Ocwen has bad management + CA DBO issues

Ocwen has gotten killed in the past few days, falling from $6.15 to today’s close of $2.27 (-63%).  I actually have no idea why it fell so much.  Things don’t seem as ugly as last year when it had issues with the NY DFS, CA DBO, and was in danger of losing MSRs due to its servicer ratings.

However, while Ocwen may potentially be quite cheap relative to liquidation value, it has not been very well managed lately.

  1. The commercial auto lending business is likely a mistake.
  2. They have lost their way and are wasting money on dumb things like $25M for strategic advisors.
  3. In my opinion, management is trying to hide #2 from investors.  This is why their 10-K has unnecessary re-classifications of expenses.

Continue reading

Kinder Morgan: The sell-off is probably a little overdone

Kinder Morgan does have some problems:

  1. Under its new CEO, Kinder Morgan has been stretching its numbers slightly.
  2. The big drop in oil prices will hurt the CO2 business.
  3. The big drop in commodity prices will lower infrastructure demand in the short term.

However, I think that the 60%+ drop in the share price YTD is a little overdone.  Kinder Morgan’s problems don’t seem that bad compared to other companies.

Continue reading

Live Nation (LYV) – Part 1 – Ticketing overview

Live Nation has various business lines associated with live music and live events.  They are pursuing a strategy of vertical integration, trying to find synergies between the various parts of their business.  On the concerts business side, the vertical integration strategy has been tried multiple times with little success.  Will this time be any different?  John Malone seems to think so.  Liberty Media has been buying more Live Nation shares.

Let’s start with an overview of the ticketing industry.

Continue reading

Kobex Capital: A pile of cash, trading at a discount, with an impending catalyst

(KXM is an illiquid Canadian stock with a market cap of $26M.)

Kobex’s liquidation value is in the ballpark of 70 cents/share and currently trades at 55 cents/share.

Kingsway Financial Services is going activist on Kobex Capital.  This makes me like the stock a little more as the catalyst of activism should raise the internal rate of return on a position in the stock.  However, I’m a little wary of activist investing mainly because management teams often like to fight activists with shareholder money. The legal fees and any severance payments will likely reduce the value that’s left for shareholders.

Continue reading

AAMC update Aug 2015

I previously described AAMC as a “royalty on yield chasing“.  AAMC’s economics can potentially be extremely attractive because asset managers can generate extremely high returns on capital.  Currently, the stock is trading at very depressed levels.  Two explanations for the share price:

  1. Luxor capital and other major shareholders may be liquidating.  Luxor suffered a lot of losses on the Bill Erbey family of stocks.
  2. AAMC generated close to no fees in the past quarter.  Either you think that management screwed up or that there is a temporary hiccup in revenue recognition.  Rental revenue, selling the home/mortgage, and marking the asset to BPO value all generate GAAP profits.  There is a time period after a BPO (broker price opinion) and before a home is rented out (or sold) where the home will not generate any GAAP profits, which can result in less fees for AAMC.

Continue reading

Thoughts on the Charter / Time Warner merger

The CHTR / TWC merger is mostly about rolling up and turning around poorly-managed cable assets.  The bet is on Tom Rutledge (Charter’s current CEO) being able to turnaround poorly-run cable assets.  Ideally, he will get the productivity of the assets similar to or higher than Cablevision, his former employer.  For a deeper dive, see my post on “Malone’s cable strategy“.

charter-EBITDA-per-home-passed

I think that it is likely that Charter is much better off with the merger than without it.  Its shares trade at a premium valuation (relative to TWC), presumably because the market recognizes that Tom Rutledge can squeeze a lot of extra productivity out of cable assets.  Charter shareholders benefit if its shares are used to acquire companies with relatively less expensive shares.

As well, the turnaround game works best when the company consists mainly of poorly-run assets.  Post-turnaround, there is little room for value creation.  Constant takeovers are good for Charter because it dilutes Charter’s ownership of mature post-turnaround assets.

Continue reading

AAMC revisited – A royalty on yield chasing

(AAMC has a market cap of $490M and the shares are fairly illiquid.)

AAMC (original writeup) is the asset manager of RESI.  Asset managers can be extremely attractive investments because they have the potential to grow earnings dramatically.  The underlying business model revolves around buying up non-performing loans (NPLs) and resolving them (e.g. loan mods, selling REO properties, and converting NPLs into rental units).  Over time, RESI will accumulate rental housing units.

I think of AAMC as a play on investors chasing yield in the current low-interest rate environment and doing silly things such as overpaying for dividend yield.

Continue reading