Apparently Citadel held a smaller position (135,000 shares) as of December 31, but sold them all in Q1 when FXCM’s shares traded in the $12-14 range (after FXCM went public in an IPO at $14 per share in early December). Citadel has since repurchased an even larger position as FXCM’s shares dipped below $9 in recent weeks, following the release of Q1 results – on the day FXCM’s Q1 results were released (May 16), its stock sunk by 17%, and rival Gain Capital’s share price dove by 6%.
Citadel is quite familiar with the online brokerage business, having led a $2.5 billion investment in E*Trade in November 2007. It has since sold a good part of that investment. (Note that it is difficult to assess how Citadel has done on its E*Trade investment, which apparently helped E*Trade stave off bankruptcy nearly four years ago. E*Trade’s share price is well below where the investment was made, down by about two-thirds, but the transaction also included Citadel buying a troubled $3 billion asset-backed loan portfolio from E*Trade for $800 million in cash.)
Other hedge fund investors reporting positions in FXCM (holdings as of March 31) include Lee Ainslie (Maverick Capital), Steve Eisman (FrontPoint Partners), Robert Pohly (Samlyn Capital), Anand Parekh (Alyeska Investment), and Douglas Hirsch (Seneca Capital). As well, FXCM Director James Brown (of Long Ridge Equity Partners) bought 100,000 shares last Tuesday in the $9.01-$9.02 range.
To us, these positions and purchases indicate that a lot of smart people who know the investment business believe that FXCM stock is oversold, and that things are not as bad as the share price might indicate, as we also wrote in a recent report after Q1 results came out. It also reveals to us that some very keen and experienced investors have been keeping their eyes on the sector, waiting for the right time to buy in.
By our calculation, when FXCM was trading at about $9 per share that indicated a (trailing) P/E multiple of under 7x, a market-cap-to-revenue multiple of 1.3x and a market-cap-to-EBITDA multiple of just 3.9x – and that following the reporting of a quarter which to us seemed not too bad. That also made FXCM a company with a market value of about $675 million and more than $200 million of cash. These numbers, all else being equal, are very attractive figures for hedge fund investors. (For more details on public valuations and multiples as well as M&A transactions and multiples for Forex companies see LeapRate’s Online Forex Industry Report, now updated for 2011).
Also interesting to note is that while FXCM was up 11% on the Citadel investment news, shares of rival Gain Capital barely budged, closing the day up just one penny, or 0.2%.
Will the news that the hedge fund guys have bought in help create a more sustainable rally in FXCM (and Gain Capital) shares – and possibly pave the way for other Forex IPOs? Stay tuned…
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