Long/short equity, value, special situations, growth at reasonable price
Long/short equity, value, special situations, growth at reasonable price
Contributor since: 2011
Interesting article, Bram.
Just to be clear for readers here, I no longer own Total Produce. I entered at EUR 0.39 per share in 2011, and exited less than 3 years later as it was homing in on a triple. Though with the stock at EUR 1.421 today, clearly I exited too early...
Haven't looked at the valuation in any depth recently. At first glance, the P/E ratio looks steep now, considering the earnings record here. But from a P/S perspective, and incorporating TOT's financial strength/capacity & its potential for margin expansion, I think the current valuation should still make sense.
As regards management, my opinion of their capital allocation skills has actually declined even more...rather unbelievably, they finally decided to launch a share buyback programme only AFTER the share price had more than tripled!? At this point, I certainly don't think they're adding any meaningful value with this buyback...but in the current interest rate environment, we should recognise management can cynically boost EPS (& EPS growth) by buying back shares at almost any market price.
The most logical & value-enhancing activist 'event' that could happen here is a re-merger with Fyffes $FFY:ID $FYFFF - and if management continues to ignore this a strategic option, it wouldn't surprise me if either company becomes an activist/acquisition target (again).
btw I did reflect positively on my Total Produce investment experience in my latest post!
'Zamano...So, What Now?!' http://bit.ly/1O1G3oe
I deal in facts, m'lud, only the facts...
A secret dossier full of mostly public documents..?!
Which I suppose, in Denis's mind, fatally wounded the Digicel IPO?
Might I suggest one of Denis's yes-men finally put a copy of my post (above) in front of him...since I detail a multitude of reasons (not least an absurdly high valuation) why the IPO would fail, one way or the other!
No revenue growth, no free cash flow, 'shed-loads' of debt, poor corporate governance, and a whopping great valuation..?! You betcha, that's what I'm saying!
Thanks dubaialpha,
- I think we're saying the same thing - shorts are always difficult. And highly leveraged companies are maybe the most challenging shorts, for exactly the reason you highlight: Positive sentiment (or an improvement in underlying fundamentals) can turbo-charge the increase in equity valuation, though obviously the converse is also true..!?
- Well, I think their portfolios are generally pretty similar in terms of penetration & GDP per capita, but your points are well-made - though I suspect investors would see pros & cons for both portfolios. Personally, I think scale does matter (infrastructure investment/upgrades for 50 million subscribers is a hell a lot cheaper pro-rata than for 5 million subs), and MTN has a potentially huge advantage in terms of a dramatically lower ARPU/Avg GDP per Capita ratio across its portfolio.
- Your last point is a good one: An IPO is obviously required at this point to try address Digicel's debt issues, but consolidation may be the best solution ultimately...maybe even a Digicel-MTN merger, a marriage of complementary & non-overlapping portfolios!
I now speak for 15.6% of Argo Group's outstanding shares (that's 25.0% of the external shareholder base), and it may be time for a change:
Argo Group…Time for a Sale and/or a Wind-Down?
If you're an Argo shareholder, I urge you to contact me - via Seeking Alpha, or (preferably) by email, as per my Contact page:
Kind regards,
How do I think they are doing? Well, depends on if you mean the company or the share price!? We're still seeing quite a divergence between them...but obviously the continued progress of the company is what matters in the end. This is from a very recent email of mine:
'I see little reason to depart from my Nov-13 methodology...
AUM now stands at $63.8 billion (up 17% yoy) (plus another $7.4 billion of dry powder). YTD, the run-rate for management fees is 0.95% of AUM, while incentive fees are at 0.58% of AUM, and Fund Management DE (equiv. to operating profit) is at 34%. Net cash/investments are $3.03 per share. Assuming a 0.95% rate for management fees, a 0.74% long-term average for incentive fees, and a 3.5 P/S multiple, we get:
($63.8 B AUM * 1.69% Total Fees * 3.5 P/S) / 434.1 M Shares + $3.03 Net Cash/Inv = $11.73 Fair Value per share
That offers 56% Upside Potential vs. the current $7.53 share price.
I continue to be perplexed how many investors still seem to hate/fear $FIG - and I see no reason why, except for an aversion to its long-term chart & original post-IPO ludicrous market valuation. If the entire sector was under a cloud, I'd understand a little better, but peers still enjoy generous valuations. However, despite that statement, I would highlight a divergence I noticed recently in the sector - $KKR, $BX & $CG (for example) are trading near their highs, while $OAK & $APO are trading well off. I believe the latter group (& $FIG) rely on far less leverage in their underlying funds/investments than the former group (who are more classic LBO-type PE houses) - so Wall St is actually favouring what are potentially far more risky alternative managers, in my opinion. [I haven't checked it out properly yet, but $ARES recently IPOed - worth a look, I guess it now belongs in this peer group too].
From my perspective, $FIG continues to offer very decent upside for a large-cap stock, and my comfort level essentially remains the same. Obviously we have to think/wonder about the Fed's trajectory from here, but I have little other US-listed exposure so owning a higher-beta stock like $FIG doesn't pose a problem for me - and the high level of net cash/investments at the parent level, the lower reliance on underlying leverage (vs. some of it peers), and its specific exposure to certain attractive long-term investment themes (unlike many of its peers), provide a great deal of comfort also.'
Argo's funds were set up when 2 & 20% was pretty much de rigueur. And note the AREOF management fee is EUR 2 million pa, regardless of assets - i.e. it's 2% pa of the original EUR 100 million raised. This pegs overall management fees at slightly under 2% of AUM, and it explains why this fee revenue hasn't changed much in the last couple of years despite the reported declines in AUM. Of course, actually getting paid the AREOF fees is another matter..!
There's no one/right answer re profitability. Strictly from a cash flow perspective, Argo is indeed running around break-even. But if you examine the details, there's some asymmetry there - it would be difficult for cash flow to get worse, but it could surprise on the upside quite easily. Of course, a step change in the business/AUM would change all that, possibly substantially. However, I'd certainly argue any TAF investment gain is real cash/profit - albeit it's 'trapped' in TAF for the moment.
Here's a perspective I think is useful: Argo's market cap is $15.2 million - let's treat that as 'equity' for a minute. I think an average 8.1% long-term return on the TAF investment is reasonable - that equates to a 10% Return on Equity. Now consider the overall net profit of the business, if there were no bad debt write-offs - that would equate to a 30%+ RoE. You can obviously debate where the true underlying RoE (in terms of actual/potential cash or net profit) stands along this spectrum...but it clearly illustrates that Argo is NOT a company that's destroying value. You can also speculate how much upside's presented in terms of net cash & investments, net asset value and/or the intrinsic value of the business.
I will continue to communicate with management.
Nice article, and I'm delighted to see it here! I would never have thought of looking on/posting on Seeking Alpha re Argo Group (ARGO:LN). I've posted a number of write-ups on Argo to date here:
Including my most recent (public) letter to management:
If you're an Argo shareholder, I urge you to contact me - via Seeking Alpha, or (preferably) by email, as per my Contact page:
Kind regards,
08-Apr-14: I’ve nw increased my Fortress Investment Group $FIG portfolio holding frm 5.0% to 5.9%
That's $FIG for you - always two steps forward, one step back...so the price action is not that surprising. Also, I guess some investors are reacting to the insider sale of stock - over-reacting I should say, it's quite understandable & no big deal in my opinion. Clearly, the management team remains very motivated to keep growing the business.
Intrinsic value continues to grow steadily with each & every quarter, and the most recent buyback was another super deal - I still like the stock as much as ever.
Hey, what did I tell you! A beautiful year-end reward for $FIG shareholders:
And what a buyback price..?!

earljr1 - All asset managers are ultimately a 'leveraged' play on the market, so any decline's likely to hit them harder. But I shd clarify: I don't think a 10% correction is that meaningful for $FIG, as its AUM performance isn't necessarily directly/immediately correlated with public market performance. Plus most of their AUM's in permanent or locked-up vehicles, so they face little near-term risk of losing AUM (in fact, they have billions of 'dry powder' AUM they can call on at any time). However, investor sentiment's ultimately a key driver in the short-medium term, so despite my comments (& good underlying fundamentals) $FIG would probably still get hit harder in a decline. [Apologies, I neglected to reply in December - I think what you've seen since confirms my comments here].
galicianova - I see no substantive change to my latest valuation. Now is a good time to highlight two things I particularly like about $FIG: i) obviously they employ leverage, but they aren't completely dependent on it (like Blackstone, for example) to earn decent returns - that's reassuring, and ii) unlike most of the alternative managers, $FIG mostly tries to invest according to a handful of investment themes (ideally via permanent vehicles) - I think these themes exploit some unique & compelling secular trends/opportunities.
I've no reason to believe their upcoming Q4 results will bring any bad news, and they've clearly committed themselves to a significant top-up dividend (or buyback) - so I think these results will be fundamentally positive for the stock.

Thks, Chris! Wow, ValueWalk also just linked to a new post - when it rains, it pours...in a good way ;-)
There's also plenty of listed closed-end alternative/hedge funds in London, for example - I'd recommend yr readers check 'em out also, well worth it! This post pretty much covers the gamut:

Ever since I bought $FIG, I've never been able to make sense of the share price reaction to quarterly earnings..!?
As per above, my assessment/valuation of $FIG is based entirely on Fortress' AUM, latest management fee rate, LT average incentive fee rate & net cash/investments. Quarterly DE/EPS is completely incidental to my investment thesis, which I think makes perfect sense - actually, I think investors who (appear to) trade solely on that basis are plain crazy...
I topped up $FIG from a 5.0% to a 5.4% portfolio holding this week.
Thanks. The $0.31 'top-up dividend' is somewhat arbitrary: The current run-rate for DE is about $0.85, which is $0.61 in excess of the current dividend - I've simply assumed 50% of these excess earnings get paid out.
Note I've highlighted this top-up dividend could also occur as some type of share repurchase instead - Fortress actually opted for this alternative last year, buying back $179 mio of stock at yr-end (equivalent to $0.36 per share). Noting this, and considering DE's significantly higher this year & management's repeatedly promised a reduction in balance sheet cash/investments, my estimate of a $0.31 top-up distribution (in whatever form) might actually prove conservative.
Ta DVL, Hard to buy & hold this one originally - but looks like everybody is coming 'round to loving $FIG now!
And take a look at the blog:
Search for 'Fortress' and '(alternative) asset managers' - you might enjoy some of my previous articles on both topics.
Thks twhite,
Yes, FIG should definitely be rewarded for what seems clearly a better risk/reward proposition, on a relative basis. But it really hasn't - it's been the neglected step-child among the marquee alternative asset managers in the last few years. I really can't point to any specific reason why - except perhaps how over-valued FIG was originally in the market. But sentiment's steadily improving now!

I'm just operating from a 1,000 foot view here: Fixing the basic/core business is obviously the most important priority here. But it also seems like management are fairly clueless about seizing emerging market opportunities. And I'm not talking about a future growth opportunity, I'm talking about today - I'm constantly noticing how far emerging markets have come already. Mexico's now the fattest nation on earth, the Middle East is perhaps becoming one of the most overweight regions globally, and more & more middle-class Indians are now flaunting spare tyres. Considering the social culture in these countries, it seems like WW meetings would be a real winner! And I'm sure there are plenty more opps. like that out there...
Good one! I tend to think about value here in terms of return on equity - so I don't really need to determine a value for 'off-balance sheet' assets (i.e. if they're valuable, RoE will be higher, therefore my fair P/B multiple would be higher too). Of course, all this really just highlights the large amount of idle cash on the balance sheet!
Of course, one could argue 'cash is cash' - but investors tend to mark it down if they're afraid they may never enjoy it (and/or it's wasted on bad acquisitions - though considering the Sterns' cautious attitude in the past few years, I think that's unlikely). This cash needs to be invested effectively to attract an appropriate & rewarding rating.
What this really highlights is the value of a catalyst when you make a value investment... But I didn't think I needed one making this investment, as I was v optimistic a wave of delinquent credit card/consumer debt was still coming (at mere pennies on the dollar). That never happened (deadbeats had defaulted on their mortgages instead, which was altogether unprecedented), or maybe the Sterns were too cautious about buying.
Anyway, we both agree there's significant value here...I'd just like to bloody well see that significant value in the share price!
Seems like a decent fund, I've considered buying it before - on balance though, I still prefer JPMorgan Russian Securities (JRS:LN), which I currently own. It trades on a slightly larger discount, appears to have a less volatile NAV, has about double the market cap, and it has a longer life/performance history. [$TRF is a pretty similar US alternative, but note the market cap's far smaller].
I haven't looked at Cresud recently - I'm still not interested in Argentine stocks at this point. But you should take a look at IRSA (IRS:US), its majority owned real estate sub. - there's a significant non-controlling interest there.
I wonder why too..?!
Well, all the farmland companies (with cash issues) are still crashing, as I expected. But I'm starting to wonder about valuations & how cash-burn rates are looking now... In fact, Continental Farmers Group was in terrible financial shape, but just got taken out by the Saudis - I suspect most shareholders have no clue how lucky they really were there...
A fresh peer-review across the board is on my to-do list, but once again looking at their share prices...there's clearly no rush! But we are approaching harvest season, which should represent a somewhat improved fundamental position later in the year for these companies, so I certainly plan to prep. for that as a potential opportunity.
Hi John,
I briefly cover all Russia/Ukraine agri stocks in these two posts:
Actually, I prefer to avoid Razgulay/other Russian listed stocks for the moment & focus on Western-listed companies instead (London-listed, for example). Even then, it's been a difficult sector - especially for farmland companies. The main problem for pretty much every company is substantial cash outflows & a need to raise new funds - I'd suggest you review Razgulay's cashflow statement, and I suspect you'll see a similar issue. Unfortunately, the cheapness of these companies is somewhat irrelevant as long as they're gasping for cash....
Well, at least Black Earth Farming has proved it was the superior stock, at least in relative terms...still a great decision to sell it! But the sector as a whole has really got pounded - I'll hopefully have a closer look again soon, I'm curious if there's been any tangible improvement in cashflows with any of the companies. But it would probably have to be substantial/transforma... to save a company/the sector from further relentless declines.
Hi folks,
I've seen Ethiopia mentioned here a few times recently. Pittards (PTD:LN) can be considered a play on Ethiopia. Its market cap is admittedly small, but somewhat deceptive - as the company's annual turnover is nearly $60 mio.
So true... ;-)
Occasionally I even try to save a few junior resource stock investors...an even more thankless job!
True, the angry bt clueless certainly get what they deserve...bt I still want to help the simply clueless - do they really deserve to be fleeced?!
Every day I think: I could have saved more....

Thks, I was feeling lonely out here all by myself..!
Yes, everything in moderation, but of course the most egregious serial/Ponzi issuers are exactly the stocks which suck in the most idiots - I watch in dread...
ps I also watch some of the Pimco CEFs with a similar dread - it's one thing for an 'investor' not to be able to read a cashflow statement, but there's no hope if they can't even understand paying a 40-50% premium is totally ludicrous.