BFC Financial BFCF W
July 29, 2001 - 2:39pm EST by
2001 2002
Price: 5.00 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 62 P/FCF
Net Debt (in $M): 0 EBIT 0 0

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BFCFA and (BFCFB, which are the voting shares of BFC Financial) are really derivative stocks. BFC's value is almost totally derived from the value of BankAtlantic Bancorp (BBX), the largest independent thrift holding company in Florida. BFC essentially is a holding company of a holding company. This is easily one of the most unusual S&L holding companies in the country.

Since BFC's value is primarily derived from BBX, I had to be sure that BBX is a solid thrift holding company, in it's own right. BankAtlantic Bancorp (BBX) is another unusual S&L holding company, in that they not only own the oldest homebuilder in the country (Levitt) but they also own an investment bank (Ryan Beck). They made a lot of acquisitions in the last few years, and added a lot of debt at the holding company level. This is NOT one of my safe, rock-solid mutual thrift conversions that trade at a huge discount to book. This thrift is a turnaround story that hasn't been fully appreciated (and the recently announced .19 quarterly earnings per share demonstrate that). I believe going forward, the bank will easily have a run rate of .20 a quarter. But at a $10 price tag and .80 in earnings, this isn't exactly a VIC heart stopper!

The interesting part of this story is that every share of BFC owns 1.4954 shares of BBX, and BFC is selling today for $7.00/share (it was $2 at the beginning of the year).

There are several ways to extrapolate BFC's current value.
(a) The first is to ignore BBX's price and assign 'look-through' earnings for BFC's BBX holdings ($7.00/$1.20 gives BFC a PE of 5.8).
(b) BBX's tangible book value is $6.16 and book value is $7.48...rendering a BFC 'book value' based solely on BBX of between $9.24-$11.22).
(c) BFC owns 13.17M shares of BBX that have a market value of $131.7M. (BFC's current market cap is $62M).

This stock won't appeal to the money managers on site because it is illiquid. (It recently took over a week for my family to buy 10,000 shares at $7). And it does have more than a few warts because the insiders have total control, and BFC does little in the way of PR and investor relations. I have no doubt that's why it selling at a discount. But they have recently attempted to clean up their act by cleaning up the bank's confusing capital structure, and hiring some very savvy bankers to fill some key roles.

There is also more to this story (both good and bad). A lot of options were issued at higher stock prices in the past, and if ALL of them were exercised it would bring the ratio down to 1.2 shares of BBX to 1 share of BFC. A lot of these diluted shares would only come into play at higher prices ($10+).

BFC also owns more than BBX. In BFC's prior life (before becoming an S&L holding company), it was a real estate company. It's no longer doing real estate deals but it still owns some properties. It has also formed some limited partnerships to invest in VC tech and some retail deals. The VC partnerships obviously have not performed well and were written off last year. BBX comprises more than 90% of BFC's value but these extras do add a little to the equity base ($5M+). And BFC's equity base has shown consistent growth per share over the last 5 years, growing from $3.44 to last year's $7.41. These were NOT the bank's best years, and the next couple of years should see a real acceleration of ROE's closer to 20%...not bad for a company selling below book.


This one won't take much buying to get it to $10/share. Both Lehman and FBR have recently initiated strong buys on BBX, stating it is undervalued in relation to its Florida peer group. Every dollar increase in BBX's share price produces even greater value in BFC's share price. Not only because its starting out at a lower base but it is also leveraged between 1.2 to 1 and 1.5 to 1.
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