Guardian Capital Group (GCG.A-T)

Sold off one division for lots of money. Significantly undervalued, worth $60. One of the big banks could come calling. Amazing management. Share buybacks. Huge, regular dividend increases.

Half the market cap is BMO-T shares. It is a cheap way of playing BMO-T and you get their money management business at a big discount.

*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 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%.

(A Top Pick Feb 10/15. Up 2.22%.) *A Long Paired with BMO Short*. The reason for this trade was that Guardian has sold its mutual fund business to BMO in exchange for $5 million of BMO shares.

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 Top Pick Aug 21/14. Down 5.45%.) With the markets behaving the way they are, a company like this is somewhat correlated, because they do manage assets. Have been executing beautifully. They are up in terms of assets under management and their EBITDA year-over-year by double digits. Made some good accretive acquisitions. Buying back stock very aggressively. On valuation, he attributes about $9.00 to the money management business and $13 to their portfolio, which are mainly BMO (BMO-T) shares. They are focusing on growth. At this price it is a great buy.

It has historically been quite undervalued. It is a very stable stock. PE is reasonable. It is a bit of a sleepy stock, but ultimately could be a consolidation target or they could spin out their BMO shares and acquire something.

(A Top Pick April 16/14. Up 9.64%.) Long and Short Bank of Montréal (BMO-T). In 2001, they sold their mutual fund business to Bank of Montréal in exchange for 5 million shares. Have been sitting on these shares since 2001. He looks at the value of those plus some of their other listed investments, and in the last quarter it comes to about 89% of Guardian’s value. For the stub that is left, you are paying next to nothing for it. Thinks this is worth a lot more.

An asset managing business that happens to have a very large stake in Bank of Montréal (BOM-T) shares. Not quite a pure play asset management business because of that, but often what investors do is to strip out the value of those shares to find the value of the underlying asset management business. In the past he has Shorted the amount of underlying Bank of Montréal shares to hedge out that exposure. By owning Guardian shares and Shorting BMO, you are left with the stub asset management business. It has been performing well and has been growing. Overall a well-run business. The real upside will come if they sell those shares in order to make acquisitions or expand the asset management business.

(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.