Author Topic: JEF - Jefferies Group  (Read 604028 times)

petec

  • Hero Member
  • *****
  • Posts: 1922
Re: JEF - Jefferies Group
« Reply #1580 on: November 18, 2019, 09:20:36 AM »
Anyone have a guess as to what earnings will be over the next couple of years? Can they get to $3 a share excluding asset sales?

Doubt it. The chunk of equity/NAV that is in the merchant portfolio won't generate earnings unless assets are sold. So you're asking $4.5bn of investment bank equity to earn $900m or a 20% roe which is unlikely. But it might do 10-12% now it's got Berkadia in it, which justifies valuing it at 1xbv when you do your SOTP.


Sullivcd

  • Jr. Member
  • **
  • Posts: 96
Re: JEF - Jefferies Group
« Reply #1581 on: November 18, 2019, 10:33:20 AM »
Thanks petec, looks pretty cheap at around $20 a share.

thepupil

  • Hero Member
  • *****
  • Posts: 1241
Re: JEF - Jefferies Group
« Reply #1582 on: November 18, 2019, 11:57:52 AM »
As of the beginning of 2019 (from their "Merchant Banking Fair Value Perspective" which used November 2018 marks), JEF had (in their view) an estimated $4.1 billion of value in Merchant Banking.

http://ir.jefferies.com/Cache/1001247507.PDF?O=PDF&T=&Y=&D=&FID=1001247507&iid=103464

Since then
1) they took over HomeFed at above that mark. this was about 12% of the fair value
2) they distributed Spectrum (which is at $60/share versus $50 on November 2018). this was 9% of fair value.
3) they wrote down a lot of We Work, this was about 6% of fair value
4) they monetized National Beef for about 30% more than the valuation, this was 17% of fair value

the mark up on National Beef basically offsets the write down on We. So more or less in 11 or so months, there's been some kind of significant transaction on 44% of the Merchant banking portfolio and they've been confirmatory to JEF's views of the value of the portfolio (with some plusses and minuses). HomeFed of course was bought buy JEF, but considering the numerous appraisal rights cases, I don't think there's a super strong case that JEF overpaid for HomeFed.

And to be clear that $4.1 billion of value was 1.3x book value of the merchant portfolio (non-Jefferies). So JEF is proving out its own view of its assets worth which is 30% higher than book. Every time JEF sells something for the price they say its worth in that chart, they are not proving their worth the current stock price. they are proving that a large portion of book is worth more than book, which is quite powerful when the stock is at 0.6x book.

Proceeds have more or less gone to shareholders via spins/buybacks/divs.

I'm actually surprised this hasn't re-rated more strongly today. I assume its because no one likes Linkem, actual Jefferies, oil and gas, etc.

It's frustrating, but at the same time, to have the stock here after such a significant de-risking event, is an opportunity to add for those not already full (I'm already full).


Gregmal

  • Hero Member
  • *****
  • Posts: 2522
Re: JEF - Jefferies Group
« Reply #1583 on: November 18, 2019, 12:11:48 PM »
As of the beginning of 2019 (from their "Merchant Banking Fair Value Perspective" which used November 2018 marks), JEF had (in their view) an estimated $4.1 billion of value in Merchant Banking.

http://ir.jefferies.com/Cache/1001247507.PDF?O=PDF&T=&Y=&D=&FID=1001247507&iid=103464

Since then
1) they took over HomeFed at above that mark. this was about 12% of the fair value
2) they distributed Spectrum (which is at $60/share versus $50 on November 2018). this was 9% of fair value.
3) they wrote down a lot of We Work, this was about 6% of fair value
4) they monetized National Beef for about 30% more than the valuation, this was 17% of fair value

the mark up on National Beef basically offsets the write down on We. So more or less in 11 or so months, there's been some kind of significant transaction on 44% of the Merchant banking portfolio and they've been confirmatory to JEF's views of the value of the portfolio (with some plusses and minuses). HomeFed of course was bought buy JEF, but considering the numerous appraisal rights cases, I don't think there's a super strong case that JEF overpaid for HomeFed.

And to be clear that $4.1 billion of value was 1.3x book value of the merchant portfolio (non-Jefferies). So JEF is proving out its own view of its assets worth which is 30% higher than book. Every time JEF sells something for the price they say its worth in that chart, they are not proving their worth the current stock price. they are proving that a large portion of book is worth more than book, which is quite powerful when the stock is at 0.6x book.

Proceeds have more or less gone to shareholders via spins/buybacks/divs.

I'm actually surprised this hasn't re-rated more strongly today. I assume its because no one likes Linkem, actual Jefferies, oil and gas, etc.

It's frustrating, but at the same time, to have the stock here after such a significant de-risking event, is an opportunity to add for those not already full (I'm already full).

I agree with this.

It's funny because over the weekend I was doing a lot of work on thematic replacement for some of my BX and to a lesser extent BAM position due to the euphoric runs both have had this year. My goal was to find something that fit the mold with what one was buying with regard to BX/BAM maybe a year or two ago... I kind of settled on LUK/JEF. Then there was this morning's announcement and I was like "fuck..." but for some reason the market didn't really react, so now I'm happy. Basically JEF on 11/15 = JEF +2% on 11/18 despite what is IMO a major event on many levels. This should have some legs for the next few months IMO.

petec

  • Hero Member
  • *****
  • Posts: 1922
Re: JEF - Jefferies Group
« Reply #1584 on: November 19, 2019, 12:54:08 AM »
I just read the investor day transcript last night. Obviously it's a marketing document, so take it with a pinch of salt, but:

1) they seem highly confident that the investment bank is under-earning. This is partly the familiar story of lots of new hires who aren't fully productive yet, but it's also partly being skewed towards areas energy and mid-market that have seen significant slowdowns recently.

2) there seemed to be a lot more of a sense that the merchant bank portfolio is mature/ing and will largely be monetised over the next 2-3 years. They have $1.3bn of holdco cash after selling NB. Homefed, Vitesse/JTEX, and Linkem are worth $3bn today (using the spectrum value only for Linkem) and should be worth more in time. Then there's $1.2bn in other public and private investments. That's $5.5bn and rising, vs a market cap of $6bn, and at the current price a lot of that would go to buybacks. You're almost getting legacy JEF (including Jefferies Finance), LAM (which is about to start releasing capital), and Berkadia (which Handler said years ago he wouldn't sell for $1bn) for free.

Three other snippets speak to the cash flows to come (and potentially rising ROE):
- Vitesse/JTEX can now fund its own capex and will start distributing.
- LAM's got to the point where third party capital can replace JEF's capital, which can be withdrawn, raising the ROE.
- Some of the merchant bank businesses (I'm guessing Homefed, Vitesse/JTEX, and Linkem) could become part of LAM, selling assets to third parties and managing them for a fee at a high ROE.

scorpioncapital

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1827
    • scorpion capital
Re: JEF - Jefferies Group
« Reply #1585 on: November 19, 2019, 04:25:06 AM »
This is a relatively incompetent management and it shows. Note, this is not Leucadia anymore. I would argue that what is holding back is both entrenched management, poor compensation structure for shareholders and a poison pill. The market fears that whatever they touch next is going to immediately sink in a symphony of failure. It seems they are a 2nd rate merchant investment bank with some opportunities but seldom the best ones. Handler sure says 'uh' alot in the transcript. Maybe somebody should teach him that in public speaking you try to not say uh so much. Sloppy thinking leads to sloppy results. Also his answers are clueless. He understands nothing about growth or value or anything else. It's scary people like this are given the keys to the car so to speak.

However, I will say that if it goes up it will be for one reason only and that is because they are a financial stock leveraged to higher interest rates completely independent of what management does. On the other hand many financial stocks would do the same thing. It might pop 10 or 20% but those are one time gains. One could even imagine 2 arbitrage situations a year yielding a similar outcome with perhaps more control over the situation.
« Last Edit: November 19, 2019, 04:55:09 AM by scorpioncapital »

thepupil

  • Hero Member
  • *****
  • Posts: 1241
Re: JEF - Jefferies Group
« Reply #1586 on: November 19, 2019, 05:44:51 AM »
This is a relatively incompetent management and it shows. Note, this is not Leucadia anymore. I would argue that what is holding back is both entrenched management, poor compensation structure for shareholders and a poison pill. The market fears that whatever they touch next is going to immediately sink in a symphony of failure. It seems they are a 2nd rate merchant investment bank with some opportunities but seldom the best ones. Handler sure says 'uh' alot in the transcript. Maybe somebody should teach him that in public speaking you try to not say uh so much. Sloppy thinking leads to sloppy results. Also his answers are clueless. He understands nothing about growth or value or anything else. It's scary people like this are given the keys to the car so to speak.

However, I will say that if it goes up it will be for one reason only and that is because they are a financial stock leveraged to higher interest rates completely independent of what management does. On the other hand many financial stocks would do the same thing. It might pop 10 or 20% but those are one time gains. One could even imagine 2 arbitrage situations a year yielding a similar outcome with perhaps more control over the situation.


scorpion, do you have a value where you'd be a buyer? Do you have a view of what JEF is worth? Which subsidiaries do you think are worth more or less than tangible/book value? What price/book do you think is appropriate for JEF. If the merchant bank traded separately, what would you pay? If the investment bank traded separately what would you pay?

I ask all of these, because you comment on this thread regularly and it's the same "Handler sucks" narrative. I understand your view and understand your reasoning for not investing, but if someone repeated back over and over that "handler is awesome" it would add as little value to the discussion.

Since March 2013, when JEF/LUK combined, tangible book value per share has gone from $19.9 to $27 and about $2.4 of dividends have been paid. (subsequent to the $27/number SPB was distributed to shareholders and NAtional Beek will be written up and converted to cash). JEF has not grown in value at a spectacular rate and there have been mistakes, but to call the past 6 years a "symphony of failure" is mistaken. I'd also note a large portion of tangible has been cash or a DTA (which by definition can only go down in value once it's been written up).

To say that the only upside in the stock is a 10-20% move up in rates going up does not appear to be based in any kind of fact based analysis. the stock is up 6.5% in the past 2 trading days. Rates haven't materially moved. Imagine that, the stock of a conglomerate at a signficant discount does not have a 1:1 correlation with rates.
« Last Edit: November 19, 2019, 09:11:58 AM by thepupil »

petec

  • Hero Member
  • *****
  • Posts: 1922
Re: JEF - Jefferies Group
« Reply #1587 on: November 19, 2019, 06:11:48 AM »
This is a relatively incompetent management and it shows. Note, this is not Leucadia anymore. I would argue that what is holding back is both entrenched management, poor compensation structure for shareholders and a poison pill. The market fears that whatever they touch next is going to immediately sink in a symphony of failure. It seems they are a 2nd rate merchant investment bank with some opportunities but seldom the best ones. Handler sure says 'uh' alot in the transcript. Maybe somebody should teach him that in public speaking you try to not say uh so much. Sloppy thinking leads to sloppy results. Also his answers are clueless. He understands nothing about growth or value or anything else. It's scary people like this are given the keys to the car so to speak.

However, I will say that if it goes up it will be for one reason only and that is because they are a financial stock leveraged to higher interest rates completely independent of what management does. On the other hand many financial stocks would do the same thing. It might pop 10 or 20% but those are one time gains. One could even imagine 2 arbitrage situations a year yielding a similar outcome with perhaps more control over the situation.


scorpion, do you have a value where you'd be a buyer? Do you have a view of what JEF is worth? Which subsidiaries do you think are worth more or less than tangible/book value? What price/book do you think is appropriate for JEF. If the merchant bank traded separately, what would you pay? If the investment bank traded separately what would you pay?

I ask all of these, because you comment on this thread regularly and it's the same "Handler sucks" narrative. I understand your view and understand your reasoning for not investing, but if someone repeated back over and over that "handler is awesome" it would add as little value to the discussion.

Since March 2013, when JEF/LUK combined, tangible book value per share has gone from $19.9 to $27 and about $2.4 of dividends have been paid. (subsequent to the $27/number SPB was distributed to shareholders and NAtional Beek will be written up and converted to cash). JEF has not grown in value at a spectacular rate and there have been mistakes, but to call the past 6 years a "symphony of failure" is mistaken. I'd also note a large portion of tangible has been cash or a DTA (which by definition can only go down in value once it's been written up).

To say that the only upside in the stock is a 10-20% move up in rates going up does not appear to be based in any kind of fact based analysis.

Agreed. I'd add that Handler - sloppy and clueless and ignorant of growth and value as he is - managed to compound BVPS at 11% from when he took over as CEO until the merger, despite the inconvenience of the GFC. He also managed to persuade Cummings - nobody's fool - that he was a worthy heir.

Parsad

  • Administrator
  • Hero Member
  • *****
  • Posts: 8771
Re: JEF - Jefferies Group
« Reply #1588 on: November 19, 2019, 05:28:33 PM »
This is a relatively incompetent management and it shows. Note, this is not Leucadia anymore. I would argue that what is holding back is both entrenched management, poor compensation structure for shareholders and a poison pill. The market fears that whatever they touch next is going to immediately sink in a symphony of failure. It seems they are a 2nd rate merchant investment bank with some opportunities but seldom the best ones. Handler sure says 'uh' alot in the transcript. Maybe somebody should teach him that in public speaking you try to not say uh so much. Sloppy thinking leads to sloppy results. Also his answers are clueless. He understands nothing about growth or value or anything else. It's scary people like this are given the keys to the car so to speak.

However, I will say that if it goes up it will be for one reason only and that is because they are a financial stock leveraged to higher interest rates completely independent of what management does. On the other hand many financial stocks would do the same thing. It might pop 10 or 20% but those are one time gains. One could even imagine 2 arbitrage situations a year yielding a similar outcome with perhaps more control over the situation.


scorpion, do you have a value where you'd be a buyer? Do you have a view of what JEF is worth? Which subsidiaries do you think are worth more or less than tangible/book value? What price/book do you think is appropriate for JEF. If the merchant bank traded separately, what would you pay? If the investment bank traded separately what would you pay?

I ask all of these, because you comment on this thread regularly and it's the same "Handler sucks" narrative. I understand your view and understand your reasoning for not investing, but if someone repeated back over and over that "handler is awesome" it would add as little value to the discussion.

Since March 2013, when JEF/LUK combined, tangible book value per share has gone from $19.9 to $27 and about $2.4 of dividends have been paid. (subsequent to the $27/number SPB was distributed to shareholders and NAtional Beek will be written up and converted to cash). JEF has not grown in value at a spectacular rate and there have been mistakes, but to call the past 6 years a "symphony of failure" is mistaken. I'd also note a large portion of tangible has been cash or a DTA (which by definition can only go down in value once it's been written up).

To say that the only upside in the stock is a 10-20% move up in rates going up does not appear to be based in any kind of fact based analysis.

Agreed. I'd add that Handler - sloppy and clueless and ignorant of growth and value as he is - managed to compound BVPS at 11% from when he took over as CEO until the merger, despite the inconvenience of the GFC. He also managed to persuade Cummings - nobody's fool - that he was a worthy heir.

Problem is that Steinberg & Cummings were distressed asset investors or true value investors.  Handler comes from the investment banking world.  Two very different worlds.  Handler ended up inheriting a merchant bank, when that is not his area of expertise.  So not only did the CEO get lost in all of the shuffle, so did the markets grasp of what Leucadia had become. 

Finally, after all of these years, Handler decided to clean up the entire thing and restart with the assets that make sense to him.  He is selling off portions of the merchant bank business, trying to value the remaining assets for analysts and investors, and focus on getting back to what he knows...the investment banking business. 

And here we are seeing a lag...Jefferies has picked up many employees to provide better coverage in areas where it wasn't seen as a leader.  It isn't a stagnant mid-tier investment bank...it is slowly becoming a major competitor in the arena...one that Handler built at a 12% annualized pace for 20 years.  Jefferies first few years after the Leucadia merger are no different than what happened to Fairfax during 2000-2007.  A period of simplifying and cleaning up to move to the next stage of growth.  Cheers!
No man is a failure who has friends!

scorpioncapital

  • Lifetime Member
  • Hero Member
  • *****
  • Posts: 1827
    • scorpion capital
Re: JEF - Jefferies Group
« Reply #1589 on: November 20, 2019, 09:13:20 AM »
What is investment? Laying out capital today, efficiently, for risk adjusted quality returns.. as someone I know once said if everyone was an entrepreneur who would drive the taxis and serve our food ? There is nothing wrong with any profession..it depends what your goal is..handler does not seem to get better with time. If your expectations are low even mediocrity will get you a return. I think you will get a return here on Jefferies. But remember discounts to book value are one time gains. Likewise business quality ...higher quality is valued higher all things being equal.
Alot will also depend on what they invest in next. This is a risk. Since they are divesting, divesting is not īnvesting, it's divesting by definition. Again one time gains. If you believe their next adventures will be somehow more intelligent than in the past ...you have a basis for a position. I think you can make some money here. But I don't know if it is better than the universe of stocks out there.. generally I'm partial to operating businesses..I don't like financial stocks, brokers , banks. That's just me. But real-world business turns me on.
Let's see what happens. I don't think you can go wrong here and in this environment those companies bringing in the rear are going to give you a return just because of reversion to the mean and maybe the tailwind of higher rates. Good luck !