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SNYR - am I the only one who is long? The business is worth over $1.50 as earnings ramp the next few quarters. Exiting 2017, SNYR will have $0.20-0.25 EPS power and a similar FCF/share based on adding Focus Factor to new Walmart stores and new product launches on the Synergy Effect platform.
I posted this earlier this week:
SNYR raising capital at $1.50/share. The company had $0.03 of EPS in 1Q which should be sustainable over time, giving a $0.12 EPS run-rate. Investors such as Knight Therapeutics (TSX: GUD) who are subscribing to the offering are valuing SNYR shares at 13x run-rate P/E. Shares seem attractive at current prices ($0.45) given what private market buyers are paying for the stock and the strong cash flow and earnings of the business.
SNYR raising capital at $1.50/share. The company had $0.03 of EPS in 1Q which should be sustainable over time, giving a $0.12 EPS run-rate. Investors such as Knight Therapeutics (TSX: GUD) who are subscribing to the offering are valuing SNYR shares at 13x run-rate P/E. Shares seem attractive at current prices ($0.45) given what private market buyers are paying for the stock and the strong cash flow and earnings of the business.
WESTBROOK, ME -- (Marketwired) -- 05/03/17 -- Synergy CHC Corp. ("Synergy" or the "Company") (OTCQB: SNYR) is pleased to announce that it has entered into an agreement with Mackie Research Capital Corporation (the "Agent" or "MRCC") for a best-efforts private placement offering (the "Offering") of up to US$20 million in special warrants (the "Special Warrants") of the Company. The Special Warrants will have indicative pricing of US$1.50 per Special Warrant with the exact price and structure of the Special Warrant to be determined in the context of the market and to the mutual satisfaction of the Agent and the Company.
Each Special Warrant will entitle the holder thereof to acquire, at no additional cost and without any further action on the part of the holder, one common share of the Corporation.
To increase its share ownership in Synergy, Knight Therapeutics Inc. (TSX: GUD), through one of its wholly-owned subsidiaries, has committed to subscribe for 7.5% of the offering up to a maximum of US$2 million as a lead order conditional on Synergy meeting certain fundraising requirements which this offering is expected to satisfy.
The Company will grant the Agent an option (the "Agent's Option") exercisable at any time up to and including the Closing (as defined herein) to increase the size of the Offering by up to 15% in Special Warrants by giving written notice of the exercise of the Agent's Option, or a part thereof, to the Company at any time up to 48 hours prior to Closing.
The gross proceeds from the Offering will be used for general corporate purposes and potential acquisitions.
The Special Warrants will be offered in the provinces of Alberta, British Columbia, and Ontario, and otherwise in those jurisdictions where the Offering can lawfully be made including the U.S. under applicable private placement exemptions. Completion of the Offering is subject to certain closing conditions, including the receipt of all necessary regulatory approvals.
Closing of the Offering is expected to occur on or about the 4th week of May, 2017, or such other date as is reasonable and agreed upon between the Agent and the Company (the "Closing").
Hi mods, can I please be removed from the jailhouse? I posted my quick note on SNYR in too many message boards without reading the comment on the side: "Spam: Do not post the same or similar message to more than TWO (2) boards within a calendar day." I will not make the same mistake again. Thank you,
Collin
SNYR raising capital at $1.60/share. The company had $0.03 of EPS in 1Q which should be sustainable over time, giving a $0.12 EPS run-rate. Investors such as Knight Therapeutics (TSX: GUD) who are subscribing to the offering are valuing SNYR shares at 13x run-rate P/E. Shares seem attractive at current prices given what private market buyers are paying for the stock
WESTBROOK, ME -- (Marketwired) -- 05/03/17 -- Synergy CHC Corp. ("Synergy" or the "Company") (OTCQB: SNYR) is pleased to announce that it has entered into an agreement with Mackie Research Capital Corporation (the "Agent" or "MRCC") for a best-efforts private placement offering (the "Offering") of up to US$20 million in special warrants (the "Special Warrants") of the Company. The Special Warrants will have indicative pricing of US$1.50 per Special Warrant with the exact price and structure of the Special Warrant to be determined in the context of the market and to the mutual satisfaction of the Agent and the Company.
Each Special Warrant will entitle the holder thereof to acquire, at no additional cost and without any further action on the part of the holder, one common share of the Corporation.
To increase its share ownership in Synergy, Knight Therapeutics Inc. (TSX: GUD), through one of its wholly-owned subsidiaries, has committed to subscribe for 7.5% of the offering up to a maximum of US$2 million as a lead order conditional on Synergy meeting certain fundraising requirements which this offering is expected to satisfy.
The Company will grant the Agent an option (the "Agent's Option") exercisable at any time up to and including the Closing (as defined herein) to increase the size of the Offering by up to 15% in Special Warrants by giving written notice of the exercise of the Agent's Option, or a part thereof, to the Company at any time up to 48 hours prior to Closing.
The gross proceeds from the Offering will be used for general corporate purposes and potential acquisitions.
The Special Warrants will be offered in the provinces of Alberta, British Columbia, and Ontario, and otherwise in those jurisdictions where the Offering can lawfully be made including the U.S. under applicable private placement exemptions. Completion of the Offering is subject to certain closing conditions, including the receipt of all necessary regulatory approvals.
Closing of the Offering is expected to occur on or about the 4th week of May, 2017, or such other date as is reasonable and agreed upon between the Agent and the Company (the "Closing").
Synergy (SNYR) had a strong quarter with EPS of $0.03 and revenue growing +30% organically. At 10x run-rate P/E, SNYR may be worth $0.12 EPS x 10x P/E = $1.20
How could an auditor change be good? It is at best a non-event and at worst an indication that they are seeing fraud or bad behavior. As an auditor, if you detect problems, your fiduciary duty is to your client, so the protocol is to discontinue the audit engagement. As an auditor you do not tell authorities, you simply walk away when there are problems because your duty is to your client. The best case is that it is a non-event (ie neutral), worst case it is indication of fraud, poor internal control, etc (ie very bad).
Effective April 13, 2017, 3Pea International, Inc. (the “Company”) received notification from Sarna & Company, Certified Public Accountants (“Sarna”) that it would be unable to continue as the Company’s principal independent registered public accounting firm. The board of directors does not have a separate audit committee and approved the resignation of Sarna.
JaneyH, what do you think their revenue will be for 1Q17? 1Q16 was $2.18mm and 4Q16 was $3.05mm. I spoke with Brian
The K was released March 27th. They'll file their 10-Q in mid-May. Management is open and easy to communicate with. They do not plan to promote the stock, but just focus on operating business. If you are looking for a promotional management team, there are plenty of other micro caps out there that can offer that
What is your view on the stock? Are you long?
I spoke to management and they said that 1Q17 is their seasonally weakest quarter. They backed off their more bullish comments when I spoke to them during 4Q. I own stock, but I think people need to manage their expectations into 1Q17 (reported mid-May) given 1Q15 revenue was -68% q/q (though 1Q16 was flat q/q). I think flat q/q from 4Q16 is a bullish outcome, but down 15% q/q is a more reasonable assumption.
Anyone have guesses on how much 1Q revenue will be down from 4Q? Let's start at $2.5mm with $0.1mm of operating income for the quarter - better or worse than that?
The recent acceleration was primarily driven by stronger attendance. 80% of revenue is from the Georgia park and 20% from Missouri. At Georgia, attendance has averaged +9% for the last 3 years and pricing +5%. In the last quarter, attendance accelerated to +26% while pricing remained +5%. At Missouri, attendance has averaged +8% and pricing +3% for the last 3 years. In the last quarter, attendance was +21% and pricing was flat.
Management has upgraded the facilities with new animal shelters, new buildings, and more targeted local marketing which has improved the attendance trends. You can call either of the Georgia or Missouri parks and ask them about the changes in the last few years. I think it will continue because they have a good track record of growing attendance and attendance growth accelerated in the most recent quarter. Reviews online continue to improve
It is a very regional market, so waterparks are probably the best competitors, but provide a very different product offering. Other entertainment activities such as movies, bowling, minigolf, etc also likely compete. As far as I can tell nothing has changed in the competitive landscape
Management got involved in 2011 and 2013 and appear to have been hired by Charles Kohnen who owns 28% of the shares. CEO Dale Van Voorhis owns 20% and has spent his whole career in the entertainment parks business. Other management have strong career histories. Insiders have been aggressively buying shares since 2014. I think a management buyout may be the most likely outcome long-term for Parks! America given high insider ownership and strong FCF generation which can easily service the debt to buyout minority holders.
Yes, it does seem well supported and the stock is not going down, but it also failed to break out on what appeared to be good 4Q results. What were people expecting from 4Q? Makes me wonder what expectations are for 1Q and what kind of quarter they need to print to make the stock break out of this channel
TPNL had good 4Q results, but the stock couldn't move higher which indicated that the good news was priced into the stock. Next quarter is seasonally weaker so if the stock couldn't go up on a good quarter, I don't know how the stock will trade if the quarter is down sequentially. That is why I said it could be dead money
Feels like dead money. Plus 1Q is seasonally bad quarter, we don't know how bad it will get this year
$PRKA Writeup
Parks! America, Inc (ticker PRKA) is a $12 million market cap company that owns two regional Wild Animal Safari theme parks located in Georgia and Missouri. At the Wild Animal Safari theme parks, visitors travel through a 3.5-mile self-guided tour, experiencing hundreds of animals and having the opportunity to feed and interact with them. The parks primarily generate revenue from admission fees which are $20-25/person, but also rent vehicles, sell animal feed, and have food and souvenir shops. PRKA is under-discovered and the market is not giving credit for the significant growth in revenue and EBITDA and for the upbeat outlook for the future with shares trading at just 4.2x EV/EBITDA vs larger peers at 10x. I estimate fair value is $0.37 today, +125% upside, and will increase to $0.68 over the next 3 years, +340% upside. Management owns over half the company and has been buying more in the open market
Thesis
• Management has significantly upgraded the facilities and the overall park experience and is beginning to realize significant progress in their financial results. This is driving strong attendance growth and consistent pricing increases since current management took over in 2013. With theme parks, incremental margins are about 90% so maintaining or growing attendance is key to growing profits. Similarly, incremental profit on pricing increases is 100%.
o Attendance has grown at a +10% CAGR including accelerating to +26% in the most recent quarter
o Ticket pricing has grown at a +5% CAGR including +4.5% in the most recent quarter
o Ratings on travel websites for both Animal Safari parks have significantly improved over the last couple years (4.5 stars with 613 reviews on Trip Advisor) which is tangible evidence of management improving the experience for visitors
o Management has successfully turned around the Georgia park, growing EBITDA +75% over the last two years. The company is just starting to get traction on its Missouri park. If Missouri reaches the same level of profitability as Georgia, the company will more than double its EBITDA to $4.2mm. Plus Georgia continues to see attendance and pricing growth and will continue to grow EBITDA
• Management is well-aligned with shareholders. Management owns 69% of the shares including purchasing 11% of the float in the open market over the last two years. Clearly they see value in PRKA shares and are motivated to continue to create value
• Powerful value creation formula as management continues to drive revenue growth and EBITDA growth. Continuing the playbook they have used for the last couple years of +10% attendance growth and +5% pricing gains drives +15% revenue growth and +36% EBITDA growth. I estimate PRKA will grow revenue dollars by $0.8mm in the next 12 months and EBITDA dollars by $0.7mm. In addition, PRKA will generate $1.8mm of FCF. Each year, the company creates $0.7mm EBITDA x 10x EV/EBITDA = $7mm of enterprise value plus $1.8mm of FCF generation = $8.8mm value creation or $0.12/share. This means shares should appreciate by about $0.12/year or 80% annually.
• Discount to intrinsic value. PRKA shares are trading at 4.2x NTM EV/EBITDA vs theme park peers at 10x EV/EBITDA (SEAS 8.8x NTM EV/EBITDA, FUN 10.4x, and SIX 13.2x). In addition, peers are only seeing LSD to MSD organic growth vs PRKA +15% organic growth. Valuing PRKA in-line with peers at 10x EV/EBITDA, fair value is $0.37/share.
o It gets even more interesting if you take a 3 year view. Assuming a 3-yr revenue CAGR of 15% and 90% incremental margins, consistent with what they have realized the last few years, PRKA will generate $4.5mm of EBITDA, up +125% from LTM, and generate $6mm of FCF over the period. Valuing at 10x EV/EBITDA, consistent with peers, PRKA is worth $0.68/share, +340% above its current price.
• The company has a conservative balance sheet with $1.4mm cash, $3.2mm debt, and $1.98mm of TTM EBITDA, putting leverage at just 0.91x net debt / EBITDA. Theme parks can easily handle 3-4x of leverage, giving borrowing capacity of $4-6mm in addition to the $1.8mm of FCF PRKA generates each year. Management may look at acquisitions where they can apply their best-in-class management expertise of regional theme parks to improve operating results as they have with the Georgia and Missouri Safari Parks.
PRKA Writeup
Parks! America, Inc (ticker PRKA) is a $12 million market cap company that owns two regional Wild Animal Safari theme parks located in Georgia and Missouri. At the Wild Animal Safari theme parks, visitors travel through a 3.5-mile self-guided tour, experiencing hundreds of animals and having the opportunity to feed and interact with them. The parks primarily generate revenue from admission fees which are $20-25/person, but also rent vehicles, sell animal feed, and have food and souvenir shops. PRKA is under-discovered and the market is not giving credit for the significant growth in revenue and EBITDA and for the upbeat outlook for the future with shares trading at just 4.2x EV/EBITDA vs larger peers at 10x. I estimate fair value is $0.37 today, +125% upside, and will increase to $0.68 over the next 3 years, +340% upside. Management owns over half the company and has been buying more in the open market
Thesis
• Management has significantly upgraded the facilities and the overall park experience and is beginning to realize significant progress in their financial results. This is driving strong attendance growth and consistent pricing increases since current management took over in 2013. With theme parks, incremental margins are about 90% so maintaining or growing attendance is key to growing profits. Similarly, incremental profit on pricing increases is 100%.
o Attendance has grown at a +10% CAGR including accelerating to +26% in the most recent quarter
o Ticket pricing has grown at a +5% CAGR including +4.5% in the most recent quarter
o Ratings on travel websites for both Animal Safari parks have significantly improved over the last couple years (4.5 stars with 613 reviews on Trip Advisor) which is tangible evidence of management improving the experience for visitors
o Management has successfully turned around the Georgia park, growing EBITDA +75% over the last two years. The company is just starting to get traction on its Missouri park. If Missouri reaches the same level of profitability as Georgia, the company will more than double its EBITDA to $4.2mm. Plus Georgia continues to see attendance and pricing growth and will continue to grow EBITDA
• Management is well-aligned with shareholders. Management owns 69% of the shares including purchasing 11% of the float in the open market over the last two years. Clearly they see value in PRKA shares and are motivated to continue to create value
• Powerful value creation formula as management continues to drive revenue growth and EBITDA growth. Continuing the playbook they have used for the last couple years of +10% attendance growth and +5% pricing gains drives +15% revenue growth and +36% EBITDA growth. I estimate PRKA will grow revenue dollars by $0.8mm in the next 12 months and EBITDA dollars by $0.7mm. In addition, PRKA will generate $1.8mm of FCF. Each year, the company creates $0.7mm EBITDA x 10x EV/EBITDA = $7mm of enterprise value plus $1.8mm of FCF generation = $8.8mm value creation or $0.12/share. This means shares should appreciate by about $0.12/year or 80% annually.
• Discount to intrinsic value. PRKA shares are trading at 4.2x NTM EV/EBITDA vs theme park peers at 10x EV/EBITDA (SEAS 8.8x NTM EV/EBITDA, FUN 10.4x, and SIX 13.2x). In addition, peers are only seeing LSD to MSD organic growth vs PRKA +15% organic growth. Valuing PRKA in-line with peers at 10x EV/EBITDA, fair value is $0.37/share.
o It gets even more interesting if you take a 3 year view. Assuming a 3-yr revenue CAGR of 15% and 90% incremental margins, consistent with what they have realized the last few years, PRKA will generate $4.5mm of EBITDA, up +125% from LTM, and generate $6mm of FCF over the period. Valuing at 10x EV/EBITDA, consistent with peers, PRKA is worth $0.68/share, +340% above its current price.
• The company has a conservative balance sheet with $1.4mm cash, $3.2mm debt, and $1.98mm of TTM EBITDA, putting leverage at just 0.91x net debt / EBITDA. Theme parks can easily handle 3-4x of leverage, giving borrowing capacity of $4-6mm in addition to the $1.8mm of FCF PRKA generates each year. Management may look at acquisitions where they can apply their best-in-class management expertise of regional theme parks to improve operating results as they have with the Georgia and Missouri Safari Parks.
Is 4Q the seasonally best quarter of the year? Most other payments companies highest seasonal earnings in 4Q. I remember 4Q14 for TPNL was a big peak and the earnings fell to a negative number by 1Q15, but I know this time may be different because it contains less non-recurring items
Super helpful. I'm glad to have someone with so much experience in fraud investigation warning investors of the risks of PFHO. What are the top 3 red flags that you see for PFHO? Thanks in advance
Hi ubernano,
First of all thank you for the helpful posts - there are so many of these small companies out there that are total frauds. And if you can avoid the blowups/frauds, you are way ahead of the pack.
I was starting to do more research on PFHO and don't have an opinion on the stock yet. Do you have any links or information that you could share about the CEO, company, SEC investigation, and evidence that makes you think it is a fraud? Maybe it just makes sense for me to focus research time elsewhere. What stocks do you like right now?
Thanks in advance,
Collin
Thanks for the comments. I owned SLGD from $0.65 in mid-2014 to $1.40 in late-2015 as Mark Goldstein turned around profitability and demonstrated consistent margins and FCF. I sold because shares reached my fair value estimate at the time and because of worries about significant reliance on the Batiste distribution agreement.
For those newer to the stock, SLGD does not own the Batiste dry shampoo brand; they have a distribution agreement with CHD to sell at hair salons and hair salon distributors such as ULTA. Batiste generated $5.74mm sales in 1H16 or 40% of sales. However, following the acquisition, Batiste will be just 30% of sales and about 25% of earnings which is manageable concentration. In addition, SLGD re-signed the distribution agreement with CHD on August 23rd, 2016 which extends through December 31st, 2017 so the earnings power will continue at least through 2017 which is long enough to demonstrate SLGD's strong earnings power and for the stock to work. It is hard to say whether it gets renewed again at the end of 2017; all we can do is look at the facts.
Facts about SLGD's Batiste distribution agreement:
SLGD has distributed Batiste since late 2009
CHD sells consumer products like Arm & Hammer, Oxiclean, and Trojan. They do not have relationships with hair salons and hair salon distributors. CHD could hire a new sales force to sell to the hair salon channel, but it would likely be more costly than SLGD's distribution agreement
SLGD has re-signed the distribution agreement with CHD several times over the last 7 years. CHD did re-take distribution at large box retailers like Walgreens and Walmart because those customers buy significant volume of CHD's other products like Arm & Hammer, Oxiclean, and Trojan so CHD could use its existing sales force.
I think that SLGD will retain the Batiste distribution agreement for hair salons given the facts above. Even if Batiste distribution were to be lost, SLGD would likely only see a ~25-30% reduction in the $0.30 EPS number so EPS would still be $0.20-0.22 which still makes the stock very attractive at less than 7x P/E vs peers over 20x.
Prell has a small loyal following - check the Amazon reviews. The brand was significantly undermanaged by the last owner who overpaid management and didn't invest at all in the brand. That leaves significant low hanging fruit to grow the brand. SLGD generates nearly $5mm of FCF which is significant capital they can invest in their brands to drive organic growth.
Finally, regarding competition, hair care has been and will remain a competitive business. The positive traits are that it is a small % of customer's budget which makes customers less price sensitive and customers have brand loyalty when they find a product that works for their hair. Consumer products companies such as CHD, CLX, and PG have high ROIC in the 40-100% range because they are not capital intensive businesses. They compete on brand and product quality rather than price.
SLGD Writeup
Scott’s Liquid Gold, ticker SLGD, is a $16 million market cap provider of skin & hair care products and household wood care products. The company completed a transformative acquisition at the end of June and the market does not yet appreciate the new earnings power of the business. I expect SLGD to generate $0.30 of EPS and $0.40/share of FCF over the next twelve months. Peers trade over 20x P/E; using a lower 12x P/E, SLGD’s fair value is $3.60/share, providing significant upside potential from the current $1.39 price.
Business Description
• SLGD has two reporting segments
o Skin and Hair Care (80% of sales) which includes Batiste dry shampoo, Prell, Denorex, Zincon, Alpha Hydrox, Diabetic Cream, and Montange Jeunesse.
o Household (20% of sales) which includes Scott’s Liquid Gold wood care, floor care, and cleaning & dusting products.
• SLGD shares trade at $1.39 with 12.03mm shares outstanding, resulting in a $16mm market. The business has $4mm of debt and $2mm of cash for an enterprise value of $18mm.
Long Thesis
• High Quality Business. SLGD is a high quality business that generates a 45% ROIC with growing revenue (28% revenue growth) and rising margins. Management owns over 25% of shares and is well-aligned with shareholders.
• Transformative Acquisition Creates Opportunity. SLGD completed a transformative acquisition of three shampoo brands (Prell, Denorex, and Zincon) from a family owner for $9 million funded with cash and debt (no new shares issued). The company was poorly run and had elevated costs under prior management. When SLGD acquired the brands, they did not bring over a single employee which drives strong operating margin and FCF generation. SLGD generated fully taxed EPS of $0.05 and FCF of $0.09/share in 3Q, resulting in a $0.20 EPS and $0.36 FCF/share run-rate.
• Cost Synergies to Drive Further Earnings Growth. The acquired brands currently outsource manufacturing to a 3rd party, but SLGD plans to move manufacturing in-house to their Colorado plant over the next 12 months which will improve gross margins and drive EPS higher from 3Q levels. I estimate gross margin will improve from 41% to 50% by the end of 2017 which drives EPS from $0.05 in 3Q16 to $0.10 in 3Q17 or a $0.40 run-rate.
• Attractive Valuation. Peer consumer products companies such as PG, CHD, CLX, and EPC trade for 22x P/E; even small consumer products companies such as AMNF trade for 17x P/E because of the stable earnings power, high ROIC, and strong FCF generation. With the acquisition of Prell, Denorex, and Zincon, SLGD reduces its reliance on Batiste distribution (agreement with CHD) which will likely cause the multiple to expand from SLGD’s own historical 12-16x fully taxed P/E.
• Beneficiary of Corporate Tax Reform. SLGD pays a full 40% tax rate, so stands to significantly benefit from potential tax reform to 15-25% rate under the new administration. At a 20% tax rate, SLGD’s EPS rises from $0.30 to $0.40, further increasing fair value.
• Future Growth Potential. Future growth will come from organic growth of existing products and acquisition of additional brands with the $5mm of FCF the business will throw off.
Catalysts
• 03/30/17 – SLGD reports 2016 earnings. Expect 4Q16 revenue of $10mm, 35% y/y growth, and $0.06 EPS, 150% y/y growth
• 05/16/17 – SLGD reports 1Q17 earnings. Expect revenue of $10.4mm, 35% y/y growth and $0.07 EPS, 100% y/y growth
• Potential tax reform which lowers SLGD’s tax rate from 40% toward the 15-25% range contemplated by the new administration
Risks
• Potential integration risks when SLGD in-houses manufacturing
• Costs increase more than expected resulting in less margin expansion
• Competition from new products impacts sales growth
SLGD Writeup
Scott’s Liquid Gold, ticker SLGD, is a $16 million market cap provider of skin & hair care products and household wood care products. The company completed a transformative acquisition at the end of June and the market does not yet appreciate the new earnings power of the business. I expect SLGD to generate $0.30 of EPS and $0.40/share of FCF over the next twelve months. Peers trade over 20x P/E; using a lower 12x P/E, SLGD’s fair value is $3.60/share, providing significant upside potential from the current $1.39 price.
Business Description
• SLGD has two reporting segments
o Skin and Hair Care (80% of sales) which includes Batiste dry shampoo, Prell, Denorex, Zincon, Alpha Hydrox, Diabetic Cream, and Montange Jeunesse.
o Household (20% of sales) which includes Scott’s Liquid Gold wood care, floor care, and cleaning & dusting products.
• SLGD shares trade at $1.39 with 12.03mm shares outstanding, resulting in a $16mm market. The business has $4mm of debt and $2mm of cash for an enterprise value of $18mm.
Long Thesis
• High Quality Business. SLGD is a high quality business that generates a 45% ROIC with growing revenue (28% revenue growth) and rising margins. Management owns over 25% of shares and is well-aligned with shareholders.
• Transformative Acquisition Creates Opportunity. SLGD completed a transformative acquisition of three shampoo brands (Prell, Denorex, and Zincon) from a family owner for $9 million funded with cash and debt (no new shares issued). The company was poorly run and had elevated costs under prior management. When SLGD acquired the brands, they did not bring over a single employee which drives strong operating margin and FCF generation. SLGD generated fully taxed EPS of $0.05 and FCF of $0.09/share in 3Q, resulting in a $0.20 EPS and $0.36 FCF/share run-rate.
• Cost Synergies to Drive Further Earnings Growth. The acquired brands currently outsource manufacturing to a 3rd party, but SLGD plans to move manufacturing in-house to their Colorado plant over the next 12 months which will improve gross margins and drive EPS higher from 3Q levels. I estimate gross margin will improve from 41% to 50% by the end of 2017 which drives EPS from $0.05 in 3Q16 to $0.10 in 3Q17 or a $0.40 run-rate.
• Attractive Valuation. Peer consumer products companies such as PG, CHD, CLX, and EPC trade for 22x P/E; even small consumer products companies such as AMNF trade for 17x P/E because of the stable earnings power, high ROIC, and strong FCF generation. With the acquisition of Prell, Denorex, and Zincon, SLGD reduces its reliance on Batiste distribution (agreement with CHD) which will likely cause the multiple to expand from SLGD’s own historical 12-16x fully taxed P/E.
• Beneficiary of Corporate Tax Reform. SLGD pays a full 40% tax rate, so stands to significantly benefit from potential tax reform to 15-25% rate under the new administration. At a 20% tax rate, SLGD’s EPS rises from $0.30 to $0.40, further increasing fair value.
• Future Growth Potential. Future growth will come from organic growth of existing products and acquisition of additional brands with the $5mm of FCF the business will throw off.
Catalysts
• 03/30/17 – SLGD reports 2016 earnings. Expect 4Q16 revenue of $10mm, 35% y/y growth, and $0.06 EPS, 150% y/y growth
• 05/16/17 – SLGD reports 1Q17 earnings. Expect revenue of $10.4mm, 35% y/y growth and $0.07 EPS, 100% y/y growth
• Potential tax reform which lowers SLGD’s tax rate from 40% toward the 15-25% range contemplated by the new administration
Risks
• Potential integration risks when SLGD in-houses manufacturing
• Costs increase more than expected resulting in less margin expansion
• Competition from new products impacts sales growth
SLGD Writeup
Scott’s Liquid Gold, ticker SLGD, is a $16 million market cap provider of skin & hair care products and household wood care products. The company completed a transformative acquisition at the end of June and the market does not yet appreciate the new earnings power of the business. I expect SLGD to generate $0.30 of EPS and $0.40/share of FCF over the next twelve months. Peers trade over 20x P/E; using a lower 12x P/E, SLGD’s fair value is $3.60/share, providing significant upside potential from the current $1.39 price.
Business Description
• SLGD has two reporting segments
o Skin and Hair Care (80% of sales) which includes Batiste dry shampoo, Prell, Denorex, Zincon, Alpha Hydrox, Diabetic Cream, and Montange Jeunesse.
o Household (20% of sales) which includes Scott’s Liquid Gold wood care, floor care, and cleaning & dusting products.
• SLGD shares trade at $1.39 with 12.03mm shares outstanding, resulting in a $16mm market. The business has $4mm of debt and $2mm of cash for an enterprise value of $18mm.
Long Thesis
• High Quality Business. SLGD is a high quality business that generates a 45% ROIC with growing revenue (28% revenue growth) and rising margins. Management owns over 25% of shares and is well-aligned with shareholders.
• Transformative Acquisition Creates Opportunity. SLGD completed a transformative acquisition of three shampoo brands (Prell, Denorex, and Zincon) from a family owner for $9 million funded with cash and debt (no new shares issued). The company was poorly run and had elevated costs under prior management. When SLGD acquired the brands, they did not bring over a single employee which drives strong operating margin and FCF generation. SLGD generated fully taxed EPS of $0.05 and FCF of $0.09/share in 3Q, resulting in a $0.20 EPS and $0.36 FCF/share run-rate.
• Cost Synergies to Drive Further Earnings Growth. The acquired brands currently outsource manufacturing to a 3rd party, but SLGD plans to move manufacturing in-house to their Colorado plant over the next 12 months which will improve gross margins and drive EPS higher from 3Q levels. I estimate gross margin will improve from 41% to 50% by the end of 2017 which drives EPS from $0.05 in 3Q16 to $0.10 in 3Q17 or a $0.40 run-rate.
• Attractive Valuation. Peer consumer products companies such as PG, CHD, CLX, and EPC trade for 22x P/E; even small consumer products companies such as AMNF trade for 17x P/E because of the stable earnings power, high ROIC, and strong FCF generation. With the acquisition of Prell, Denorex, and Zincon, SLGD reduces its reliance on Batiste distribution (agreement with CHD) which will likely cause the multiple to expand from SLGD’s own historical 12-16x fully taxed P/E.
• Beneficiary of Corporate Tax Reform. SLGD pays a full 40% tax rate, so stands to significantly benefit from potential tax reform to 15-25% rate under the new administration. At a 20% tax rate, SLGD’s EPS rises from $0.30 to $0.40, further increasing fair value.
• Future Growth Potential. Future growth will come from organic growth of existing products and acquisition of additional brands with the $5mm of FCF the business will throw off.
Catalysts
• 03/30/17 – SLGD reports 2016 earnings. Expect 4Q16 revenue of $10mm, 35% y/y growth, and $0.06 EPS, 150% y/y growth
• 05/16/17 – SLGD reports 1Q17 earnings. Expect revenue of $10.4mm, 35% y/y growth and $0.07 EPS, 100% y/y growth
• Potential tax reform which lowers SLGD’s tax rate from 40% toward the 15-25% range contemplated by the new administration
Risks
• Potential integration risks when SLGD in-houses manufacturing
• Costs increase more than expected resulting in less margin expansion
• Competition from new products impacts sales growth
SLGD Writeup
Scott’s Liquid Gold, ticker SLGD, is a $16 million market cap provider of skin & hair care products and household wood care products. The company completed a transformative acquisition at the end of June and the market does not yet appreciate the new earnings power of the business. I expect SLGD to generate $0.30 of EPS and $0.40/share of FCF over the next twelve months. Peers trade over 20x P/E; using a lower 12x P/E, SLGD’s fair value is $3.60/share, providing significant upside potential from the current $1.39 price.
Business Description
• SLGD has two reporting segments
o Skin and Hair Care (80% of sales) which includes Batiste dry shampoo, Prell, Denorex, Zincon, Alpha Hydrox, Diabetic Cream, and Montange Jeunesse.
o Household (20% of sales) which includes Scott’s Liquid Gold wood care, floor care, and cleaning & dusting products.
• SLGD shares trade at $1.39 with 12.03mm shares outstanding, resulting in a $16mm market. The business has $4mm of debt and $2mm of cash for an enterprise value of $18mm.
Long Thesis
• High Quality Business. SLGD is a high quality business that generates a 45% ROIC with growing revenue (28% revenue growth) and rising margins. Management owns over 25% of shares and is well-aligned with shareholders.
• Transformative Acquisition Creates Opportunity. SLGD completed a transformative acquisition of three shampoo brands (Prell, Denorex, and Zincon) from a family owner for $9 million funded with cash and debt (no new shares issued). The company was poorly run and had elevated costs under prior management. When SLGD acquired the brands, they did not bring over a single employee which drives strong operating margin and FCF generation. SLGD generated fully taxed EPS of $0.05 and FCF of $0.09/share in 3Q, resulting in a $0.20 EPS and $0.36 FCF/share run-rate.
• Cost Synergies to Drive Further Earnings Growth. The acquired brands currently outsource manufacturing to a 3rd party, but SLGD plans to move manufacturing in-house to their Colorado plant over the next 12 months which will improve gross margins and drive EPS higher from 3Q levels. I estimate gross margin will improve from 41% to 50% by the end of 2017 which drives EPS from $0.05 in 3Q16 to $0.10 in 3Q17 or a $0.40 run-rate.
• Attractive Valuation. Peer consumer products companies such as PG, CHD, CLX, and EPC trade for 22x P/E; even small consumer products companies such as AMNF trade for 17x P/E because of the stable earnings power, high ROIC, and strong FCF generation. With the acquisition of Prell, Denorex, and Zincon, SLGD reduces its reliance on Batiste distribution (agreement with CHD) which will likely cause the multiple to expand from SLGD’s own historical 12-16x fully taxed P/E.
• Beneficiary of Corporate Tax Reform. SLGD pays a full 40% tax rate, so stands to significantly benefit from potential tax reform to 15-25% rate under the new administration. At a 20% tax rate, SLGD’s EPS rises from $0.30 to $0.40, further increasing fair value.
• Future Growth Potential. Future growth will come from organic growth of existing products and acquisition of additional brands with the $5mm of FCF the business will throw off.
Catalysts
• 03/30/17 – SLGD reports 2016 earnings. Expect 4Q16 revenue of $10mm, 35% y/y growth, and $0.06 EPS, 150% y/y growth
• 05/16/17 – SLGD reports 1Q17 earnings. Expect revenue of $10.4mm, 35% y/y growth and $0.07 EPS, 100% y/y growth
• Potential tax reform which lowers SLGD’s tax rate from 40% toward the 15-25% range contemplated by the new administration
Risks
• Potential integration risks when SLGD in-houses manufacturing
• Costs increase more than expected resulting in less margin expansion
• Competition from new products impacts sales growth
LMB and LMBHW Long Idea
• Limbach Holdings (ticker LMB) is a $94 million market cap company that engineers and installs HVAC systems for hospitals, airports, and universities. The company will significantly benefit from infrastructure spending under the new administration. While most other infrastructure stocks have had significant re-valuations to all-time highs, Limbach remains below the radar given it recently came public through a non-marketed SPAC. LMB was just up-listed to Nasdaq this week so could see additional buying interest. Shares trade at 11x P/E and 7x EV/EBITDA vs peers EME and FIX 18x P/E and 9x EV/EBITDA. Revenue and backlog growth is faster than peers, +43% and +39%, respectively last quarter which could warrant a premium valuation. At a peer 18x P/E, LMB is worth $25, over 50% upside potential over 12 months. There are 4.6 million publicly traded warrants outstanding that trade under ticker LMBHW and convert to common at 0.5 share / warrant at an $11.50 strike price. At a $25 LMB price, the warrants are worth $7.25, over 150% upside potential from their current price of $2.50.
• The warrants trade at discount to intrinsic value with 10% implied vol vs similar sized peers 40-50% implied vol. The warrants should be selling for $3.70 with the underlying stock at its current $15.75 price and implied vol in-line with peers. The stock could fall to $13, down 20%, and if implied vol expanded to 40% in-line with peer implied vol, the warrants would not decline in value, giving an added margin of safety in buying the warrants vs the stock.
• Management believes Limbach has a path to expand EBITDA margins from 4% to 6% over 2-3 years. Looking to 2020 (warrants expire July 2021), LMBH fair value may be $50 based on 9x EV/EBITDA and warrants worth $19.25 vs current price $2.50, providing significant multi-year upside potential (65% CAGR over 4 years).
• The company came public through a merger with a 1347 Capital on August 3rd, 2016 which was a SPAC that traded under ticker TFSC. The business was previously owned by private equity family office FdG which acquired it along with management from Enron in December 2002 for $80 million. Management owns over 10% of the common and also owns warrants, so interests are well-aligned with shareholders.
• The warrants provide a better risk/reward than the underlying stock given the low implied vol and the signification optionality.
Disclosure: I am long LMBHW
LMB and LMBHW Long Idea
• Limbach Holdings (ticker LMB) is a $94 million market cap company that engineers and installs HVAC systems for hospitals, airports, and universities. The company will significantly benefit from infrastructure spending under the new administration. While most other infrastructure stocks have had significant re-valuations to all-time highs, Limbach remains below the radar given it recently came public through a non-marketed SPAC. LMB was just up-listed to Nasdaq this week so could see additional buying interest. Shares trade at 11x P/E and 7x EV/EBITDA vs peers EME and FIX 18x P/E and 9x EV/EBITDA. Revenue and backlog growth is faster than peers, +43% and +39%, respectively last quarter which could warrant a premium valuation. At a peer 18x P/E, LMB is worth $25, over 50% upside potential over 12 months. There are 4.6 million publicly traded warrants outstanding that trade under ticker LMBHW and convert to common at 0.5 share / warrant at an $11.50 strike price. At a $25 LMB price, the warrants are worth $7.25, over 150% upside potential from their current price of $2.50.
• The warrants trade at discount to intrinsic value with 10% implied vol vs similar sized peers 40-50% implied vol. The warrants should be selling for $3.70 with the underlying stock at its current $15.75 price and implied vol in-line with peers. The stock could fall to $13, down 20%, and if implied vol expanded to 40% in-line with peer implied vol, the warrants would not decline in value, giving an added margin of safety in buying the warrants vs the stock.
• Management believes Limbach has a path to expand EBITDA margins from 4% to 6% over 2-3 years. Looking to 2020 (warrants expire July 2021), LMBH fair value may be $50 based on 9x EV/EBITDA and warrants worth $19.25 vs current price $2.50, providing significant multi-year upside potential (65% CAGR over 4 years).
• The company came public through a merger with a 1347 Capital on August 3rd, 2016 which was a SPAC that traded under ticker TFSC. The business was previously owned by private equity family office FdG which acquired it along with management from Enron in December 2002 for $80 million. Management owns over 10% of the common and also owns warrants, so interests are well-aligned with shareholders.
• The warrants provide a better risk/reward than the underlying stock given the low implied vol and the signification optionality.
Disclosure: I am long LMBHW
LMB and LMBHW Long Idea
• Limbach Holdings (ticker LMB) is a $94 million market cap company that engineers and installs HVAC systems for hospitals, airports, and universities. The company will significantly benefit from infrastructure spending under the new administration. While most other infrastructure stocks have had significant re-valuations to all-time highs, Limbach remains below the radar given it recently came public through a non-marketed SPAC. LMB was just up-listed to Nasdaq this week so could see additional buying interest. Shares trade at 11x P/E and 7x EV/EBITDA vs peers EME and FIX 18x P/E and 9x EV/EBITDA. Revenue and backlog growth is faster than peers, +43% and +39%, respectively last quarter which could warrant a premium valuation. At a peer 18x P/E, LMB is worth $25, over 50% upside potential over 12 months. There are 4.6 million publicly traded warrants outstanding that trade under ticker LMBHW and convert to common at 0.5 share / warrant at an $11.50 strike price. At a $25 LMB price, the warrants are worth $7.25, over 150% upside potential from their current price of $2.50.
• The warrants trade at discount to intrinsic value with 10% implied vol vs similar sized peers 40-50% implied vol. The warrants should be selling for $3.70 with the underlying stock at its current $15.75 price and implied vol in-line with peers. The stock could fall to $13, down 20%, and if implied vol expanded to 40% in-line with peer implied vol, the warrants would not decline in value, giving an added margin of safety in buying the warrants vs the stock.
• Management believes Limbach has a path to expand EBITDA margins from 4% to 6% over 2-3 years. Looking to 2020 (warrants expire July 2021), LMBH fair value may be $50 based on 9x EV/EBITDA and warrants worth $19.25 vs current price $2.50, providing significant multi-year upside potential (65% CAGR over 4 years).
• The company came public through a merger with a 1347 Capital on August 3rd, 2016 which was a SPAC that traded under ticker TFSC. The business was previously owned by private equity family office FdG which acquired it along with management from Enron in December 2002 for $80 million. Management owns over 10% of the common and also owns warrants, so interests are well-aligned with shareholders.
• The warrants provide a better risk/reward than the underlying stock given the low implied vol and the signification optionality.
Disclosure: I am long LMBHW
LMB and LMBHW Long Idea
• Limbach Holdings (ticker LMB) is a $94 million market cap company that engineers and installs HVAC systems for hospitals, airports, and universities. The company will significantly benefit from infrastructure spending under the new administration. While most other infrastructure stocks have had significant re-valuations to all-time highs, Limbach remains below the radar given it recently came public through a non-marketed SPAC. LMB was just up-listed to Nasdaq this week so could see additional buying interest. Shares trade at 11x P/E and 7x EV/EBITDA vs peers EME and FIX 18x P/E and 9x EV/EBITDA. Revenue and backlog growth is faster than peers, +43% and +39%, respectively last quarter which could warrant a premium valuation. At a peer 18x P/E, LMB is worth $25, over 50% upside potential over 12 months. There are 4.6 million publicly traded warrants outstanding that trade under ticker LMBHW and convert to common at 0.5 share / warrant at an $11.50 strike price. At a $25 LMB price, the warrants are worth $7.25, over 150% upside potential from their current price of $2.50.
• The warrants trade at discount to intrinsic value with 10% implied vol vs similar sized peers 40-50% implied vol. The warrants should be selling for $3.70 with the underlying stock at its current $15.75 price and implied vol in-line with peers. The stock could fall to $13, down 20%, and if implied vol expanded to 40% in-line with peer implied vol, the warrants would not decline in value, giving an added margin of safety in buying the warrants vs the stock.
• Management believes Limbach has a path to expand EBITDA margins from 4% to 6% over 2-3 years. Looking to 2020 (warrants expire July 2021), LMBH fair value may be $50 based on 9x EV/EBITDA and warrants worth $19.25 vs current price $2.50, providing significant multi-year upside potential (65% CAGR over 4 years).
• The company came public through a merger with a 1347 Capital on August 3rd, 2016 which was a SPAC that traded under ticker TFSC. The business was previously owned by private equity family office FdG which acquired it along with management from Enron in December 2002 for $80 million. Management owns over 10% of the common and also owns warrants, so interests are well-aligned with shareholders.
• The warrants provide a better risk/reward than the underlying stock given the low implied vol and the signification optionality.
Disclosure: I am long LMBHW
LMB and LMBHW Long Idea
• Limbach Holdings (ticker LMB) is a $94 million market cap company that engineers and installs HVAC systems for hospitals, airports, and universities. The company will significantly benefit from infrastructure spending under the new administration. While most other infrastructure stocks have had significant re-valuations to all-time highs, Limbach remains below the radar given it recently came public through a non-marketed SPAC. LMB was just up-listed to Nasdaq this week so could see additional buying interest. Shares trade at 11x P/E and 7x EV/EBITDA vs peers EME and FIX 18x P/E and 9x EV/EBITDA. Revenue and backlog growth is faster than peers, +43% and +39%, respectively last quarter which could warrant a premium valuation. At a peer 18x P/E, LMB is worth $25, over 50% upside potential over 12 months. There are 4.6 million publicly traded warrants outstanding that trade under ticker LMBHW and convert to common at 0.5 share / warrant at an $11.50 strike price. At a $25 LMB price, the warrants are worth $7.25, over 150% upside potential from their current price of $2.50.
• The warrants trade at discount to intrinsic value with 10% implied vol vs similar sized peers 40-50% implied vol. The warrants should be selling for $3.70 with the underlying stock at its current $15.75 price and implied vol in-line with peers. The stock could fall to $13, down 20%, and if implied vol expanded to 40% in-line with peer implied vol, the warrants would not decline in value, giving an added margin of safety in buying the warrants vs the stock.
• Management believes Limbach has a path to expand EBITDA margins from 4% to 6% over 2-3 years. Looking to 2020 (warrants expire July 2021), LMBH fair value may be $50 based on 9x EV/EBITDA and warrants worth $19.25 vs current price $2.50, providing significant multi-year upside potential (65% CAGR over 4 years).
• The company came public through a merger with a 1347 Capital on August 3rd, 2016 which was a SPAC that traded under ticker TFSC. The business was previously owned by private equity family office FdG which acquired it along with management from Enron in December 2002 for $80 million. Management owns over 10% of the common and also owns warrants, so interests are well-aligned with shareholders.
• The warrants provide a better risk/reward than the underlying stock given the low implied vol and the signification optionality.
Disclosure: I am long LMBHW
LMB and LMBHW Long Idea
• Limbach Holdings (ticker LMB) is a $94 million market cap company that engineers and installs HVAC systems for hospitals, airports, and universities. The company will significantly benefit from infrastructure spending under the new administration. While most other infrastructure stocks have had significant re-valuations to all-time highs, Limbach remains below the radar given it recently came public through a non-marketed SPAC. Shares trade at 11x P/E and 7x EV/EBITDA vs peers EME and FIX 18x P/E and 9x EV/EBITDA. Revenue and backlog growth is faster than peers, +43% and +39%, respectively last quarter which could warrant a premium valuation. At a peer 18x P/E, LMB is worth $25, over 50% upside potential over 12 months. There are 4.6 million publicly traded warrants outstanding that trade under ticker LMBHW and convert to common at 0.5 share / warrant at an $11.50 strike price. At a $25 LMB price, the warrants are worth $7.25, over 150% upside potential from their current price of $2.50.
• The warrants trade at discount to intrinsic value with 10% implied vol vs similar sized peers 40-50% implied vol. The warrants should be selling for $3.70 with the underlying stock at its current $15.75 price and implied vol in-line with peers. The stock could fall to $13, down 20%, and if implied vol expanded to 40% in-line with peer implied vol, the warrants would not decline in value, giving an added margin of safety in buying the warrants vs the stock.
• Management believes Limbach has a path to expand EBITDA margins from 4% to 6% over 2-3 years. Looking to 2020 (warrants expire July 2021), LMBH fair value may be $50 based on 9x EV/EBITDA and warrants worth $19.25 vs current price $2.50, providing significant multi-year upside potential (65% CAGR over 4 years).
• The company came public through a merger with a 1347 Capital on August 3rd, 2016 which was a SPAC that traded under ticker TFSC. The business was previously owned by private equity family office FdG which acquired it along with management from Enron in December 2002 for $80 million. Management owns over 10% of the common and also owns warrants, so interests are well-aligned with shareholders.
• The warrants provide a better risk/reward than the underlying stock given the low implied vol and the signification optionality.
Disclosure: I am long LMBHW