CALAMOS ASSET MANAGEMENT INC CLMS
August 25, 2015 - 6:05pm EST by
alex981
2015 2016
Price: 10.10 EPS .30 .30
Shares Out. (in M): 20 P/E 0 0
Market Cap (in $M): 201 P/FCF 0 0
Net Debt (in $M): -201 EBIT 60 60
TEV ($): 0 TEV/EBIT 0 0

Sign up for free guest access to view investment idea with a 45 days delay.

 

Description

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.

 

    CAM   LLC   Consolidated
    6/30/15   6/30/15   6/30/15
             
Cash    -    90,018    90,018
Tax Asset    40,500    -    40,500
Investment Securities    103,600    174,474    278,074
Partnership Investments    -    35,339    35,339
Total Liquid Assets    144,100    299,831    443,931
             
Debt    -    45,955    45,955
             
Net Liquid Assets    144,100    253,876    397,976
             
             
    CAM        
    6/30/15   Per Share   %
             
Cash & Investments solely attributable to CAM    103,600   5.21    
Tax Asset    40,500   2.04    
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        
             
Market Cap    200,821   10.10    

 

 

I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise hold a material investment in the issuer's securities.

Catalyst

More repurchases, continued dividend

    sort by    

    Description

    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.

     

        CAM   LLC   Consolidated
        6/30/15   6/30/15   6/30/15
                 
    Cash    -    90,018    90,018
    Tax Asset    40,500    -    40,500
    Investment Securities    103,600    174,474    278,074
    Partnership Investments    -    35,339    35,339
    Total Liquid Assets    144,100    299,831    443,931
                 
    Debt    -    45,955    45,955
                 
    Net Liquid Assets    144,100    253,876    397,976
                 
                 
        CAM        
        6/30/15   Per Share   %
                 
    Cash & Investments solely attributable to CAM    103,600   5.21    
    Tax Asset    40,500   2.04    
    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        
                 
    Market Cap    200,821   10.10    

     

     

    I do not hold a position with the issuer such as employment, directorship, or consultancy.
    I and/or others I advise hold a material investment in the issuer's securities.

    Catalyst

    More repurchases, continued dividend

    Messages


    SubjectQuestion
    Entry08/27/2015 06:11 PM
    Membershoobity

    Hi Alex,

    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. 


    SubjectRe: 15% Appraisal Condition Waived
    Entry02/15/2017 06:49 PM
    Membershoobity

    Has anyone ever seen a waiver like this? Am I reading this correctly they just ripped that out of the conditions to close the deal?


    SubjectRe: Re: 15% Appraisal Condition Waived
    Entry02/15/2017 07:02 PM
    Membermajic06

    sounds like they did what someone else thought they would do (can't remember if here or on another board)

    decide better to pay off 15-20% of people in court w/ higher price vs. 100% of people w/ higher price.  pretty shameful.


    SubjectRe: Re: Re: 15% Appraisal Condition Waived
    Entry02/15/2017 07:37 PM
    Membermajic06

    That's amazing.  Not sure how they look at themselves in the mirror every day.


    SubjectRe: Re: Re: Re: 15% Appraisal Condition Waived
    Entry02/15/2017 07:59 PM
    Membermajic06

    they don't need a certain % to tender to close deal?  

    sorry, i'm merely a spectator here.

     EDIT

    "The transaction is not subject to a minimum number of shares being tendered."

    That's crazy.  Yes, they might end up having half the shares seek appraisal.  Will be fun to watch.


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: 15% Appraisal Condition Waived
    Entry02/16/2017 02:13 PM
    MemberJohnKimble

    I think you have to perfect your appraisal rights, which isn't straightforward enough where people are going to just tag along.


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: 15% Appraisal Condition Waived
    Entry02/16/2017 03:02 PM
    Memberstraw1023

    We have been thru one DE appraisal rights case and the Court essentially forms an informal class action (it is not a technical class action) such that the legal fees are split across the parties via the ruling. The dominant plaintiff (in this case would probably be Mangrove) chooses their lawyers, but as it was explained to me, these costs are taken out of the settlement/judgment from everyone. FWIW, it was also explained to me that there is a small number of Delaware lawyers who handle all these appraisal rights cases.

    In the case in which we were involved, the Delaware attorneys for the dominant plaintiff returned my numerous calls and gave me details of the case even though we did not pay them a dime directly.

    "The cost of the appraisal proceeding may be determined by the Delaware Court of Chancery and taxed upon the parties as the court deems equitable.16 Upon application of a shareholder, the Delaware Court of Chancery may order that all or a portion of the expenses incurred by such shareholder in connection with the appraisal proceeding, including, without limitation, reasonable attorneys’ fees and the fees and expenses of experts, to be charged pro rata against the value of all shares entitled to an appraisal.1"

    From http://www.reinhartlaw.com/knowledge/shareholder-appraisal-process-in-delaware/

     

     

     


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: 15% Appraisal Condition Waived
    Entry02/16/2017 03:06 PM
    Memberstraw1023

    One other point: in order to be eligible for appraisal rights, you must follow the directions to the letter of the law. The company must receive your notice of seeking appraisal rights BEFORE the meeting that closes deal begins. I would guess that many retail brokers are not set up to deal with the requirements. Any error, no matter how technical and small, is grounds to disqualify you from appraisal rights.


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: 15% Appraisal Condition Waived
    Entry02/16/2017 03:42 PM
    Membermajic06

    For IB, looks like deadline has passed.  Also looks complicated for a non-fund investor.

    https://www.interactivebrokers.com/en/index.php?f=deliveryExerciseActions&p=corpActionInstr

    US Issues Only Exercising appraisal rights: In the event a client wishes to exercise appraisal rights on a proposed merger consideration, the request should be submitted via the Account Management Message Center. Due to the manual nature involved in processing such requests, the following must be met to ensure processing (a) the request must be submitted to the broker no later than 5 business days prior to the deadline for appraisal rights with the agent and (b) shares must be settled in the account at least 5 business days prior to the deadline for appraisal rights with the agent. Any request which does not meet the above criteria will be handled on a best-efforts basis and the broker cannot guarantee that the request will be processed. It is possible that only a portion of the shares requested may be exercised in such instances. Please be aware that upon receipt of the signed Appraisal Letter from DTC, the broker will remove the position from the account. Accounts which do not have sufficient equity once the position has been removed may risk liquidation. Accounts should ensure they maintain funds in the account to pay for the processing fees. Please click here for information on the current cost to exercise appraisal rights.


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: 15% Appraisal Condition Waived
    Entry02/16/2017 03:48 PM
    Memberstraw1023

    majic,

     

    I do not think the relevant date is the tender deadline.

     

    I think the relevant date is the closing of the second-step merger.

     

    If so, does that change your mind?

     

    Thanks


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: Re: 15% Appraisal Condition Waived
    Entry02/16/2017 04:04 PM
    Memberstraw1023

    I will answer my own question: Delaware changed law in 2014 that slashed the time between tender and closing of second-step merger. So now same-day or day after. So I think Majic may be correct regardless of relevant deadline.

     

     


    SubjectRe: Re: Re: Re: Re: Re: Re: Re: Re: Re: 15% Appraisal Condition Waived
    Entry02/17/2017 10:09 AM
    Membernha855

    Could you please provide a source for the following comment regarding Mangrove? "they wanted $12 per share self tender + 6% revenue royalty on business in the future..." I have searched online and have been unable to find any substantiation of this comment. Thank you

      Back to top