Sunday, 24 March 2013

HHC: Estimating Overhang Removal and Mid-Term Upside

As commented earlier, Brookfield (BAM) has been selling its HHC stock since late 2012.  This was trackable via the 13D filings(for insider trading), which BAM was required to submit until March 1st.  As of that date, however, we have no way of knowing exactly when BAM has completely exited its position unless the company makes a public comment.  Why is this important? Because Brookfield's steady selling is likely causing a supply/demand imbalance that once removed could result in share price appreciation.

Admittedly, what follows is all speculation. BAM no longer needs to update us via 13D filings because it has reduced its position below 5% as at March 1st.  If BAM's share of dailing trading increased to 44%, it is possible that the overhang has disappeared as of last Friday's closing.  It is also possible that BAM was out of their position as early as March 6, as volume was unusually high that day (1.95 mm shares traded hands).  Further supporting the possibility that BAM has since completely exited its position is the fact that HHC's shares are up 8.2% since March 1st versus 0.1% for the Dow Jones.

However, if I assume that Brookfield's share of daily volume has stayed at 33% since March 1st, this would mean that they currently have ~460,000 shares remaining on their books (i.e. 4.2mm shares traded since then has allowed BAM to sell 1.4mm).  Extrapolating further, I can estimate that BAM's selling can be completed within 5 more trading days (BAM can sell ~100,000 shares per day based on average of ~304,000 average between March 4-22).

So what is the upside?  HHC trades at less than 1.5x book value vs. 2.2x for a few of its home-building related peers (LEN, BRP, DHI).  Should HHC trade up to 2.2x BV, this would result in 55% appreciation to $129.

Disclosure: I am biased - I own lots of HHC still!


Thursday, 14 March 2013

Ackman spotted in Tokyo; Brookfield overhang may already be gone

Ackman was spotted in downtown Tokyo today with an entourage of four people.  What could he have been up to?  Rounding up more investors?  Or could Ackman have already have invested in his first Japanese activist effort?  As far as inefficiencies in overhead spending go, Japan should be ripe for an activist to go in and tear things apart. However, from what I've heard, there are good reasons why activists aren't too prevalent in Japan, one being that layoffs aren't an accepted practice.

On another note, it is possible that Brookfield has finished selling out of its HHC position.  This would explain the recent jump in share price.  If Brookfield in fact has shares remaining, it sure will be interesting to see what happens when overhang from BAM's selling finally lifts.