Senvest Capital (SEC.TO) – good business trading below liquidation value (illiquid)

I found out about this company from Oddball Stocks, which is a great blog with a great writeup on Senvest.  It trades at a ~31% discount to book value.

Senvest started out in the merchant banking business and owned a bunch of random businesses.  Nowadays, it is an asset manager that owns a lot of stocks and some real estate.  Here is their historical growth in book value:

Dec 31, 1995:

Shareholders’ equity:  $30,280,315
Shareholders’ equity after marking stocks to market:  $30,280,315 + $21,039,942 = $51,320,257
Share count:  3,001,724
Adjusted book value per share:  $17.10/share

Dec 31, 2012:

Equity:  $358,831,000
Share count:  2,818,591
Book value per share:  $127.30

Growth rate over 17 years:  12.5%

Their growth rate isn’t bad.

Share repurchases

Over the years, Senvest has been slowly buying back its stock.  They were never very aggressive about buying back shares.  Part of this is because Senvest is pretty illiquid and there isn’t much volume in the stock.  But I think that management just isn’t that interested in ripping off its own shareholders through share repurhcases.  I don’t know if they ever tried to do a tender offer but I don’t think they are very interested in that either.

Management

I get the feeling that management really enjoys their job.  Their annual reports and MD&As (you can find these on SEDAR) have a lot of market commentary that isn’t self-promotional.  I can’t even find this company’s website (I don’t think they have one, though their hedge fund does have a site).

I believe that management’s compensation is pretty reasonable.  I don’t exactly understand what’s going on with the options expense (I’m too lazy to figure it out).  I believe that they stopped issuing options in 2005 but they are still expensing the options issued way back when.

The related party transactions show that management and company employees have been borrowing money from the company.  Normally this is potentially shady as this can be a vehicle for pillaging shareholder money.  I don’t believe that is happening.  The value of the loans have been reflected in employees’ compensation and overall compensation is very reasonable.

I really like this management team.

Investment strategy

They do some kind of long/short strategy with stocks.  They try to make money on their shorts as opposed to trying to hedge the risks on their longs.  Some investment managers will just short SPY, S&P indexes, or a leveraged ETF to hedge their long exposure.  Senvest is probably shorting individual stocks that they think will go down due to fundamentals.  Their annual reports don’t discuss their shorting strategy much so I really don’t know much about it.

Senvest also dabbles in options and derivatives like silver futures.  They also still have some private investments and they still invest in real estate and in REITs.

Overall

This should be a great net-net investment.  At $87.24, Senvest is trading at a reasonable 31% discount to the $127.30/share book value (which is probably close to Senvest’s liquidation value).  This is a pretty good business trading at a cigar butt-esque price.

*Disclosure:  No position, but I may try to buy some shares in the future.

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One thought on “Senvest Capital (SEC.TO) – good business trading below liquidation value (illiquid)

  1. Pingback: Tiny Canadian stocks selling below the market value of their assets | Glenn Chan's Random Notes on Investing

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