Alpha Vulture

Deep value, special situations, long-term horizon, micro-cap
Alpha Vulture
Deep value, special situations, long-term horizon, micro-cap
Contributor since: 2012
The share creation fee relevant because it is the sole reason that this is trading at a premium, not the "volatile oil markets and retail investors" thing* that this article talks about...
* Apparently I'm not allowed to call it bullshit without my post getting deleted.
Historically it traded close to NAV because the fee didn't exist back then. Thinking that it will revert to its historical mean now that there is a fee is foolish.
Still a positive development I think. Not great that it was sold at a discount to NAV, but it removes a loss making subsidiary and shows once again that management is serious about liquidating the company.
Market in these kind of stocks isn't very efficient, that's the reason there is an opportunity in the first place :) And I think there still is.
Retail Holdings just announced a $5/share dividend, just as expected: :)
I would say I'm neutral about the value of the underlying companies. Not obvious expensive and not obvious cheap. I'm not worried about exchange rate risk either, but it is something that can be hedged. But I see it mostly as noise, but with the expectation that the USD should strengthen based on difference in interest rates.
Yes, you are correct wrt Bangladesh. Don't think it's material.
Yes, that was even quicker than I expected! :)
I'm not Nate, he is the guy behind while I obviously write on :)
And as I also wrote it in the post above, perhaps you are right that those stock exchanges are worth a lot more than cost. But how much more? They have a combined cost basis of $3 million while I have a ~$100 million gap in what I think the company is worth and what the market thinks. That's a big hole to plug!
Thanks for your comment. I didn't ignore the revenue participation asset in my analysis, see the subsection titled "revenue stream". I actually think it is pretty valuable in worth a lot more than the $10 million balance sheet value.
I think that looking at how fast they compounded shareholder equity at FRMO doesn't pay a good picture how they company is really performing. If you have a very valuable asset (the revenue stream!) at a low cost on your books it's easy to show fast growth. That's not real growth though: just recognizing economic value that was already there but not reflected in the accounting value.
And perhaps you are right that their investments in the two stock exchanges will prove to be incredible. But even if they return 100%, 200% or more it's not going to make a huge difference in what the company is currently worth. But perhaps that would generate some more trust in the idea that these guys can deliver substantial alpha (I'm skeptical!).
Thanks for your comment. Note that I'm not using an AUM valuation for the revenue piece, only for the stake in Horizon Kinetics. I value the revenue piece based on a (simple) DCF model that looks at the historical revenues generated so far.
Yes, Hopewell usually also pays a dividend in early February. If the deal hasn't closed by then both dividend payments would roughly offset each other unless the timing is exactly such that we have to my the NFBK dividend without getting the HWDY dividend.
Perhaps, the CEO is 75 so that would be sort of normal. But you also have plenty of CEO's who continue working until their death, and perhaps that will take decades. Don't have any real insight...
Thanks for your comment. Winland Electronics is included in the equity portfolio in my valuation, but you are right that the investment in the stock exchanges with a $3.0 million cost basis is missing. I agree that it would have been better to include it, but it's not a material sum.
This is what Sewko did this year by selling Singer Thailand, so perhaps they will continue selling the business in pieces. But I think that the remaining stakes are harder to sell because they own 75%+ instead of the 45% that they had in Singer Thailand.
If the company would want to buy back stock they could decide to launch a tender offer, otherwise it would indeed be tough. Sometimes there are large block trades in the stock though (trading volume has been high this month for example).
HC2 having a different (higher) risk profile than PFLT doesn't make it a worse (or better) deal. The higher risk should already be reflected in the current HCHC stock price. Your argument would lead to the same conclusion if HC2 would have offered a 100% premium compared to PFLT: that should be a hint that it is flawed...
And yes: HCHC is probably not a suitable investment for all current MCGC owners, but if that is the case they could just sell a part (or everything) of their holdings and pocket more cash that can be reinvested in something more suitable.
Exactly. Luckily they can't hide behind that argument anymore wrt the new 5.25 offer: that's better no matter how you slice it.
Chris, how do you think it is possible for HCHC to salvage the NOLs? An acquisition surely triggers a change of control event, making the NOLs almost worthless?
That's good to hear! But let's hope that you manage to avoid hitting a bus ;)
Chris, nice idea. Bought a bunch of shares yesterday :)
Market seems to think that it is worth a lot less than $0.15 when you look at the trading in PZG WI. Might be another opportunity.
Nice article. Enjoyed the analysis of the CEO interviews :).
Not a good pool to fish in, but not everything is uninvestable.
Perhaps not sexy enough for everybody. I prefer good investments above sexy investments though :).
Happy Holidays! And yes, I wrote about this stock earlier this year on my blog. Basic story is unchanged since then, but they did publish interim results in the mean time and with 2014 almost behind us I think it is now a more timely idea :)
Glad that you like it :)
Annual report has been released :)
It is my understanding that all NOLs are now subject to limitation. At December 31 the company had $241 million of NOLs of which $125 million was subject to limitations. But since then multiple transactions in the companies share capital have taken place triggering an ownership change and making all NOLs now subject to limitation.
I think you missed that the value of those NOLs is limited because an ownership change has occurred. From the latest 10-Q:
As of December 31, 2013, the Company reported operating loss carryforwards available to reduce future United States taxable income in the amount of $241.0 million, of which, $125.0 million was subject to limitation under Section 382 of the Internal Revenue Code (“Section 382”). In the first quarter of 2014, substantial acquisitions of HC2 stock were reported by new beneficial owners of 5% or more of the Company’s common stock on Schedule 13D filings made with the SEC. On May 29, 2014, the Company issued 30,000 shares of Preferred Stock and 1,500,000 shares of common stock related to the acquisition of Schuff. During the second quarter the Company completed a Section 382 review. The conclusions of this review indicate that an ownership change had occurred as of May 29, 2014. The Company’s annual Section 382 base limit following the ownership change is estimated to be $2.16 million per year. The Company also determined that it had a net unrealized built in gain (NUBIG) at the time of the change. Pursuant to Internal Revenue Code Section 382(h), the Company is able to increase its Section 382 annual base limitation by an incremental limitation estimated to be a total of $7.1 million in the first five years following the ownership change. On this basis the annual limitation for the first five years is estimated to be $3.58 million, decreasing to $2.16 million for the subsequent 15 years.