Senvest $SEC - Small-Cap Hidden Champion #1

If you are looking for a hidden gem in the Canadian market, you might want to take a closer look at Senvest Capital (TSX:SEC), a diversified holding company that invests in public and private equities, real estate, and other assets.

Senvest Capital has a track record of generating impressive returns for its shareholders, with an annualized return of 17% since inception and a cumulative return of over 2,000%. The company has a value-oriented investment approach that seeks to identify undervalued and overlooked opportunities across various sectors and geographies.

One of the main drivers of Senvest Capital's performance is its stake in two funds, Senvest Master Fund and Senvest Technology Partners, which are consolidated into its accounts. These funds invest primarily in small and mid-cap companies with high growth potential, often taking concentrated positions in their high conviction ideas. Some of their largest holdings as of December 31, 2022 were Paramount Resources, Capri Holdings, Marriot Vacations, Tower Semiconductors, QuidelOrtho, Ebay and SolarEdge Technologies.

Some of Senvest Capital's previous investments have also paid off handsomely, such as its stake in GameStop, the video game retailer that became the target of a massive short squeeze orchestrated by retail investors on Reddit's WallStreetBets forum. Senvest Capital reportedly made a $650 million profit from its GameStop investment, which it exited in January 2021. Another successful exit was Spotify, the music streaming giant that went public in April 2018. Senvest Capital was one of the early investors in Spotify and participated in its Series G round in 2015. 

Senvest Capital also has a portfolio of real estate investments, including self-storage units in Madrid, Spain, as well as investments in private real estate companies, trusts and partnerships. These investments are measured at fair value based on external valuations from third party appraisers.

As of December 31, 2022, Senvest Capital had total consolidated assets of $5.7 billion and total equity of $1.6 billion. The company had a net loss attributable to common shareholders of $326 million or $131 per share for the year ended December 31, 2022, compared to a net income of $733 million or $289 per share for the previous year. The net loss was mainly due to the negative change in fair value of equity investments and other holdings, which totaled $810 million in 2022 versus $2.4 billion in 2021. This reflects the volatility and choppiness of the financial markets amid the ongoing pandemic and geopolitical uncertainties.

However, I believe that Senvest Capital's long-term prospects remain attractive, as the company has a solid capital structure, a diversified portfolio of high-quality assets, and a proven ability to identify and capitalize on emerging trends and opportunities. The company also has a shareholder-friendly policy of repurchasing its own shares through normal course issuer bids when they trade below their intrinsic value.

As of April 6, 2023, Senvest Capital's stock price was $327 per share, giving it a market capitalization of $810 million. This implies a price-to-book ratio of only 0.51, which is significantly below its historical average and its peers. I believe that this represents an attractive entry point for investors who are looking for exposure to a well-managed and diversified holding company with a strong value proposition.

Disclosure: I own 2% of Senvest Capital's shares in my personal portfolio and I intend to hold them for the foreseeable future. This is for informational purposes only and does not constitute investment advice. Please do your own research and consult a professional before making any investment decisions.

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.