Was having a conversation with “Davidson” about Leucadia (LUK) after posting the annual meeting notes the other day. He was talking about the excellence of management of which I agree. He is an owner of shares. I said my hesitation in owning shares was that I could not accurately forecast earnings into the future due to the fact they tend to buy then sell businesses.
Here is his reply:
Ahh. Here is where you plot management’s results, read their history of investing in distressed assets and turning them into gains and then realize that this is not a cash flow nor an earnings story. LUK is a holding co. They report boosts in BV only when an asset has been sold which may take 10yrs. Analysts really have to do a bit of leg work to grasp the value growth from year to year. My plot of BV vs. stock price I think tells the story of success.
Book Value/Share Price Analysis
There really isn’t any doubt as too the skill of Steinberg or Cummings skill. It is pretty clear that earnings will fluctuate wildly depending on what is sold in what year. So, Davidson’s BV chart is the way to go.
If we look at the chart, it is pretty clear that Leucadia, when priced right, tend to trade around book value. That gap rose to almost 2 times book over the last couple years and the stock has responded by falling from the $50’s to the current $20 as book value fell.
Current book has fallen to roughly $12 a share and that is due mainly to $1 billion in asset write-downs in Q4 2008 (like the rest of the world) and an additional $900m in debt. A normalized operating environment book is more likely to be in the $15-$16 range which means shares, currently price at $20 are getting close to a “buy” point for those who want to be shareholders.
Disclosure (“none” means no position):None