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Rubicon Tech: 40% Upside Minimum On Divestiture Story

Antao profile picture


  • Rubicon is divesting its biggest operative segment and losing 80% of sales in the process in a bold managerial decision aiming at future performance.
  • CEO hired 2 weeks ago with proven track record, having delivered a 20% CAGR to shareholders in a similar situation.
  • Selling way below a conservative appraisal of cash in the balance sheet by year-end and lots of optionality from NOLs and acquisitions.

Rubicon Technology Inc. (OTC:RBCN) is a very interesting situation where a company decides to divest its sexiest, biggest operative segment to concentrate in the smaller, duller part of their operations losing roughly 80% of its sales in the process. And that may actually be a good decision!

RBCN operates as a vertically integrated, advanced materials provider specializing in monocrystalline sapphire for applications in optical and industrial systems. They use their own proprietary crystal growth furnaces to grow high-purity, low-stress, ultra-low-defect-density sapphire crystals.

Anyone remotely acquainted with sapphire is by now asking: why are they not invested in the LED and mobile device markets? After all, these are the largest, most appellative markets for sapphire, right? Well, they were a few years back, now not so much.

Actually, RBCN's business had been highly exposed to these markets up until September 2016, when the company decided to head for the exit as the industry suffered with oversupply and corresponding low pricing environment caused by significant investment in sapphire production in China caused by the increased demand occurred with the widespread commercial usage of LED and the growth in the mobile device market.

This was not an easy decision as these markets accounted for roughly 80% of the company's revenues. The thing is that it also accounted for a huge chunk of their fixed costs and the high investments needed to keep this segment afloat started to weigh heavily on the bottom line. RBCN initially tried to stay in the LED substrate market by limiting their product offering to six-inch diameter wafers and working hard to reduce cost to make its product profitable, with limited success: the company was indeed able to reduce costs but the continual decline of prices made the prospects of becoming profitable unlikely for the foreseeable future.

In the

This article was written by

Antao profile picture
In 2014 João founded and currently manages Antão Capital, an investment fund focused on worldwide special situation and event-driven opportunities with an asymmetric risk/return profile, preferably with a near to medium term catalyst in place.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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Comments (22)

Antao profile picture
Hi PRTU, thanks for your comment. We believe RBCN is undervalued and is worth between $11 and $20+. Cheers
PRTU profile picture
14 Nov. 2017
Hi Antao, any update you your thesis since the article was written?
SevenSeas Investment Research profile picture

I've been looking at this name (made a small trade off the bottom) before any clear light for the future (found it at it's 52 week low). I was actually typing up the rest of a half done article on it the last couple of days since I have started recommending it now that there is a clear future (at least a fresh seasoned leader) so I can't say I wasn't a little bit bummed someone got to it first !

Anyways I passed the article along to the group, it's very well done, and we both arrive around the same value. Any comment I may have is minute details and opinions, you did an outstanding job with it. Since it failed at the 1 dollar level again, patience will be investors best friend, looking to buy at 70c or less...

Keep up the outstanding work!

Antao profile picture
SevenSeas Investment Research, thanks for the kind words, appreciated. Cheers
Thewaltzy profile picture
V interesting article, antao.
Curious...why no shares yourself??
Antao profile picture
Thewaltzy, thanks for the very pertinent comment. We get asked that a lot. Our fund is very concentrated and we are happy with our current investments. If we were starting out today RBCN would definitely be up for consideration as an investment, as is the case with the vast majority of the situations discussed on our SA articles.

In fact, were we running a more diversified portfolio we would love to invest in every opportunity we discuss here. Since the only reason we do not is because of our investment mandate rather than the quality of each situation, we think it would be unfair to not discuss them for consideration by the investing community.

Additionally - and running the risk of being misinterpreted - we believe there are other reasons to publicly discuss one's investments other than to show commitment to the idea. Or, if you prefer, we often don't see a causal link between author ownership and idea quality / performance.

Thewaltzy profile picture
Certainly antao-and I'm in no way "criticising".
I was curious as it looks a good opportunity & one that might merit some of my hard earned $$!
Keep up the good work.
Antao profile picture
Thewaltzy, thanks for the kind words. Cheers
30 Mar. 2017
@Antao, great job on the article!

I 100% agree with everything you presented regarding the future cash balance and to conservatively value this company just purely based on that alone for the short term.
As for the longer term value, I think Rubicon's LANCE technology, for which development have just completed and the military have recently given them permission to market and commercialize could become very successful and bring in high profit margins. Given the new CEO's track record at Peerless Systems, he could very well sell off that business as well to monetize it right away and add it to the cash balance to acquire already profitable companies.
Antao profile picture
wco, thanks for the spot on comment. Cheers
Mingran Wang profile picture

Thanks for the article. Any expectation on the opex after the divesture? How much cash are they going to burn every year after this?
Antao profile picture
Mingran Wang, thanks for the comment. No idea on exact numbers but we believe cash flow will be greatly improved after the divestiture and cost cutting measures take place, which means cash burn should be deeply slowed down if not stopped. Additionally, we don't expect Mr. Brog to wait long before diversifying into other ventures once he monetizes the assets currently for sale, the point being that RBCN may be very different from an operative point of view in 1-2 years from now, which would render any forecasts made now irrelevant. Cheers
Stewart Nielson profile picture
I'm a shareholder. Very glad I bought when I did with the recent moves. Thanks for the great article Antao!
Antao profile picture
Stewart Nielson, thanks for the kind comment and congratulations on the timely investment. Cheers
Bumbershoot Holdings profile picture
Any value to the intellectual property around ES2?
Antao profile picture
Bumbershoot Holdings, none given. We wanted to keep this as simple and straightforward as possible. Consider it as free optionality. Cheers
Bumbershoot Holdings profile picture
So do you see the expected sale of the Batavia & Malaysia facilities as a complete exit of the sapphire business? Or just the commercial LED application market?
Antao profile picture
Bumbershoot Holdings, just LED and mobile devices at least for now. Going forward it will depend on the return on investment achieved in the optical and industrial business vs the return on the investments the company will make in the future. Mr. Brog seems to be strong in capital allocation (as would be expected from a CEO with background as a value investor). Cheers
30 Mar. 2017
You are by far the best author on here, you're analytics of the balance sheet are on point! I have money in SPRT, keeping an eye on HIL, and this will be next investment. Thank you!
Antao profile picture
Thank you alejo.barreto.cas@gmai... appreciated. Cheers
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