Friday, January 23, 2015

Senvest Capital: Deep Value + Growth

I've been following Senvest Capital for a few years now, since I first saw it at Oddball Stocks. I think the current opportunity is rather large.

As of the company's latest financials, book value per share was $221, whereas the stock currently trades for just $155.

But wait, there's more. The company provides monthly return updates for its hedge funds, and it has been knocking it out of the park in the last few months. From October to December (that is, for the period since the company's quarterly financials where that $221 book value comes from), the company's flagship fund returned another 16%!

Furthermore, the number of shares within the fund also appears to have grown in the double-digits as investors have apparently been buying into the fund, meaning more fees for the company.

Finally, note that you're buying into the corporation in Canadian dollars. But most of the company's holdings are in the US, and there has been quite a bit of movement on that front. Since the end of December, the US dollar has appreciated another 7% or so against the Canadian dollar. You wouldn't know it by looking at Senvest's share price, however!

Of course, all this doesn't mean the company's book value is up by these exact amounts, as there will be bonuses and fees accruing to the managers. But overall this looks like a great opportunity to partner with some outstanding capital stewards at a big discount to book value.

If I have one criticism of these guys, however, it's that they are not aggressive enough with their share repurchases. It worries me a little bit that guys who I'm touting as good capital allocators are apparently blind to a hugely accretive capital allocation opportunity. But obviously their incentives are not just with shareholders here, as they are likely trying to grow their fund while producing returns, not shrink it.

Disclosure: Author has a long position in shares of SEC


Josh H said...

Even in Canada the stock doesn't trade much. I don't think there is an opportunity to buy back many shares. I have actually been impressed with how many they have been able to buy back.

Martin said...

Is the net short exposure in swiss franc included in the funds' returns or on the book of the parent company? Net 49mm short swiss franc as of the latest quarterly report.

Saj Karsan said...

Hi Martin,

The Swiss franc changes mostly occurred in January, and January returns have now been posted (small positive).

Anonymous said...

For an investor in the US, which is a better value to buy? SVCTF or SEC.TO

Saj Karsan said...

Hi Anon,

It will depend on what the ask is on the day of the trade. Do the currency conversion on the US shares to see which ask (SEC or SVCTF) is cheaper for the volume you want.


Ryan said...

I am hoping you can provide some clarity for me:

The book value is primary made up of Equity Investments, but aren't those investments owned by the unit holders (i.e. no residue value would be passed down to the shareholders)? My understanding is that Senvest is made-up of three funds? (Senvest Master LP, Senvest Israel Partners and Senvest Cyprus Recovery Investment fund)

Saj Karsan said...

Hi Unknown,

Yes you are right that on the assets side, investments that are owned by unit holders are consolidated onto the company's balance sheet. However, liabilities for what these unit holders own are also consolidated, so in the equity they are netted out.