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I think this is a good business trading on a trough multiple of trough earnings because of identifiable but unfounded fears.


10 year average RoE 45%, average annual high P/E 20x, average annual low P/E 13x.


3 year average forecast RoE 29%, P/E 10.4x.


10% 2012 free cash flow yield, 5.8% dividend, buyback in place, and special dividends or acquisitions likely.  The acquisitions are a blot for me: I'm not sure how to decide whether they add to intrinsic value - but with the dividend in place capital allocation mistakes are likely to be small.


Earnings currently depressed by about a third due to money market fee waivers running at ~$25m/quarter.  I don't necessarily expect money market rates to lift any time soon but one day they will.


Three major reasons why the stock is cheap:

1. Loss of confidence that money market rates will normalise soon.  I'm happy to wait.

2. 45% of money market funds are in Eurozone bank paper.  I've been looking for a chicken way to play Eurozone banks so I quite like this, but even for those who don't its worth remembeing that this is very short term paper (1 month on average I think) and likely to be government-backed in a crunch.

3. The threat of further regulation e.g. enforced capital buffers to prevent money market funds from breaking the buck.  I don't think these will be draconian: very little money has ever been lost in money market funds so there is no need to risk disruption to the market (which is crucial to corporate liquidity and economic recovery) in order to put further protections in place.


I think there is a good chance that this trades on a higher multiple of higher earnings in 3-5 years and I get paid nearly 6% plus possible specials to wait.


What have I missed?



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