BB Holdings Ltd BBHLF
March 13, 2008 - 10:51am EST by
utah1009
2008 2009
Price: 5.45 EPS
Shares Out. (in M): 0 P/E
Market Cap (in M): 322 P/FCF
Net Debt (in M): 0 EBIT 0 0
TEV: 0 TEV/EBIT

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Description

This is the only bank I own.  BB Holdings is the holding company for Belize Bank, which has some of the craziest economics I’ve ever seen.  This is a massively overcapitalized bank with a 7% ROA, 24% ROE, 8% margin, is growing loans by 60% with little credit problems to be found and growing eps by 40%.  All this can be yours for 5.2x earnings and a 17% premium to book.

 

History

 

BB Holdings might ring a bell to some people, and if so the reason is probably because it used to own Carlisle Group (http://www.carlislegroup.co.uk/), a diversified services firm in the UK that was spun out of BB Holdings in 2005.  BB Holdings is controlled by Lord Michael Ashcroft, who is best known for building up ADT and selling it to Tyco in the late 90’s for about $6b.  Regrettably, he was also a director of Tyco throughout their well-documented troubles.  He’s a self-made guy and has created a ton of value for shareholders along the way.  He owns about 70% of the outstanding shares as well as a significant portion of the outstanding unsecured notes.

 

Belize Bank

 

With a mere 12 branches they have a roughly 45% market share of the Belize (population 300k) banking industry and are a major presence in Turks & Caicos.  Belize is modernizing and it’s quickly becoming a legitimate tourist destination for Americans and Canadians.  Anecdotally, I see more and more ads for Belizean resorts and vacations and keep hearing about more and more people who are vacationing there.  Why Belize?  I think for a couple reasons.  First, it’s underexplored.  People are always looking for the “next” hip spot to visit, and Belize is both exotic and accessible.  Second, it’s an absolutely beautiful country, particularly along the coast.  Google it all you want, it looks just like all the other popular Caribbean islands.  Third, it’s stable.  It’s a former British colony and the currency is pegged to the dollar.  Finally, they speak English, it’s the official language, in fact.

 

All these things are coming together and the tourism industry is booming.  Resorts are going up, commerce is expanding, infrastructure improving, and more housing is being built for US retirees.  Belize Bank has capitalized on the growth and residential construction, C&I, and mortgages loans are up 178%, 27%, and 30%, respectively.

 

Their credit is basically fine, but their NPA’s are deceivingly high at 4.5%.  This is mainly a function of operating in a developing market where borrowers just move at a different pace.  NPA’s have typically been high (> 3%) but management loss estimates, and more importantly, charge-offs, have been very reasonable.  While NPA’s are > $24m, charge-offs through the last two years are only $1m.

Other Stuff

 

Did I mention that BB Holdings also owns a vertically integrated Costa Rican palm oil processing company called NUMAR?  They grow palms, process them, and sell various oils.  I don’t pretend to know much (see: anything) about this business, but it’s growing earnings by 50 – 100%.  I know that’s big enough to drive a truck through, but growth seems to be accelerating as the price of palm oil keeps going up.  They are also building a small biodiesel plant and will sell fuel.

 

They also own an offshoring company in the British Virgin Islands.  While it’s a pretty small part of the company, earnings in 2007 quadrupled and it contributed about $.02 to eps.

 

Financials

 

Don’t you wish US banks with large construction loan exposure had a balance sheet like this?  Most of the debt is owned by Lord Ashcroft himself.

 
Mar FYE Q4 Q1 Q2 Q3
Cash          41.2          44.3          45.9          41.3
Deposits          94.0          95.1          59.0        119.0
Loans        508.5        542.3        597.4        716.4
PP&E          14.8          16.6          16.5          16.5
Other          39.7          38.9          34.6          41.1
Banking Assets        698.2        737.2        753.4        934.3
Cash            5.2            4.6            6.4            4.9
Other            0.6            0.7            1.3            2.5
PP&E            0.1            0.1            0.1            0.1
Numar          63.6          67.1          68.6          73.5
Assets        767.7        809.7        829.8     1,015.3
Deposits        504.8        487.9        494.3        606.1
STD            6.0            2.0              -              4.5
Int Payable            7.1            8.0            9.2            8.8
Other            6.3            5.5            4.9            8.5
LTD - Bank          12.5          62.5          12.5          12.5
Banking Liabilities        536.7        565.9        520.9        640.4
Current Liabilities            1.8            1.6            2.2            2.1
Other              -                -              1.2            1.2
LTD - Other            1.2            1.2          50.0        100.0
Liabilities        539.7        568.7        574.3        743.7
Equity        228.0        241.0        255.5        271.6
 

Here’s what earnings look like.  We’re already through the 3rd quarter of FY08.  They’re going to easily earn at least $1 this fiscal year and I believe high growth of 20 – 35% is reasonable for the next couple years.

 

 

2006 2007 2008E 2009E 2010E
Net Int Income            36.2            38.4            60.0            83.7          102.0
Margin 7.7% 6.9% 8.1% 7.7% 7.5%
Bank Expenses              2.1             (1.0)              8.9            10.0            11.2
Bank EBIT            34.1            39.4            51.1            73.7            90.8
Corp Overhead              6.0              4.3              3.8              4.0              4.4
Investments              7.4              9.7            18.8            20.0            20.0
Other              0.3              0.6             (3.9)             (3.8)             (4.0)
Net Income            35.8            45.4            62.2            85.9          102.4
EPS            0.59            0.76            1.05            1.45            1.73
Shares Out            60.7            59.7            59.1            59.1            59.1

 

Valuation

 

Who can really say what the market should value this thing at, but I believe it’s conservatively a double or triple over the next year or two.  I don’t find myself saying that very often.  We’re talking about one of the fastest growing banks on the planet, backed by a savvy investor, and its trading at a value lower than no-growth US thrifts.  Besides illiquidity, can someone make a case for why this shouldn’t trade at 2 – 3x book value?

 

I dont know what Lord Ashcroft’s intentions are with this company, but being a Belize native he might be reluctant to ever sell it.  This might be his baby.  But I could see someone like Bank of Nova Scotia being interested in buying it.  I just wish it was more liquid…it hardly trades, so this is a personal account idea only.  It trades on the pink sheets under BBHLF.PK and on the AIM exchange in London.

Catalyst

Earnings;
Sale
    sort by   Expand   New

    Description

    This is the only bank I own.  BB Holdings is the holding company for Belize Bank, which has some of the craziest economics I’ve ever seen.  This is a massively overcapitalized bank with a 7% ROA, 24% ROE, 8% margin, is growing loans by 60% with little credit problems to be found and growing eps by 40%.  All this can be yours for 5.2x earnings and a 17% premium to book.

     

    History

     

    BB Holdings might ring a bell to some people, and if so the reason is probably because it used to own Carlisle Group (http://www.carlislegroup.co.uk/), a diversified services firm in the UK that was spun out of BB Holdings in 2005.  BB Holdings is controlled by Lord Michael Ashcroft, who is best known for building up ADT and selling it to Tyco in the late 90’s for about $6b.  Regrettably, he was also a director of Tyco throughout their well-documented troubles.  He’s a self-made guy and has created a ton of value for shareholders along the way.  He owns about 70% of the outstanding shares as well as a significant portion of the outstanding unsecured notes.

     

    Belize Bank

     

    With a mere 12 branches they have a roughly 45% market share of the Belize (population 300k) banking industry and are a major presence in Turks & Caicos.  Belize is modernizing and it’s quickly becoming a legitimate tourist destination for Americans and Canadians.  Anecdotally, I see more and more ads for Belizean resorts and vacations and keep hearing about more and more people who are vacationing there.  Why Belize?  I think for a couple reasons.  First, it’s underexplored.  People are always looking for the “next” hip spot to visit, and Belize is both exotic and accessible.  Second, it’s an absolutely beautiful country, particularly along the coast.  Google it all you want, it looks just like all the other popular Caribbean islands.  Third, it’s stable.  It’s a former British colony and the currency is pegged to the dollar.  Finally, they speak English, it’s the official language, in fact.

     

    All these things are coming together and the tourism industry is booming.  Resorts are going up, commerce is expanding, infrastructure improving, and more housing is being built for US retirees.  Belize Bank has capitalized on the growth and residential construction, C&I, and mortgages loans are up 178%, 27%, and 30%, respectively.

     

    Their credit is basically fine, but their NPA’s are deceivingly high at 4.5%.  This is mainly a function of operating in a developing market where borrowers just move at a different pace.  NPA’s have typically been high (> 3%) but management loss estimates, and more importantly, charge-offs, have been very reasonable.  While NPA’s are > $24m, charge-offs through the last two years are only $1m.

    Other Stuff

     

    Did I mention that BB Holdings also owns a vertically integrated Costa Rican palm oil processing company called NUMAR?  They grow palms, process them, and sell various oils.  I don’t pretend to know much (see: anything) about this business, but it’s growing earnings by 50 – 100%.  I know that’s big enough to drive a truck through, but growth seems to be accelerating as the price of palm oil keeps going up.  They are also building a small biodiesel plant and will sell fuel.

     

    They also own an offshoring company in the British Virgin Islands.  While it’s a pretty small part of the company, earnings in 2007 quadrupled and it contributed about $.02 to eps.

     

    Financials

     

    Don’t you wish US banks with large construction loan exposure had a balance sheet like this?  Most of the debt is owned by Lord Ashcroft himself.

     
    Mar FYE Q4 Q1 Q2 Q3
    Cash          41.2          44.3          45.9          41.3
    Deposits          94.0          95.1          59.0        119.0
    Loans        508.5        542.3        597.4        716.4
    PP&E          14.8          16.6          16.5          16.5
    Other          39.7          38.9          34.6          41.1
    Banking Assets        698.2        737.2        753.4        934.3
    Cash            5.2            4.6            6.4            4.9
    Other            0.6            0.7            1.3            2.5
    PP&E            0.1            0.1            0.1            0.1
    Numar          63.6          67.1          68.6          73.5
    Assets        767.7        809.7        829.8     1,015.3
    Deposits        504.8        487.9        494.3        606.1
    STD            6.0            2.0              -              4.5
    Int Payable            7.1            8.0            9.2            8.8
    Other            6.3            5.5            4.9            8.5
    LTD - Bank          12.5          62.5          12.5          12.5
    Banking Liabilities        536.7        565.9        520.9        640.4
    Current Liabilities            1.8            1.6            2.2            2.1
    Other              -                -              1.2            1.2
    LTD - Other            1.2            1.2          50.0        100.0
    Liabilities        539.7        568.7        574.3        743.7
    Equity        228.0        241.0        255.5        271.6
     

    Here’s what earnings look like.  We’re already through the 3rd quarter of FY08.  They’re going to easily earn at least $1 this fiscal year and I believe high growth of 20 – 35% is reasonable for the next couple years.

     

     

    2006 2007 2008E 2009E 2010E
    Net Int Income            36.2            38.4            60.0            83.7          102.0
    Margin 7.7% 6.9% 8.1% 7.7% 7.5%
    Bank Expenses              2.1             (1.0)              8.9            10.0            11.2
    Bank EBIT            34.1            39.4            51.1            73.7            90.8
    Corp Overhead              6.0              4.3              3.8              4.0              4.4
    Investments              7.4              9.7            18.8            20.0            20.0
    Other              0.3              0.6             (3.9)             (3.8)             (4.0)
    Net Income            35.8            45.4            62.2            85.9          102.4
    EPS            0.59            0.76            1.05            1.45            1.73
    Shares Out            60.7            59.7            59.1            59.1            59.1

     

    Valuation

     

    Who can really say what the market should value this thing at, but I believe it’s conservatively a double or triple over the next year or two.  I don’t find myself saying that very often.  We’re talking about one of the fastest growing banks on the planet, backed by a savvy investor, and its trading at a value lower than no-growth US thrifts.  Besides illiquidity, can someone make a case for why this shouldn’t trade at 2 – 3x book value?

     

    I dont know what Lord Ashcroft’s intentions are with this company, but being a Belize native he might be reluctant to ever sell it.  This might be his baby.  But I could see someone like Bank of Nova Scotia being interested in buying it.  I just wish it was more liquid…it hardly trades, so this is a personal account idea only.  It trades on the pink sheets under BBHLF.PK and on the AIM exchange in London.

    Catalyst

    Earnings;
    Sale

    Messages


    Subjectquestions
    Entry03/13/2008 05:12 PM
    Memberskyhawk887
    Interesting idea.

    Stock is cheap and has huge amounts of capital, but it looks like it traded as low as 85% of book or so in late 2006. Any thoughts on that as well as the massive spike down in May 2006?

    Loan growth has accelerated massively in the past two years from a previous run rate of 5-15% in 2003-2006. What is driving the spurt? This seems inconsistent with an economy that is growing 3-4%.

    Any thoughts on the trade and budget deficits for Belize?

    With an economic slowdown hitting the US and the UK, I imagine Belize tourism will get hit. Any thoughts?

    Who owns the stock? What are management's intentions regarding the stock. Are their plans to increase the liquidity?

    SubjectRE: questions
    Entry03/14/2008 08:47 AM
    Memberutah1009
    skyhawk:

    early 06 is when they delisted from the NASDAQ. after they spun out carlisle i think they kicked around the idea of remaining US listed but decided against it since volume was so thin. stock really sold off a lot after that.

    the loan growth is flying, and the economy is doing just ok. i am not really sure how to reconcile the two. statistics are difficult to come by. weak answer, i know.

    tourism could certainly slow. everything in the western hemisphere could slow. i have no way to quantify the potential impact on the belizean tourism industry, but i feel comfortable with the risk.

    the only significant institutional shareholder is royce (5%), while some token holders are ashford, gabelli, and dimensional. lord ashcroft owns around 72% of the stock and some other insiders own another 1-2%. i dont think they care one bit about liquidity unless they happen to do a deal outside of the caribbean.

    SubjectRE: Question
    Entry04/05/2008 11:34 AM
    Memberutah1009
    i dont have a strong opinion on the deal, but i didnt see it as unfair to shareholders (owning 71% of the stock, what's his incentive to put the screws to shareholders?). the warrants were $6.50 strike when the stock was $4.25. when the yield on their interest earning assets is ~12% and 20% of those assets are relatively low yielding cash and deposits, the 10% interest rate doesnt seem outrageous. issuing equity wouldnt have made much sense, as they are waaay overcapitalized and the stock doesnt trade at a big premium to book. if anything they should be buying stock back.

    regarding your point on the warrants, i'm not really following what you're saying. exercising them now would be accretive. if you wanted to treat them (both $50m deals) as equity it trades at an even smaller premium to book, only 5%.

    SubjectDo you still follow?
    Entry03/13/2010 10:24 AM
    Memberele2996

    Any follow up?


    SubjectRE: RE: Do you still follow?
    Entry03/14/2010 02:16 PM
    Memberhb190

    A couple things:

    - can you explain the rationale for Cockleshell? They issued 40+million shares of stock to get access to 52mil of usd cash, at a time when the market value of the issued stock was over 73mil usd.  not only was this dilutive and increased Ashcroft's stake, but how do we reconcile this desperation to get cash at a 40% premium with the story that the bank is overcapitalized? if anything, the commentary suggests that the bank is undercapitalized. and the self-dealing suggests that Ashcroft is not your friend.  not to mention owning the debt, so theoretically you could really get the rug pulled from under you, no, with him going from 80 to 100% ownership through owning the debt?

    - how did Ashcroft sound when he called you back after Cockleshell? did you get insight into what he wants to do with this?

    - how do you get comfortable with what's happening in Belize and TCI banking? given the rapid growth of the loan book and the heavy concentration in commercial real estate, it looks like they're way underreserved, with an allowance for losses being a fraction of NPA's.  this is obviously not good, so how do we figure out what the "real" book is?

    - how do you get comfortable that the bank won't be nationalized the way the telecom business was? you mention the new PM is very anti-Ashcroft, what are the possible implications here? it can't be a good thing and could potentially be a very bad thing.

    - have you looked into Ashcroft's other vehicles listed on AIM? anything interest there?

    - why are they not buying back stock, if it is this cheap?


    SubjectRE: RE: RE: RE: Do you still follow?
    Entry03/14/2010 07:27 PM
    Memberhb190

    I definitely appreciate the candor and the fact that you're open about the risks.

    My point of view is similar - everything at a price. I would love to understand the human elements behind the numbers. The reporting stinks, I don't have much faith in the guys running the show, and it doesn't take a huge hit to the asset side of the bank's balance sheet to really impair book value.

    I think the Cockleshell deal is very scary as far as its implications for how he treats minority shareholders. The point he made to you about his money buying the bank is BS ... the more accurate description of what he did is a secondary 40% below the market price.  Surely there were other investors who would have been happy making the same investment on far better terms. One of the things Buffett teaches us is to invest with managers we can trust and this guy doesn't appear to be trustworthy at all.

    Would love to get more color once you put more of the pieces together from your contacts. Were developers in T&C helpful to you at all in giving a sense for how much commercial values are down there? I'm considering a trip out there to check it out. Not a bad place to do due diligence.

    From a legal perspective, do you know what remedies are available under Belize law if there is a takeunder? How seriously are fiduciary issues taken there? Minority shareholder rights? Any remedies available under UK law here? How much of the stock would he have to get tendered in order to buy out the minority stake? Would minority votes count for anything? I think you really have to get comfortable with these issues, considering that he has demonstrated 0 interest in enriching the minority partners and basically treats this as a private company 100% owned by him. It's also not clear to me how you get any of your capital back other than through a sale of the bank, and you made the point that this is unlikely because he loves his offshore status and the power it gives him in Belize.

    I don't think you're nuts, but I think the key things to further dig on are the legal rights/remedies and the true state of the bank's balance sheet.  If they were provisioning properly, it would be less profitable for sure. 

    What's the best way to contact him? I might give it a shot as well and play "good cop." Do you know if he spends much time in Belize? Is there management at the bank who you think might be open to meeting in person?

    I know this is long, thanks for posting and for replying.


    SubjectRE: RE: RE: RE: RE: Do you still follow?
    Entry03/14/2010 07:54 PM
    Memberhb190

    Also, what is the (positive) catalyst here? Where *should* the stock trade, given that the hair isn't going away anytime soon?  Doesn't seem like any of the earnings are ever going to come back to shareholders, so how likely are increased dividends, etc, if/when business improves.

     


    SubjectAnnual Checkup
    Entry04/15/2011 01:46 AM
    MemberRoboCop
    Utah,
    Another year has gone by and this stock is still the same price and still amazingly cheap. In other circumstances this would obviously be worth multiples of the current price. Do you still follow this? Any updates regarding Ashcroft's plans for this or why Mottley resigned? I wish there was at least some connection between the value of the business and where the stock trades at. At this rate, in 10 years the stock will still be a buck and will be trading for 10% of book value.
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