mixed feelings, page-5

Camden, I'm not sure return on tangible equity gives me a lot of comfort here. What I see is a business with shrinking equity. And equity is shrinking enough that most of what is left is the intangible goodwill. So naturally if you take the remaining equity and reduce it by the goodwill, you are left with a tiny number. And the earnings and cash flow are going to both look pretty good against that number. But next year if they have $10M less of equity should we feel even better, because then the ROTE will be even greater.

I tend to look for oversold stocks with catalysts in the next 12 months, and two things scare me about WHG:

1) Unlikely a merger of equals with SFG is going to produce a premium for WHG shareholders. Worse, a merger often has a lot of growing pains as different management and systems consolidate. That looks like further postponement of return on this investment.

2) I don't see a lot of catalysts for turning around the operating business in a short timeframe.

This would be extremely interesting if there were a much larger wealth management business - looking to launch in Australia - and they could offer substantial premium to the current share price. If we had some reasons to believe that such an offer was forthcoming within a year I would go along for that ride. I do realize you don't often get warned in advance, but you do occasionally get a warning in advance, and the two parties will dance for a few years before a buyout happens.