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Ebix business update +3
20:51 11-Jan-19
Ebix issued a 13
point business update today. The first two points, on
strength in the legacy insurance business, are most welcome,
though the only quantification is the signing of 4 new Annuities
carriers in the fourth quarter. Record business is Australia is
reassuring as well, but not particularly surprising. The company
also stated its intention to expand into "newer geographies like
Muscat, Abu Dhabi, Bahrain, Thailand, Malaysia, etc. in addition
to plans underway for meaningful growth in Dubai." The Indian
diaspora means that this is not just growth for growth's sake.
Some may find it a relief to hear that this expansion is expected
to be primarily organic. I would add that there is some evidence
of Ebix having meaningful insight into markets that I want
exposure to.
Some housekeeping issues also bear mentioning, chief amongst them
the update that the company has already executed on almost half of
its $100M buyback allocation. Almost a fifth of that even came at
a 2% discount. When I look at repurchases in combination with the
market dynamics, I have to wonder about what's going on behind the
scenes. Over 27% of float, or almost 7M shares, were
shorted at year end. 4M would be a more typical number and
the buybacks that have already taken place should increase that
shorted float percentage by another point. There is no rebate
rate to speak of, and 15 days to cover is high by normal standards
but not for this stock. The only significant open options
position is over 7K of $45 March puts. Although some of the
conditions are right for a short squeeze, it's hard to see that as
being imminent.
Instead, everything in the paragraph above implies that the
market still doesn't trust this company, and I can understand
why. Unlike many of the other companies I cover, Ebix management
does not inspire confidence. To that end, the continued
reassurances about tax and regulatory compliances are welcome,
though mostly redundant, and another report affirming correction
of past material weaknesses should be coming soon. Ebix's
repatriation tax under the new code is $21.9 million over 8 years,
on an interest free basis, which is pretty insignificant, while
the permanently lower tax rate plays well with long-term currency
dynamics. Put it all together, and it looks like time is on
shareholder's sides. Furthermore, I think the aggressive style is
the right approach for the markets it is entering, though much
will hinge on a successful IPO of EbixCash, the proceeds of which
should repay debt. That represents more of a risk than the
historical issues that most appear to be seizing on.
In summary, Ebix looks like a giant version of many of the
startups I used to work with, operationally speaking... messy but
dynamic. 
One thing I learned from those environments was that being in the
right place at the right time could be much more important than
careful planning. In all of my market outlook, I've talked about
need
for reform in conjunction with a gradual shift away from
American-centric businesses and the market darlings that have been
inflated by consensus investing. I think the chart to the right,
from
the IMF speaks volumes about how Ebix is positioned for a
time when index values may struggle, but commerce and global
markets will move on. When I look at it in the context of another
round of bankruptcy rumors
for PG&E, and the (unwarranted, in my opinion, energy
contracts tend to get paid no matter what) effect they are having
on safe stocks like CWEN(A), it's hard to give market assessments
of risk all that much credibility. EBIX is certainly not without
risk, but it seems to be moving in the right direction. If the
company takes a while to cross the Ts and dot the Is, that's a
situation I'm willing to ride out, in return for a fairly unique
opportunity.