Author Topic: TFG / TGONF - Tetragon Financial  (Read 22847 times)

randomep

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Re: TFG / TGONF - Tetragon Financial
« Reply #10 on: May 31, 2015, 01:23:09 PM »
I just learned about this stock from another thread and researched it. I am surprised no one mentioned this article:

https://wexboy.wordpress.com/2013/01/22/tetragon-ready-to-be-a-star/


wexboy mentioned a lot of corporate governance issues, although he ultimately is a investor, it is enough to turn me off from tetragon.....


thepupil

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Re: TFG / TGONF - Tetragon Financial
« Reply #11 on: July 31, 2015, 08:40:26 AM »
http://www.tetragoninv.com/~/media/Files/T/Tetragon-Financial-Group-Limited/investor/reports/quarterly/2015/TFG%20H1%202015%20Report%2031%20Jul%202015%20with%20Financials.pdf

-12% annualized ROE for first half
-potential IPO of tetragon financial management (the asset manager) which would add significantly to NAV

all yours for 60% of NAV w/ 17% of NAV in cash

thepupil

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Re: TFG / TGONF - Tetragon Financial
« Reply #12 on: November 05, 2015, 10:22:26 AM »
very cheap stock...not going to bother updating thoughts since nothing has changed other than they got a 3rd  party appraisal of their asset management biz and will list in London soon

MicroValue

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Re: TFG / TGONF - Tetragon Financial
« Reply #13 on: July 09, 2016, 09:31:11 AM »
Anyone still involved with this?  I echo the sentiments on the board -- management is smart and kind of slimy, the fee structure is horrible but the yield and discount (almost 50% now) are too large to pass up IMO.

On the positive side, the latest tender offer cleared out most of the $10 sellers (85% proration meaning 1.5 million shares left, could be a nice pop once they are cleared out), and it actually demonstrates management working in its shareholders interests.

The latest tender offer should add roughly $1.00 to NAV.  Due to Brexit, there will be a writedown on Tetragon's British infrastructure investments, but they do hedge currencies so hopefully not so bad.   

Finally, there are 12.5 million options with a strike of 10 that expire April 2017.  Management may try to juice up the stock price before those expire in the meantime we are getting 6.5% yield in a market where almost everything is overvalued.




thepupil

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Re: TFG / TGONF - Tetragon Financial
« Reply #14 on: July 10, 2016, 10:41:12 PM »
i agree. it remains my largest position. nothing much to add.

you could see on Bloomberg that in the most recent tender the "Polygon Recovery Fund" (a fund controlled by TFG) was a big seller and only has a few shares left. the management here clearly wants to own more of TFG and controlled both sides of that transaction (until i saw that, i wondered who the hell was such a willing seller at $10.00).

Even taking all the pending dilution into account (from the shares that remain in escrow that will be released and the options and additional exec comp), it's hard for me to see losing money on this and the dividends just keep rolling in and getting reinvested at 0.5X*

*50% of reported NAV, about 70% if you mark the asset manager at 0 (very punitive), exercise all the $10.00 options with no repurchase(unlikely), and immediately count all the waiting to be granted shares.
« Last Edit: July 10, 2016, 10:45:13 PM by thepupil »

MicroValue

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Re: TFG / TGONF - Tetragon Financial
« Reply #15 on: July 11, 2016, 07:44:25 AM »
You did bring up one of the issues that I wanted to clarify with investor relations -- their method for accounting for dilution of the $10 options seems to grossly understate the impact of their dilution unless you assume they are coupled with a tender offer to offset the impact.  Hopefully they have something like that in mind or else I don't see how they justify their calculation.

By the way, I have been the one pestering them with questions regarding a tender/buyback for the last several conference calls.  The latest tender has placated me for now, but I definitely want to revisit this topic early next year.  It'd be helpful if someone else took up the banner -- I am surprised that other hedge fund investors don't bring it up given how it creates so much no-risk value.






petec

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Re: TFG / TGONF - Tetragon Financial
« Reply #16 on: July 11, 2016, 01:09:19 PM »
I am just starting to look at this and have a couple of early questions for those that know it well.

1. Why would I look at this, and not one of the listed US asset management companies (KKR, Oaktree etc.)?   Some of these, at least, trade at good discounts to SOTP and offer strong dividends.   I understand at least some of the differences but I'm just interested to know what jumps out as your answer.

2. Excluding buybacks, is there any reason to expect the discount to NAV to close?   I understand there is some possibility that liquidity will rise and management are more aligned but is there anything else?

3. For those who think downside is limited: why?   I get that it trades at a discount but my (limited) understanding of the CLOs is that they are equity tranche and in a downturn could suffer nasty losses.   In that scenario, the discount to NAV might well remain.

4. In a business like this, aren't buybacks (funded by investments maturing/amortising) effectively putting the business into liquidation?   

Thanks all.   I hope to have enough knowledge to actually contribute to this thread in future.   Very interesting idea.

Pete
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MicroValue

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Re: TFG / TGONF - Tetragon Financial
« Reply #17 on: July 11, 2016, 03:48:11 PM »
SOTP valuation is ok, but its not NAV.  KKR appears to trade at a premium to book value so what great asset does it have that is not properly reflected on its balance sheet?  If you aren't a value-based NAV investor, which you don't seem to be, then maybe Tetragon is not for you.

Tetragon could well to continue to trade at a discount to NAV, but there are several possible catalysts
1.  Latest tender offers cleared out 85% of the sellers at 10.00, leaving room for stock to appreciate once the 15% of sellers have unloaded their position.
2.  A huge chunk of management stock options priced at 10 expires in April 2017.  Management may juice the stock in front of option expiration and either way it will be nice to get those off of the balance sheet so we start to get cleaner NAVs.
3.  Possible spin-off of asset management business.
4.  The accretive nature of buying back stock at a 50% discount is tremendous -- an immediate 100% risk-free NAV return on each dollar spent.  Even if the discount is 30%, there is tremendous value in buying back shares.  And for once the company did the right thing by buying back without enriching themselves too
5.  Management keeps increasing insider ownership of stock.  At some point they may own enough where they get tired of the low stock price and restructure the company to boost the stock price. 
6.  Everything else is overvalued so this looks like the best value in the market right now, and in the past when I have encountered situations like that, I am either missing something big or the stock catches up to the market.

CLO exposure is only a portion of the NAV and has been trending lower over time.   

Buybacks are not equivalent to liquidation -- look at all the big banks buying back stock.  Tetragon has plenty of cash and large enough assets that the buybacks would juice the stock price before the company gets anywhere close to liquidation mode.

Anyway what alternative uses of cash are so great right now?  Almost all asset classes pretty expensive to me.



petec

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Re: TFG / TGONF - Tetragon Financial
« Reply #18 on: July 12, 2016, 12:50:57 AM »
Thanks for the response!

I'm certainly a value investor, but not based only on NAV, and personally I wouldn't distinguish too much between NAV and SOTP when both are heavily reliant on assumptions, but that's just me.

I may have missed something in my reading but how do we know the last tender offer cleared out 85% of those who are willing to sell at $10?

Also, can you point me to a good summary of management's past misdemeanours?   I do find it reassuring that their ownership is rising.

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bskptkl

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Re: TFG / TGONF - Tetragon Financial
« Reply #19 on: July 12, 2016, 07:32:16 AM »
Thanks for the response!

I'm certainly a value investor, but not based only on NAV, and personally I wouldn't distinguish too much between NAV and SOTP when both are heavily reliant on assumptions, but that's just me.

I may have missed something in my reading but how do we know the last tender offer cleared out 85% of those who are willing to sell at $10?

Also, can you point me to a good summary of management's past misdemeanours?   I do find it reassuring that their ownership is rising.

You can read a lot of the background on VIC.
I assume he meant latest tender took up 85% of stock that was tendered.