Senvest Capital $SEC $SVCTF

Deep Value Stock Alert

*Disclaimer I have been a Senvest Shareholder since December 2018. My average holding cost is $194 (CAD) and recently double my position in 2020. Making it 44% of my overall portfolio. 

 Company Overview

This TSX-listed company has increased threefold since the depths of 2020 market correction has yet to fully price in 2021 Q1 book value increase. As a North American investor, you can be forgiven for never having heard of this obscure company before. 

Based in Montreal, it had spent the first two decades of its life as an electronic firm before the current management switching to investments in 1997. The quarterly filing doesn't seem to get much fanfare even as the book value increased 17% over the course of its time. Most of the days, there are less than 100 shares traded and with insiders holding more than 50% of outstanding shares, I often wonder why the company even tries to stay public?

As of May 7th, 2021 the shares are listed at $320 (CAD) with a book value of $646. This discount to book value is incredible when investors seem to be piling into growth stocks at 20 times revenue multiples. With such a high book value discount, you might expect this firm to be holding stakes with level III pricing (i.e junk bonds, CDOs, or private firms). Instead, the largest holdings are public traded equities such as eBay (EBAY), Tower Semiconductors (TSEM), Marriot Vacations (VAC), Capri Holdings (CPRI), Paramount Resources (POU), Silvergate Capital (SI), and Seven Generations Energy (VII), which merged with Arc Resources (ARX) in April 2021. The full list of stock can be estimated from 13 filings they have to publish with the SEC. 

While I content the holdings are concentrated with Top 20 stocks exposed to 75-80% of the portfolio. This is far crying to ask for a 51% discount to book value ($646), in other words, if the firm became private or sold all their equities and have the proceeds to investors they would double from the current price of $320. 

I personally doubt this illiquid premium would last for much longer as Canadian investors figure out that the asset management is similar to ONEX, KKR, or Brookfield. Although as an investor, you won't get all the profits, even at 60% that's enough to move the price well above book value.

For example AUM (outside capital) increased from 1,477,779 (2020) to 2,580,334 (2021/Q1). Historically the firm has charged 1.5% in management fees that would equate to $38.7 in annual management fees. Senvest investors would receive 60% of that final amount but it would advisable to add a 10-15X multiple on this amount and add it to book value. This number isn't pulled out of thin air, since KKR merged with Oaktree with 20X multiple on their management fee stream. The asset management business is quite sticky and Senvest's 17% YoY performance is a brand worthy in institutional investor circles. 

The key takeaway is the deep discount to book value. It would be noteworthy to point out the key man risk and the high concentration of insiders within the fund. The fund also uses leverage to enhance its returns. 

These were just my quick thoughts on Senvest. I will keep you posted on other obscure Canadian-listed companies.