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Special Situations Linkfest: Demutualizations, Spinoffs and other cool stuff

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July 23, 2014 – Comments (2) | RELATED TICKERS: EBSB , SUNE , ABGB

Here's a few odds and ends from the world of special situation investing that I've found interesting lately:

Hamilton Bancorp (HBK) is a cheap demutualization that's actively increasing its value by buying back stock.  It is a holding of my favorite bank activist investor, Joseph Stilwell:

"Summary

Significant value trading at 80% of Tangible Book Value; aggressively buying back stock at 10% annually.

Pristine loan portfolio with outstanding growth due to recent lift-out of loan executive team from CFG Community Bank.

Activist investor Joseph Stilwell owns 10% position – HBK wont remain independent for very long.

Expect sale in Fall 2015 when 3 year restriction ends.

Comparable bank OBA Financial recently sold to FNB Bank for 130% of book value; equivalent to $21 for HBK."

Hamilton Bancorp: Undiscovered Gem With An Exit Strategy - Target Price: $21

http://seekingalpha.com/article/2324775-hamilton-bancorp-undiscovered-gem-with-an-exit-strategy-target-price-21?ifp=0

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I'm not currently invested in Hamilton, for one its operations have not been that great in the past (though they supposedly have brought on new employees to fix that), besides I already have enough demutualizations in my portfolios anyhow.  I actually have sold a few to reallocate capital to investments that I believe have stronger near-term catalysts.  Of course, in a contradictary manner one such investment is of course a demutualized bank, First Financial Northwest (FFNW), which I believe will be bought out in the near future.  Kudos to The Motley Fool's Special Ops service for bringing this idea to my attention initially.

First Financial Northwest - A Classic Graham-Dodd Investment Opportunity

http://seekingalpha.com/article/2328255-first-financial-northwest-a-classic-graham-dodd-investment-opportunity

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Another demutualization that still am holding onto is Meridian Interstate Bancorp (EBSB). Meridian is in the process of completing its demutualization right now.

Meridian Bancorp, Inc. Completes Syndicated Community Offering

http://finance.yahoo.com/news/meridian-bancorp-inc-completes-syndicated-100000361.html

The offering went so well that Meridian was just upgraded by an analyst at Compass Point. The analyst had to say he following:

"Compass Point upgraded Meridian Interstate (NASDAQ: EBSB) from Neutral to Buy with a price target of $29.50 (from $27.00). Analyst Laurie Havener Hunsicker notes, "On July 14, EBSB announced that it had completed a syndicated offering with a closing level higher than our previous estimates at an approximate $325 million raise, representing a closing level between the Max and SuperMax, resulting in an approximate exchange ratio of 2.44 (from what we had estimated as a 2.22). Accordingly we raise our target from $27 to $29.50 on existing minority shares, still representing 1.2x tangible book (TB). We believe this is a best-of breed, must-own name, and as this deal is still pending, we have highlighted the current market value and potential PF price target at each level in the range on page 4, lines 26-27; our current price target of $29.50 will be exchange ratio adjusted to $12 following the offering. EBSB offers investors a unique opportunity to invest in the 5th largest publicly-traded MA-based bank serving the greater Boston MSA; EBSB is a well-capitalized, 166 year old, clean, $3 billion-asset sized bank (pro forma), trading close to PF tangible book with a board/management team that has a proven track record of being good stewards of capital."

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One of the better activist investor firms, JANA Partners, has purchased a billion dollar position in Apache Corp. (APA) and it is pushing the company to sell off its foreign investments to become more focused on North American E&P.

Jana Partners Wants Changes at Apache

Activist Investor Wants Oil Producer to Exit Some Projects to Free Up Cash Flow

http://online.wsj.com/articles/jana-partners-has-apache-stake-of-more-than-1-billion-wants-changes-1405982450

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Here's another very interesting article on a stock that I've discussed here in the past and continue to own, SunEdison (SUNE).

"Summary

The TerraForm Power IPO is immensely helpful for SunEdison in many ways.

TerraForm Power effectively enables SunEdison to sell its projects at 60% margin.

At $2B a year potential value add, SunEdison's market cap may multiply by 3x in the next 12 months."

SunEdison: The Real Winner Of The TerraForm Power IPO

http://seekingalpha.com/article/2319835-sunedison-the-real-winner-of-the-terraform-power-ipo

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I always enjoy Chris DeMuth Jr.'s articles. He was the one who convinced me to buy back in on Gramercy after it imploded so I pay attention to what he has to say. He has been touting Loral Space & Communications (LORL) as a buyout candidate for a while now. I even wrote a blog post about it a few months back. I eventually got tired of waiting and decided to reallocate the decent position that I had in LORL to other investment opportunities.

Chris published a new article on LORL yesterday. It was well written and I can hear the sound of it sucking me back in. Thus far I have been able to resist the temptation. We'll see.

Loral - To Sell Or Not To Sell Is Not The Question

http://seekingalpha.com/article/2312345-loral-to-sell-or-not-to-sell-is-not-the-question?ifp=0

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Philips (PHG) has plans to spinoff its lighting division in early 2015. There doesn't appear to be enough upside for me with this one, but I am going to keep an eye on it.

Philips: A Household Brand Trading Below Its Sum-Of-The-Parts Valuation

http://seekingalpha.com/article/2309195-philips-a-household-brand-trading-below-its-sum-of-the-parts-valuation?ifp=0

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Here's an interesting article on a company that I have mentioned here in the past, the Spanish infrastructure company Abengoa (ABGB). Shares have pulled back a little recently. They are very volatile, probably the most so in my portfolio besides perhaps SunEdison (SUNE). I'm thinking of adding to my stake.

ABGB is trading in the mid-$20's and most analysts peg its value in the low- to mid-$40's. I tend to agree, though I am usually a lot mless precise in my analysis. As I always say when I look at all of the fancy DCF analysis that some people use, I'd rather be generally right than specifically wrong. Safe to say that I peg the value of Abengoa at a lot higher than it is today.

The Best Way To Profit From America's Water Shortage

http://www.nasdaq.com/article/the-best-way-to-profit-from-americas-water-shortage-cm369549#ixzz37GgPd1De

That's all for now.  Enjoy and if you have any cool ideas, please make sure to share them. Thanks.

Jason

2 Comments – Post Your Own

#1) On July 23, 2014 at 2:37 PM, boozalex (30.97) wrote:

Jason,

 How are you balancing the idea of focusing your investments vs all the ideas you come up with? 

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#2) On July 23, 2014 at 4:44 PM, TMFDeej (99.26) wrote:

Hey boozalex.  I do find a lot of ideas out there.  I love reading about this stuff.  I have a fairly specific set of criteria that I look for in stocks before I pull the trigger with real money.  The stocks that I buy for real usually pay dividends, often very large ones so that I get paid to wait for a specific catalyst or catalysts to unlock value.

It's tough.  I have the urge to buy everything, but if I did then my portfio would probably correlate to the indicies more than I would like.  I'm looking to outperform them by overweighting my favorite ideas.  I've been trying to get better at that over the past year.  I think that I have, but time will tell.  With most of these stocks there's a certain time horizon that can extend a year or two before value is fully unlocked.

Jason

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