1. Equity is imaginary. In bankruptcy (or whenever KCG must deleverage their assets/liabilities), Equity is ZERO or negative, thats why toxic financing was chosen over bankruptcy. Thus, Book is realistically ZERO.
2. SEC/lawsuit risk. I estimate $300mil min and 1bil maximum risk. Although its more likely they'll settle for $300-400mil.
3. Future toxic deals (and/or glitches). They will need more money to pay legal suits and expenses and operations.
4. 10-Q ending June 30. Pathetic. Revs 300mil, profits 0. Meaning revs falling would lose them ENORMOUS money.. Revs have fallen this quarter and for the future.
5. no growth, declining operations/revs for the last 5 years.
6. 267mil profitable shares over 1.50 looking for a home at any price over 1.50
7. management incompetence, mistrust
8. $3 is like buying $12 befor the deal, ie, $3 is a ceiling theoretically.
And so on.. My assessment is short term KCG is worth 1.80-2.10.
My long term assessment depends on events related to lawsuits and toxic financing, and other aspects, but right now its likely zero or like 5 cents in any post-toxic deals...
I refer you to DRL which did the same toxic deals. A share 5 years ago of DRL is worth 1% today after a toxic financing(s).
I agree with the original poster too. They just lost 3-400 mill which is more than one years earnings. Old shareholders were diluted to 30% of the equity. The new equity is actually debt that is convertible to equity. How are they going to make the earnings to pay down the debt? They wont. SO the debt will be called, not converted, and the old Knight will cease to exist. The new vulture lenders will take the company private, wipe out old shares, and own the thing amongst themselves. Bye bye shares.
New to this board but, just in case, anyone reading this thinks that the poster knows anything -- they don't.
OnewaytoMars3 shows a complete lack of knowledge of the company, the situation, or future prospects. The only thing he got right is that the current price, around $3/sh is about right. Could the stock drop further as investor's panic fueled by notes such as his, sure. Will the company rebound to the $5-$7 level by the end of the year - definitely.
The likelihood of a rise to $5-$7/share before year's end is almost a a given. (and yes, I've bet that will happen)
1. The firm is very popular with Wall Street, they won't fail, its not in their interest.
2. Company is highly likely to apply its cash-flow to reacquire shares at the current levels.
3. The $1.50 is a minomer -- remember they spent $400 million to get it.
4. After tax loss reduces the exposure of the $400M by nearly $150M.
5. Do you think the founder of the company would have put more money in at these levels if didn't know something?
The truth is that this stock carries more short-term risk than others HOWEVER, there is also considerable upside
Knight has many alternatives. What might be the appeal to buyers, in whole or in part?
Now or in the future..... “There are certainly valuable pieces to [Knight’s] franchise,” wrote Chris Allen of Evercore in a note this morning. He says that despite the technology problems, the crown jewel is Knight’s retail market-making, or “wholesale,” business, which produced around $250 million in annual pre-tax profit between 2009 and 2011. They could repurchase cheap shares.... CUSTOMERS and interest told them the whole story---- They are in demand.
That unit takes the other side of trades placed at retail brokerages, and makes money by trading out of those positions at a profit. The business has formidable competitors, such as Citadel and units of UBS and Citigroup, but is attractive enough that banks such as Goldman Sachs and Credit Suisse have for some time been trying to establish themselves in it.
Yeah, KCG's pieces would be appealing in a garage sale, but KCG as a whole with no equity and 6billion leveraged liabilities, is not appealing.
KCG would be more valuable being broken up, making common stock worthless, and selling up their assets in auction..
any auction on their leveraged assets would not exceed their liabilities, thus, KCG as a whole has no real equity or value.
Because Knight has been in the business since the 1990s, Knight has by far the most physical data linkages to broker-dealers, who feed retail trading orders into its system, around 700 to 800, says Christopher Nagy, former head of order routing at TD Ameritrade and now an industry consultant. It would be dauntingly expensive for a new entrant in the business to replicate so many physical connections.
Another unit that analysts say has strong value, and could be sold separately, is Knight’s currencies trading platform, HotSpot FX. HotSpot is an electronic communications network, or ECN, that competes with the likes of EBS, which is owned by Icap, and Reuters, the dominant venues for trading currencies. HotSpot, which Knight acquired in 2006 for $77.5 million, has grown its market share sharply, an average of 50% a year since 2010, by allowing retail and other non-bank competitors onto the platform.
One other distinct asset is Knight’s 19.9% stake in Direct Edge, the electronic stock exchange it originally founded. (They are still based in the same building in Jersey City, N.J.) One industry veteran estimates the stake is worth $70 million to $90 million.
Beyond that, it’s unclear what could fetch real interest. Knight has an institutional trading unit and “dark pool,” which matches trades anonymously between buyers and sellers. It also acts as a designated market maker, or DMM, on the New York Stock Exchange floor. But those are businesses with many, and much bigger, competitors. One person familiar with DMM businesses adds that a sale of that unit would be very complicated, in part because the NYSE would likely have to approve it, and because it carries a steep capital requirement, in the neighborhood of $30 million to $60 million.
Knight also has a group of proprietary traders who use algorithms to make money only for the firm. Knight does not break out its “prop” results, but the unit is said to be good, and sizable, and it is legally separate from market-making. However, it might be difficult to extract or sell as a standalone, said the industry veteran. The market-making and prop units operate under the same broker-dealer license, and likely share some software and other technological infrastructure.
A group of Knight’s fixed-income businesses, such as BondPoint, which matches small trades of corporate bonds between retail and institutional customers, and a reverse-mortgages lending and trading unit, Urban Financial Group, acquired in 2010, are still in their early stages and not significant profit generators.
Matthew Heinz, analyst at Stifel Nicolaus, estimated Thursday that the market-making unit is worth about 50% of its annual revenues as a standalone unit, or $280 million. He assigns zero value to the institutional businesses. He says the most valuable single piece is the unit that includes HotSpot FX and Knight’s other electronic execution services: $540 million assuming a nine times multiple of its estimated 2012 earnings.
Knight Capital has va;ue not seen- the insight ,market making ,dark pools are worth more then the market knows. The demand is more then you know????