Fidelity National About to Hit the Road to Drum Up Support for Lagging Stock

Breaking out of the cocoon it has wrapped itself in for the last year, Fidelity National Financial Inc. is about to hit the road to drum up support for its stock, which has been lagging since the market crash 13 months ago.

Executives of the Irvine-based company, which operates title insurance firms in 29 states, will soon start meeting with analysts at brokerage houses to tell them why they believe that Fidelity is a good investment.

“We’re about to hire a public relations firm to set up meetings with analysts in New York and elsewhere,” said William P. Foley II, Fidelity’s president. “We went on a road show when we went public 21 months ago, but since the summer of 1987, we really haven’t done anything with the brokers.” Foley believes that Fidelity’s stock has taken a beating unnecessarily for several actions the company took late last year. Those moves hurt the company in the short run but ultimately will prove beneficial, he said.

“We feel we now have a story once again to tell, and we want to get it out to the investing public,” he said. “There’s no reason to be squeamish about Fidelity stock.”

The firm’s stock had been selling as high as $12.75 a share before the crash. In the aftermath of Black Monday, it fell as low as $4.625 a share before recovering a bit. The stock closed Friday at $6.875 a share, unchanged from Thursday’s close on the American Stock Exchange.

Price Below Book Value

The current price is well below the firm’s book value of $6.90 a share. Book value is the value of a company’s assets, minus its liabilities, and divided by the number of its outstanding shares.

The only analyst who regularly covers the company, Charles H. Carabell of Blunt Ellis Loewi in Milwaukee, said Fidelity is more the victim of investor wariness of financial stocks in general than anything else.

“There is some legitimacy to Foley’s complaint,” Carabell said. “But it has been only a short time since the firm went through its expansion. Still, they’re making great progress.”

In October and November of 1987, Fidelity took four major actions.

It moved its corporate headquarters to a new building in Irvine from Scottsdale, Ariz. It bought a San Francisco title insurance firm that increased Fidelity’s size by about 40%. It raised $8 million in capital through the private sale of corporate debt to be repaid at a 16% interest rate. And it began investing in what executives perceived to be undervalued stocks of other companies.

Purchase of Company

The expenses of the relocation hurt earnings slightly, but the $30-million purchase of Western Title Insurance Co. and its assimilation into Fidelity took more time and cost more in related expenses than Foley and his managers had expected.

Foley acknowledged that Wall Street criticized the firm for its 16% debt offering, and the stock investments raised eyebrows, too.

The expenses came at the worst time: the seasonal January-February slump in the industry. Fidelity lost $1.3 million in its fiscal first quarter, ended Jan. 31. An upturn in home sales starting in March helped the firm post a $276,000 profit for the second quarter, ended April 30.

In the last few months, though, Fidelity has moved to put those burdens behind it and has issued releases to make sure the good news gets in the hands of industry analysts.

It has sold some small, less efficient Western Title offices and cut other expenses in that operation, now called Fidelity National Title of California.

The firm also is talking with Oppenheimer & Co., a New York investment banking firm, about putting together a private offering for $15 million of fixed-rate debt to replace Fidelity’s $13.5-million variable-rate debt. Oppenheimer would then help Fidelity search for institutional investors to buy Fidelity stock, Foley said.

Paid Off Debt

Two weeks ago, the company paid off early the remaining debt it owed on the 16% offering and won a lawsuit in the Nevada Supreme Court, which freed up $911,000 it had put in reserve. The effect of the court judgment will enhance the firm’s earnings, said Frank P. Willey, Fidelity’s executive vice president and general counsel.

And while Wall Street couldn’t understand why Fidelity invested in undervalued stocks when its executives were not professional money managers, Carabell said, the firm ended up “several hundred thousand dollars ahead” on its stock portfolio. The only holding the firm still has is a 5% stake--and a modest loss--in General Housewares, a manufacturer of cookware and gift items.

In a recent release, Fidelity touted its growing profits in its last two quarters but said its annual results will be lower than last year’s figures.

It said it expects to earn $1.9 million for its fiscal fourth quarter, ended Oct. 31, on revenue of $40 million, compared to net income of $128,000 on revenue of $24 million in last year’s fourth quarter before Western Title was acquired.

But annual profits are expected to fall to about $2.4 million from $4.8 million in fiscal 1987. Revenue is expected to jump to $134 million from $96 million last year.

“Most importantly, the signal they’re giving is that they are back to basics and back to the game plan and strategies they had at the time of the initial public offering,” Carabell said. “Foley has positioned the company for after the recession, and who knows, there may not be a recession in California.”