For many years, Leucadia (LUK, Financial) was basically a mini-Berkshire Hathaway (BRK.A, Financial)(BRK.B, Financial). Its shares doubled in value every few years for decades. Like many great companies, its growth has peaked, at least for now.
The company has 362.6 million shares and trades at $19.36 ($7 billion). The stock pays a 1.31% dividend yield. Tangible book value is $7.5 billion at the end of the second quarter. There's no use in looking at earnings and cash flows as it is a holding company. No use in valuation that is. It is useful in knowing cash flows to support debt.
The balance sheet shows $3.8 billion in cash, $17 billion in securities, $500 million in managed funds, $1.7 billion in loans due, $7.5 billion in more loans and $4.3 billion in receivables. The liablity side shows $400 million in loans, $8 billion in trading liabilities, $2.9 billion in securities loaned, $8.5 billion in repos, $900 million in secured financing, $6.5 billion in payables and $7 billion in long-term debt.
Jefferies is the investment banking wing of Lecadia. It was merged in a few years ago. A loan in the amount of $192.5 million was made to currency trader FXCM. The loan is due in January. Several small private equity and hedge funds including: Folger Hill, Topwater, 52 Madison Capital and CoreCommodity are part of the Asset Management division.
Berkadia is a 50% owned joint venture with Berkshire Hathaway that is involed in loans. Homefed does residential and mixed use properties. Foursight Capital is in auto loans and Chrome (85% owned) leases used Harley Davidsons. National Beef is a meat packer and retails steaks (85.5% holding). HRG (HRG, Financial) is a publicly traded holding company in which Leucadia owns 23%. Some smaller natural gas holdings include Vitesse Energy and Juneau Energy. Garcadia owns 28 auto dealerships (75% holding). Linkem (not to be confused with Linedin) is a broadband provider in which Leucadia owns 42% in convertibles. Idaho Timber manfacturers boards. Golden Queen Mining is an open-pit gold mine located in Kern County, California (35%).
Certainly some neat companies. The challenge now with Leucadia is that it is black box investing. What does that mean? It means valuing investment banks is very difficult. Investment banks hold derivatives, repos and many other challenging things to evaluate. If you don't believe me, look at Deutsche Bank (DB, Financial). As a matter of fact, if Deutsche Bank goes
under, how would Leucadia be affected?
At the end of the Second Quarter Report, it shows tables of various agreements that Jefferies has in place. One table shows country risk with several countries from Portugal to Hong Kong. It lists a few billion in long and short positions. Another shows counter-party exposure of various agreements. The trading portfolio lists $11billion in positions. Jefferies' debt is BBB- rated by S&P.
The stock was down in the $14 range earlier this year and is now in the $19 range. It might be nice if management upped the 25 cent dividend. As this is no longer a company that is growing at 20% a year like it used to, an increase in dividends might be welcomed.
I used to love Leucadia, though I never owned shares. I did own the debt for a long time but became concerned when quarter after quarter debt levels rose. Always an interesing company to follow, but difficult to value.
Disclosure: We do not own shares.
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