Opinions
Jerome Hass
Guardian Capital Group
GCG.A-T
TOP PICK
Feb 10, 2015
Stock price when the opinion was issued
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He is Long this stock and Short the Bank of Montréal (BMO-T). In 2001, Guardian sold its mutual fund business to BMO in exchange for 5 million BMO shares. It has been sitting on those for the last 14 years. He put this trade on in 2009 when Guardian was trading at a 25% discount to its value in the BMO shares, so historically it was trading at about a 25% premium. Regardless of what the market conditions did, he saw a 50% upside if it returned to normal levels of trading, relative to the BMO holdings. Essentially he has a 3.5% position in this with a 3%-3.5% Short position with BMO, so it is relatively market neutral. The Guardian is less liquid than the BMO, so if he decides he wants to vary his not market exposure, it is a lot easier to trade BMO. He will vary this trade to a variety of conditions.
A deep value company, where it is an asset manager. Market cap of about $650 million-$675 million. They own Bank of Montréal (BMO-T) shares that are worth about $360 million, as well as other securities that are worth about $230 million. You are almost getting the asset management company for free. Extremely cheap. They continue to buy back shares. Dividend yield of 1.58%.
*Long* (Pairs trade with a Short on BMO-T). In 2001, they sold their mutual fund business to BMO in exchange for 5 million BMO shares. They sat on the 5 million for a while, but have started selling them and are down to 4.2 million. However, if you take the value of their BMO shares plus some of their other investments, it comes to $17.96 a share, and is trading at roughly $22.50, so there is not very much value in that stub. Because of this, you can pay a very healthy premium for the current share price if somebody came in. There really is a scarcity value of independent asset managers in Canada, so he expects that one day, if not BMO, that someone else will come in and take this company out.
(A Top Pick April 16/14. Down 0.87%.) Long Guardian Capital (GCG.A-T) and short Bank of Montréal (BMO-T). The whole rationale behind this was that in 2001 this company sold its mutual fund business to Bank of Montréal in exchange for 5 million Bank of Montréal shares. The company sat on these shares until about 18 months ago. They still hold 4.7 million shares. This large investment portfolio is currently worth about $16.75. Their stock price today is $16.95. Essentially you are paying $0.20 for the business. Very good institutional managers, who have a large private wealth network as well. Recently made an acquisition in the UK. Yield of 1.54%. Feels that Bank of Montréal, or one of the other banks, is going to take them out at a very healthy premium.