Excerpt from the Stanphyl Capital letter to investors for the month of November 2018 discussing their long position in one micro-cap play. Stanphyl was profiled in the second edition of HVS and has had some of the best picks among all the funds (including Stanphyl with several 100%+ returns) we have profiled with 200%+ returns on some pitches.
At Stanphyl’s price target the micro-cap below would have a 280%+ return from today’s prices.
We continue to own AAAAAA, a designer and manufacturer of XXXXXXXX companies, which in November reported a mediocre Q1 for FY 2019, with revenue up 7.X% year-over-year but a slight increase in net loss (from .X2/share to .X4/share). Nevertheless, the company (mostly) reiterated its guidance for FY 2019, projecting approximately $2XX million of revenue (a $X million cut from previous guidance and approximately X% better than 2018) and non-GAAP EBITDA of at least $1X.5 million (a $X00,000 cut from previous guidance). Because of its approximately $XX2 million of U.S. NOLs, $X0 million of U.S. tax credit carryforwards, $2XX million in foreign NOLs and $X million of foreign tax credit carryforwards, XXXX’s income will be tax-free for many years; thus, GAAP EBITDA less capex essentially equals “earnings.” So if the non-GAAP number will be $XX.5 million and we take out $X.7 million in stock comp and $X million in capex we get $4.8 million in earnings multiplied by, say, XX = approximately $X7 million; if we then add in at least $3X million of expected year-end net cash and divide by X.X2 million shares we get just under $X0/share. However, the real play here is as a buyout candidate; XXXX’s closest pure-play competitor, AAAA sells at an EV of approximately 0.X5x revenue, which for XXXX (based on 2019 guidance) would be around $XX7 million. If we value XXXXs massive NOLs at a modest $X0 million (due to change-in-control diminution in their value), the company would be worth $XX7 million divided by X.X3 million shares = around $42/share.
This content is exclusively for paying members. Access all of our top quality content by signing up below.
If you are subscribed and are having an account error, please clear cache and then cookies if that does not work email firstname.lastname@example.org and we will get back to you as quick as humanly possible.