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Unconventional Capital Wisdom

 
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  • Auxilio: Cross-Selling Potential Uncovered
     • Mon, Sep. 29 AUXO Comment!

    Summary

    • Auxilio's shares have fallen along with the broader small-cap market.
    • AUXO could add a minimum $5 million in yearly revenue by achieving a low cross-selling adoption rate and potential for much more.
    • A conservative $5 million in revenue could double trailing EBIT indicating that regardless of growth and margin expansion, shares are cheap.
    • Auxilio has takeover potential at much higher multiples.
  • Cherokee Group: Brand Management ATM
     • Mon, Sep. 22 CHKE 12 Comments

    Summary

    • Brand management business model is a very attractive, scalable business model that prints money.
    • Cherokee is very rare example of wonderful micro-cap posting >30% annual ROEs over a decade and is likely to continue to compound intrinsic value at high rates.
    • CHKE trades at a fair multiple and is likely to be much larger 3-5 years into the future.
  • Update: New Hire Executive Vice President Of Global Operations Shows Female Health Company Is Getting Right People On The Bus
    Mon, Sep. 15 FHCO 4 Comments

    Summary

    • FHCO hires Martin Tayler as EVP of Global Operations.
    • New hire continues to strengthen our original thesis that the market is getting it wrong with FHCO.
    • Our previous article stated that details on Female Health Company's new strategy will likely come with time and new hires are top importance now.
  • Commercial Bancshares Continues Banking Gains, Possible Takeover
     • Fri, Sep. 12 CMOH Comment!

    Summary

    • CMOH continues to increase efficiency, income, book value and asset quality.
    • Average metrics of similarly sized banks continues to be below CMOH's.
    • We think CMOH continues to go under the markets radar even though it has limited downside, quality operations and potential for >30% returns.
  • Beneficial Bancorp's 2nd Step To Catalyze Value
     • Wed, Sep. 10 BNCL 1 Comment

    Summary

    • Beneficial is set to execute their 2nd step conversion.
    • Excess capital is likely to be used to drive loan growth in higher yields and acquisitions of attractive small community banks.
    • The bank continues to trade at a discount and is likely to see ~20% upside in the near term with minimal downside.
  • Wizard World: Obscure Marketing Machine Offers Attractive Risk/Reward
     • Wed, Sep. 3 WIZD 6 Comments

    Summary

    • 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.
  • Tracking Small-Cap Super Investor MSD Capital - Q2 Update
    Sun, Aug. 24 ABG, DIN, PVH 4 Comments

    Summary

    • MSD Capital is a vehicle for Michael Dell to "diversify" his funds away from Dell.
    • MSD Capital runs a highly concentrated long portfolio of public small-cap companies.
    • A new material purchase for WAIR indicates shares currently are undervalued.
  • Auxilio: Short-Term Headwinds Provide Significant Opportunity
       • Sat, Aug. 23 AUXO 2 Comments

    Summary

    • Auxilio's business model is quality with high returns on little assets and should benefit greatly from the Delphiis acquisition.
    • The company's recurring revenues are sticky with only one non-renewal in the past few years.
    • Recent fall in share price likely caused by debt to stock conversion in July and weak Q2 results from poor weather.
    • Significant upside of up to 100% with very limited downside for those who are patient.
  • Tracking Small-Cap Super Investor Bares Capital Management - Q2 2014
    Thu, Aug. 21 ATU, CEB, CFX Comment!

    Summary

    • Tracking small-cap super investors might be more worthwhile for smaller investors than tracking large-cap super investors.
    • Bares Capital has been graduating to larger small-cap equities.
    • The firm's reduction of small and micro-caps is likely due to both the graduation and also due to the Nine Ten Partners LP transfer.
  • Update: Artal Purchases Of Weight Watchers Indication Shares Are Undervalued
    Wed, Aug. 20 WTW 6 Comments

    Summary

    • Artal has always been a net seller of Weight Watchers shares since the IPO in 2004 and has never purchased shares on the open market.
    • Artal purchases are said to be in anticipation of equity-based award dilution, but dilution will occur over three years, not immediately.
    • Artal has high insider knowledge so the share purchases on the open market up to another >1% of outstanding shares is material and an indication shares are undervalued.
  • Update: Efficiency Driving PostNL
    Wed, Aug. 20 PNLYY Comment!

    Summary

    • PostNL reached our original thesis and due to other more attractive opportunities we exited at the end of last year.
    • Cost cutting measures are being achieved quicker than the company initially anticipated and is likely to continue.
    • The company is likely to be earning much more operating cash next year and a likely credit upgrade will catalyze a higher share price.
  • Update: Resolute Forest Products' Pension Liability Continues To Decrease
    Wed, Aug. 20 RFP 2 Comments

    Summary

    • Pension liability continues to contract with a higher discount rate.
    • Still some downside in worse case scenario, however, the company is likely to reach profitability next year.
    • Continues to trade for low EV/trailing EBITDA multiple although the company is likely to achieve much more in the future.
  • Winmark's 'High' Book Value Caused By Economic Goodwill
    Tue, Aug. 19 WINA Comment!

    Summary

    • Standard accounting is misleading with companies that earn high returns on very little net-tangible assets.
    • Economic Goodwill is real and is hard to quantify but estimates using market rates gives a ball-park idea of a company's true net asset value.
    • Winmark does not trade at 20x book, but 1.6x including Economic Goodwill. Historically, that is a lower multiple to pay for the company.
  • Update: Winmark Leasing Portfolio Growing, And Share Repurchases Continue To Indicate Shares Are Undervalued
    Thu, Aug. 14 WINA 3 Comments

    Summary

    • Lease income timing is masking true growth.
    • The lease portfolio grew at 33% annualized, and is on track for further growth.
    • Company share repurchases and open market purchases by John Morgan continue to indicate shares are undervalued.
  • Update: Wesco Aircraft Holdings Even More Attractive Valuation
    Thu, Aug. 14 WAIR Comment!

    Summary

    • The market's short-term nature has sent shares in this high quality business further down.
    • It will take time for the integration of Haas to bear fruit.
    • Tom Bancroft's Makaira Partners continues to purchase shares and holds Wesco as one of their largest positions at ~16.5% of fund as of the end of last quarter.
  • Update: Bankwell Business Quality Still Intact
    Thu, Aug. 14 BWFG 1 Comment

    Summary

    • CEO and board member Peyton Patterson resigned, share price rises.
    • Latest-quarter performance indicates business quality still intact.
    • New leadership is likely to be quality, since the board continues to own 30% of the bank.
  • Platform Specialty Products: Rare Opportunity Continues To Be Available
       • Thu, Aug. 14 PAH 9 Comments

    Summary

    • PAH has deep bench of high quality, unconventional managers.
    • Agriphar acquisition fits the roll-up strategy.
    • Mr. Market continues to not fully understand the opportunity and assigns an average price for an above average business and management team.
    • The risk/reward for long-term investors is very appealing.
  • Mr. Market Might Be Mistaken With Creative Learning Corporations' Auditor Change
    Wed, Aug. 13 CLCN 8 Comments

    Summary

    • CLCN changed their auditor, yet looks to be related to KLJ merger, not a result of bad accounting.
    • Franchises have been growing at a fast clip.
    • Earnings yield is above 10% and the company is likely to continue to add to their cash pile.
  • Female Health Company: Disaster De Jour With Attractive Risk/Reward
       • Thu, Aug. 7 FHCO 25 Comments

    Summary

    • Uncertainty in the new strategy and the forced selling from dividend seekers makes this a disaster de jour.
    • Recent earnings re-iterates that FHCO's business quality continues to be intact.
    • FHCO has limited downside at today's price and significant optionality if marketing is moderately successful.
    • Certainty from an upcoming detailed strategy on marketing as well as a potential large share repurchase could send shares much higher.
  • Avante Logixx: Mr. Market's Unwarranted Reaction Has This Quality Security Roll-Up On Sale
       • Mon, Jul. 28 ALXXF 10 Comments

    Summary

    • Avante Logixx has an edge in technology and the M&A experience to roll-up the highly fragmented industry.
    • The security business model is quality with high FCF, recurring revenues and negative working capital; all are attributes that are good ammunition to "chase a few more rabbits".
    • Market's reaction to the decline in non-recurring revenues and lack of acquisition insight is unwarranted providing compelling opportunity.
  • Post Holdings: Great 'Cereal' Acquirer Meaningfully Undervalued
       • Tue, Jul. 22 POST 23 Comments

    Summary

    • Post Holdings is rhyming much of the history found in Ralston Purina's annual reports from 81-00.
    • Bear thesis overlooks the secret sauce of Bill Stiritz and the corporate culture he creates.
    • Post Holdings is trading for a forward 10x EBITDA, which we believe is a very fair price.
  • Update: Dividend Cut Provides At Least 50% Upside For Female Health Company
       • Thu, Jul. 17 FHCO 37 Comments

    Summary

    • Dividend suspension has sent yield seekers to the exit and is likely the only reason for the 24% drop in the last two days.
    • Company is actively searching for ways to diversify operations and proper marketing could lead to strong consumer franchise.
    • Zero debt and quality operations should allow moderate leverage for a large dutch tender at an extremely attractive price.
    • FHCO is also an attractive acquisition target for large consumer product companies.
  • Bankwell Financial Group: Significantly Undervalued While Outsider CEO Crafts Encore Performance
       • Tue, Jul. 1 BWFG 11 Comments

    Summary

    • Peyton Patterson fits the outsider CEO mold described by William Thorndike and is repeating her success with a much smaller bank.
    • The community banking environment is ripe for consolidation in the Connecticut and surrounding areas.
    • Mr. Market has been selling BWFG off because of media headlines allowing one to purchase the bank at 1 times tangible book.
    • Upcoming catalysts should quickly close the discount to intrinsic value.
  • Creative Learning Corp: Attractive Education Franchise Systems
       • Wed, Jun. 25 CLCN 2 Comments

    Summary

    • Creative Learning Corp's franchise opportunities focus on an attractive market with sustainable long-term demand.
    • CLCN is run by Brian Pappas who has extensive experience running and growing franchise businesses, which is an advantage over competitors.
    • Although Pappas is the largest shareholder, we question some related transactions.
    • CLCN is trading at a fair value and if one overlooks related transactions, the business franchise should provide ample margin of safety.
  • Winmark Corp: Win Is A Common Theme For John Morgan
       • Wed, Jun. 25 WINA 15 Comments

    Summary

    • John Morgan has turned Winmark into a capital compounding machine with returns over 24% annualized compared to the measly 2% achieved by S&P 500 over the same period.
    • Both the franchise and leasing businesses are quality with high returns on little capital and there is plenty of growth in both left.
    • John Morgan has been recently purchasing shares on the open market and share repurchases provide a catalyst.
    • The company is currently trading at a slight premium to the current leasing portfolio and franchise businesses. We get the growth in the leasing business for free.
  • Female Health Company: Sustainable Moat Through Education
       • Fri, Jun. 20 FHCO 20 Comments

    Summary

    • FHCO's focus on education and training is a significant advantage in attaining continuous usage by females who need it most.
    • Public health organizations are not focused on lowest price.
    • Growth in the consumer global condom market will be difficult but provides significant growth optionality.
    • Valuing the NOLs and ongoing business strictly in the global public sector, FHCO is trading at a significant discount to intrinsic value.
  • Commercial Bancshares: Mighty Little Bank Meaningfully Undervalued
       • Wed, Jun. 18 CMOH 6 Comments

    Summary

    • Quality assets and operation that were able to grow market share during financial crisis.
    • Bank continues to grow and be profitable with consistent ROA of nearly 1% and ROE of 10%.
    • Management and board own significant stake in company and have continued to purchase shares in the open market.
    • Bank trades at a discount to book and multiple of earnings.
  • Cherokee Group's GARP: Growing Attractive Royalty Profits
       • Wed, Jun. 18 CHKE 1 Comment

    Summary

    • Quality business model: asset-light, low operational risk, high returns on minimal capital.
    • Expanding global economy provides organic growth, and acquisitions will add further growth.
    • Past three acquisitions have been accretive, and the company announced an 11% share repurchase program, which would be accretive at current prices.
    • Plenty of downside protection, with $85 million in minimum royalty guarantees.
  • Southside Bancshares And OmniAmerican Bancorp Merger Insights
       • Thu, May. 1 SBSI 3 Comments

    Summary

    • The combined bank would continue to outperform peers on an performance basis.
    • The combined bank would continue to have high asset quality.
    • The market's negativity has driven down the shares of SBSI, but negativity could be temporary.
    • OABC shareholders could potentially get a better offer, however, the combined bank would be powerful in the long-term.
  • Harvard Illinois Bancorp: Stilwell Might Win The Proxy Marathon
       • Fri, Apr. 25 HARI 1 Comment

    Summary

    • Joseph Stilwell is currently in his third proxy contest with HARI to appoint a nominee to the board.
    • Despite HARI's focus on share increase since 2/1/2012, the bank has been performing below savings institution peers.
    • The bank continues to trade below book value, because the market thinks that excess capital will continue indefinitely and does not factor in a potential for a sale.
    • A 45% chance of a merger in the near term would equal 24% upside.
  • Platform Specialty Products: AgroSolutions Acquisition Is Just The Beginning
       • Thu, Apr. 24 PAH Comment!

    Summary

    • Acquisition of Chemtura's AgroSolutions is immediately accretive to earnings, cash flow and margins which should grow significantly over time.
    • AgroSolutions is a new vertical for PAH to build in and produces stable cash flows, with low capex needs, that provide ample ammunition for acquisitions.
    • PAH continues to trade for an average multiple which could look very undervalued a few years out if company is successful in their acquisition strategy.
  • Greer Bancshares: You Get Much More Than You Pay For
       • Tue, Apr. 22 GRBS 4 Comments

    Summary

    • Greer Bancshares has a dominant deposit market share % in an attractive local economy.
    • GRBS' asset quality trends are positive while the bank has adequate reserves available.
    • Market overlooks this little bank's profitability at a sustainable $4 million.
    • GRBS has $6 million in deferred tax assets or 1/2 the company's current market cap.
    • GRBS is trading significantly below tangible book at 0.8 times and intrinsic value is at least double today's price.