Arquitos Capital Partners-Real Industry(RELY) worth 2x current price -from their qtr partner letter
Our biggest winner during the quarter was Real Industry (RELY). The price of its shares advanced from $6.14 to $11.35 during that time period. I briefly mentioned it in last quarter’s letter, saying that I was happy with their operational advancement. At the time the stock price simply was not representative of the company’s value. It still isn’t. I only wish I would have made it a larger piece of the portfolio. Even at today’s price, fair value is twice its current share price. I apologize in advance to those looking for quick gains, but we’ll probably have to be more patient than one quarter for shares to double again.
...I was overcautious with the company. Bouchard’s track record at his previous company, Esmark, which he ran with his brother James, was remarkable. It wasn’t just the exponential increase in shareholder value for Esmark owners (shares advanced from 25 cents/sh to $19.25/sh during their tenure), it was also the operational expertise and the adept timing when selling the company to Severstal in 2008. Bouchard is high energy and has shown he can put together a strong team. He’s done it again with RELY.
Another key part of the story is the involvement of famed investor Sam Zell. Zell originally controlled the company when it was no more than a shell with no operations. After Bouchard got involved in 2013, he received Zell’s blessing to pursue the subsequent strategy. Zell has been a master for more than 30 years at monetizing companies that have substantial Net Operating Losses (NOLs).
On the operational side,, RELY is benefiting from both cyclical and structural changes. Here, aluminum demand is clearly on the upswing because of increased economic activity. On the structural side, the company will continue to benefit from the move to use lighter materials in the auto and other industries.
At a stock price of less than 4x EBITDA, shares are still absurdly cheap, especially considering that EBITDA will likely grow considerably over the next few years.
