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Senvest Capital: The value stock that few know about Add to ...

There is a TSX-listed company whose share price has increased fourfold since the depths of the financial crisis, yet has continued to appear on lists of low-priced value stocks the entire time.

It is called Senvest Capital Inc., and you are forgiven if you’ve never heard of it before.

Based in Montreal, it spent its first two decades as an electronics firm before switching to investments in the early 1990s. It is almost deliberately obscure, with earnings releases that run fewer than a hundred words, headline included. And more days than not, it has zero volume: None of its shares traded on the TSX. Insiders control more than half the shares. It’s not really clear why it’s a public company.

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Certainly, opacity and secrecy are not typically good characteristics for a potential investment. In this case, however, Senvest’s failure to publicize its portfolio seems to have created an opportunity for investors.

First, a short history of Senvest’s value pricing, as captured in Globe Investor Number Cruncher columns: In October, 2007, Senvest surfaced as one of six Canadian companies trading below liquidation value. In October, 2010, it was one of 20 TSX companies trading below 70 per cent of book value. In February, 2011, it was one of 11 TSX stocks with a price-to-earnings ratio below 12, a price below its book value, and debt that was less than one-half its equity.

At today’s prices in the high $60s – below the May, 2011, peak near $90, but well above its 2009 low of $16.50 – it remains cheap. It had about $180-million in cash and short-term investments (net of debt), as of Sept. 30, and a market capitalization of just under $200-million. Its price-to-tangible book value ratio is 0.7; its trailing P/E is 2.6, as it generated more than $27 in EPS in the prior 12 months.

Much of the problem stems from Senvest being an obscure company that invests in other obscure companies; it has a number of little-known common stocks in its portfolio, but also makes private real-estate investments.

“The volatility and choppiness of the markets will result in wide profit swings from quarter to quarter,” Senvest explained to shareholders in its third-quarter report, “and the Company will try to navigate this as best as it can.”

While Senvest discusses a few “core holdings,” such as mortgage insurer Radian Group, Aegean Marine Petroleum Network, Genworth Financial and networking equipment company Radware, it doesn’t say exactly how much it owns in any of them. Nor does it list its complete portfolio on its website or in its filings with Canadian securities regulators. (The company, unsurprisingly, declined to comment.)

Since its investment managers operate out of New York, however, Senvest has filing obligations in the United States as well. And a little detective work turns up a fuller list of holdings – and the promise that the company has markedly increased its net worth since Sept. 30, even as its shares have fallen nearly 10 per cent since its quarterly report.

One caveat: The filing is for the investment manager that handles Senvest Capital’s portfolio, as well as the investments of two affiliated hedge funds (in which Senvest Capital has $125-million invested).

So, while there’s no guarantee Senvest Capital holds all of the equities listed, there’s a good chance its public shareholders will benefit from the upside of many or most.

And there’s been quite an upside. Among holdings worth $10-million across Senvest Capital and the two hedge funds, seven stocks are up 25 per cent or more since Sept. 30, including a 94-per-cent gain from the aforementioned Radian Group, a nearly 80-per-cent jump from apparel maker Quiksilver, and nearly 60 per cent from Genworth. Only one position – advertising company Digital Generation – has lost money since the end of the third quarter.

Many of the holdings have jumped 20 per cent or more since Dec. 31. That means that when Senvest Capital discloses its year-end book value next month, the figure may still significantly understate the portfolio’s value.

Now, there can be no assurance Senvest Capital still holds all of these positions; its disclosures note that it has target prices at which it sells its winners to harvest the gains. And it’s possible some of its non-public holdings fell, blunting these gains. (Although, since many are tied to U.S. real estate, I wouldn’t bet on that.)

Really, it’s hard to know for sure, given Senvest Capital’s unwillingness to trumpet its gains. But it also means investors still have a chance to get in on the secret.

 

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