Tag Archives: Special Situations

Business, Finance, Occupation & Industry

I'm Buying a Lot More of These 3 Stocks

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By Jim Royal, The Motley Fool

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One of my favorite reasons to reinvest in stocks I already own is when an uncertain, but favorable catalyst occurs, but the stock does little. So my Special Situations portfolio is adding $1,000 to each of the following three stocks: Cincinnati Bell , Bridgepoint Education , and First Financial Northwest . Read on to see why.

Cincinnati Bell
I was on Boston’s WRKO radio station earlier this week pitching the virtues of Cincinnati Bell. (You can listen here.) I continued to like the stock for all the reasons I noted in my first buy recommendation last month.

To recap, Cincinnati Bell owns a 69% stake in CyrusOne , which is worth over $1 billion now. It intends to monetize this asset some time following a lock-up period that ends in January. CyrusOne is growing quickly, and revenue could easily climb 20% this year. This is Cincinnati Bell‘s best asset and the rapid deleveraging – I expect debt could be slashed by 70% in the next year or two — should help boost free cash flow markedly.

The market was really upset by management’s decision to reinvest in its wireline business and not pay a dividend. But that huge drop in the share price resets the market‘s expectations for CinBell, even as CyrusOne now has public pricing and a firm valuation. Depending on the timing of deleveraging, I think CinBell has the chance to double in the next two years, perhaps sooner. Listen to the radio broadcast for more.

First Financial Northwest
First Financial is no longer considered a troubled bank. Last week, First Financial announced that its bank had cleared the memorandum of understanding, or MOU, with regulators, and that the company had cleared two conditions of its own MOU with the Feds. However, the company is still subject to conditions under that latter MOU, and must receive federal approval for any buybacks or dividends, meaning they’re effectively off the table for now.

These are all steps in the right direction and, with Joseph Stilwell minding the shop here, I’m confident that the bank will actually begin to take steps to create value for shareholders. Recall that one of Stilwell’s typical exit strategies for his bank investment is by an outright sale. And with the average demutualized thrift going for 1.6 times tangible book value, there’s a lot of upside from First Financial‘s 0.76 multiple. You can read why I first bought the stock here.

Bridgepoint Education
This for-profit educator has been under a lot of pressure in the last year, but accreditors really seem to be working with the company, and I’m confident that Bridgepoint will be able to survive. The company has a market cap of $561 million, but cash and investments of $515 million, so any type of profitable survival is likely to be highly lucrative to shareholders. The company generated $118 million in free cash flow last year, and would be

From: http://www.dailyfinance.com/2013/04/11/im-buying-a-lot-more-of-these-3-stocks/

Business, Finance, Occupation & Industry

I'm Putting Real Money on This Special Situation

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By Jim Royal, The Motley Fool

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Investors really pummeled Cincinnati Bell following its recent earnings report. It seems shareholders weren’t too fond of the company’s plan to reinvest cash flow into its Fioptics and commercial businesses and not initiate a dividend instead. In just a few days, more than 50% of shares traded hands, and the stock dropped precipitously.

But with major value-creating catalysts, CinBell could trade much higher in the next two years. So my Special Situations portfolio is buying $2,000 in stock on the next business day.

The business
CinBell owns and operates wireline and wireless operations in the Cincinnati area. It also owns a 69% stake in CyrusOne after having spun off the remainder of the datacenter operator in an IPO earlier this year.

CinBell’s wireline operations are a cash generator, though like other fixed-line telecoms, it’s shrinking. The company is attempting to increase revenue here by investing in its Fioptics and commercial businesses, and management sees the opportunity to get attractive returns on capital.

The wireless segment is shrinking rapidly, and management has already stated that it’s trying to figure out what to do with the unit, including a sale. It has spectrum assets that hold some value as well as a cash-generating business that could be even more valuable to an operator who could cut costs more than CinBell is able to.

Finally, its CyrusOne stake could be its greatest asset. The company grew the unit inside CinBell and then converted it into a REIT before spinning it off to the public in January. With operations centered heavily in Texas, the company boasts relationships with the top energy players, and it aims to be the preferred data center provider to the Fortune 1000. It already counts more than 100 of them as clients.

CyrusOne can take advantage of a projected 63% annual growth rate in data production to 2015. With just 10% of large U.S. companies outsourcing their datacenters, there’s a runway for growth. The company is also moving internationally, trying to take advantage of its energy connections to move into Brazil, a growing energy player. CyrusOne expects around 20% revenue growth this year.

The special situation
CinBell is heavily leveraged, and the company is working to unload some of that debt. CinBell used about $500 million in proceeds from a CyrusOne debt offering to deleverage, and the plan going forward is to monetize its stake in CyrusOne sometime after the one-year lock-up period ends and pay down debt to 2-3 times EBITDA. That would indicate deleveraging of at least $1 billion, with interest savings from $80 million on up. That should drastically improve free cash flow.

CinBell’s 69% stake in CyrusOne is worth $980 million right now. You wouldn’t know that from the public finance sites that show all of CyrusOne worth around $450 million. That’s because CinBell owns partnership units in CyrusOne that aren’t counted in the share count, but it still has the economic interest in the business, …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

I'm Buying Options on This High-Yield Stock

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By James Royal, The Motley Fool

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Vodafone is currently entangled in a very interesting special situation. It owns a 45% stake in Verizon Wireless, a joint venture with Verizon . Verizon has been interested in acquiring the asset for some time, but 2013 may be the year that it finally has to. With that as preamble, my Special Situations portfolio will buy options in Vodafone on the next market day.

The special situation
The business of Vodafone is well-known, so let’s not waste much time in running through it. The company is a well-diversified global player, with stakes in a variety of telecom franchises. The best of those is its 45% interest in Verizon Wireless, which produced $29.7 billion in EBITDA last year. After years of paying down debt, Verizon Wireless has begun making distributions the last couple years.

But for Wireless, placing the dividend on hold wasn’t just about paying down debt. For years, Verizon tried to use its controlling stake in Wireless to skip distributions in order to force Vodafone out at a cheap price. But now the call’s on the other line.

What I mean is that, while Vodafone still has its minority stake, it’s in much less dire need of those payouts from Wireless to maintain its 5.2% dividend yield. Verizon, on the other hand, really does need those Wireless payouts in order to keep funding its own dividend. So while Verizon has the control stake in Wireless, Vodafone isn’t under the same pressure to cut a deal. That should lead to a better price, and Verizon has been looking to make a deal for at least two years, so it’s running out of time.

What form would a deal take? A buyout of Wireless and a full takeover have been rumored, though I think other possibilities exist. A full buyout might be the best option, since it removes the tax leakage that may come with selling off the Wireless stake. But I suspect this move would not give shareholders full value for the non-Wireless component of Vodafone.

But wouldn’t a sale of the Wireless stake create a lot of tax leakage? Some have estimated that a sale would cost Vodafone $20 billion in taxes, and therefore have objected to a sale in favor of a full buyout. But there does seem to be a legal means to avoid that issue, as this Bloomberg article discusses.

In addition, why wouldn’t both sides consider a spinoff? That could get Vodafone and shareholders out of the tax issue, and while there would likely be a two-year waiting period on any buyout (to avoid these same tax consequences), Verizon would still control the asset and retain the ability to buy it out later. Of course, there may be other constricting legal and tax consequences that I’m not aware of.

Regardless of what form a transfer of ownership takes, Verizon Wireless is a valuable asset in its own right. If …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

I'm Selling These 2 High-Yield Stocks

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By Jim Royal, The Motley Fool

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It’s time to sell a pair of stocks from my Special Situations portfolio. Those stocks are the preferred Series D stock of Ramco-Gershenson Properties Trust and Annaly Capital .

Ramco-Gershenson Properties Trust
It’s hard to believe it was just four months ago when the portfolio purchased the convertible preferreds of Ramco. The intent behind the purchase was to have a cash-generating security with some potential for upside and limited downside. And buying the convertibles with their higher yield offered that opportunity. They had a higher yield than the common while still offering upside via their convertible feature, allowing the holder to exchange the preferred for common stock.

In total, the purchase provided more than a 20% return in about four months. That’s about $1.81 in dividends plus capital appreciation from $51.93 to $60.75 (as I write).

While the dividend still looks nice, at nearly 6% (compared to the common stock‘s 4.2% yield), I think the common stock — the key driver of the convertible preferreds — is reasonably valued now. In its latest annual guidance, the company predicted a midpoint of $1.07 per share in funds from operations (FFO), compared to $1.04 for 2012. That’s modest growth for a stock trading at 15 times forward FFO.

But could there be more FFO growth on the way? The company announced a new deal recently to buy the remaining 70% in a joint venture of properties that it didn’t already own. While the properties look to be higher quality and at a decent cap rate (7.4%), the financing and the constraints of Ramco’s deleveraging mean that not much of the immediate value accrues to the common stock. For example, I estimate that revenue will go up 16%, while the number of common shares increases 14%. Admittedly, there’s operating leverage in this type of business, but I’m not sure how much further FFO could grow.

Another source of increasing stock price would be dividend growth, but for now, I do not expect above-normal growth as the company continues working to deleverage. The recent payout increased just 3%.

So after a nice run, I’m saying goodbye to the Series D preferreds of Ramco-Gershenson.

Annaly Capital
In addition, my Special Situations portfolio is selling Annaly. I purchased two different lots back in 2011, at prices of $18.11 and $17.75, largely as a hedge against a declining or exploding economy and Congressional disability. Including dividends, those positions came out with a 7% gain and a 6% gain.

While the company continues to expand into new lines to help boost its interest rate spread, it’s also adding new risk. Formerly, Annaly was exclusively focused on agency-backed securities, meaning it had no credit risk. Now, its future plans include assuming new risks in exchange for greater reward.

Annaly’s dividend has declined markedly in recent quarters, and book value dropped quickly in the most recent quarter, down 4.5%. With book value now at $15.85 per share and the stock hovering just below …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

This Bank Stock Could Be a Double

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By Jim Royal, The Motley Fool

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TFS Financial is a gem hiding in plain sight. While the market hates the uncertainty surrounding the company, you should love it, because it makes the stock a great bargain. This investment exploits a trick mastered by investing greats Peter Lynch and Seth Klarman.

That’s why my Special Situations portfolio is buying shares in the bank on the next market day. Read on to see why this stock could easily double from here with the potential for dividends and buybacks.

The business
From an operational standpoint, there’s nothing truly exceptional about TFS Financial. It runs your average bank, taking deposits and lending for mainly residential property. Some 78% of its lending takes place in Ohio, with another 17% in Florida, and the remainder in various states across the U.S. In contrast to seemingly cheap peers such as Bank of America, Citigroup, and JPMorgan Chase — each with huge exposure to risky derivatives and other financial arcana — TFS looks much more like your hometown corner bank. You don’t have to worry that a London Whale will swallow this one.

TFS‘s credit metrics have improved greatly since the worst of the financial crisis, though there’s still room for gains. For example, delinquent loans have been cut in half since 2009, and non-performing assets have trended down consistently since 2010. These levels are still elevated, meaning profitability should increase as the economy normalizes. The bank has continued to grow book value since 2009.

TFS expects to continue growing book value through its emphasis on adjustable rate financing. The company has moved much of its portfolio — 48% as of December 31, 2012 — to adjustable rate. That means that when interest rates rise, as they someday will, TFS is somewhat insulated from the destruction. In addition, recent mortgages have strong credit quality. On first mortgages originated in the 2012 fiscal year, FICO scores came in at 782 with an average loan to value of 63%, so high credit quality with borrowers having plenty of skin in the game. Those figures are similar so far this year.

How much would you expect to pay for a bank like this? At a minimum, I would say a fair price is tangible book value. TFS trades for about half that. It gets better, because TFS has a way to drive book value per share higher even if its banking operations don’t improve.

The special situation
If Apple were trading at only the value of cash on its books and had a profitable business besides, would you hesitate to buy? That’s exactly the situation here, but it’s even better, because TFS plans to actually return that cash to you, unlike Apple. Here’s what I mean.

By law, banks have to maintain equity over a minimum level to be considered well-capitalized. For TFS, that means having risk-based capital of at least 10% of assets. TFS vastly exceeds this, with 22.8%. In fact, …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

Signature Group Holdings, Inc. Reports Fourth Quarter and Full Year 2012 Results

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Signature Group Holdings, Inc. Reports Fourth Quarter and Full Year 2012 Results

Company Posts Operating Profit for 4Q12 of $0.9 Million and Net Income of $0.3 Million

Industrial Supply Continues Strong Sales and EBITDA Growth

SHERMAN OAKS, Calif.–(BUSINESS WIRE)– Signature Group Holdings, Inc. (OTCQX: SGGH), a diversified enterprise with current principal activities in industrial supply and special situations finance, today announced financial results for the fourth quarter and full year ended December 31, 2012.

The Company’s net income for the fourth quarter of 2012 was $0.3 million, or breakeven on a per share basis, an increase of $4.0 million from the $3.7 million net loss, or ($0.03) per share, reported for the fourth quarter of 2011, and a sequential improvement of $2.9 million from the $2.6 million net loss, or $(0.02) per share, reported in the third quarter of 2012. The Company’s net loss for the full year 2012 was $7.5 million, or ($0.06) per share, an improvement of $5.3 million from 2011. The reduction in net loss and overall improvement in results for 2012 was due to the continued strong growth and financial performance of Industrial Supply, certain one-time gains generated in Special Situations, operating cost reductions, and the resolution of litigation and a proxy contest, which drove an increase in legal and other professional fees in prior periods.

“2012 ended on a positive note with a profitable fourth quarter thanks to continued strong performance in Industrial Supply and our ability to opportunistically realize gains in Special Situations. Importantly, our efforts to contain operating costs are also starting to have a measurable impact,” stated Craig Noell, CEO of Signature Group Holdings. “While we made progress in 2012, our number one objective continues to be generating sustainable profitability and growth through value-enhancing acquisitions, as well as leveraging our unique tax assets. Along with this focus on acquisitions, we plan to continue to foster the ongoing growth of Industrial Supply in 2013.”

Quarterly Results

Operating revenues from continuing operations rose 19.3% to $11.2 million in the fourth quarter of 2012, compared to $9.4 million in the fourth quarter of 2011, primarily due to a 13.1% increase in Industrial Supply operating revenues and $0.8 million of additional income realized from Special Situations. Operating profit in …read more
Source: FULL ARTICLE at DailyFinance

Business, Finance, Occupation & Industry

I'm Selling Real-Money Seaspan Calls

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By James Royal, The Motley Fool

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Seaspan came out with its expected dividend increase. And while the increase wasn’t as much as I had hoped for, it was nonetheless a healthy bump of 25%. The May $20 calls that I hold in my Special Situations portfolio continue to be over my purchase price, but with time value rapidly eroding, I’m electing to sell them.

The quarter
Seaspan turned in a decent quarter, with revenue up 9% and distributable cash flow up 8%. Solid gains, to be sure. But the company has elected to continue growing its fleet, adding as many as 15 ships this year and another 15 within a few years. The company is trying to take advantage of the weak pricing environment and wants to use its strong balance sheet to help it move clearly into the leading company in the containership industry.

To the extent that it can do this without issuing equity, the better the stock should perform in the long run. So management is positioning the company for excellent performance longer-term. That’s why I’m not too disappointed by what I view as a lower-than-expected dividend increase this year. More ships should equal a longer runway for a growing dividend.

I’m electing to keep the May $20 put position for now, since time value is working in our favor here.

So I’m closing out my position of 10 contracts of May $20 calls.

Interested in Seaspan or have another stock to share? Join me on my discussion board and follow me on Twitter (@TMFRoyal).

The article I’m Selling Real-Money Seaspan Calls originally appeared on Fool.com.


Jim Royal owns shares of Seaspan. The Motley Fool recommends and owns shares of Seaspan. Try any of our Foolish newsletter services free for 30 days. We Fools don’t all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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Source: FULL ARTICLE at DailyFinance