Mandalay Digital - Short 'Many, Many Millions'
- Mandalay appears to be an over-hyped stock that saw its share price almost doubled upon the deal announcement with Verizon. Many similar breakthrough deals have been announced before without results.
- The company operates in a highly competitive industry with inferior product that neither mobile subscribers nor mobile carriers seem to find useful.
- Its promotional management with a terrible track record is incentivized to boost short-term share price and dilute shareholders. Share count doubled during the last year.
- Mandalay is currently trading at 8x revenue, continues to mount losses and has hardly any growth or distant profitability prospects. The company will run out of cash in 2015.
- Share price has at least 40% downside in the near term, and upcoming earning announcements are very likely to serve as catalysts.
CSS Industries: Stable Fundamentals, Cash-Rich Balance Sheet, And Deep Undervaluation Argue For 30%+ Upside
- CSS Industries is a micro-cap consumer products company (~$225 million market cap); its primary business is designing, manufacturing, marketing, and selling “social expression products” (i.e. gift wrap, bows, cards, etc.).
- High, stable level of return on assets excluding cash (i.e. 12-15%) points to a very profitable niche business.
- Balance sheet is cash rich with a $77 million in cash and short-term investments, no debt, and an insignificant $5 million in long-term obligations (mainly property leases).
- CSS is deeply undervalued on nearly every metric (EV/EBITDA = 4.4x, EV/EBIT = 5.6x, FCF yield = 12%, P/E ex. excess cash = 8.2x, and Dividend Yield = 2.5%).
- Potential for Private Equity buyout.
Overlooked World Energy Solutions: High-Margin Recurring Revenue Growth Business With Near-Term Catalysts Available At Deep Value Levels
- XWES is a capital-light business growing earnings at more than 100% CAGR trading for 7.3x next year's FCF.
- More than 60% of XWES' revenue is recurring in nature and with backlog representing nearly 80% of its market cap, the business operates with a high degree of visibility.
- XWES' core Procurement business generates 88% gross margin and is experiencing considerable operating leverage.
- Despite consecutive "beat-and-raise" quarters, a 150% increase in management's EBITDA guidance, and a 230% increase in sell-side EBITDA estimates year-to-date, XWES' stock is flat.
- Activists have noticed with 13-D's representing >15% of the stock filed this year. November's earnings release should be an inflection point. We think XWES is conservatively worth $7.60 (75% upside).
Synergy Resources: Exceptional Drilling Returns In The Niobrara
- Synergy impresses with its rapid operational ramp up and very strong well results in the Niobrara/Codell play.
- The stock is trading at a moderate multiple of EBITDA and a strong discount to the potential full drill-out value of its inventory.
- The company is in a strong position to keep its growth momentum for another several quarters and may continue to surprise with strong production increases.
- The company will evaluate Greenhorn Limestone potential on its acreage based on the “encouraging” core analysis results.
- Declining oil price and local overproduction are potential risks.
History May Not Repeat Itself, But If It Just Rhymes, Tecumseh's Share Price Should Shine
- Tecumseh is a global manufacturer of hermetically sealed compressors used mainly in refrigeration and air conditioning applications.
- Though perennially loss making, it has a modest net debt level due in part to cash generated from asset sales and tax refunds. It now trades below 0.4x book value.
- Its share price has returned to levels that attracted activist interest in the past that, coupled with management changes and a turnaround plan, saw its share price triple.
- Though that speculative bubble has burst, the underlying assets and upside potential remains intact. Tecumseh retains valuable non-core assets, USD293 million in NOLs and an attractive commercial refrigeration business.
- Downside is limited by Tecumseh’s significant discount. Re-emergence of past catalysts over a one year investment horizon could see 100% plus upside.
POET Technologies Revisited
- POET Technologies bear write-up last week received a lot of commentary.
- This article takes a deeper dive into POET.
- High-level technical experts were consulted.
Magellan Petroleum Should Double As Asset Values Get Unlocked
- Turnaround story, trading below fire sale value, with none of the highly probable growth priced in the stock. My 12 month price target is $4.50 or 150% upside.
- Magellan’s CO2 EOR program at Poplar will likely add at least 50 million barrels of incremental oil reserves or $1.96 per fully diluted share at $3 per barrel.
- The Weald Basin asset is a hidden asset, and recent comparable land transactions value the core lands at $260 million or $3.40 per fully diluted share.
- The Weald Basin can be monetized by copying the Wytch Farm model. I expect this asset to be spun-off or sold and funds redeployed at the core asset, Poplar.
- Due to a management strategy change, combined with a dramatic recent improvement in shareholder quality, Magellan’s assets’ values will be unlocked, leading to share price appreciation.
Autobytel Is A Takeover Target In A Consolidating Industry
- The industry is consolidating, market is ripe for ABTL to explore a transaction.
- ABTL too small to be a public company, company spends ~20% of net income on public company costs.
- Underlying business fundamentals are healthy. Company is growing, profitable, free cash flow positive.
- Recent M&A transactions in the industry suggest ABTL should fetch $17+ per share in a sale.
A Simple Regression Debunks A Simple Short Thesis; Buy Sturm, Ruger And Smith & Wesson
- Firearm demand is simply returning to a 15-year normal trend of growth from inflated post-Sandy Hook levels, NOT going to zero. Shorts are guilty of data point extrapolation here.
- With the above and the unlikely risk of complete prohibition of private gun ownership established, the firearm industry is actually quite attractive from an investing standpoint.
- SWHC and RGR are great companies- high ROIC and top/bottom line growth over long periods, strong and enduring brands, solid and unconventional management, engaged employees, and excellent products.
- Both stocks are cheap. There is a possibility of a short squeeze and/or PE takeout. RGR is slightly more attractive.
- Risk of complete gun prohibition is improbable, but there. Lack of immediate catalyst lends to a gradual position entry.
Higher One: A Terminal Short With A Number Of Ways To Win
- ONE is a broken business model that is under severe pressure on all sides.
- ONE’s equity is a zero under a number of scenarios -- several of which are not reflected in the current stock price but will likely play out over the near term.
- The stock has clearly been under pressure this year, but $160M of equity value still remains.
- ONE is a terminal short with a very attractive risk/ reward profile.
Carbonite: A Business Model Transition, An Activist Investor And An Undervalued Acquisition Candidate
- Quietly transitioned its business to solely focus on SMBs vs. consumers. Higher margin SMBs are 30% of total bookings and 50% of new bookings—and expected to grow 30%+.
- Received a large and growing activist investment from Discovery Group, one of the most effective activist investors that has helped push over 50% of its 53 targets toward an acquisition.
- Valuable brand (tested by my own survey) will enable Carbonite to continue to gain share in a crowded SMB market that is ripe for consolidation.
- Attractive financial profile, with solid revenue growth, a clean balance sheet and both EBITDA and FCF positive—all achieved while transitioning the business, which is largely complete.
- Carbonite has all the characteristics of a prime acquisition candidate and with a discounted valuation relative to comparables and highly relevant precedent transactions; valuation upside of 40-50% is projected.
Einstein Noah Restaurant Group: Operational Improvement, A Hidden Asset, And Low Valuation Are A Recipe For 50%+ Upside
- Cost cutting, reduced discounting, same-store sales growth, and an increased percentage of revenue coming from high margin franchising business could improve EBITDA margins 200-300 basis points.
- Due to a distant history of significant operating losses, Einstein has operating loss carryforwards of $155 million. BAGL will not pay much in the way of cash taxes for years.
- 38% owned by Greenlight Capital managed by superstar hedge fund manager David Einhorn. Under Einhorn’s stewardship, Einstein has implemented an attractive dividend, paid a special dividend, and repurchased shares.
- Low valuation – at $13.25, Einstein trades for just 10.5x my estimate of 2015 free cash flow per share. Einstein trades at a nearly a 55% discount relative to competitors.
Unisys: Acquisition Or Activism Likely To Appear And Re-Rate The Shares
- The company's share price is trading based on interest rates due to the large underfunded pension plan. Over the last few weeks, that link has broken possibly creating an opportunity.
- The company has launched several new products in the technology division while restructuring their services business more towards faster growing IT outsourcing.
- The shares are ripe for a takeover or some activist shareholder becoming involved. If that occurs, look for the shares to be significantly re-rated as they push for change.
Energous Could Be A Crowded Exit
- Energous faces enormous regulatory and commercial risk in bringing its technology to market.
- The risk/reward is highly skewed to the downside.
- The company's looming IPO lockup expiry could be a significant downside catalyst in the near term.
Cinedigm: Significant Upside With Secular Tailwinds
- With a stable base of risk-less assets providing a floor at $1.55 per share, downside is limited.
- Cinedigm’s earnings profile will ramp up substantially in the coming quarters as its growing library and distribution agreements start to pay off.
- Cinedigm's OTT opportunity represents the greatest upside lever with the potential to double the company’s value and beyond.
- We expect the equity to ultimately trade closer to its sum of parts valuation at ~$5.50 per share.
Symmetry Medical: Surgical Maneuver Sets Up A Very Attractive Asymmetric Trade
- In August 2014, Symmetry Medical announced that it had agreed to sell its OEM Solutions business for cash and, simultaneously, spin-off its Symmetry Surgical business.
- Its muted share price reaction enables investors to speculate cheaply that a higher OEM Solutions bid may emerge, whilst buying into Symmetry Surgical at a very attractive price pre-separation.
- Symmetry Surgical has been negatively impacted by a number of acquisition integration issues. Yet, it remains a high margin business capable of generating impressive cash flows.
- Symmetry Medical’s share price implies that Symmetry Surgical is being valued at a significant discount to listed comparables. We estimate there is 70%+ upside potential for Symmetry Surgical.
- This is an 18-month trade with strong catalysts. The low OEM Solutions deal risk combined with SSRG’s inherit discount limits the downside, presenting a very attractive asymmetric trade.
inTest: A Big Winner In A Semiconductor Capital Equipment Upcycle
- INTT is a very well-managed company, able to make money and generate cash even in the absence of a strong semiconductor capital spending backdrop.
- Decreased exposure to semi capital equipment (notoriously a feast or famine industry) lends itself to less volatile sales which goes hand in hand with a better multiple.
- P&L tightly levered to upturns in the semiconductor industry and the co.’s cost structure is largely fixed: we think this portends to quarterly earnings power of 25-40c (stock at $5.20).
- The worst-case scenario is a profitable company throwing off cash and creating value by repurchasing stock at depressed valuation (magnifies earnings power when the cycle turns).
- We think valuation makes our case even more compelling: trades at 10x earnings (ex-cash) and carries a 10% FCF yield. INTT trades at a significant discount to larger, well-covered peers.
Turnaround At Hallmark Financial Services Could Drive 60% Upside
- Exit from a troubled loss-making division coupled with continued growth of a highly profitable segment portend large increase in earnings at Hallmark.
- Insiders own 30%+ of company and have been buying.
- Company is well capitalized and has ample growth opportunities.
- Selling at just 75% of book value and less than 6x normalized earnings, shares could appreciate 60% over the next 12-18 months as turnaround becomes evident.
The Babcock & Wilcox Company: Massive R&D Obscuring Earnings Power; 80%+ Upside
- BWC is a large manufacturer of utility steam boilers and nuclear components.
- Large operating losses in one segment are obscuring the true value of the company. Management has shown a willingness to stem these losses.
- The company has a 150-year operating history, few competitors, a 25% RoE, and a backlog of 2x the market cap.
- Under conservative revenue growth assumptions, the company has 80% upside with a large margin of safety.
Currency Exchange International: Compounding Cash Machine At A Deep Discount To Private Market Peers
- A unique opportunity to own a compounding machine with organic growth in excess of 20% and high returns on capital.
- OSFI approval to transition into a 'Banker's Bank' is a near-term hard catalyst for value creation.
- Currency Exchange trades at a steep discount to recent private market transactions. We believe shares at minimum have upside potential of ~70%.
Spin-Off NOW, Inc: Market Leadership, Experienced Management, And Pristine Balance Sheet Point To Compounding Value
- DistributionNOW or NOW, Inc. (DNOW), the recent spin-off from National Oilwell Varco, Inc. (NOV), ranks second by market share in the fragmented but fast consolidating energy distribution market.
- DNOW’s pristine balance sheet – $236 million in cash, no debt – and low cost of capital should facilitate organic market share gains and rapid growth via M&A activity.
- In contrast, DNOW’s primary competitor and market leader, MRC Global (MRC), has much higher leverage and now needs to enter a period of de-leveraging, which will likely slow growth.
- DNOW’s management team has a 10 year, successful track record of accretive M&A. The spin-off is only the most recent in a long series of strategic actions to create value.
- DNOW’s operating margins are likely to inflect significantly higher after digesting two large acquisitions and transitioning to a global ERP system.
Short Famous Dave's With 33-48% Downside
- Famous Dave's is a fundamental short due to deteriorating fundamentals, namely negative SSS trends.
- The company trades with a "growth" valuation despite virtually no current new unit growth.
- The current valuation is already giving credit to a successful turnaround, yet there is currently no evidence to support improving fundamentals.
- At current prices, Famous Dave's has 33-48% downside.
Long Run Exploration: Cheap Canadian E&P With Huge 8.4% Yield
- Long Run Energy (LRE in Toronto) is an E&P company trading at a 15% FCF Yield and a huge 8.4% dividend yield.
- Technical pressure has pushed the stock down 10% in the past month as shares issued to fund an acquisition recently hit the market.
- Management grew production organically 5.5% in the last quarter, and at under 4x TEV/EBITDA, the stock is excessively cheap and misunderstood.
Paradise Entertainment: 80% Upside On Strong Earnings From Casino Management, Gaming Equipment
- Non-mainstream stock pick on Macau gaming sector: Strong 2-pronged earnings growth strategy driven by (1) Casino management and (2) Gaming equipment.
- (1) Casino management: Increased capacity and continued yield enhancement with sticky grind mass focus.
- (2) Gaming equipment: Overseas sales upside in US and Australia from distributorships, Macau local sales upside from upcoming new Cotai casinos, and long-term upside on product mix upgrade.
- Recent sell-off post-1H14 results offers attractive valuation now for an entry point, especially when expectations for Macau gaming sector are lowered and reset.
Hutchinson Technology, Revisited
- Turnaround of suspension assembly business solidly back on track.
- The rumor about an Optical Image Stabilizer (OIS) turns out to be true, and WOW what a partner!
- While recent developments make posited $12 per share intrinsic value look conservative, we probably won't get to see HTCH trade above $20.
American Capital's 2nd Quarter Results Show Transformation Progress
- Net operating income shows sequential growth and appears to have bottomed.
- Management's investment focus on debt and more stable recurring income is starting to appear on financial statements.
- Current share price discount to book value continues to present an attractive risk-reward opportunity.
Alere: Diagnosing A New Strategy With Upside Of 50% Or More
- The market reaction to the quarterly results were off base presenting an entry opportunity.
- The company has significant upside catalysts including the divesting of the Health Management division and other non-core assets.
- The balance sheet debt has been a hindrance to investors supporting the shares. They have aggressively been delevering over the last year.
- Aggressive activist shareholders provide a margin of safety in the shares motivating management in restructuring the business.
Layne Christensen: Why We Think The Bottom Is In With Strong Risk-Reward Going Forward
- We think LAYN’s worst days are behind it as evidenced by a sharp reversal in bookings, non-residential construction spending acceleration, and winding down of unprofitable “hard bid” contracts.
- Breakup valuation isn't in the stock – LAYN’s best segment is likely worth over $11 per share before attributing any value to LAYN's $700 million of remaining revenue.
- Activist shareholders are pressing management to sell part of the company and reinvest the proceeds into debt paydown and share repurchases.
- Recent refinancing yields a de-risked balance sheet: new revolver eliminates maintenance covenants with no significant maturities until 2019 barring a $15 million principal payment in CY2014.
- Valuation is very attractive and the stock is receiving little credit for numerous materially positive developments over the last 2-3 quarters. LAYN is worth $20+ on a SOTP basis.
Quartet: Joel Greenblatt Writes A Blank Check For Pangaea Logistics
- Joel Greenblatt is an initial stockholder and special advisor to Quartet, a blank check company that plans to merge with Pangaea Logistics, a maritime logistics provider.
- Pangaea Logistics displays many of the characteristics one would expect from a Joel Greenblatt investment. Sector market leadership, high return on equity, experienced management and attractive growth prospects.
- Quartet’s management highlight that there is a significant valuation gap between the price they are paying for Pangaea Logistics and its publicly traded peers. We estimate about 28% upside potential.
- Key catalysts to unlock value include the successful completion of the merger, growing investor awareness and Pangaea Logistics achieving its net income targets, in particular for 2014E.
- This opportunity should start to realize material upside in the near term, with limited downside risk due to an attractive entry price versus Quartet's current cash balance and the post-merger valuation.
HC2's Deal Making Offers Significant Upside
- Significant NOLs and shifting balance sheet obscure company's value.
- While controversial, management has a significant ownership stake and is highly incentivized to increase net asset value.
- Near-term catalysts include closing of Schuff deal and uplisting to major exchange.
Quartet Merger Rights: 40% Upside For A Short-Term Event Driven Investment
- Quartet Rights offer investors the opportunity to re-create Quartet common at $7.20 per share, or 40% upside if the rights trade up to the common.
- A near-term event is in place to unlock value. On September 29th, shareholders will vote on the Company's merger with Pangaea Logistics.
- Quartet boasts strong sponsorship through Eric Rosenfeld of Crescendo Partners and famed value investor Joel Greenblatt.
Arris Group: Finding Profits In Your Cable Box
- The acquisition of Motorola Home has been very successful, resulting in double-digit growth in operating income and EPS.
- Post-earnings selloff on unfounded concerns surrounding bookings has created an attractive entry point.
- Continued balance sheet deleveraging will lead to increased ability to return capital to shareholders.
- Despite year-to-date gains, shares continue to trade at modest multiples, both on an absolute and relative basis.
Wizard World: Obscure Marketing Machine Offers Attractive Risk/Reward
- Wizard's convention business is the quintessential low asset high return business.
- Wizard's scale provides barriers to entry in marketing, celebrity draw and attendance.
- Comic cons benefit from continued monetization of superhero assets by movie studios.
- Even with the >70% increase in share price this month, we continue to see at least 46% upside in the near term, limited downside and plenty of optionality.
Danieli: Ultra-Cheap, Ultra-Solid, 40% Upside (At Least)
- Italian steel and aluminum plant maker Danieli is trading at an EV/EBITDA ratio of under 2, despite being highly profitable.
- Adjusting for excess cash, the company's preference shares trade at only 2.7 times expected 2014 EPS.
- Even without adjustments the PER 2014e is only 8.35 and the PER 2015e is 7.11.
- With the steel sector picking up speed, a return to a still modest valuation of 10 times earnings should be easy to achieve within 12 months.
9% Yield And 50% Upside At Bluerock Residential Growth REIT
- Bluerock is a discounted multi-family REIT with large growth potential.
- Developing and repositioning afford BRG greater yields on investment than market cap rates.
- Misconceptions about the company's operations have kept its market price down.
KAR Auction Services: An Opportunity From Industry Anomalies
- KAR is poised to benefit from a strong cyclical surge in its key whole car auction segment from late 2011 and 2012 cars coming off lease.
- The industry is essentially an oligopoly with a few large players and very highs barriers to entry.
- The financing arm represents a hidden asset opportunity which is a fast growing and very high incremental margin business.
TransAct Technologies: After A Sell-Off, Investors Have A Great Opportunity To Own This Debt-Free 4% Yielder
- After a heavy sell-off earlier this month an underfollowed microcap, TransAct Technologies, is now on sale.
- Recent selling can be attributed to the market's misunderstanding of the company's product cycle and investments in new sectors of business.
- TransAct is debt-free and offers investors a dividend yield over 4% which has been increased twice since being initiated a year and a half ago.
- Management has also recently engaged in massive share repurchases, with a new $7.5 million share repurchase program announced producing an extremely favorable Total Shareholder Return profile.
- Investors at current prices stand to benefit over the next year from the company's investment in new product deployment and will enjoy higher per share earnings due to share repurchases.
True Gold Mining Brings Good Karma To Your Portfolio
- True Gold Mining has an extremely robust project in Burkina Faso.
- We believe that this is only the tip of the iceberg. We expect the Karma project to develop into a long-lived and highly-profitable gold mine.
- The terms of the recent financing, and feedback from the company have further bolstered our confidence to call for 60% mid-term upside.
- Much more long-term potential exists, with some of the best management available to drive growth.
EQT Corporation: The Midstream Advantage
- Based on a sum-of-the-parts analysis, EQT’s upstream business is one of the best values in the Marcellus/Utica E&P peer group.
- The company is developing takeaway solutions in the Marcellus that may support production growth to over 3 Bcf/d by 2018.
- The stock has a catalyst in the form of a potential monetization of the General Partner interest in the MLP.
- The recently acquired Midland acreage has the potential to evolve into a second core operating area.
- Despite the natural gas pricing headwinds in the Marcellus/Utica area, the stock's risk/reward profile appears skewed very favorably to the upside.
TowerJazz: A Towering Double In Share Price
- TowerJazz's new JV with Panasonic adds $360 million-$420 million a year in revenue and also provides room for expansion.
- The JV facilitates the closing of the Nishiwaki fab, giving $132 million in annual cost savings.
- TowerJazz is also seeing extraordinary organic growth, especially in RF devices and image sensors.
- I believe TowerJazz is priced at a fully diluted level of around 3 times late 2015 or early 2016 EV / EBITDA.
To Handsomely Beat The Market, Buy Petroamerica Oil With Both Hands
- Petroamerica made a transformative deal by acquiring Suroco Energy, and addressed all the challenges it was facing.
- This acquisition significantly strengthens and diversifies the company's asset base.
- Now, Petroamerica has everything: strong production growth, high netbacks, stellar balance sheet with a strong cash position and an aggressive management.
- With management focused on continuing to grow, the tremendous valuation gap with the peers can close anytime and Petroamerica's shareholders stand to benefit a lot.
Mentor Graphics: Earn 20% With Zero Net Market Exposure
- Mentor operates in an industry experiencing multiple long-term tailwinds.
- The company's leading indicators suggest a business inflection is near.
- The stock's current valuation presents multiple ways to profit from the name.
Eclipse Resources Corporation: A Shiny Penny Still Isn't Worth Twenty Five Cents
- ECR is wildly overvalued when comparing its PV-10 to a peer group.
- ECR may soon have to take impairments on its assets as the price of Natural Gas has fallen 19% over the last 90 days.
- ECR fails several benchmark tests when compared to peers yet maintains valuation multiples at significant levels higher than those same peers.
TOP Ships: Deep Discount To NAV Presents Opportunity
- We believe TOPS will accrete in value over time and narrow the gap to NAV as its fleet grows and its strong FCF becomes more apparent.
- Management owns over 40% of the company and is highly incentivized to grow its NAV and build shareholder value.
- Patient investors will be well rewarded as we believe the intrinsic value of the company is well north of $4.40 per share currently.
Jason Industries - Hidden IPO Of A Proven Business With Proven Management
- Jason Industries is a fast growing and profitable global industrial manufacturing business that recently merged with a blank check company and became public.
- Due to lack of investor awareness and following among analysts the share price continues to trade in the pre-merger range, not reflecting any potential of Jason Industries.
- The company has long and profitable history of revenue growth and successful acquisition integration. Longstanding relationships with blue-chip customers and established reputation will ensure continuation of great financial performance.
- Peer valuation indicates 50%-55% upside. Management’s purchases of warrants signals at least 35% upside.
- Company’s chairman and management have proven track record and very high incentives to see share price grow.
DTS Inc.: A Mundane Business, With Exciting Profits
- Margin-rich royalty revenues result create business with material operating leverage.
- Partnerships with majority of leading consumer electronics companies create tailwinds as network-connected electronics sales continue to grow.
- Clean balance sheet with over $2 per share in net cash.
MGIC - An Opportunity Through Mortgage Credit Exposure
- Expected losses on MTG's legacy book are likely a lot less than anticipated.
- Even accounting for some conservative assumptions the fair value of MTG is over twice its market price.
- The results are not very sensitive to future mortgage default assumptions.
El Pollo Loco: PE 'Bust-Out', 20+ Years Of Failed Domestic Expansion, Pre-IPO Window Dressing Make An Ideal Short
- More like a ‘Pollos Hermanos’ than the Chipotle media comparison it is currently getting.
- 20+ years of failed domestic expansion track record.
- Two-year comp momentum is largely average check growth driven, and thus should be heavily discounted.
- Existing equity holders will be very motivated sellers at lockup expiry.
- There should be ZERO bid for this stock anywhere north of $20.
New Media Investment Group Offers 100%+ Upside With Downside Protection From Sustainable ~7% Dividend Yield
- As a post-bankruptcy equity and recent spin-off, NEWM is an undervalued and underfollowed local newspaper and online media stock that trades at 6.1x LTM pro-forma EBITDA and 7.2% dividend yield.
- Not a secular dying business: investors get a turnaround, stabilizing business with free optionality for the company to generate substantial value through accretive acquisitions, offering a compelling asymmetric risk-reward opportunity.
- NEWM owns 450+ local community newspapers that are more stable and have loyal readership base. NEWM purchases distressed newspapers at <3.5x EBITDA and has 1300 potential targets in M&A pipeline.
- One of the main competitors for M&A is Warren Buffett’s B.H. Media group, which poses limited risk since they operate in different, large, and fragmented markets.
- NEWM can leverage its strong local footprint and regional scale to cross-sell its Propel digital marketing, an organic high-growth segment with a potential $24B total addressable market.
Bellatrix Exploration: Deeply Undervalued And Likely To Achieve Significant Price Appreciation
- Bellatrix Exploration is a USD $1.3 billion market cap E&P with an average trading volume of US$3.3 million on the NYSE and $34.8 million with the TSX included.
- Bellatrix trades at a discount to peers and must appreciate 76% to reach the median peer group multiples.
- Bellatrix has net debt / Q2 2014 EBITDA of 1.2x, which is lower than 7 out of 10 peers, and affirmed production increases of 33%, which is higher than peers.
- Due to increased firm service capacity, Bellatrix alleviated near term constraints on production growth. Their 2015 and 2016 gas plants will fully eliminate those constraints.
- Continued increases in production growth, and a new PR campaign in the US will cause a re-rating of this stock. My 12 month price target is C$16.