Unconventional Capital Wisdom

Value, long-term horizon, worldly wisdom, growth at reasonable price
Unconventional Capital Wisdom
Value, long-term horizon, worldly wisdom, growth at reasonable price
Contributor since: 2013
Company: Unconventional Capital Wisdom LLC
This interview (http://tinyurl.com/qee...) with Blockade Entertainment's Foxhoven (the co-producer with Rainmaker on their feature films) mentions that they are working on two other feature films other than Sly Cooper and Ratchet & Clank that have yet to be announced.
Lildimsum,
Currently the company derives a majority of their sales from one product, which has yet to scratch the surface in foreign markets (India and Asia have large anemic populations). They have a number of products making their way through the pipeline and opportunities shall be available with cash on hand. Foreign sales are lumpy and only contributed minimally in Q1 which dampened the Qs results while some products are taking a little longer to gain momentum.
So if you believe management can replicate the success of FeraMax with multiple products, then the growth should continue at high rates even though the focus is on small niche products. Eventually they will hit law of large numbers, but I think that won't be for a while.
V Investor,
No such thing as a stupid question.
There currently is a lot of competition in the paint protection film space and has been for years. New films keep coming into the market that are getting better in quality and Xpel is not the cheapest option. What Xpel provides is more than a large database or good film, they also help drive business for installers. There aren't many film businesses that help installers create relationships with dealerships in their area and actively market these installers in their social media or events.
Xpel thus has been creating mindshare in installers and dealers that their overall service is much more valuable than just a cheaper film. It also makes it much harder to replicate such a model from scratch and compete with an Xpel.
Xpel will be sponsoring, showing their window tint (which has yet to be officially announced yet) and their paint protection film at the Window Film Conference and Tint-Off at the end of September.
http://bit.ly/1D10uXU
Groningentrading,
~50% insider owned with CEO owning ~6% of shares. Almost zero insider selling as company has grown significant share value since turnaround. Also, CEO takes home much less in salary + bonus compared to shareholding in the company.
The company has one of the cleanest share structures: 25.7MM shares outstanding and zero options/warrants.
Balance sheet is very strong with only minimal amounts of debt for Parasol acquisition and some of that is 0% vendor debt.
Ratchet & Clank game footage revealed in trailer. Also some new clips from the movie in there as well.
http://bit.ly/1IHkmqj
Mingran,
I agree that in general the leasing business is cyclical in nature depending on the overall economic trends of the locales with which Winmark goes after. The question is which industries are Winmark really going after. Winmark's overall penetration of leasing marketing is extremely small and the market is highly fragmented so it might be good to get a better idea how the company is going after increasing market share which would necessitate a conversation with the CEO. If you're able to get ahold of him would be good to hear your insights.
New Parkit Presentation: http://bit.ly/1PKhT2i
They can also raise rates. Here is the official Propark site that states a higher $12 max daily rate - $140 monthly - for one car @ Riccio lot. http://bit.ly/1LtCrWE
Not exactly certain of the daily rev per spot, monthlies or occupancy rates but I'm guessing the overall mix leads to higher than one car daily max rate due to turnover of hourlies. 2 hours will set a person back $8 and getting two 2 hourers in one spot back to back would put rev per spot at $16. Also, hourly rate is $8 anytime after 3pm. Theoretically, a spot could get over $24 a day in non-discount. The discount monthly spots would weigh that down. All in all, IMO the right price structure and mix plus higher price and potential for more spots is a recipe for enhancing NOI.
Willhand,
Thanks for the Qs.
I gave the value of the closed portfolio a higher intrinsic value than what was ultimately vended since those assets sold to a separate party would likely achieve a much higher price something closer to $100MM. Again the bulk, Canopy and Expresso, were likely vended in at a price well below market to secure decent terms on asset management fees, etc,. Ex: Canopy @$38MM is much lower than the appraised valuation of a year ago even though NOI grew significantly since. Expresso was vended at cost and was originally sold at low price pretty much as a favor to Propark from old owner (didn't shop the property due to trusting Propark over other potential buyers).
You are correct it is a bet on Propark/Parkit management's ability to optimize and sell assets for a high price. I feel comfortable that the already embedded relationship between Och-Ziff and potential institutions who would be willing to pay up for quality portfolios - and Och-Ziff is properly incented - lowers the hurdles to properly execute on the strategy and sell at lower cap rates. Even with lower IRRs of 15% and slightly higher selling caps, the current valuation is still lower. I'm more inclined to give the benefit of doubt to Och-Ziff and that they've done enough due diligence on Parkit/ProPark management to make sure that their equity investment has a greater likelihood of achieving >20% IRR.
What my understanding of the strategy is is that acquired lots will require investment to squeeze more optimization out of them. Your math looks correct if the lot was to maintain its current form for 4 years but it doesn't take into account expanding available parking spaces through better layout and/or physical expansion. Ex: Expresso was previously owned by a wealthy heiress not focused on profits and was unwilling to invest to optimize the property. Propark/Parkit are now willing to invest the necessary capital to expand total car spots, marketing, tech, etc,.
Ratchet and Clank film release date of April 29, 2016 and announcement of NA distributor Focus Features. A bit delayed as the cash flows move from my estimated year end 2015 to 2nd half 2016. Guess RNK for hire service business are doing well to support company in mean-time and gives much more time to market and polish the tie-in PS4 game.
http://bit.ly/1JK1VOt
Full voice cast for the Ratchet & Clank film has been released.
http://bit.ly/1e1IZAZ
Jason,
Don't know if you noticed but the recent annual filing noted that they officially own 63% of Ratchet and Clank film. Not a significant difference in my model above.
Another article sets down similar theory we have that the Ratchet & Clank movie is likely to be first properly done game/movie adaptation.
http://bit.ly/1cPGdOS
Ratchet and Clank movie - which is completed - will be shown at Cannes market place this Friday and Saturday likely to drum up more international distribution business.
http://bit.ly/1cPGfGq
Looks like the CEO bought another 5,000 shares @CAD$0.57 on May 4th.
This is another good article on Parkit that comes to the same conclusion discussed above in our article, although with slightly different inputs. Again anyway you look at it, shares are undervalued today.
http://bit.ly/1cjmhDH
Frank, thanks for reading and for the comment.
Lil, very good catch!
Thanks for reading. Would be interested in your thoughts after more thorough DD.
Rainmaker posted good Q4. Profitability in sight.
http://yhoo.it/1GF7q0i
Ac011, with the following: high conviction, patience and limit orders.
Jason, good question. They haven't broken out the investment in Sly Cooper yet but my guess is the main reason for RNK investing only 35% in the film is due to the timing of the cash flow and being conservative without needing to do another raise. The Chinese animation partner is likely investing more in direct costs of animation of Sly. A $7MM investment on the film ($20*.35) will probably be only $5MM in cash, the rest in tax credits. RNK will probably also tap their service credits with Deluxe (post production services) which still remain after the sale of their post production biz to Encore years ago.
Jason,
According to Sedar filings "The Company continues to work towards the completion, distribution and release of the feature film, Ratchet & Clank, announced in 2013. The Company entered into an arrangement with Blockade Entertainment LLC (“Blockade”), and CNHK Media China and
Beijing Ruiqixingqiu Movie and Culture Limited (“CNHK”) to co-invest and co-produce the film Ratchet & Clank. Under the terms of the arrangement, the Company has agreed to invest approximately $11.6 million in cash and direct costs incurred in the development of the film, of which Rainmaker expected to finance $3.4 million through tax credits. This investment entitles Rainmaker to a majority interest in the film, subject to future potential negotiations of participation from additional parties. In order to facilitate enhancements and final deliverables of the film, the Company is increasing its investment in the film, subject to negotiation with its production partners. The Company currently estimates a final investment of $14.5 million, of which $4.7 million is expected to be financed through tax credits."
From a conversation with CEO Craig Graham in October last year he stated that their ownership was 65% which would then indicate that if they do not invest anymore then their expected $14.5MM investment, then the total cost of the film would be $22MM.
Roger, thanks for the comment.
While Strange Magic is an animated film that flopped this year, it is a poor comparable for a few reasons. One, Strange Magic is not based on an established franchise with a built in fan base. The film was built from scratch. Sony/Rainmaker/Insomniac have to do very minimal marketing to reach the Ratchet & Clank fan base. Marketing will mainly be the driver of expanding the awareness with a wider audience. Second, Strange Magic's story was hugely lacking and execution was poor. If Insomniac was not heavily behind the creative direction of the film and story, then I would expect a greater probability the film would not be authentic to the franchise and turn off the fan base like what has happened in the past. If Ratchet & Clank is authentic to the game, which is extremely likely, and well told, then fans will go multiple times to see the film and word of mouth should spread that it is the first well done video game movie adaptation.
Even with all that said, I'm still cautiously optimistic.
As many have seen today TNT Express is being purchased by FedEx.
http://seekingalpha.co...
The TNT Express asset was a significant part of our initial thesis in PostNL which, upon approval and completion, will finally be fully divested. The extra ~680 Euros (14.7% stake in TNT) from the sale of the asset will allow PostNL to further de-risk their balance sheet. If I remember correctly the messy balance sheet was the reason why they had to cut the dividend in the first place. A cleaner balance sheet will allow PostNL to get back into good standing with the credit rating agencies and put them another step closer to re-instituting a dividend. If a dividend were to be re-instated, I would expect a larger audience of investors to be interested in the company again as many investors continue to seek for yield.
Agree, the market still does not see the impact of the Brazilian tender or upcoming SA tender. I noticed PATH wrote this http://bit.ly/1xeUePc and looks like they are trying to gain some share of the tender through their advocacy efforts. They still do not have the capacity capabilities as FHCO has. I too think that FHCO is likely to get a large portion of the tender, although doubt they will get the whole thing.
I think an uplist is on management's to-do list. An uplisting to larger exchange from the grey market listing and TSX Venture listing would be quite a large step up in getting investors' attention.
Mj,
Great questions.
For the ~$10MM pre-tax in year 5, I was also including the potential upside in the LP interest. Management forsees a total of $50-85MM pre-tax from the incentive and LP interest alone, so my $10MM pre-tax including recurring fees is much lower. Using management's numbers, subtracting corp costs and taxes would equal ~$10MM in earnings, so I'm comfortable using $10MM pre-tax. Even if they don't reach my figures and are modestly successful, the company is still real cheap.
I do not know the hurdle fee, but I think the combination of both asset optimization and cap rate compression gives management a nice recipe for beating average market rates - likely their hurdle. Propark has a very good track record with optimizing parking assets while Patrick Bonney and a few other directors have significant experience in real estate PE.
Investment period - Acquire assets over 3-4 year period and likely divest by year 5 for each portfolio.
Blackstone is very large at what $40billion in assets and quite mature in their growth prospects, so it wouldn't be an apples to apples to compare to PKT which is an atom in comparison and will be a growth stock for a while. PE multiples for fast growing companies are 20x and higher so a pre-tax multiple of 10 is quite conservative. If the first fund is successful, then all is needed is to raise another fund which can sustain larger growth than a Blackstone even past year 5.
All is yet to be seen, but hope those answers were helpful.
tw,
12+1.5+1+"working capital of both parking assets" = $15.5MM
Refer to my comment above for explanation on your second question.