CLEVELAND--(BUSINESS WIRE)--Ancora Holdings, Inc. (together with its affiliates, “Ancora” or “we”), a sizable stockholder of Blucora, Inc. (NASDAQ: BCOR) (“Blucora” or the “Company”), today issued the following open letter to the Company’s Board of Directors (the “Board”):
Dear Members of the Board,
Ancora continues to believe that there is a tremendous amount of value trapped within Blucora’s underperforming stock. In particular, we remain convinced that Avantax is a high-quality wealth management business with a strong base of talented financial professionals. This is why we intend to be a long-term stockholder of the Company.
We are writing to you today in light of the approximately 6% decline in Blucora’s stock price since its second quarter earnings release and conference call on August 4, 2021. Given that this concerning drop in market value comes on the heels of the Company’s benign financial results and its recent Investor Day, we are forced to conclude that the market is simply unenthused by Blucora’s strategy. It appears to us that investors are still unconvinced that pairing a wealth management business and a tax software business will yield any viable synergies or underpin significant value creation.
We also suspect that many of Blucora’s stockholders are deeply disappointed by the Board’s decision to once again forgo commencing a credible review of strategic alternatives for TaxAct. Notably, the Company’s stock is now down approximately 15% since closing at a 2021 high of $18.35 on the date of the Company’s recent Investor Day. We contend that the underlying driver of this decline is compression in Blucora’s valuation multiple, despite positive earnings revisions since the Investor Day. As a result, the valuation disparity relative to other wealth management peers has widened significantly across all valuation measures, with Blucora’s current EV/EBITDA multiple approximately 30-35% below the peer group median.
| EV/Sales | EV/EBITDA | P/E | |||||||||
| Company | Mkt Cap | EV | FY1 | FY2 | FY1 | FY2 | FY1 | FY2 | |||
| BrightSphere Investment Group, Inc. | $2,095 |
2,393 |
|
4.8x |
5.2x |
|
12.0x |
13.7x |
|
18.8x |
16.0x |
| Envestnet, Inc. | $4,164 |
4,762 |
|
4.1x |
3.6x |
|
18.6x |
17.0x |
|
33.1x |
31.4x |
| LPL Financial Holdings Inc. | $11,624 |
13,073 |
|
1.7x |
1.5x |
|
12.4x |
10.1x |
|
19.8x |
15.5x |
| Focus Financial Partners, Inc. | $3,019 |
4,793 |
|
2.8x |
2.3x |
|
11.3x |
9.2x |
|
13.1x |
11.6x |
| Average | $5,225 |
$6,255 |
|
3.3x |
3.2x |
|
13.6x |
12.5x |
|
21.2x |
18.6x |
| Median |
|
|
|
3.4x |
3.0x |
|
12.2x |
11.9x |
|
19.3x |
15.8x |
| Blucora, Inc. | $767 |
$1,138 |
|
1.3x |
1.2x |
|
8.3x |
7.7x |
|
9.6x |
9.3x |
| Blucora Discount to Peer Group Median | -32% |
-36% |
|||||||||
Furthermore, we find it instructive to evaluate Blucora’s stock performance on a year-to-date basis relative to both wealth management and tax peers in concert with various factors that influence stock price performance. As our analysis shows, there have been notable year-to-date changes in the following metrics: 1) consensus FY2021 EBITDA estimate, 2) consensus FY2021 EBITDA margins, 3) FY2021 EV/EBITDA valuation multiple and 4) stock price performance. The key takeaway is that Blucora’s stock price has declined year-to-date despite having seen positive estimate revisions and margin expansion in line with – or better than – both the wealth management and tax peer groups’ respective medians. The Company’s valuation multiple has compressed >15%, implying that investors give the Company no credit for its better-than-expected operational performance. This stands in stark contrast to Blucora’s peers, who generally have experienced multiple expansion and seen a significant increase in their respective stock prices.
| FY21 EBITDA | FY21 EBITDA Margin | FY21 EV/EBITDA Multiple | Stock Price | ||||||||||||
| Company | Dec-20 | Aug-21 | % Chg. | Dec-20 | Aug-21 | bps Chg. | Dec-20 | Aug-21 | % Chg. | Dec-20 | Aug-21 | % Chg. | |||
| BrightSphere Investment Group, Inc. | $201 |
$193 |
-4% |
30.6% |
38.9% |
830 |
8.8x | 12.0x | 36% |
$19.28 |
$26.40 |
37% |
|||
| Envestnet, Inc. | $254 |
$255 |
0% |
23.2% |
21.8% |
(140) |
19.3x | 18.6x | -4% |
$82.29 |
$76.51 |
-7% |
|||
| LPL Financial Holdings Inc. | $947 |
$1,035 |
9% |
14.4% |
13.5% |
(90) |
9.7x | 12.4x | 28% |
$104.22 |
$144.85 |
39% |
|||
| Focus Financial Partners, Inc. | $366 |
$436 |
19% |
23.4% |
25.3% |
190 |
11.3x | 11.3x | 0% |
$43.50 |
$50.49 |
16% |
|||
| Average | 6% |
198 |
15% |
21% |
|||||||||||
| Median | 5% |
50 |
14% |
26% |
|||||||||||
| Blucora, Inc. | $121 |
$136 |
12% |
15.2% |
15.6% |
40 |
9.9x | 8.3x | -16% |
$15.91 |
$15.75 |
-1% |
|||
| FY21 EBITDA | FY21 EBITDA Margin | FY21 EV/EBITDA Multiple | Stock Price | ||||||||||||
| Company | Dec-20 | Aug-21 | % Chg. | Dec-20 | Aug-21 | bps Chg. | Dec-20 | Aug-21 | % Chg. | Dec-20 | Aug-21 | % Chg. | |||
| Intuit Inc. | $3,239 |
$3,572 |
10% |
36.6% |
38.1% |
150 |
30.0x | 40.4x | 35% |
$379.85 |
$534.29 |
41% |
|||
| H&R Block, Inc. | $988 |
$932 |
-6% |
27.8% |
27.3% |
(50) |
4.7x | 5.4x | 15% |
$15.86 |
$25.28 |
59% |
|||
| Average | 2% |
50 |
25% |
50% |
|||||||||||
| Median | 2% |
50 |
25% |
50% |
|||||||||||
| Blucora, Inc. | $121 |
$136 |
12% |
15.2% |
15.6% |
40 |
9.9x | 8.3x | -16% |
$15.91 |
$15.75 |
-1% |
|||
Reinforcing our view that there is tremendous value to be unlocked in Blucora’s stock, we highlight our updated sum-of-the-parts valuation analysis, which is based on the Company’s current FY2021 EBITDA guidance. We heavily discount the value of the Company’s net operating loss benefits (“NOLs”), given the high likelihood that a significant amount of these will be allowed to expire without being utilized. We emphasize this to point out that not only do investors have to suffer stock price losses, but also contend with the inexplicable expiration of valuable NOLs. We also note that corporate overhead currently represents approximately $6-$7 per share in value reduction.
| ($ in mm, except per share) | |||||
| EBITDA | Multiple | ||||
2021 |
|||||
| TaxAct | $81.0 |
12.0x | 13.0x | 14.0x | |
| Wealth Management | $81.3 |
10.0x | 11.0x | 12.0x | |
| Corporate | ($27.0) |
11.0x | 12.0x | 13.0x | |
| Total | $135.3 |
11.0x | 12.0x | 13.0x | |
| EV | $1,487.5 |
$1,622.8 |
$1,758.0 |
||
| Net debt (cash) | 322.2 |
322.2 |
322.2 |
||
| NOL | (49.8) |
(49.8) |
(49.8) |
||
| Equity value | $1,215.1 |
$1,350.4 |
$1,485.6 |
||
| Diluted shares | 49.4 |
49.4 |
49.4 |
||
| Pre corporate overhead SOTP value per share | $30.62 |
$33.90 |
$37.19 |
||
| % to current | 94.4% |
115.3% |
136.1% |
||
| Less: corporate overhead per share | ($6.01) |
($6.56) |
($7.11) |
||
| Post corporate overhead SOTP value per share | $24.61 |
$27.34 |
$30.08 |
||
| % to current | 56.2% |
73.6% |
91.0% |
||
While the Board and certain members of the management team may prefer to preside over a bloated conglomerate structure, that is not what stockholders deserve. There is a better way forward, and Ancora once again urges the Board to reevaluate the Company’s current strategy and portfolio construction, particularly given the stock price reaction since its Investor Day. With tax season behind us, now is an opportune time to explore strategic alternatives for TaxAct. Capital obtained from a sale of TaxAct could be used to pay down debt, pursue targeted stock repurchases and advance other strategic priorities, such as investing in Avantax’s growth.
We hope that the Board takes our views and the market’s recent reaction under advisement. Ancora is committed to continuing to advocate for stockholders’ long-term interests.
Sincerely,
Frederick D. DiSanto
Chairman and Chief Executive Officer
Ancora Holdings, Inc.
About Ancora
Ancora Holdings, Inc. is an employee owned, Cleveland, Ohio based holding company which wholly owns four separate and distinct SEC Registered Investment Advisers and a broker dealer. Ancora Advisors LLC specializes in customized portfolio management for individual investors, high net worth investors, investment companies (mutual funds), and institutions such as pension/profit sharing plans, corporations, charitable & “Not-for Profit” organizations, and unions. Ancora Family Wealth Advisors, LLC is a leading, regional investment and wealth advisor managing assets on behalf families and high net-worth individuals. Ancora Alternatives LLC specializes in pooled investments (hedge funds/investment limited partnerships). Ancora Retirement Plan Advisors, Inc. specializes in providing non-discretionary investment guidance for small and midsize employer sponsored retirement plans. Inverness Securities, LLC is a FINRA registered Broker Dealer.