Value Microcaps Zip Code Changers

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GRC.V - Potential Alaris Royalty 2.0

With low $CAD any Americans will want to look at Grenville Strategic Royalty GRC.V which is a fairly new Revenue Based Royalty smallcap on the venture targeting a 25% IRR from each investment.

Note: all $ = $CAD below

GRC.V just declared it's first monthly dividend which equates to $.05/year or a 7% yield on $0.71 stock price. This was the start of their short term uptrend.



Thesis here is that GRC.V is Alaris Royalty (AD.TO) 2.0. Alaris has been the revenue-royalty darling for Canadian investors and has been a 17 bagger from their April 2010 bottom. Alaris, Silver Wheaton (SLW.TO/SLW), Sandstorm Gold (SSL.TO/SSL) are three examples of Canadian royalty darlings created in last 15 years that were zip-code changers if you bought early and held. Because Alaris has been a darling and GRC.V is now paying dividend, and there has been lots of volume since dividend announcement 2 months ago, the stock is in Canadian institutional strong hands. This is Alaris:



Valuation is not cheap (it is revenue-royalty company after all) but here is the detail (all from Dec 31, 14 audited FS & Feb 27 Bought Deal PR):

- They have a $15M in convertible debentures @ $.92 I am implicitly assuming will be converted eventually so treating as equity for book value and assuming converted for FD share count

- FD shares = 59.4 (basic) + 9.5M (Warrants @ 0.42) + 3.3M (Options @ 0.42-0.87) + 18.75M (Conv. Deb.) + 19.8M (Feb 27 Bought Deal) = 110.7M FD Shares.

- FD MC @ 0.71 = $79M

- Book Value = 19.35M (all components) - 0.5M (equity component of conv. deb) + 18.75M (Cash Conv Deb.) = $38.05M

- FD MC to Book Value assuming Conv. Deb is equity = 2.1X

- $10.4M in WC including $9.7M of cash @ Dec 31/14. Add in $11.5M of cash from Feb 27 Bought Deal and that is about $22M of current cash for deals.

- The $.05 dividend equates to only about $4M on current outstanding shares (basic + Feb 27 Bought Deal). They claim to have generated $1.4M in free cash flow in Q4-14 and this appears to be their transformational quarter.

Here is 2014 Earnings PR with 2015 Outlook:

http://www.grenvillesrc.com/news/grenville-strategic-royalty-corp-announces-2014-year-end-results-and-declaration-first-dividend/

Here are some posts from an Canadian Value Investor Hub:

http://www.cornerofberkshireandfairfax.ca/forum/investment-ideas/grc-grenville-strategic-royalty-corp/

Next step: look at their Portfolio of investments and do some digging into Q4-2014 to analyze cash generating capacity going forward.

No position yet. This post summarizing my initial DD. Many of you will know me from VM Mining and Energy Boards and obviously Canadian.