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Cannae Holdings (NYSE: NYSE:CNNE) is an easy thesis: an funding holding firm run by a sensible allocator that’s buying and selling at a reduction to a conservative NAV. The inventory worth has fallen ~55% since its excessive in January 2021 and insiders have been shopping for persistently within the $17-40 vary.
Data by YCharts
Cannae Holdings is a holding firm that acquires pursuits in working firms and seeks to actively handle and function a core group of these firms with a long-term view. The major property are possession pursuits in:
Dun & Bradstreet Holdings: international supplier of enterprise decisioning information and analytics (20.3% possession or 88.3M shares)
Ceridian: American supplier of human assets software program and providers (4% possession or 6.2M shares)
Alight: cloud-based supplier of built-in digital human capital and enterprise options (9.7% possession or 6.2M shares)
Paysafe Limited: multinational on-line funds firm (8.3% possession or 59.8M shares)
Sightline Payments: U.S. sports activities betting and on line casino gaming markets digital funds supplier and cellular app developer (~33% possession)
System1: international advertising analysis and effectiveness firm that predicts advertising outcomes to assist manufacturers develop (24% possession or 27.2M shares)
AmeriLife Group: well being, life and annuity advertising group, primarily centered on the senior market and brokers (19.6% possession)
The chairman is William P. Foley II, who has had a really profitable monitor report as a businessman, investor and capital allocator. His “Valuation Creation Playbook” has created over $120B in market capitalization development. He’s a board member on a number of firms (e.g. Cannae, Dun & Bradstreet, Black Knight, Ceridian, Alight, Fidelity National Information Service, Fidelity National Financial) and has raised a number of SPACs (e.g. Foley Trasimene I/II, Austerlitz I/II/III). In brief, CNNE is Foley’s funding car.
With 85.9M shares excellent and at a present worth of $20.74, the market cap is ~$1.8B.
As a holding firm, it is smart to worth it based mostly on a sum-of-the-parts evaluation:
Of course, the P/NAV calculation above assumes that the personal investments (Sightline, AmeriLife, Restaurant Group, CorroHealth, QOMPLX) are valued at a draconian $0, which might be not the case. But since a conservative valuation means that CNNE is buying and selling a reduction to NAV, the low cost supplies us with a good margin of security going ahead.
The subsequent logical step can be to see if the businesses used within the NAV calculation are pretty valued, because the SOTP valuation is rendered ineffective if all the businesses commerce at sky-high valuations. Quickly shopping by means of the valuations on QuickFS:
- Dun & Bradstreet Holdings (DNB): 1.8x P/B, 4.6x EV/S, 12.8x EV/EBITDA, 47.6x EV/FCF
- Ceridian (CDAY): 3.7x P/B, 8.1x EV/S, 278.2x EV/EBITDA, -919.6x EV/FCF
- Alight (ALIT): 0.76x P/B, 2.16x EV/S, 12.61x EV/EBITDA (yahoo finance)
- System1 (SST): 0.9x P/B, -2.4x EV/S, -20.4x EV/EBITDA, -28.4x EV/FCF
- Paysafe (PSFE): 1.1x P/B, 2.8x EV/S, 10.4x EV/EBITDA, 6.2x EV/FCF
At first look, the businesses appear pretty valued (aside from Ceridian and System1). The bulk of the worth in CNNE is derived from Dun & Bradstreet, which at 12.8x EV/EBITDA; one might argue it might be buying and selling at a better valuation, as revenues have been rising the underlying enterprise itself appears vital and sticky.
Just for a reference level, the corporate additionally places out their very own SOTP calculation (as of May 31, 2022) they usually determine that their intrinsic worth is ~$39/share (implying a 47% low cost):
Insider Ownership and Buying
Insiders personal ~6.1%, which is a good quantity (I personally want to see no less than 5%). They have additionally been persistently shopping for since 2018 (costs vary from $17 to nearly $40) with zero gross sales. In brief, the insiders appear aligned with the shareholders.
Repurchase of Shares: the corporate has a 3-year repurchase plan in place since February 26, 2021 (permits them to repurchase as much as 10M shares); in Q1 2022, the corporate repurchased 2M shares for $54M (a mean of $26.96)
Increase in Underlying Companies’ Value: the underlying companies execute and develop, which is able to assist improve each the underlying enterprise worth in addition to CNNE’s NAV worth
Discount to NAV Persists: there’s no assure that the NAV hole will shut (some would argue that holding firms deserve a reduction), however the repurchase plan ought to assist to slender the hole
Deterioration of Underlying Companies’ Value: there’s additionally no assure that the underlying firms will carry out nicely, however since CNNE has a vested curiosity in serving to them execute, there’s an added layer of safety as CNNE will in all probability do what they will to make their investments profitable
CNNE presents a really fascinating alternative to take a position (at a reduction) within the funding car of William Foley, who has had a reasonably profitable historical past of making worth. The conservative valuation supplied above reveals that CNNE is buying and selling at ~0.87x P/NAV, which supplies a good margin of security and assumes the personal investments are valued at zero. In brief, you might be getting them at zero value as free name choices. Insiders personal 6% of the corporate and have been constant patrons of their very own inventory.
Based on the evaluation above, I like to recommend a protracted place in CNNE.