Price Upgrade on Guggenheim inclusion

Key points

Valuation  Update 

We  are  upgrading  our  valuation  of  k1  from  $0.24/share  to  $0.30/share,  as  we factor  in  the  US$100m  investment  in  the  preferred  shares  of  Guggenheim Capital. We had omitted this investment earlier in our valuation.

In  mid-2011,  k1  had  invested  US$100m  in  US-based  Guggenheim  Capital,  a privately-held  financial  services  group  with  more  than  US$100b  in  assets  under management (AUM). Guggenheim provides investment management, investment banking  and  capital  market  services  and  insurance  and  investment  advisory solutions  for  institutions,  corporations,  governments  and  agencies,  investment advisors,  family  offices  and  individuals.  k1  invested  in  the  preferred  shares  of Guggenheim with a dividend rate of 7% and has detachable warrants to convert into equity in Guggenheim. 

Structuring  deals  with  favourable  risk-reward  profile,  in  this  case  by  investing  in the  preferred  shares  of  Guggenheim,  with  option  to  share  in  the  equity  upside, has  been  a  hallmark  of  the  Green  management  team.  A  similar  investment structure was conceived in the McMoRan deal and K2, an earlier investment that has  since  been  divested.  We  remain  optimistic  that  value  would  be  gradually unlocked  as  the  company  embarked  on  managing  its  existing  investments  for eventual exit and the distribution of excess cash back to shareholders.

We raise our TP for the stock to $0.21/share on the same 30% discount to SOTP valuation.

Source: OSK