Cannae Holdings Inc. (CNNE, Financial) is a diversified holding company led by William P. Foley, II that offers shareholders the opportunity to invest in a variety of public and private companies. The company was originally established as Fidelity National Financial Ventures (FNFV), a tracking stock of Fidelity National Financial (FNF, Financial). In 2017, Fidelity spun it off as Cannae Holding under Foley's leadership.
Foley has leveraged his experience of over 30 years in operating and investing in successful businesses and creating value for shareholders to build a truly admirable holding company. Yet, according to the company's analysis, the market is not fully pricing in the value of its various holdings. In this article, we will take a look at Cannae's sum of the parts analysis to see why the company believes it trades an incredible 40% discount.
Cannae's businesses
Cannae Holdings holds partial ownership interests in many companies. One is Dun & Bradstreet Holdings, a provider of business decisioning data and analytics, which Cannae has 20.3% ownership of, or 88.3 million shares. Another holding, Ceridian, is a provider of human resources software and services; Cannae has 4% ownership. Alight, a cloud-based provider of integrated digital human capital and business solutions, counts Cannae as a 9.7% owner. Paysafe Limited, an online payments company, is 8.3% owned by Cannae. Sightline Payments, a provider of digital payments and mobile app development for sports betting and casino gaming markets, is 33% owned by Cannae. System1, a global marketing research and effectiveness company that predicts marketing outcomes to help brands grow, is 24% owned by Cannae. AmeriLife Group, a health, life and annuity marketing organization primarily focused on the senior market and agents, is 19.6% owned by Cannae.
Cannae owns the majority of O'Charley's Holdings with 65.4% ownership and 99 Restaurants Holdings, a chain of casual dining restaurants, with 88.5% ownership.
Aside from the holdings themselves, I count Foley himself as a key cornerstone of Cannae's value. Foley actually founded Fidelity National Financial in 1984 and continues to serve as its chairman. He has also served as chairman of Black Knight (BKI, Financial), a software and data provider for the mortgage industry. With decades of experience in overseeing acquisitions, sales and spinoffs of public companies, Foley was well-positioned to capitalize on the trend of Special Purpose Acquisition Companies (SPACs) on Wall Street. A serial dealmaker, he has sponsored six blank-check companies, two of which are in the process of being wound down as they could not find appropriate targets to merge with. In 2016, Foley invested $500 million to purchase the Vegas Golden Knights hockey team, which played its inaugural NHL season in 2017. Foley describes himself as a value investor and seeks to buy and create businesses which he can own for a long time.
Ownership and insiders
Cannae Holdings has 78.02 million shares outstanding. The institutional ownership for the company stands at 67.84% while the insider ownership is at 5.4%. Foley himself owns 2.63 million shares as of this writing according to his Form 4s and other SEC filings. This highlights the large presence of institutional and insider ownership in the company. Insider buying looks generally positive with no insider selling in recent years.
Stock buybacks
Cannae Holdings has been actively engaging in stock buybacks to enhance shareholder value. The company has a three-month share buyback ratio of 2.02, indicating that the company has repurchased 2.02% of its shares over the past three months. Similarly, the six-month share buyback ratio stands at 7.53% and the one-year share buyback ratio is 11.70%, though this follows several prior years of net share issuances.
| Ticker | Company | 3-Month ShareBuyback Ratio | 6-Month ShareBuyback Ratio | 1-Year Share Buyback Ratio | 3-Year Share BuybackRatio | 5-Year Share BuybackRatio | 10-Year ShareBuyback Ratio |
| CNNE | Cannae Holdings Inc | 2.02 | 7.53 | 11.70 | -6.40 | -5.50 | 0 |
Valuation
Given the diverse holdings of both publicly traded and private holdings, a sum of the parts valuation method makes the most sense. The company provides the following fair value estimates on its website. Cannae Holdings estimates the fair value of its holdings at $36.34 per share.
Source: Cannae Holdings investor materials
This value is a little above but overall consistent with the $33.75 tangible book value of the shares calculated by GuruFocus. Using the $33.75 value as the more conservative of the two, this works out to a discount of 42%.
Summary
Cannae Holdings owns a solid portfolio of financial services and information technology business as well as some other private holdings. Its selling at a more than 40% discount to both its tangible book value and its sum of the parts analysis. I believe this is a solid margin of safety that is rearely found in the market. The downside is limited, and I think the stock has admirable upside potential, especially after the current bear market is over.
