Diamond Hill: Undervalued Asset Manager with Significant Net Cash

Chris Karlin of Aquitania Capital Management presented his in-depth investment thesis on Diamond Hill Investment Group (US: DHIL) at Best Ideas 2019.

Thesis Summary:

Diamond Hill Investment Group is an institutional asset manager. Using a value investment philosophy, DHIL manages $22 billion in assets under management across thirteen equity and credit strategies. DHIL serves individual and institutional clients through mutual funds and separate accounts.

Valuations have fallen sharply for active asset managers over the last two years despite continued growth at DHIL. At a recent valuation of 5x EV/EBIT, Diamond Hill trades well below its average EV/EBIT of 9x from 2013-2017 and below an estimated private market value of 10x EV/EBIT. This discount was exacerbated in a sharp selloff in Q4 2018.

While the market capitalization is $580 million and enterprise value is $357 million, DHIL has no analyst coverage. With a solid balance sheet and shareholder-friendly management, Chris expects that the valuation discount will not persist. The company has announced a $50 million share repurchase plan. Chris estimates value at $230 per share, or nearly 50% above the recent market quotation.

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About the instructor:

Christopher Karlin has been in the investment business since 1991. Prior to founding Aquitania Capital Management in 2012, Christopher held positions as a Research Analyst and Portfolio Manager at First Pacific Advisors, Kestrel Investment Management and Fairview Capital Investment Management. Christopher interned with Farallon Capital Management while pursuing his MBA. He began his career with Wells Fargo Nikko Investment Advisors which later became a part of Blackrock. Christopher received his BBA from the University of Wisconsin in 1990 his MBA from Yale University in 1998 and has held the CFA designation since 1994.