscribers x 55% = $51 million. Current annual subscriber growth is running at 30%.
Golden Queen
Developing gold project in Kern County, California with partner. Expect to produce 84,000 gold equivalent ounces annually over 12 years, at a net cash cost of $558 per ounce. 35% ownership.
Valuation TBV of $81 million. For context, the gross proceeds (after cash production costs, but before other costs) would be 84,000 x 12 x ($1,058-$558) x 35% = $176 million, assuming $1,058 per ounce gold price.
Other
Valuation: TBV of $27 million.
Summary Valuation:
Tangible |
|
|
|||||
Book |
Book |
Low |
High |
||||
$ millions |
Value |
Intangibles |
Value |
|
Value |
|
Value |
9/30/15 |
9/30/15 |
9/30/15 |
|
|
|||
|
|
||||||
Jefferies |
$5,529 |
$1,947 |
$3,582 |
$3,582 |
$5,529 |
||
Berkadia |
199 |
- |
199 |
490 |
490 |
||
National Beef |
729 |
656 |
72 |
729 |
2,297 |
||
Garcadia |
187 |
- |
187 |
415 |
415 |
||
|
|
||||||
|
|
||||||
|
|
||||||
|
|
||||||
Conwed |
112 |
64 |
49 |
112 |
112 |
||
Idaho Timber |
74 |
- |
74 |
142 |
142 |
||
6,830 |
2,682 |
4,162 |
5,491 |
9,007 |
|||
- |
|
|
|||||
Leucadia Asset Management |
531 |
531 |
531 |
620 |
|||
FXCM |
613 |
613 |
604 |
604 |
|||
HomeFed |
236 |
236 |
360 |
360 |
|||
Foursight & Chrome |
66 |
66 |
66 |
66 |
|||
HRG |
547 |
547 |
603 |
603 |
|||
Vitesse & Juneau |
477 |
477 |
477 |
477 |
|||
Linkem |
142 |
142 |
142 |
142 |
|||
Golden Queen |
81 |
81 |
81 |
81 |
|||
Other |
27 |
27 |
27 |
27 |
|||
2,693 |
2,720 |
2,893 |
2,955 |
||||
|
|
||||||
Corporate liquidity net of corporate liabilities |
815 |
815 |
815 |
815 |
|||
Net Value |
10,337 |
7,697 |
9,199 |
12,776 |
|||
|
|
||||||
Per share |
$28.03 |
$20.26 |
$24.21 |
$33.62 |
|||
|
|
||||||
# FD share equivalents |
380 |
380 |
380 |
380 |
Taxes
Note that LUK had NOLs of $3.4 billion as of December 31, 2014, which should minimize taxes on any asset sales at prices greater than the tax basis.
Share repurchases
During the September 2015 quarter, LUK repurchased a total of 4.4 million (1.1% of fully diluted shares outstanding) of its common shares, 3.5 million (0.9%) of which were purchased during September, at an average price per share of $20.79.
Time and repurchases. Given that the value of the businesses owned by LUK should grow organically over time, the IRR should remain attractive over a wide range of time-frames, unlike an investment priced at a discount to a static value, where the IRR is reduced if the time-frame for value realization is extended.
show sort by |
Are you sure you want to close this position LEUCADIA NATIONAL CORP?
By closing position, I’m notifying VIC Members that at today’s market price, I no longer am recommending this position.
Are you sure you want to Flag this idea LEUCADIA NATIONAL CORP for removal?
Flagging an idea indicates that the idea does not meet the standards of the club and you believe it should be removed from the site. Once a threshold has been reached the idea will be removed.
You currently do not have message posting privilages, there are 1 way you can get the privilage.
Apply for or reactivate your full membership
You can apply for full membership by submitting an investment idea of your own. Or if you are in reactivation status, you need to reactivate your full membership.
What is wrong with message, "".