Comments on: Free Bucks, Really! http://www.footnoted.com/my-big-fat-deal/free-bucks-really/ Michelle Leder's guide to what's hiding in SEC filings Fri, 23 Jul 2010 18:06:29 +0000 http://wordpress.org/?v=2.9.2 hourly 1 By: Paul http://www.footnoted.com/my-big-fat-deal/free-bucks-really/comment-page-1/#comment-4673 Paul Thu, 28 Feb 2008 19:15:16 +0000 http://www.footnoted.com/my-big-fat-deal/free-bucks-really/#comment-4673 Though I take your comment as tongue-in-cheek, there is indeed a way to short sell FBR Group’s (FBR) management skills: through its majority-owned, public-held sub FBR Capital Markets, Inc. (FBCM). The former consolidted entity has been involved with nearly every financial blowup of the last decade: dot-bombs; building/HVAC maintenance, bio-wrecks; thrifts, sub-prime mortgages and, now, real estate. It is almost a given that if FBR is involved then it’s en vogue and likely to implode. After selling a stake in FBCM in a private round in July 2006 and bailing out those shareholders in an IPO at $17/share in June 2007, my guess is that FBR milks this captive cow for whatever little milk it produces. With shares now trading around $7, it looks like a steal: $450mn equity market cap supported by $507mn book equity, which is a result of $384mn in cash and no on-balance sheet funded debt…and it is cheap. However, watch carefully as operating losses from weak revenue production coupled with sustained generous compensation, team acquisitions and sign-on bonuses eat right into that cash balance. It likely won’t happen immediately though. FBR’s history of the latter exercises (acquisitions and poaching) has been mixed and management has demonstrated its penchant for questionable enrichment. Though I take your comment as tongue-in-cheek, there is indeed a way to short sell FBR Group’s (FBR) management skills: through its majority-owned, public-held sub FBR Capital Markets, Inc. (FBCM).

The former consolidted entity has been involved with nearly every financial blowup of the last decade: dot-bombs; building/HVAC maintenance, bio-wrecks; thrifts, sub-prime mortgages and, now, real estate. It is almost a given that if FBR is involved then it’s en vogue and likely to implode.

After selling a stake in FBCM in a private round in July 2006 and bailing out those shareholders in an IPO at $17/share in June 2007, my guess is that FBR milks this captive cow for whatever little milk it produces. With shares now trading around $7, it looks like a steal: $450mn equity market cap supported by $507mn book equity, which is a result of $384mn in cash and no on-balance sheet funded debt…and it is cheap.

However, watch carefully as operating losses from weak revenue production coupled with sustained generous compensation, team acquisitions and sign-on bonuses eat right into that cash balance. It likely won’t happen immediately though. FBR’s history of the latter exercises (acquisitions and poaching) has been mixed and management has demonstrated its penchant for questionable enrichment.

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