Renowned investor John Paulson (Trades, Portfolio), founder and portfolio manager of Paulson & Co., disclosed on Feb. 25 he expanded his holdings of BrightSphere Investment Group PLC (BSIG, Financial) by 283.85%, completing a minority stake acquisition.
With the long-term goal of capital preservation, above-average returns and low correlation to the market, the guru’s New York-based hedge fund specializes in event-driven arbitrage strategies, including merger arbitrage, bankruptcy reorganizations and distressed credit, among others.
According to GuruFocus real-time picks, a Premium feature, Paulson purchased 14.8 million shares of the U.K.-based asset management company for an average price of $14.19 per share. He now holds 20 million shares, which represent approximately 6.47% of his equity portfolio.
GuruFocus estimates he has gained 3.32% on the investment since establishing it in the third quarter of 2018.
BrightSphere has a $1.31 billion market cap; its shares were trading around $14.19 on Wednesday with a price-earnings ratio of 11.18, a price-book ratio of 14.60 and a price-sales ratio of 1.65.
The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.
On Feb. 7, the British asset manager recorded fourth-quarter and full-year 2018 results. Adjusted earnings for the quarter came in at 43 cents per share on $214.5 million in revenue. For the year, it posted earnings of $1.26 per share on $928.2 million in revenue.
It also reported it had $206.3 million in assets under management as of Dec. 31, down 15.1% from the prior-year quarter.
GuruFocus rated BrightSphere’s financial strength 5 out of 10. In addition to having poor interest coverage and a large debt load, the company’s Altman Z-Score of 1.76 warns it is in danger of going bankrupt. The asset manager’s long-term debt and capital lease obligations have ballooned from $90 million at the end of 2015 to $393.3 million at the end of 2018.
The company’s profitability and growth scored an 8 out of 10 rating. Although the operating margin is in decline, BrightSphere is strengthened by solid returns that outperform competitors. In addition, the Piotroski F-Score of 7 indicates operating conditions are healthy.
Paulson is the company’s largest guru shareholder by far with a 21.7% stake. Hotchkis & Wiley, Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio)’ Renaissance Technologies and Pioneer Investments (Trades, Portfolio) also have positions in the stock.
Portfolio
Paulson’s $4.17 billion equity portfolio, which, as of Dec. 31, is composed of 51 stocks, is heavily invested in the health care space at 40.39%. Financial services stocks have a much lower weight at 4.87%.
Other financial services stocks he holds as of the end of the fourth quarter are Stewart Information Services Corp. (STC, Financial), Altaba Inc. (AABA, Financial) and CME Group Inc. (CME, Financial).
Disclosure: No positions.
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