Company Background

FNF Ventures Group (“FNFV”) was spun off from Fidelity National Financial (“FNF”) on 30 Jun 2014, with intention to monetize its portfolio consisting of diverse businesses ranging from restaurants to automotive supplier. SEC Filing “Our strategy for the FNFV Group will be to achieve superior financial performance, maximize, and ultimately monetize the value of these assets.”

As of Q2 2014, it has $100m net cash position, and $15.69/share book value which is likely understated by 20% when compared against peer valuations.

32% stake in Comdata was divested for $302m FleetCor shares, even though the equity was carried at ~$35m. FleetCor share price has risen 8% since.

FNF itself is No. 1 US title insurer and formerly part of a bigger conglomerate, which William Foley (Executive Chairman) has thrice broken up since 2006.

Foley has an excellent track record of creating shareholder value; since he took control of Fidelity National Title in 1984, he has grown revenue from $40m to $15b (inclusive of its spin-off Fidelity National Information Services). FNF shareholders from 1998 till today would have enjoyed 25% CAGR.

Long-Term Investment Success Incentive Program: Beyond 8% ROI threshold, 80% of incremental return goes to FNFV and partners, and the balance allocated to incentive pool to reward FNFV executives. Bulk of incentive pool (our projections) has been reserved for and paid out prior to FNFV spin-off.

FNFV yesterday announced $3.91/share distribution to FNFV shareholders.

Perceived Risks

FNFV executives might be aggressive with valuations to pocket incentive, which are paid out annually regardless whether the gains are realized. That being said, our segment valuations are actually higher than that of FNFV.

Foley initially turned around CKE Restaurants after taking control in 1993, but the chain began making losses in early 2000s and had to be sold to PE firm.

Instead of being separate legal entities, FNFV is a tracking stock, which means it reflects the economic and financial performance of FNFV, with assets and liabilities of its portfolio companies attributed to it. In fact, investors who own tracking stock have no legal claim on the group’s assets, and are in reality shareholders of the parent FNF; some might not warm up to this idea. However, in most instances, this structure doesn’t affect FNFV shareholders at all. Indeed, FNFV shareholders will receive $3.91/share distribution.

Investment Actions

We have a TRADING BUY recommendation on FNF Ventures Group at $15.25 with 12-month Target Price of $16.41, representing potential return of 25.6% factoring in the above $3.91/share distribution and 30% US withholding tax rate.

Source: Phillip Securities Research - 10 Sep 2014