Tuesday, January 14, 2020

Eurocastle 2019 notes after buyback of >90% of shares.

After September 2019 (see below). Eurocastle decided a year later to make an offer to buy back almost all of the shares: 35m out of a total of 37m shares. 

The value of the buy back was EUR 8,14 a share: a premium of 19% above the share price in september 2018  EUR 6,82

Now there are 1,8m shares outstanding and a book value of EUR 15,1m resulting in a value of EUR 8,14 (based on a Eurocastle presentation). The share price at EUR 8 seems fair. 

Earlier notes updated september 2018

Eurocastle a "cannibal" ?

Note 2017: "NPL Non Performing Loans in Italy 10% dividend FFO Funds From Operations pretty good, selling at 8,55 which is 7% under Net Asset Value"

The Eurocastle business is outside my circle of competence. (In other words, I don't understand it.) Eurocastle is run by Fortress Investments a hedge fund that was recently bought by Softbank.

Currently, (September 2018) the price is EUR 6,82 which is 28% under Net Asset Value of EUR 9,53. This summer the company made an offer and bought back EUR 40m at EUR 8 per share and is currently buying back EUR 3 million more on the open market. That should increase intrinsic value per share for the remaining shareholders.

A "cannibal" is a cash-rich, undervalued business that is consistently buying back shares, thereby generating tremendous value for shareholders. It is not surprising that Warren Buffett and Charlie Munger's Berkshire Hathaway’s top holdings: Apple, Coca-Cola and American Express are all “consistent cannibals,” i.e. companies that are continuously gobbling up their own shares.

During the past year, Eurocastle paid out EUR 1,9 in dividends and capital per share (not including share repurchases) that is 28% compared to today's price of EUR 6,8.

Conclusion: Eurocastle doesn't seem expensive today, but too complex for the Graham Defensive Investor because of amongst other things partial ownership of doBank.

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