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Irving Kahn Adds New York Times, Sallie Mae, and Citigroup

August 10, 2011 | About:
Irving Kahn is the oldest living investment professional, serving as Chairman of Kahn Brothers Group Inc. at the age of 105. He was a teaching assistant to Benjamin Graham at Columbia Business school, learning from Graham the principles of value investing. Thus, Kahn Brothers utilizes a bottom-up stock selection approach, investing in undervalued equity securities that have fallen out-of-favor in the market. They select securities based on their assets, operating performance, and long-term fundamental business prospects. Kahn Brothers has over $800 million in assets under management. In his second quarter portfolio update, Kahn added to his holdings in New York Times (NYT), Sallie Mae (SLM), and Citigroup (C).

The New York Times Co. (NYSE:NYT)

Kahn bought into his holdings of New York Times in the second quarter of 2007, adding 116,000 shares when the average price of the stock was $24.98. Over the next two years, Kahn steadily added to his holdings when the price of the stock tumbled, amassing more than 1 million shares by the end of 2009 when the average price was down to $9.30. In late 2010 and early 2011, Kahn added an additional 1 million shares for an average price of $9.81. In his most recent move, Kahn added to his position by an additional 49.94% at an average price of $8.26, impacting his portfolio by 1.57% and giving him 3,093,590 total shares in the stock. The price has since dropped 16%. New York Times Company is a diversified media company including newspapers, television and radio stations, magazines, electronic information and publishing, Internet businesses, and forest products investments. The Company currently classifies its businesses into the following segments: Newspapers, Broadcasting, Magazines, and Forest Product Investments and Other Joint Ventures.

During the second quarter, the company launched The New York Times digital subscriptions, a long-term effort for the company to adapt to changing trends in the industry. According to the company's second quarter report, total revenues decreased 2.2%, from $589.6 million to $576.7 million. Advertising revenues declined 4.0%, circulation revenues were flat, and other revenues decreased 1.0%. Increased digital advertising revenues and the introduction of digital subscriptions partially offset decreased print advertising revenues and a decline in print copies sold. Operating costs decreased 0.7% in due to lower compensation costs, partially offset by higher promotion costs from the launch of digital subscription packages and increased newsprint expenses. The company also incurred a charge of $161.3 million stemming from the write-down of assets at the News Media Group, primarily goodwill at the Regional Media Group.

As a result, reported net income for the quarter was a loss of $119.7 million, down from last year's gain of $32.0 million, and operating income was a loss of $114.1 million, down from last year's operating profit of $60.8 million. Excluding depreciation, amortization, severance and the special items in 2011, operating profit was $82.9 million for the quarter, down from last year's adjusted operating profit of $92.6 million. Over the past ten years, annual operating income has been trending downwards, with revenue having declined as well.

On 7/1/2011, New York Times sold 390 of its 700 units in Fenway Sports Group, one of its joint ventures, for $117 million in cash, tripling its initial investment. The Company estimates a pre-tax gain of approximately $64 million, which will be recorded in the third quarter of 2011. The company still owns 310 units, roughly 7.3%, of FSG and will continue to explore the sale of its remaining interest in the group.

The company has also been improving its balance sheet and will prepay the $250 million 14% notes on August 15, 2011, more than three years before the notes become due, to increase cash flows and financial flexibility.

New York Times has a market cap of $1 billion. The stock trades with a P/E ratio of 10.4, below its ten-year average. Its P/S ratio is 0.8, also below its ten-year average. Quarterly sales per share have been generally decreasing over the past five years. Its P/B ratio is 1.5, also below its ten-year average.

SLM Corporation (NASDAQ:SLM)

Kahn entered into his current position in Sallie Mae after the stock's price plummeted from above $50 to under $20. He purchased 551,325 shares at an average price of $15.85, then added roughly 675,000 shares over the next three quarters when the stock traded for under $10. In 2010, he added an additional 600,000 shares over the first there quarters when the stock's price hovered around $11.50. In his most recent move, Kahn added an additional 10.25% to his position at an average price of $16.05, impacting his portfolio by 0.54% and giving him 1,987,979 total shares in the company. The price of the stock has since dropped by 25%.

SLM Corporation provides education finance in the United States. The company originates and holds student loans by providing funding, delivery, and servicing support for education loans through its participation in the federal family education loan program (FFELP) and through offering non-federally guaranteed private education loans. It primarily markets its FFELP Stafford and private education loans through on-campus financial aid offices. The company also provides other student loan services and manages sub-performing and non-performing mortgage loans.

According to the company's second quarter results, Sallie Mae reported a net loss of $17 million for the quarter, compared to net gain of $177 million last quarter and a net gain of $345 million last year. This decrease was a result of a pre-tax $414 million unrealized, mark-to-market loss on certain derivative contracts. Core earnings were $260 million, compared to $211 million last year. The improvement was a result of improved credit quality and operating expenses, partially offset by lower debt repurchase gains. Operating expenses decreased to $268 million for the quarter, down from last quarter's $303 million and last year's $309 million. These included servicing costs related to a $25 billion student loan portfolio acquisition at the end of last year and $2 million for litigation costs, both of which are expected to decline as the acquired portfolio converts to the company's loan servicing system.

Sallie Mae's consumer lending segment saw core earnings increase to $49 million, compared to a net loss of $12 million last year, as a result of loan loss provisions decreasing from $349 million to $265 million. Loan originations were $264 million, up 21% from last year's $219 million. Delinquencies of 90 days or more improved to 4.7% of loans in repayment, down from last year's 5.8%. Annual charge-off rate as a percentage of loans in repayment improved to 3.7%, down from last year's 5.3%.

Sallie Mae's business services segment, which includes fees from servicing, collections, and college savings businesses, saw core earnings increase to$140 million for the quarter, up from last year's $127 million. The Federally Guaranteed Loans segment also saw earnings improve from $95 million last year to $108 million. The improvement in both segments was a result of large FFLEP loan acquisitions last year that increased FFELP loan servicing revenue and FFELP segment earnings.

During the quarter, the company issued an $821 million FFELP asset-backed securitization and two private loan securitizations totaling $1.4 billion. The company also repurchased $60 million of debt and realized $0.3 million of gains in second-quarter 2011, compared with $1.4 billion and $91 million in the year-ago quarter. The company repurchased 9.6 million common shares in the quarter for $156 million.

Sallie Mae has a market cap of $6.2 billion. The stock trades with a P/E ratio of 5.7, below its ten-year average. Its P/S ratio is 0.9, also under its ten-year average though in line with its three -year average. Its P/B ratio is 1.4, under its ten-year average though in line with its three-year average as well. "Core Earnings" return on assets for the quarter was .54%, an improvement over last year's .43% though flat over last quarter.

Citigroup (NYSE:C)

Kahn first bought a small position Citigroup in the second quarter of 2007, but he didn't make a significant move until the third quarter of 2009 when he purchased 222,537 shares at an average price of $38.50. He has since bought shares of the company every quarter, including adding 24,374 shares last quarter for an average price of $41.99, a move that impacted his portfolio by 0.18%. He now has 710,186 total shares of Citigroup. The price of the stock has since fallen by 33%.

According to Citigroup's second quarter report, net revenues decreased 7% year-over-year from $22.1 billion to $20.6 billion. Citicorp revenues were roughly flat compared to last year at $16.3 billion. Citi Holdings revenues declined 18% year-over-year to $4.0 billion, largely a result of a 34% decline in assets to $308 billion. Corporate/Other revenues fell $400 million due to lower revenues from investment yields. However, significant improvements in the cost of credit lowered expenses, as total cost of credit in the quarter fell 49% to $3.4 billion. This was driven by a 35% decline in net credit losses and a $2.0 billion release of credit reserves. Operating expenses grew 9% to $12.9 billion to partially offset the decreased credit costs. Overall, the company reported net income of $3.3 billion, improving by 24% over last year's $2.7 billion and 11% over last quarter's $3.0 billion. Book value per share grew 13% over last year to $60.34, and tangible book value per share grew 16% to $48.75.

Among Citicorp's different business fronts, International Regional Consumer Banking revenues increased 12% year-over-year to $4.8 billion, but this was offset by a 9% decline in North America Regional Consumer Revenues to $3.4 billion. By contrast, net income in international RCB declined 15% to $922 million, while North America RCB net income increased by $632 million to $684 million. This was a result of lower credit reserve releases internationally and higher releases in North America. Transaction Services revenues grew 6% to $2.7 billion due to strong service products in emerging markets, but net income fell 6% to $868 million as a result of an 18% increase in expenses. Securities and Banking revenues fell 8% to $5.5 billion due to the ongoing macro environment that led to lower customer activity levels, and net income declined 29% to $1.2 billion.

Citigroup has a market cap of $108 billion. The stock trades with a P/E ratio of 8.2, below its ten-year average. Its P/S ratio is 0.9, also below its ten-year average. Its P/B ratio is 0.4, yet again below its ten-year average..

On 8/3/2011, Citi announced that it had appointed Steve Yang as head of Greater China credit sales, joining from JP Morgan where he was co-head of structured credit syndication.

On 8/3/2011, it was reported that bids for EMI could fetch more than $4 billion, allowing Citigroup to recoup about three-quarters of the money it lent to the private equity buyout of the company in 2007.

This is part of GuruFocus Real Time Picks report, which reports the stock trades of Gurus within the last few days. For more information, go to Real Time Picks.

Rating: 3.2/5 (17 votes)


Pooky - 6 years ago    Report SPAM
105 years old. Sheesh and I thought Munger was old! :)

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