Einhorn’s Greenlight Capital Re And Icahn’s Icahn Enterprises

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Einhorn’s Greenlight Capital Re And Icahn’s Icahn Enterprises

During their recent episode of the VALUE: After Hours Podcast, Taylor, Brewster, and Carlisle discussed Einhorn‘s Greenlight Capital Re (NASDAQ:GLRE) and Icahn’s Icahn Enterprises LP (NASDAQ:IEP). Here’s an excerpt from the episode:

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Einhorn's Greenlight Capital Re And Icahn's Icahn Enterprises

Tobias: Einhorn genius for a decade. The GOAT for a decade, a GOAT for the last decade. I think it could be back to the GOAT stage, possibly for the coming decade if value gets a little run-on again. I’ve been hunting through some of the small-cap value names small and micro. Some really interesting stuff. I pitched Diamond Hill on the Investor’s Podcast over the weekend, which is a value investor, manages value funds. They’ve got some performance and other fees in there. So, it’s a real long/short plus long-only. They’ve got about $20 billion. Pretty incredible returns on invested capital as you’d expect from that kind of vehicle.

Greenlight Re is David Einhorn’s sort of public vehicle that you can invest in– if you’re not accredited, or an institution, you can invest through Greenlight Re. They’ve got different exposures to the hedge funds because they’ve got different constraints, and it’s also a reinsurer, so you’ve got the reinsurance risk there too that they just get the reinsurance wrong.

I had a very quick look. Book value is a little bit north of $12, grew at a couple of percent last quarter. Trading at $8.35 today, so it’s at about two-thirds book. You get Einhorn at a discount, they’re buying back stock pretty consistently, although they said they’ve got lots of investment opportunities, and stock is not their favorite thing to buy back because they’re not planning to liquidate.

Biggest holding is AerCap, AER. I think it’s very, very undervalued, but it’s one of those positions that given the infinite number of future parts, there’s a few of us feature parts where AerCap is a donut. I’m always a little bit nervous about those kind of businesses. But I do hold a few of them if you size them small, little option size positions that can be done and it’s fine. It’s their largest position that makes me a little bit nervous.

I think it’s interesting at this kind of price, because they short as well. There’s a reasonable chance that if we go through some– if the world gets busted up, if we go through another recession that shows up in the stock market, then they should be protected, they might do reasonably well in that kind of scenario. So, I think Greenlight Re’s interesting and worth taking a look at if you like the jockey and it’s a reasonable-looking horse, although the parts of it might end up in the glue factory. IEP similar kind of firm, it’s a stable, maybe rather than a single horse.

[laughter]

Tobias: I’m a big Icahn fan, I think he’s a great investor. IEP is an extraordinary part– it’s not a stock, it’s a master limited partnership, I think. Got this incredible run– you have a look at it, when value really gets going, it gets on this parabolic tear, it’s close to the bottom. I’m not predicting a parabolic tear or anything like that.

The only reason I think it’s interesting, it’s a collection of pretty cyclical businesses, but it’s got lots of energy and automotive that kind of exposure. It pays $2 a quarter in dividends pretty consistently last five quarters, and it’s grown pretty consistently too, over the last– since 2015 or 2016, it’s grown. It’s paid about $1 extra a year.

So, it’s like five, six, seven, eight, and then it’s stayed steady for this year, so it’s another $2. Stocks at like $52. So, it’s like a 15% or 16% yield at this price and you get Icahn. He owns 92% of the units in it. He pays himself units in his distribution, so that he doesn’t take the cash. So, it’s one of those things. You’re along for the ride with Icahn, that’s not such a bad thing.

Jake: He’s been kind of quiet lately, hasn’t he? There’s no fights with Ackman– I mean, what’s he doing these days?

Tobias: Yeah, I don’t know. I have seen him around a little bit, but not doing much. I guess, he’s in his 80s now.

Bill: Yeah, that way, I guess some of the discount on Icahn. I just think I’d be a little bit nervous. You’re getting his son, his son did Netflix. I don’t know that much about his son, but I– [crosstalk]

Tobias: His son got into Netflix.

Bill: I know. Yeah. I just don’t know that much about him. I’d want to know more about him.

Tobias: All I know is they play chess together. I’ve started playing chess again, I haven’t played since 2016. Unfortunately, I think I mentioned in one of the podcasts or Bill mentioned in one of the podcasts, and now I’m playing all these guys who’ve got like 1800 chess ratings in Chess.com and that’s way too high.

Bill: I’m terrible. Just atrocious. I guess that when you’re on the other side of someone like Icahn and IEP, do you wonder is he going to take advantage of me sometime? That would be my biggest concern. He’s not exactly somebody that I wouldn’t– I don’t know, he’s got a sharkier image than many.

Tobias: Thing is it’s been out there for a long time. It’s been trading for a long time and it’s been cheaper than where it is now. So, he’s had lots of opportunities to take you under it. I just think– he already controls 92% of it. It’s publicly listed. It’s just a wafer. And he takes all these distributions in the units. I’ve got that up on the screen. He’s not buying, he’s getting distributions in– He takes his distributions in kind, so you’re always getting diluted and he’s securing more control. So, you’re along for the ride with Icahn. But if you’re invested in his fund, you’d be in the same boat.

Bill: Yeah, that’s the only thing that I’ve ever sort of been like– I don’t know. But I don’t know. Thanks for listening, Carl.

Tobias: 15% to 16% yields getting to the point where I’m like, “Ah, I’ll just about risk it for that.”

Bill: Yeah, at some point, you’re compensated for it. Right?

You can find out more about the VALUE: After Hours Podcast here – VALUE: After Hours Podcast. You can also listen to the podcast on your favorite podcast platforms here:

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The Acquirer’s Multiple® is the valuation ratio used to find attractive takeover candidates. It examines several financial statement items that other multiples like the price-to-earnings ratio do not, including debt, preferred stock, and minority interests; and interest, tax, depreciation, amortization. The Acquirer’s Multiple® is calculated as follows: Enterprise Value / Operating Earnings* It is based on the investment strategy described in the book Deep Value: Why Activist Investors and Other Contrarians Battle for Control of Losing Corporations, written by Tobias Carlisle, founder of acquirersmultiple.com. The Acquirer’s Multiple® differs from The Magic Formula® Earnings Yield because The Acquirer’s Multiple® uses operating earnings in place of EBIT. Operating earnings is constructed from the top of the income statement down, where EBIT is constructed from the bottom up. Calculating operating earnings from the top down standardizes the metric, making a comparison across companies, industries and sectors possible, and, by excluding special items–earnings that a company does not expect to recur in future years–ensures that these earnings are related only to operations. Similarly, The Acquirer’s Multiple® differs from the ordinary enterprise multiple because it uses operating earnings in place of EBITDA, which is also constructed from the bottom up. Tobias Carlisle is also the Chief Investment Officer of Carbon Beach Asset Management LLC. He's best known as the author of the well regarded Deep Value website Greenbackd, the book Deep Value: Why Activists Investors and Other Contrarians Battle for Control of Losing Corporations (2014, Wiley Finance), and Quantitative Value: A Practitioner’s Guide to Automating Intelligent Investment and Eliminating Behavioral Errors (2012, Wiley Finance). He has extensive experience in investment management, business valuation, public company corporate governance, and corporate law. Articles written for Seeking Alpha are provided by the team of analysts at acquirersmultiple.com, home of The Acquirer's Multiple Deep Value Stock Screener. All metrics use trailing twelve month or most recent quarter data. * The screener uses the CRSP/Compustat merged database “OIADP” line item defined as “Operating Income After Depreciation.”

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