Rats, I missed the lows of today. But have an $11.80 limit order for tomorrow. Maybe the craziness will continue...
I haven't updated this for awhile. Numbers are from latest 10-Q:
LUK BV/share (ex goodwill) = $24.32*
* Approx. $1.7bn goodwill aka "hot air"
LUK BV/share (ex goodwill and other intangibles) = tangible BV = $20.91**
** Approx. $2.7bn goodwill and amortizable intangibles aka "hot air and more hot air"
As the market tanked today, LUK started trading below *tangible* book value. I'm not hugely bullish, but I still view LUK as a core position, so I nibbled today. Hard to justify much nibbling with so many other alternatives in this market.
Amen. And the market will never trust management again (as we've witnessed).
Buy high, sell low is *not* a good business model.
It's even worse... The "outsourced" CEO has emphasized that FLY "has realized a gain every time that it has sold a plane from its portfolio." The inference is that the aircraft portfolio is worth more than book value, because FLY will always realize some gains when it trades out of individual aircraft.
But now we see an impairment, meaning that the book value of the impaired planes has been overstated. All of a sudden, the thesis that "FLY has an aircraft portfolio worth more than book value" is not necessarily supported by financial results over the life cycle of the company.
Yet another stumble by the "outsourced" management team ... we shouldn't be shocked.
Nobody would purchase FLY while the management contract was in place. The purchaser would have to "buy out" the contract. Basically pay the PV of the future payment scheme.
Yes, I'm with hoops. No reason that BBAM would agree to a sale of FLY, and thus lose the management fees and -- even more important -- transaction fees from purchases and sales of aircraft.
The 4.9% ownership restriction does not prevent hostile takeovers. It's simply a measure intended to safeguard the NOLs. When a corporation with NOLs experiences a 5% or more change in its equity owner (or owners), it has to deal with the incredibly complex rules of Section 382 of the Internal Revenue Code. Go do a web search of "IRC Section 382." You'll see the Code text, but not the accompanying book of regulations.
I don't have a problem with this approach to safeguarding NOLs. They are a corporate asset and shouldn't be frittered away.
Finally, I don't see why any buyer would go "hostile" with respect to LUK or HRG. You're talking about conglomerates. Why would anyone go hostile? The 4.9% restriction doesn't prevent an activist investor from purchasing a significant amount of shares, say 3-4%, and pushing for a Board seat or seats. I don't see any dog hunting in this case.
I agree that Old LUK management made some awful capital allocation decisions. Fortescue was brilliant; but then Beef was awful, the energy dabbling was awful, Sangart was awful. And LUK way overpaid for JEF, regardless of the Delaware settlement.
However, Team Handler has made a bunch of constructive moves. I haven't seen any moves that justify a label of "incompetent." It took them some time to get their arms around the bigger LUK portfolio. I appreciate Handler's token acknowledgement that shareholders have suffered, and thus he didn't earn his bonus in the last couple years.
That said, LUK is plugging along at a "C" grade level for the past year or so. Clearly there is room for improvement. Personally, I'd rather have Team Handler more focused on the core JEF business -- they should be monetizing the smaller legacy investments and, if nothing else, returning cash to shareholders (dividends or stock repurchases).
RBC raised based on the news:
RBC Capital raised their target price on shares of Fly Leasing (NYSE:FLY) from $22.00 to $25.00 in a research note issued on Tuesday. The firm currently has an “outperform” rating on the stock. RBC Capital’s price objective would indicate a potential upside of 57.73% from the company’s current price.
(Link at seeking alpha)
I'm a long time FLY shareholder, and I also got into AER (based on my experience with FLY) at a fairly good time.
Re: AER, I don't really see AER and FLY as competitors at this point. Sure, they are both in the aircraft leasing sector. But they aren't chasing the same deals at this point -- AER management wouldn't even blink at a small deal that could move the needle for FLY. AER clearly has the more "shareholder friendly" management team, but that's more about capital allocation decisions, not the business model per se.
I can't keep very close tabs on AYR, but my view is that AYR is more of a direct competitor for FLY. I've always thought that there should be consolidation in the space, like a merger of AYR and FLY.
Ultimately, FLY's sub-par performance has been a function of the outsourced management model with BBAM. There hasn't been enough alignment of interests between BBAM managers and FLY shareholders -- although I understand that BBAM/FLY is now spinning the 8% equity investment of BBAM managers. Ultimately, I believe that FLY will need a more independent and more focused Board to overcome its historical discount to its peers. But all that said, BBAM seems to be as competent and as experienced as the management team at AYR. So my complaint isn't so much about the management team or operational business model; it's about the outsourced management deal.
Jeez, someone gave me a "thumb's down"? LUK shareholders are a humorless bunch ... which I understand, as a long-suffering LUK shareholder!
Here's the nuance. Why would the individual partners of BBAM, who as a block have an effective veto against Onex, want to sell to Onex or anyone? At some point, the individuals (Zissis et al) will want to retire. But until they want to retire, they have no incentive to sell equity and lose the effective block against Onex.
From an Onex perspective, this investment is challenging because they are basically "locked in" with the individual partners of BBAM. Maybe the BBAM governance docs have some kind of liquidity mechanism in the distant future, but maybe not.
So I agree that Onex is important, but I don't believe that they are the "controlling player." I believe that they are stuck in bed with the individual partners of BBAM. They may be able to reach a consensual deal to change the paradigm, but I probably wouldn't be interested if I were Zissis et al.
p.s., good to see the "old timers" still following along with the (slow) FLY saga!
Ha, that quote is right on the money.
"Soothing words of greatness giving way to a stagnant mediocrity."
Interesting article from Bloomberg.
It's currently on the LUK headlines (Yahoo Finance), but as time goes by, search for: Jefferies Is Poaching the Big Banks’ Loan Business With Help From the Fed