Plum, do you know what % of total book value is still attached to the discontinued lines? Not clear to me if there are net assets remaining post LPT-transaction.
Also related to the LPT transaction: do I read correctly that above $240m in total losses, HALL will bear all the claims, vs. a total of $182.8m as of 31 March 2021. (cf. "As of March 31, 2021, the ultimate incurred losses from the subject business were $182.8 million or $6.7 million in excess of the Hallmark Insurers’ loss corridor.")?
I'm a retired actuary who has priced LPTs. That is exactly my read, they've used up 182.8m of 240m of aggregate cover. If they go through $240m, Hallmark would be on the hook.
Could you explain more broad what does that mean? If they have $241m in losses Hall will be on the hook for the whole amount or just the claims made after $240M? How to look at probability of that happening? What is the amount of possible claims still left on the table?
What happened after 2018 to justify such a deterioration in business fundamentals in their Personal Line and Standard Commercial business? They attribute half of it to PYD in their discontinued business, but what about the other half? Have they addressed those issues? If they can get back to 2018 Combined ratios #s, it could be an interesting turnaround story with the IPO.
The following is from Den1200 as written in Value Investor's Club, "Well, a lot of not so good things happened during 2020. Let me back up to 2019. I as well as many others assumed that HALL was an average insurer and consistent PYADs happened which frustrated many. My thought was that they were just an average undersized underwriter. Little did I know that overall HALL had done an excellent job building the above-mentioned specialty business, but all that was being obscured by the commercial auto business, more specifically the binding small truck business segment. All this time this binding small truck business was performing horribly and was being reported as part of the “specialty commercial segment”. So, while the PYADs kept coming on this binding small truck business there was no way to see how well the other specialty lines were doing."
Yeah their track record is not great. Obviously underwriting issues and cat losses etc. But “all in the price” as they say. Also expectations are super low, if they can just print ok-ish quarters I think the stock price rockets from here
Yes was hoping for better than this. However I don’t think this was “abandon all hope” bad, so I’ll be holding and see how the IPO shapes up in the coming days
By my read, Standard Commercial took cat losses, Specialty trended toward the mean loss ration (from an extremely low Q1), and Personal Lines continued to stink.
Any idea what the stock compensation is for the executives? The recent proxy statement is based on a stock price of $3.56 at Dec 2020.
Any idea what is paid out to executives if the stock price appreciates to $8 or $10?
It says this in the latest 10Q:
"The performance criteria for all restricted stock units require that we achieve certain compound average annual growth rates in book value per share as well as certain average combined ratio percentages over the vesting period in order to receive shares of common stock in amounts ranging from 50% to 150% of the number of restricted stock units granted"
"The grant date fair value of restricted stock units granted in 2017, 2018 and 2019 was $10.20, $10.87 and $18.10 per unit, respectively"
With non invested RSU standing at 228,827. So probably means the max compensation is 228,827*150%?
Was trying to find the latest performance criteria but can't seem to find it. This is from the 2016 proxy statement:
“Target” represents the number of restricted stock units awarded. Each restricted stock unit represents the right to receive shares of common stock upon satisfaction of vesting requirements and performance criteria.
All awards vest on March 31, 2018, are subject to performance criteria based on the compound average annual growth rate ("CAAGR") in book value per share from January 1, 2015 to December 31, 2017, and earn a percentage of a share of common stock per restricted stock unit, as follows: (i) CAAGR less than 9% earns 0%; (ii) 9% CAAGR earns 50%; (iii) 10% CAAGR earns 67%; (iv) 11% CAAGR earns 83%; (v) 12% CAAGR earns 100%; (vi) 13% CAAGR earns 117% shares; (vii) 14% CAAGR earns 133%; and (viii) 15% or greater CAAGR earns 150%.
Of the restricted stock units granted to Mr. Kasitz, 25% are subject to this CAAGR performance criteria and 75% are subject to performance criteria based on the three year average annual combined ratio (“AACR”) for 2015, 2016 and 2017, as follows: (i) AACR of 98% or higher 0%; (ii) AACR of 97% earns 50%; (iii) AACR of 96% earns 60%; (iv) AACR of 95% earns 70%; (v) AACR of 94% earns 80%; (vi) AACR of 93% earns 90%; (vii) AACR of 92% earns 100%; (viii) AACR of 91% earns 110%; (ix) AACR of 89% earns 120%; (x) AACR of 88% earns 130%; (xi) AACR of 87% earns 140%; and (xii) AACR of 86% or less earns 150%;
Totally fair question, and I candidly didn’t bother doing detailed calcs on this. But if you look at how they paid themselves historically, they were very frugal. If they make a bunch of money when the stock appreciates significantly from here, I’m completely fine with that, because every shareholder would make out like bandits too (from where the share price is today)
Yeah, actually I would be more bullish if the management was incentivised with RSUs and options. Because it just seems like none of the management, other than Mark E. Schwarz, has any skin in the game. Then again, Mark E. Schwarz does have a substantial holding of the stock.
Just find it strange that none of the other executives owns substantial stock in the company nor has any huge upside if the company does well in this spin-off.
Plum & Bruce, it would be worthwhile to look into Mark Swarz's business history more closely. I've done a cursory glance at it and am not initially impressed But I want to emphasize I have not done any meaningful digging into it. In addition I did buy stock after reading Plum's compelling analysis despite not knowing much of anything about the management.
you ask is it fair that they haven't rebounded as much from COVID lows? I'd say they had $60m of adverse loss development reported at the end of 2020, so that is a major overhang their peer group didn't have - that is about 8% of their carried reserves (ie a lot). They also had $60 from end of 2019.
Then many other insurers put up specific bulk reserves for potential liability from COVID based claims (for example business interruption) - my read of their 10-K didn't show any of bulk reserves they set up specifically for COVID - just a comment they had $5m of COVID claims in 2020.
Interesting idea. Seems to definitely have some hair on it but it sounds like there is a decent "margin of safety" given the current price. Not really in my wheelhouse from a knowledge perspective but the call options went up on this one so I decided to do a buy/write on it. Very nice return in a tax-free account IMO.
I was thinking of the same thing! Haven’t done it yet but selling covered calls does seem like a pretty neat way to reduce your basis and lock in same nice return
It's a pretty juicy return, at least right now. I got a pretty big premium, circa 10% on August calls which are huge annualized. If you think the $5 is well anchored by fundamentals then it's a very nice income stream.
I just want to enquire about your point 2 around the IPO proceeds.
In my opinion the the cash raised via the IPO will only sit on the balance sheet of the new (carved out) company. And Hall will show on its balance sheet the valuation of 50% of the shares of the new company. Hall would not get this cash.
For hall to get any of the cash: either the new company dividends it out (which will be tax inefficient and Also the ipo subscribers would not be wanting back an immediate dividend) OR hall sells a part of its 50% stake to the market at what ever is the share price the new company trades at.
It is only after this, that hall shareholders can benefit.
Replied too soon. Yes I think what you’re saying is correct… not sure if this is the most tax efficient way for HALL to get the IPO proceeds. But HALL should benefit from the cash ultimately, I wouldn’t think it stays on the B/S of the new entity indefinitely. But why should IPO investors care about that dividend? They are not entitled to that cash… they are paying for something… they can’t turn around and then keep the cash again for themselves right?
What I’m saying is for the cash to get out of the new entity, it need to be dividend-Ed out. Else hall can’t get it.
In the dividend process, the 50% IPO investors will also get a dividend. And in my opinion, They might not be happy with a large dividend when they’ve just bought the stock. I say this because:
Imagine subscribing to an IPO for a $10 stock and then getting a $5 dividend in a few months and thus the book value per share also reduces by $5. The investors will be pissed. They’d be like “why did I invest in this anyways?. I wanted to put capital in the company to fund its growth. All the company is doing is paying back the cash that I invested in it. !!”
And so an immediate dividend might drop the stock price of the new company.
So all I am saying is, getting the cash out of the new company so not that straightforward.
This is how I interpret it. Happy to be corrected. We’re all here to learn :-)
Hmm I hope I’m not being dumb and that we’re talking past each other. I’m just confused why the IPO investors would get a dividend.
For example - if a private equity firm sells a 50% interest in a portfolio company which they own 100% of, and wants to get cash out, they will dividend out all of it to themselves. New investors would not get any of that (why should they?) is your example any different?
An IPO involves the company selling NEWLY issued shares. The result is that the IPO proceeds go to the company (in this case the carved out “new” company). Original owners can sell some shares into the public market at a later date.
See the difference. An IPO is not a sale. It is a capital raise. The shares are NEWLY issued. Your example of a private equity firm is the sale of EXISTING shares and so the company definitely gets the cash.
What I am saying is the shareholders of the newly issued shares would be entitled to any dividends that the new company gives.
So HALL who will be a 50% shareholder of the new company, can make cash out of this transaction by either:
- a dividend (but then all shareholders would have to be given a dividend).
- a subsequent sale of a part of its 50% stake of the new company in the public market.
The considerations for both the options is a potential negative impact on the share price of the new company.
Got it. Thanks for the clarification. You make good points, I think these are legitimate questions for management. I am in touch with other investors who are speaking with mgmt., and may reach out to the team myself after earnings. Will let subs know if I learn something - though I suspect mgmt would probably keep mum until IPO is complete
I would think they would put the business in a blank company as in-specie contribution and sell half of the shares they get in return as IPO? Thus directly realising the cash in the current Company.
Great read! Came across your substack after holding $HALL for over a year now. I also researched Elevate Credit as well a few months ago. Nice to see someone else take a similar approach to investing while also providing new insights. Looking forward to your next post!
Hi valuedog, I know the situation/setup quite well but always felt that the business model (esp on the refining side) was somewhat out of my circle of competence. Do you mind giving us a very quick summary of your thesis? I’m sure other subs here are also familiar with the name and would be interested in learning more
More info on Schwarz. Obviously an aggressive, very smart guy.
Mark E. Schwarz is a businessperson who founded Newcastle Partners LP and Newcastle Capital Management LP and who has been at the helm of 9 different companies.
He occupies the position of Executive Chairman, President & CEO at Hallmark Financial Services, Inc., Chairman & Chief Executive Officer at NCM Services, Inc., Chairman, CEO & Portfolio Manager at Newcastle Partners LP, Executive Chairman & Chief Executive Officer for Wilhelmina International, Inc. and Chairman for Rave Restaurant Group, Inc., Chairman at Pizza Inn, Inc. (a subsidiary of Rave Restaurant Group, Inc.). Mr. Schwarz is also on the board of Schwarz 2012 Family Trust and Managing Member at New Castle Capital Group LLC.
In his past career he occupied the position of Chairman at Bell Industries, Inc., Chairman, CEO & Portfolio Manager at Newcastle Capital Management LP, Associate at Lamar Hunt Trust Estate, Vice President at Sandera Capital LLC, Chairman & Acting Chief Executive Officer at New Century Equity Holdings Corp. and Portfolio Manager at Newfleet Asset Management LLC.
He received an undergraduate degree from The University of Texas at Austin and an MBA from Southern Methodist University.
It's important to note I am NOT drawing judgements/investment decisions based on this initial research. Here is more info on Rave:
"As previously disclosed, on December 29, 2020, Rave Restaurant Group, Inc. (the “Company”) received notice from Nasdaq that the Company had failed to regain compliance with Nasdaq’s continued listing standard requiring maintenance of a minimum bid price of $1.00 per share and was subject to delisting. The Company timely requested an appeal hearing which stayed delisting pending the decision of a Hearing Panel.
The Company’s appeal was heard by the Hearing Panel on February 9, 2021. On February 12, 2021, the Company provided to the Hearing Panel supplemental information evidencing that the Company had regained compliance with the $1.00 minimum bid price requirement.
By letter dated February 16, 2021, the Hearing Panel confirmed that the Company had regained compliance with the Nasdaq minimum bid price requirement. Therefore, the Company’s common stock is no longer subject to delisting from Nasdaq. The Hearing Panel has imposed a Panel Monitor for a period of 180 days to monitor the Company’s continued compliance with all Nasdaq continued listing requirements."
Nice write-up. I'm skeptical that mgmt has the best intentions with floating half the specialty business. The most logical thing to do to create value is clean up the underwriting in the "bad businesses" and then sell these toxic assets. It looks to me like they're just financially engineering. Float the good business and their non-cash compensation gets more valuable. And they might even pay themselves two salaries. It just seems to risky unless you can trust management.
This is a legit pushback. However, I’ll counter by saying the value creation should far exceed whatever drag the stock has from mgmt incentives. Also, mgmt has historically not paid themselves too much. There are far, far worse examples wherever you look. So in sum, I am not too worried about this
"...not paid themselves too much." This suggests they're not using the business to enrich themselves which takes a lot of risk off the table. The financial is replete with examples of this self-dealing. Do you think they are inept? Any insights you can share about them, their history?
Hi Bob - I don't think they are inept. This is basically controlled by Mark Schwarz from Newcastle Partners. I don't know his background well nor have spoken to him, but his background and credentials look impressive. Also, go to their proxy and look at their compensation details - the former CEO only got paid $500k salary and a $300k stock award in 2019, and only got paid a flat salary of $500k in 2020. Mark Schwarz only paid himself $200k for each of the two years. Hardly the look of execs enriching themselves at shareholders' expense
most insurances lost money in the past years, so ineptitude and bad insurance cycle are on the table. The CEO owns ~5M shares through his fund (Newcastle LP), his family trust, and his own account. He hasn't screwed the minority shareholders so far. This is not Geico or Progressive but it's close to TIPT in terms of expectations
Interesting. Personally I'd wait to see where the newco trades. Seems likely that it trades cheap and you take a lot of the business risk off the table as well as risk of how mgmt deploys the capital at the oldco.
Hey did you do a deep dive about the non-cash compensation? On my own research, it actually seems pretty low. Max 343,240 restricted stock units on the table by this year it seems.
Plum, do you know what % of total book value is still attached to the discontinued lines? Not clear to me if there are net assets remaining post LPT-transaction.
Also related to the LPT transaction: do I read correctly that above $240m in total losses, HALL will bear all the claims, vs. a total of $182.8m as of 31 March 2021. (cf. "As of March 31, 2021, the ultimate incurred losses from the subject business were $182.8 million or $6.7 million in excess of the Hallmark Insurers’ loss corridor.")?
I'm a retired actuary who has priced LPTs. That is exactly my read, they've used up 182.8m of 240m of aggregate cover. If they go through $240m, Hallmark would be on the hook.
Could you explain more broad what does that mean? If they have $241m in losses Hall will be on the hook for the whole amount or just the claims made after $240M? How to look at probability of that happening? What is the amount of possible claims still left on the table?
What happened after 2018 to justify such a deterioration in business fundamentals in their Personal Line and Standard Commercial business? They attribute half of it to PYD in their discontinued business, but what about the other half? Have they addressed those issues? If they can get back to 2018 Combined ratios #s, it could be an interesting turnaround story with the IPO.
The following is from Den1200 as written in Value Investor's Club, "Well, a lot of not so good things happened during 2020. Let me back up to 2019. I as well as many others assumed that HALL was an average insurer and consistent PYADs happened which frustrated many. My thought was that they were just an average undersized underwriter. Little did I know that overall HALL had done an excellent job building the above-mentioned specialty business, but all that was being obscured by the commercial auto business, more specifically the binding small truck business segment. All this time this binding small truck business was performing horribly and was being reported as part of the “specialty commercial segment”. So, while the PYADs kept coming on this binding small truck business there was no way to see how well the other specialty lines were doing."
Yeah their track record is not great. Obviously underwriting issues and cat losses etc. But “all in the price” as they say. Also expectations are super low, if they can just print ok-ish quarters I think the stock price rockets from here
Disappointing Q2.
Yes was hoping for better than this. However I don’t think this was “abandon all hope” bad, so I’ll be holding and see how the IPO shapes up in the coming days
By my read, Standard Commercial took cat losses, Specialty trended toward the mean loss ration (from an extremely low Q1), and Personal Lines continued to stink.
Any idea what the stock compensation is for the executives? The recent proxy statement is based on a stock price of $3.56 at Dec 2020.
Any idea what is paid out to executives if the stock price appreciates to $8 or $10?
It says this in the latest 10Q:
"The performance criteria for all restricted stock units require that we achieve certain compound average annual growth rates in book value per share as well as certain average combined ratio percentages over the vesting period in order to receive shares of common stock in amounts ranging from 50% to 150% of the number of restricted stock units granted"
"The grant date fair value of restricted stock units granted in 2017, 2018 and 2019 was $10.20, $10.87 and $18.10 per unit, respectively"
With non invested RSU standing at 228,827. So probably means the max compensation is 228,827*150%?
Was trying to find the latest performance criteria but can't seem to find it. This is from the 2016 proxy statement:
“Target” represents the number of restricted stock units awarded. Each restricted stock unit represents the right to receive shares of common stock upon satisfaction of vesting requirements and performance criteria.
All awards vest on March 31, 2018, are subject to performance criteria based on the compound average annual growth rate ("CAAGR") in book value per share from January 1, 2015 to December 31, 2017, and earn a percentage of a share of common stock per restricted stock unit, as follows: (i) CAAGR less than 9% earns 0%; (ii) 9% CAAGR earns 50%; (iii) 10% CAAGR earns 67%; (iv) 11% CAAGR earns 83%; (v) 12% CAAGR earns 100%; (vi) 13% CAAGR earns 117% shares; (vii) 14% CAAGR earns 133%; and (viii) 15% or greater CAAGR earns 150%.
Of the restricted stock units granted to Mr. Kasitz, 25% are subject to this CAAGR performance criteria and 75% are subject to performance criteria based on the three year average annual combined ratio (“AACR”) for 2015, 2016 and 2017, as follows: (i) AACR of 98% or higher 0%; (ii) AACR of 97% earns 50%; (iii) AACR of 96% earns 60%; (iv) AACR of 95% earns 70%; (v) AACR of 94% earns 80%; (vi) AACR of 93% earns 90%; (vii) AACR of 92% earns 100%; (viii) AACR of 91% earns 110%; (ix) AACR of 89% earns 120%; (x) AACR of 88% earns 130%; (xi) AACR of 87% earns 140%; and (xii) AACR of 86% or less earns 150%;
Totally fair question, and I candidly didn’t bother doing detailed calcs on this. But if you look at how they paid themselves historically, they were very frugal. If they make a bunch of money when the stock appreciates significantly from here, I’m completely fine with that, because every shareholder would make out like bandits too (from where the share price is today)
Yeah, actually I would be more bullish if the management was incentivised with RSUs and options. Because it just seems like none of the management, other than Mark E. Schwarz, has any skin in the game. Then again, Mark E. Schwarz does have a substantial holding of the stock.
Just find it strange that none of the other executives owns substantial stock in the company nor has any huge upside if the company does well in this spin-off.
Plum & Bruce, it would be worthwhile to look into Mark Swarz's business history more closely. I've done a cursory glance at it and am not initially impressed But I want to emphasize I have not done any meaningful digging into it. In addition I did buy stock after reading Plum's compelling analysis despite not knowing much of anything about the management.
you ask is it fair that they haven't rebounded as much from COVID lows? I'd say they had $60m of adverse loss development reported at the end of 2020, so that is a major overhang their peer group didn't have - that is about 8% of their carried reserves (ie a lot). They also had $60 from end of 2019.
Then many other insurers put up specific bulk reserves for potential liability from COVID based claims (for example business interruption) - my read of their 10-K didn't show any of bulk reserves they set up specifically for COVID - just a comment they had $5m of COVID claims in 2020.
Interesting idea. Seems to definitely have some hair on it but it sounds like there is a decent "margin of safety" given the current price. Not really in my wheelhouse from a knowledge perspective but the call options went up on this one so I decided to do a buy/write on it. Very nice return in a tax-free account IMO.
I was thinking of the same thing! Haven’t done it yet but selling covered calls does seem like a pretty neat way to reduce your basis and lock in same nice return
It's a pretty juicy return, at least right now. I got a pretty big premium, circa 10% on August calls which are huge annualized. If you think the $5 is well anchored by fundamentals then it's a very nice income stream.
I just want to enquire about your point 2 around the IPO proceeds.
In my opinion the the cash raised via the IPO will only sit on the balance sheet of the new (carved out) company. And Hall will show on its balance sheet the valuation of 50% of the shares of the new company. Hall would not get this cash.
For hall to get any of the cash: either the new company dividends it out (which will be tax inefficient and Also the ipo subscribers would not be wanting back an immediate dividend) OR hall sells a part of its 50% stake to the market at what ever is the share price the new company trades at.
It is only after this, that hall shareholders can benefit.
Can you share your thoughts on this please ?
Replied too soon. Yes I think what you’re saying is correct… not sure if this is the most tax efficient way for HALL to get the IPO proceeds. But HALL should benefit from the cash ultimately, I wouldn’t think it stays on the B/S of the new entity indefinitely. But why should IPO investors care about that dividend? They are not entitled to that cash… they are paying for something… they can’t turn around and then keep the cash again for themselves right?
What I’m saying is for the cash to get out of the new entity, it need to be dividend-Ed out. Else hall can’t get it.
In the dividend process, the 50% IPO investors will also get a dividend. And in my opinion, They might not be happy with a large dividend when they’ve just bought the stock. I say this because:
Imagine subscribing to an IPO for a $10 stock and then getting a $5 dividend in a few months and thus the book value per share also reduces by $5. The investors will be pissed. They’d be like “why did I invest in this anyways?. I wanted to put capital in the company to fund its growth. All the company is doing is paying back the cash that I invested in it. !!”
And so an immediate dividend might drop the stock price of the new company.
So all I am saying is, getting the cash out of the new company so not that straightforward.
This is how I interpret it. Happy to be corrected. We’re all here to learn :-)
Hmm I hope I’m not being dumb and that we’re talking past each other. I’m just confused why the IPO investors would get a dividend.
For example - if a private equity firm sells a 50% interest in a portfolio company which they own 100% of, and wants to get cash out, they will dividend out all of it to themselves. New investors would not get any of that (why should they?) is your example any different?
An IPO involves the company selling NEWLY issued shares. The result is that the IPO proceeds go to the company (in this case the carved out “new” company). Original owners can sell some shares into the public market at a later date.
See the difference. An IPO is not a sale. It is a capital raise. The shares are NEWLY issued. Your example of a private equity firm is the sale of EXISTING shares and so the company definitely gets the cash.
What I am saying is the shareholders of the newly issued shares would be entitled to any dividends that the new company gives.
So HALL who will be a 50% shareholder of the new company, can make cash out of this transaction by either:
- a dividend (but then all shareholders would have to be given a dividend).
- a subsequent sale of a part of its 50% stake of the new company in the public market.
The considerations for both the options is a potential negative impact on the share price of the new company.
Got it. Thanks for the clarification. You make good points, I think these are legitimate questions for management. I am in touch with other investors who are speaking with mgmt., and may reach out to the team myself after earnings. Will let subs know if I learn something - though I suspect mgmt would probably keep mum until IPO is complete
I would think they would put the business in a blank company as in-specie contribution and sell half of the shares they get in return as IPO? Thus directly realising the cash in the current Company.
Cheers. Have a good weekend! Keep up the good research and writing !
Great read! Came across your substack after holding $HALL for over a year now. I also researched Elevate Credit as well a few months ago. Nice to see someone else take a similar approach to investing while also providing new insights. Looking forward to your next post!
Hi Justin, thanks for the kind words. I am impressed by your dumpster diving ability
Plum, I submit to your 3 investment pillars. As such, I would suggest you look at CLMT.it checks all 3 boxes, price target 19-25.
Hi valuedog, I know the situation/setup quite well but always felt that the business model (esp on the refining side) was somewhat out of my circle of competence. Do you mind giving us a very quick summary of your thesis? I’m sure other subs here are also familiar with the name and would be interested in learning more
Enjoyed reading this. Any thoughts on their issues with auditors in the past?
This is from the NYT so discount 98% of it but it does show that Mark Schwartz has been involved in the investment world for a LONG time. Time permitting I hope to research his track record a little more. https://www.nytimes.com/2001/02/25/business/business-putting-hostile-back-into-takeover.html
More info on Schwarz. Obviously an aggressive, very smart guy.
Mark E. Schwarz is a businessperson who founded Newcastle Partners LP and Newcastle Capital Management LP and who has been at the helm of 9 different companies.
He occupies the position of Executive Chairman, President & CEO at Hallmark Financial Services, Inc., Chairman & Chief Executive Officer at NCM Services, Inc., Chairman, CEO & Portfolio Manager at Newcastle Partners LP, Executive Chairman & Chief Executive Officer for Wilhelmina International, Inc. and Chairman for Rave Restaurant Group, Inc., Chairman at Pizza Inn, Inc. (a subsidiary of Rave Restaurant Group, Inc.). Mr. Schwarz is also on the board of Schwarz 2012 Family Trust and Managing Member at New Castle Capital Group LLC.
In his past career he occupied the position of Chairman at Bell Industries, Inc., Chairman, CEO & Portfolio Manager at Newcastle Capital Management LP, Associate at Lamar Hunt Trust Estate, Vice President at Sandera Capital LLC, Chairman & Acting Chief Executive Officer at New Century Equity Holdings Corp. and Portfolio Manager at Newfleet Asset Management LLC.
He received an undergraduate degree from The University of Texas at Austin and an MBA from Southern Methodist University.
On the other hand here is a 5 year stock chart of Rave Restaurants a company he's chairman of. FD: I do not know how long he's been chairman.
https://www.google.com/search?q=rave+stock+price&rlz=1C1CHBF_enUS764US764&oq=rave+stock+price&aqs=chrome..69i57j0j0i22i30l3.14463j1j4&sourceid=chrome&ie=UTF-8
$RAVE looks cheap
It's important to note I am NOT drawing judgements/investment decisions based on this initial research. Here is more info on Rave:
"As previously disclosed, on December 29, 2020, Rave Restaurant Group, Inc. (the “Company”) received notice from Nasdaq that the Company had failed to regain compliance with Nasdaq’s continued listing standard requiring maintenance of a minimum bid price of $1.00 per share and was subject to delisting. The Company timely requested an appeal hearing which stayed delisting pending the decision of a Hearing Panel.
The Company’s appeal was heard by the Hearing Panel on February 9, 2021. On February 12, 2021, the Company provided to the Hearing Panel supplemental information evidencing that the Company had regained compliance with the $1.00 minimum bid price requirement.
By letter dated February 16, 2021, the Hearing Panel confirmed that the Company had regained compliance with the Nasdaq minimum bid price requirement. Therefore, the Company’s common stock is no longer subject to delisting from Nasdaq. The Hearing Panel has imposed a Panel Monitor for a period of 180 days to monitor the Company’s continued compliance with all Nasdaq continued listing requirements."
Nice write-up. I'm skeptical that mgmt has the best intentions with floating half the specialty business. The most logical thing to do to create value is clean up the underwriting in the "bad businesses" and then sell these toxic assets. It looks to me like they're just financially engineering. Float the good business and their non-cash compensation gets more valuable. And they might even pay themselves two salaries. It just seems to risky unless you can trust management.
This is a legit pushback. However, I’ll counter by saying the value creation should far exceed whatever drag the stock has from mgmt incentives. Also, mgmt has historically not paid themselves too much. There are far, far worse examples wherever you look. So in sum, I am not too worried about this
"...not paid themselves too much." This suggests they're not using the business to enrich themselves which takes a lot of risk off the table. The financial is replete with examples of this self-dealing. Do you think they are inept? Any insights you can share about them, their history?
Hi Bob - I don't think they are inept. This is basically controlled by Mark Schwarz from Newcastle Partners. I don't know his background well nor have spoken to him, but his background and credentials look impressive. Also, go to their proxy and look at their compensation details - the former CEO only got paid $500k salary and a $300k stock award in 2019, and only got paid a flat salary of $500k in 2020. Mark Schwarz only paid himself $200k for each of the two years. Hardly the look of execs enriching themselves at shareholders' expense
most insurances lost money in the past years, so ineptitude and bad insurance cycle are on the table. The CEO owns ~5M shares through his fund (Newcastle LP), his family trust, and his own account. He hasn't screwed the minority shareholders so far. This is not Geico or Progressive but it's close to TIPT in terms of expectations
Had a typo.. I meant to say they are getting a new CEO for the spin out so they are not totally double dipping on mgmt comp
Interesting. Personally I'd wait to see where the newco trades. Seems likely that it trades cheap and you take a lot of the business risk off the table as well as risk of how mgmt deploys the capital at the oldco.
Hey did you do a deep dive about the non-cash compensation? On my own research, it actually seems pretty low. Max 343,240 restricted stock units on the table by this year it seems.