|Shares Out. (in M):||20||P/E||0||0|
|Market Cap (in M):||201||P/FCF||0||0|
|Net Debt (in M):||-201||EBIT||60||60|
I don't like to repeat an idea, but since it's been a few years, and the valuation is compelling, here goes:
Calamos Asset Management (CAM) is a holding company that owns 22.2% of Calamos Investements LLC, a profitable $25bn AUM equity and convertible bond asset manager, as well as some cash and investments worth a bit over $10 per share. Coincidentally, the stock trades at a bit over $10 per share today, which means you get the asset manager for free (a $4-$6 per share value!). I know there's a lot of cheap asset managers out there, but isn't 0x earnings better than 10x earnings? Did I mention the stock has a 6% dividend yield, and they've been buying back stock hand over fist?
I'll refer you to my original writeup from two and a half years ago for the details. The quick summary is that at the time, CLMS had $8.60 in cash and investments, since then that pile has grown to $10, and they've paid out $1.50 in dividends besides - not bad for 2.5 years work. They've also repurchased a lot of stock - they are on their second 3 million share repurchase plan (vs 20mm shares outstanding). The LLC owns almost 3.4mm shares as of last Friday (they've bought back more than that, but stock comp reverses some of the flow), and they've bought back 400k shares in the last two months alone.
The asset manager itself hasn't done quite as well. They had nearly $10bn in outflows in 2013 and 2014 (some of this offset by appreciation), and while the outflows have stopped this year, that's a bit like saying the patient has stopped bleeding for lack of blood. Still, the business does $200mm a year in management fees and $60mm a year in operating income, and I think on a normalized basis they can do over $100mm a year in operating income, if you assume 50%+ adjusted operating margins (as is typical for asset managers). They are investing in new funds, and while I'm skeptical (we all understand the secular headwinds), I think the remaining AUM melts off fairly slowly. Almost a third of AUM is in closed end funds, and most the rest is spread over a number of retail funds. $60mm a year fully taxed translates to about $0.35 of EPS to CLMS, and $100mm a year translates to about $0.60 of EPS, so that's about $4 to $6 of value.
The detailed breakdown of the CAM cash and investments is in the table below. The tax asset consists of a tax recievable, and an loss carryforward that will be recognized ratably over the next four years. In the last writeup, I discounted the NOL, but now there is so little time left on the NOL and interest rates are so low, that the effect would be negligible so I just show the full value today. The CAM "investment securities" of $103.6mm include a $25mm interest bearing loan to the LLC, a $30mm seed investment in CALSX, with the remainder probably in cash or maybe market neutral funds also. The LLC investment securities are in a blend of equity and bond funds - even with the market turmoil, I don't expect those would have been hit too much. A cursory glance at the public open end funds they have indicates they haven't done terribly compared to the market in the past week.
Final note - the shares outstanding are net of CAM's 22.2% share of the CLMS shares that the LLC owns. So there are 20.53mm shares outstanding, the LLC owned 2.9mm shares as of 6/30, 22.2% of that is 647k shares, so effectively there are only (20,530-647=19,883) shares outstanding as of 6/30.
This never is the most exciting stock, but it seems to pay to get into it when there's a dislocation like this in the market. I think they'll keep buying back stock and paying out dividends for the next few years. I think they want to keep it as a high yielding stock, once the income from the tax asset runs out they won't be able to cover dividends as is, if the asset manager hasn't gotten back AUM they'll have to cut costs, or they'll start paying out from the cash pile.
|Total Liquid Assets||144,100||299,831||443,931|
|Net Liquid Assets||144,100||253,876||397,976|
|Cash & Investments solely attributable to CAM||103,600||5.21|
|22.2% Stake in LLC liquid assets, net of debt||56,360||2.83||22.2%|
|Total Net Liquid Assets attributable to CAM||200,460||10.08|
|Shares Outstanding (net of 22.2% of LLC shares)||19,883|
More repurchases, continued dividend
|Entry||08/27/2015 06:11 PM|
Appreciate your write-up. Wondering if you could help me understand how CLMS could actually get their hands on the cash/investments at the LLC? Is that possible and if so how would that work mechanically? Otherwise basically the LLC just builds cash on their operating income?
I agree it deserves a discount but prob not $0 value for the earnings of the LLC.