There has not been any VIC activity around the Senomyx (SNMX) idea for a couple of days. Here is a roundabout way to reintroduce it. Senvest, through its RIMA Senvest Partners hedge fund subsidiary, is the largest holder of Senomyx. On 2/10/2014 it filed a 13G on its 5,818,657 share holding. Senomyx is the funds 5th largest holding. Senomyx fans can rejoice in the fact that here is another way to invest in Senomyx. Besides owning Senomyx (which may or may not be the greatest thing since sliced bread), Senvest is an interesting and potentially rewarding investment in its own right. Unfortunately, the market cap is small and the trading thin. SEC CN in Toronto and SVCTF US in the USA, although the US shares trade even less than the Canadian ones.

 

At year-end 2013, Senvest had a book value of $202.23. Through 3/31/2014 their portfolio has appreciated by 11%, so book is now about $224.47 At $168 a share an investor can puchase the portfolio, and value not reflected in book, at a 25% discount to book. I believe that this is an attractive opportunity.

 

The company was started by Victor Mashaal, and he has been chairman since 1968. In the 1960's he bought the Canadian distribution rights for Sensormatic Electronics Corp. products (in-store security devices). In 1972, Senvest went public as a Sensormatic distributor. Subsequently, the Sensormatic business was sold back to its US parent. Senvest remained a public entity and was used to make a variety of private investments which have been liquidated.

   

In 1989 Richard Mashaal, Victor's son, joined the firm. He thought that the auction process involved in the sale of private equity deals meant that the sellers most often received a "fair" or full price. He believed that in the public markets, where there is no banker acting as a referee, company shares are sometimes offered for sale a substantial discounts to true value. In other words, he is a value investor.

   

After investing successfully for the Senvest portfolio, Richard opened RIMA Senvest Partners as a subsidiary of Senvest. It invests for its corporate parent and for outside investors through the Senvest Master Fund L.P. RIMA Senvest Partners is a long/short fund. It looks to invest in securities which will double or triple over 3 to 5 years. In 2013 seven of their top 10 holdings doubled, and the fund returned 79.4%. It is an old-fashioned hedge fund which wants to make lots of money and will suffer volatility to do so. For the 17 years through 2013, RIMA Senvest Partners has delivered a 20.6% annual return. Clearly, RIMA Senvest Partners is not for everyone, but because its parent is the majority investor, it can be run soley to make money without the client retention fears which cause some funds to concentrate on dampening volatility in order to retain existing clients and bring in new ones. At year-end 2013, RIMA Senvest Partners had about $400 million of assets under management. In addition, there is a small ($50+ million) fund, Senvest Israel Partners which invests in Israeli technology companies. For accounting purposes, assets and liabilities of the partnerships and the parent are consolidated in the financial statements of Senvest Capital because of its own investments in the funds. Price Waterhouse Coopers does the books.

 

Senvest Capital results since 2004

                            Book Value              EPS

2013                      $202.23              $73.20

2012                      $117.50              $25.65 

2011                        $93.44             ($28.61)

2010                      $120.01              $36.81

2009                        $87.98              $60.30

2008                        $37.01             ($18.49)

2007                        $62.76              $2.23

2006                        $58.41              $4.98

2005                        $50.77              $7.73

2004                        $23.36              $4.53

 

At year-end 2013 the balance sheet of Senvest Capital was very clean and consisted almost totally of cash and marketable securities. It is clean.

Assets

Cash & securities -                                  $1,424,147,000 - Of this $32,441,000 was in an asortment of real estate investments and $18,458,000 in a variety of other investments

Liabilities

Due to brokers and other trade liabilities - $408,529,000

Outside partners investments -                 $385,256,000

Non-controlling interests -                          $65,305,000

 

Total equity to owners of the parent -        $630,362,000

 

The insiders of Senvest Capital are heavy owners of the stock. Of the 2,839,424 shares outstanding;

Victor Mishaal - 1,145,170 shares - 40.3%

Richard Mishaal - 242,900 shares -   8.6%

Frank Duriel (Treasurer) - 95,402 -   3.3%

 

The insiders of Senvest Capital do not pay themselves extravagantly. In 2012 they earned (with net income of $206,516,000)

                                                Salary               Bonus            Pension Plan Accumulated Value

Victor Mishaal -                         $335,000       $2,150,000                    $0.00

Richard Mishaal -                      $370,000        $4,093,835                $183,214

Frank Daniel -                           $228,000          $450,000                $565,421

George Malikotsis (VP finance) - $220,000          $750,000                $341,047

 

Outside directors are paid $47,000 a year.

 

The insiders of Senvest Capital do not reward themselves with large stock options. No options have been issued since 2005. Presently there are 49,000 options outstanding to named executives. The exercise of these options are financed by the company with 10-year interest free loans. The loans are secured by the executives interests in the funds. $1,453,225 of loans were outstanding in 2012.

 

Richard Mishaal, as manager of the 2 hedge funds is entitled to compensation from these efforts through a Special Purpose Entity (SPE) set up to manage the funds. Senvest has an investment of $141.6 million in the RIMA Senvest fund. Fees earned attributable to this investment were $2,734,587 for 2012. Richard Mishaal retained $1,093,835 of these fees. The rest went to Senvest Capital, the parent. The arrangement that Senvest has with the SPE is that 60% of the fees are earned by the parent and 40% are allocated to Richard Mishaal.

 

The last piece of remuneration is an annual bonus pool. Victor Mishaal, Richard Mishaal and Frank Daniel are entitled to;

3 1/2% of the company's pre-tax income

and a further

3 1/2% of the company's pre-tax income if the return realized by the company on its investment portfolio exceeds a benchmank return by 35%. In 2012 the benchmark return had a weighting of 25% to the S&P 500, 50% to the NASDAQ Composite and 25% to the Russell 2000.  That is a serious hurdle!

 

Fees for outside invstors in RIMA Senvest are the standard 1 1/2% and 20% of the profits. The hedge fund recently hired an executive to market the fund, If the fund is successful in bringing in more outside money, the 60/40 split will enhance the earnings power of Senvest Capital.

 

All in all, Senvest Capital is as clean an investment company as I have run across. The results are very good. The compensation arrangements are very fair. The management has a very large investment in the results. The discount to book is attractive. They even own Senomyx!

 

 

 

 

 

 

 

 

 

More recognition for the RIMA Senvest's record.

More client money for RIMA Senvest.

Further good investment performance.

A shrinking of the discount.