Welcome to the latest issue of the PRO Weekly Digest in which we publish highlights from our PRO coverage. Comment below or email us at pro-editors at seekingalpha.com to let us know what you think. Find past editions here. PRO subscribers can access interviews by following the SA Interviews account and view past interviews under the same account.
Click here to read the interview with Jerome Verony.
PRO idea playing out
In April 2017, Street Smart Investor said Kirkland Lake Gold (NYSE:KL) was undervalued with 30-50% upside driven by a production ramp up, strong balance sheet and cash flow, mid single-digit EBITDA multiple and discount to peers. The stock delivered as it is up ~45% since publication.
In a recent update article, Street Smart Investor says there is still additional 30-50% upside as continued production growth (driven in part by its high impact investment planned for 2H17) and falling AISC will drive EBITDA margin expansion while the significant increase in EBITDA means the stock still trades at an attractive EBITDA multiple and discount to peers. The recent listing on the NYSE should result in greater visibility.
Call from the archive - GMS
Gypsum Management and Supply (NYSE:GMS) is down ~10% since Michael Boyd shared his bullish thesis in May 2017, which may be due to management projecting lower gross margins on the 4Q call. However, demand appears intact as GMS reported record wallboard unit volume in 4Q while the balance sheet continues to strengthen with the leverage ratio decreasing 1.4x and a recent refi lowering the interest rate 50 bps. With an original price target representing ~25% upside, this thesis may be worth revisiting. Also see Vince Martin’s recent bullish article.
Noteworthy PRO articles
We wanted to highlight one of our PRO editors' favorite PRO ideas this week:
SA Editor John Leonard, CFA: Safety In Value highlights an under-the-radar bullish idea on Computer Modelling Group (OTC:CMDXF), which enjoys significant competitive advantages, long-term customer relationships and high levels of recurring revenue with oil price exposure more upside than downside from here; there is a clear case for a sale to a strategic or financial acquirer.
New Seeking Alpha contributors to watch
Digging For Alpha shares a bullish thesis on XXL ASA (OTC:XXLLY), an under-the-radar European sporting goods retailer (which is largely Amazon (NASDAQ:AMZN)-proof); the multiple growth drivers (expansion into Central Europe/existing markets and e-commerce) and ~15x P/E makes this a classic GARP play.
Concise Capital Management makes an asymmetric bullish case for the convertible bonds of Vivus (NASDAQ:VVUS) given the ~20% YTM and strong balance sheet (net debt close to zero); a subsidiary of Icahn Enterprises clearly sees value as it owns more than half of the bonds.
Buyside idea update
New Age Beverages (NASDAQ:NBEV) is down ~30% since Philaretos shared their bearish view in June 2017 (the roll-up strategy was unlikely to work, management concerns, extreme valuation even assuming aggressive guidance is met). In an update article, Philaretos takes a critical view of 2Q results and argues investors should look at GAAP filings to see the true picture of operating performance.
Idea screen of the week
Each week we use the PRO Idea Filter to find potential ideas based on a recent news event. This week, PRO Editor John Leonard, CFA looks at companies with new management as a catalyst.
A management/board change is one of the most powerful (if underappreciated given its simplicity) catalysts. I ran a screen for PRO long ideas with Management Change as the Investment Opportunity tag.
2 ideas turned up in this screen that might be of interest (prices as of August 24 close):
Seaspan (NYSE:SSW) by J Mintzmyer: Published on August 14, 2017, up ~15% since publication, author's price target offers an additional ~100% upside. We highlighted this in last week’s PRO Weekly Digest - the related catalyst here is the new Chairman of the Board David Sokol.
Hill International (NYSE:HIL-OLD) by Antao: Published on March 23, 2017, ~unchanged since publication, author's price target offers ~70% upside. Although only part of the thesis, the activist involvement led to shareholder-friendly changes to the board as well as the sale of a business unit, delevering and focus on the core business.
About the PRO Weekly Digest
PRO members automatically receive the Weekly Digest and other PRO content in their inbox. If you are not a PRO member and would like to be notified of this, click follow at the top of this article to follow the SA PRO Editors account, or click to subscribe to the free newsletter below to receive these in your inbox. You can view all past PRO Weekly Digests here. And if you're interested in SA PRO, check out the details here to sign up or learn more.
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.
Additional disclosure: Check with individual articles or authors mentioned for their positions.