Wednesday, October 24, 2012

Artio Assets Offer Opportunity

Artio is a money-manager on a bad run. The company is still making money (the major costs in this industry are salaries, which can become variable when the need arises!), but assets under management (AUM) have fallen dramatically over the last several quarters. The stock price, however, has fallen even more. But at some point, the company's strong balance sheet must provide protection for the equity investor, even if AUM continues to fall. That time may be now!

Artio now trades for just $135 million, despite cash and investments of $134 million against debt of just $8 million! So what you have is a profitable company in an industry with low capital requirements that trades with a good amount of downside protection in the form of cash and marketable assets.

For more on this company, see here.

Disclosure: Author has a long position in shares of ART


Anonymous said...

Cash is actually a bit lower. Regarding consolidated investments, you have to net out all the other investors which result in about $45MM attributable to ART shareholders. I get total cash around 105MM. Its a melting ice cube, but interesting none the less.

Anonymous said...

Is this not cash that investors can withdraw at short notice, if so it is pointless considering it as an asset.

Harman said...

Hi Saj, Thanks for posting the idea. Assets under management as per latest filing are approx. 18b. I am looking at the latest 8k. Let me know if i am missing any thing. If this is true. It would change the value quite a lot....

Harman said...

I realized that previous post was dated. Thanks for the idea...

Nathid said...

Hi Saj,
I see to two shortcoming in the idea:
1. Declining AUM and according to their strategy in the international equity fund I don't believe it will produce great return therefore the decline may continue.
2. The company seems like a net-net but on the asset side it has a deferred taxes of $190M that the company can use only if it generates enough profit from the 10-K around $38M before taxes

What are your views on the downside? Do you consider this idea as a turnaround situation?
Thanks to share your thoughts about it.

Ankit Gupta said...

Any idea on what a catalyst might be for (1) better capital allocation (release of excess cash, etc.) or (2) a return to profitability?

Markel seems to have a nice stake, and they obviously know what they're doing, so that's a good sign, because they might be able to flex some muscle with the board, however even those actions can take a while.

I'm curious as to what the business issues are here. Cheap is good, especially if managers take advantage of this and buy back tons of stock, and I would love to see that here.

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