OUCH – Fools Rush In

In my last article on Leucadia (LUK) I said “Cautious investors may prefer to wait until after the anticipated earnings announcement between 27-Feb and 6-March as any major disappointment would result in a short term sell-off.” If only I took my own advice I would have saved myself some pain! Fortunately, I was paid well for my puts and was cautious enough to only put (excuse my pun) myself on the hook for a third of a position. Still, the pain the pain.

Leucadia announced their 2008 results after market closed on Friday and the market took the stock to the woodshed on Monday, down 19% or $2.76 to $11.87 on a horrendous day in the markets. The annual report is not yet available on the company’s website, but can be found here at the SEC.
Following are some key point:

• Book value of $11.22 per share at December 31, 2008
• AmeriCredit Corp. (ACF) investment of $405 million worth $249 million as of Dec 31.
• Jefferies Group Inc. (JEF) investment of $794 million worth $683 million as of Dec 31.
• The 277,986 thousand Fortescue (FMG.AX) shares had a market value of $377 million at Dec 31. LUK also owns a $100 million note in FMG.AX bearing interest of 4% net revenue with a maturity of August 2019. No payments have been made due to debt covenants.
• Net operating loss (NOLs) of approximately $5,745,600,000 at Dec 31. “At December 31, 2008, the Company has recorded a valuation allowance against substantially all of the net deferred tax asset due to the uncertainty about its ability to generate future taxable income to utilize that asset.”
• Year on year consolidated revenue down 6.42% or $74.2 million to $1,080.7 million.
• Consolidated net income from continuing operations fell to a loss of $366.6 million from a loss of $57.1 million in 2007.
• Consolidated assets fell $2,928.1 million or 36% to $5,198.5 million.
• Income from continuing ops fell $3,060.1 million to a loss of $2,579.3 million, a loss of $11 per share. $1,672.1 million of the loss was due to the increase to deferred tax allowance.
• The Parent’s only long-term cash requirement is to make principal payments on its long-term debt ($1,794,300,000 principal outstanding as of December 31, 2008), of which $475,000,000 is due in 2013, $221,100,000 is due in 2014, $500,000,000 is due in 2015, $500,000,000 is due in 2017 and $98,200,000 is due in 2027. The debt has interest rates of around 7-8%.

The figures are bad; considerably worse than I expected and LUK is still trading at a small premium to the year end book value. As Leucadia is geared to the economically sensitive assets it is unlikely to trade at a premium to book in the near future. While the current price will more than likely appear attractive in a few years investors should now stand aside to wait for accumulation of shares to provide a floor.

Related posts:

1. Leucadia National Corp. (LUK) Better Than Berkshire
2. Leucadia Q4 2009
3. Suntech Reports Preliminary Q4 and 2008 Financial Results
4. CVTX Q3 2008 Conference Call
5. Oplink Communications, Inc. (OPLK) Q4 2008
6. CompuCredit Corp. (CCRT) Insider Buying