Thanks for your post. I think you might be double counting some value here. Ascribing $30-50mn to the parent company on the basis of them being able to add debt to their loan book, but not subtracting this added debt when valuing the loan portfolio in your various scenarios is adding $30-50mn to your valuation outcomes.
Thanks for the reply Kevin! The way I valued it was to break the company into two separate divisions: the "parent" and the loan division. The "parent" to me holds the excess liquidity of around 30-50mm and just valued it on a dollar for dollar basis. I valued the loan division as the sale of the loans minus the debt so I did take paying off the debt into account. I apologize if this wasn't clear in the initial write up. Let me know what you think!
Yes, but this excess liquidity is from taking out more debt against the loan division, right? So if you are giving them credit for taking money out of their loan division by adding more debt, shouldn't you subtract that additional debt when valuing the loan division? It's all circular, I'd just try and value the loans... Which is kind of hard. The rise in delinquencies in the last few quarters has been shocking - about 2x the high we have seen going back to the GFC. Still looks like it might be cheap, but amazing to see 20% delinquencies with unemployment sub-4%.
1. Give a haircut to finance receivables of 94 mil. This could range from 0% to 50%.
2. Subtract total liabilities of 17 mil
This will result in book value between 30 mil (worst case assuming they are only able to collect 50% of receivables) to 77 mil (best case assuming they collect all their receivables).
I think the real value lies somewhere in the middle.
- Do you see any advantage in investing in $NICK compared to Adam's other companies like $BOC or $NNI? All three are basically vehicles for capital allocation, what advantage does $NICK confer? Smaller base to start from?
- Do you see any risk in Adam being spread too think between all these companies?
Joe! Those are wonderful questions, here’s what I got:
-Adam only sits on the board of $NNI so he is only involved from a board level, which i actually think is great for BOC shareholders because I am sure the relationship he is developing with the team over there is a big win win situation. He gets to learn a lot and he is also able to add value for them with his intense investing background.
I am going to narrow down your question to BOC vs NICK because those are the two companies he really controls with voting power. Obviously he has an amazing team around him like Alex, Brandon, and Jeff that shouldn’t be dismissed. Point is he isn’t doing the job alone.
Overall I think BOC has many lines of business currently and is looking to keep building those out. Whereas NICK is one line of business and what seems to be a pile of cash. Personally I think the NICK discount to intrinsic value is larger but that’s because there are a lot more uncertainties and risks compared to BOC. So I believe the discount is justified.
Are there any advantages? Well they’re currently in two different situations so you have to judge 1) how much risk your willing to accept and 2) what do you want to pay for that risk. The returns on NICK could be large but the risk is greater. BOC is more stable, I perceive the risk to be lower, so thus the returns going forward probably too when compared to NICK
I don’t think the smaller base is an advantage but I do think that if you take the base size compared to how much excess capital they are going to have to allocate that lever is going to really drive value going forward. BOC has many more lines of business so one investment in an subsidy won’t produce huge gains relative to the size of the company but the aggregate of them all should.
BOC is a forest and NICK is one single tree right now, I hope that makes sense.
In regards to spreading himself too thin, this is where I think the team really comes in. Although he holds a lot of control he has surrounded himself with heavy hitters that help push value forward so the task isn’t all on his shoulders completely.
At the end of the day I think he is focused on allocating capital and not so much about where that capital comes from. I’m willing to bet NICK and BOC begin to have ties eventually through business lines kinda like Wesco and Berkshire did.
So again, I don’t think he is spreading himself too thin because he is doing the same job for each company, making capital allocation decisions. For example, I know an electrician that can do 3 jobs a day in 3 different locations. Although the landscape changes the job remains the same and that’s why he is able to do that, I think the same thinking applies here.
Thanks for your post. I think you might be double counting some value here. Ascribing $30-50mn to the parent company on the basis of them being able to add debt to their loan book, but not subtracting this added debt when valuing the loan portfolio in your various scenarios is adding $30-50mn to your valuation outcomes.
Thanks for the reply Kevin! The way I valued it was to break the company into two separate divisions: the "parent" and the loan division. The "parent" to me holds the excess liquidity of around 30-50mm and just valued it on a dollar for dollar basis. I valued the loan division as the sale of the loans minus the debt so I did take paying off the debt into account. I apologize if this wasn't clear in the initial write up. Let me know what you think!
Yes, but this excess liquidity is from taking out more debt against the loan division, right? So if you are giving them credit for taking money out of their loan division by adding more debt, shouldn't you subtract that additional debt when valuing the loan division? It's all circular, I'd just try and value the loans... Which is kind of hard. The rise in delinquencies in the last few quarters has been shocking - about 2x the high we have seen going back to the GFC. Still looks like it might be cheap, but amazing to see 20% delinquencies with unemployment sub-4%.
I think an easier way to value NICK is :
1. Give a haircut to finance receivables of 94 mil. This could range from 0% to 50%.
2. Subtract total liabilities of 17 mil
This will result in book value between 30 mil (worst case assuming they are only able to collect 50% of receivables) to 77 mil (best case assuming they collect all their receivables).
I think the real value lies somewhere in the middle.
Thanks for the post! Two quick questions:
- Do you see any advantage in investing in $NICK compared to Adam's other companies like $BOC or $NNI? All three are basically vehicles for capital allocation, what advantage does $NICK confer? Smaller base to start from?
- Do you see any risk in Adam being spread too think between all these companies?
Joe! Those are wonderful questions, here’s what I got:
-Adam only sits on the board of $NNI so he is only involved from a board level, which i actually think is great for BOC shareholders because I am sure the relationship he is developing with the team over there is a big win win situation. He gets to learn a lot and he is also able to add value for them with his intense investing background.
I am going to narrow down your question to BOC vs NICK because those are the two companies he really controls with voting power. Obviously he has an amazing team around him like Alex, Brandon, and Jeff that shouldn’t be dismissed. Point is he isn’t doing the job alone.
Overall I think BOC has many lines of business currently and is looking to keep building those out. Whereas NICK is one line of business and what seems to be a pile of cash. Personally I think the NICK discount to intrinsic value is larger but that’s because there are a lot more uncertainties and risks compared to BOC. So I believe the discount is justified.
Are there any advantages? Well they’re currently in two different situations so you have to judge 1) how much risk your willing to accept and 2) what do you want to pay for that risk. The returns on NICK could be large but the risk is greater. BOC is more stable, I perceive the risk to be lower, so thus the returns going forward probably too when compared to NICK
I don’t think the smaller base is an advantage but I do think that if you take the base size compared to how much excess capital they are going to have to allocate that lever is going to really drive value going forward. BOC has many more lines of business so one investment in an subsidy won’t produce huge gains relative to the size of the company but the aggregate of them all should.
BOC is a forest and NICK is one single tree right now, I hope that makes sense.
In regards to spreading himself too thin, this is where I think the team really comes in. Although he holds a lot of control he has surrounded himself with heavy hitters that help push value forward so the task isn’t all on his shoulders completely.
At the end of the day I think he is focused on allocating capital and not so much about where that capital comes from. I’m willing to bet NICK and BOC begin to have ties eventually through business lines kinda like Wesco and Berkshire did.
So again, I don’t think he is spreading himself too thin because he is doing the same job for each company, making capital allocation decisions. For example, I know an electrician that can do 3 jobs a day in 3 different locations. Although the landscape changes the job remains the same and that’s why he is able to do that, I think the same thinking applies here.
I hope this answers your questions.
-Michael