Leucadia: A Conglomerate of Assets

10/04/2016 7:00 am EST


Gordon Pape

Editor and Publisher, The Income Investor and the Internet Wealth Builder

This company's eclectic mix of financial services, beef processing, real estate, building products, energy, gold mining, and broadband in Italy is not easy to comprehend and different subsidiaries will often experience very contrasting fortunes, states Gordon Pape, editor of Internet Wealth Builder.

Leucadia National (LUK) is a conglomerate, which is often compared to Warren Buffett’s Berkshire Hathaway (BRK.A), with which it operates a commercial mortgage joint venture.

With over $10 billion in capital and rated investment grade at BBB-, Leucadia has the balance sheet to survive periods of volatility.

Leucadia's earnings, similar to Berkshire Hathaway's, have always been "lumpy", i.e. subject to a lot of variation between quarters. For example, its wholly-owned investment bank, Jefferies, lost $245.8 million in its first quarter.

Leucadia's management, like Warren Buffett, regards this as an opportunity to buy attractive assets due to many investors' inability to tolerate such volatility.

The rebound in markets and the price of energy, a major focus of Jefferies' business, enabled Jefferies to earn $103 million before tax since the first quarter low point.

Some of Leucadia's positions that are marked to market saw their prices rebound in the second quarter, include foreign exchange firm FXCM (FXCM) and conglomerate HRG Group (HRG). Meanwhile, mortgage joint venture Berkadia generated $40.7 million for Leucadia from record refinancings.

Leucadia’s real estate subsidiary HomeFed (HOFD) began construction on its massive property in southern California, with a 948-home development. HomeFed contributed $23.6 million.

It’s National Beef unit was hit last year by a turn in the beef cattle cycle. However, this year cattle numbers have increased and National Beef contributed $80.3 million to Leucadia's earnings in the first six months of the year.

Car dealership Garcadia benefited from record US auto sales and contributed $25.7 million. The Golden Queen Mining Co. (Toronto: GQM) came on stream this year (Leucadia owns 35%).

Linkem, its wireless broadband operation in Italy, had 355,000 customers at the end of June, up 14% and is EBITDA positive.

Leucadia will always suffer from its wide range of different operations and its volatile earnings but remains a buy for the recovery in some its major subsidiaries, the growth in some of its long held assets, and its close control of costs.

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