P10 Industries Inc. (PX)

[Slojab]

I'm undecided what to do with my position. On one hand, it's done remarkable well the past year and a half. On the other hand, how much better can it be expected to do going forward?

Then, I read something like this and think I just shouldn't expect the same rate of sp appreciation. But still should be happy with even half the rate we've seen.

P10 Holdings enjoyed an extraordinary year, rising nearly 400% to close at $6.60. Shares have given back a portion of those gains this year, but the long-term story of the company is as strong as ever. Since first acquiring RCP Advisors in 2018, P10 has added alternative assets managers in steady fashion. Most recently, the company closed on the acquisition of Enhanced Capital Group, a leader in socially responsible investing. P10’s product offering now encompasses traditional private equity, private credit, early-stage/venture capital, and socially responsible investments. A true one-stop shop!

With this latest acquisition, P10 can now produce annual unlevered cash flow in excess of $75 million. This cash flow is highly predictable due to the long-term nature of the investor capital that P10’s managers steward. Based on current cash flow alone, P10 remains attractively priced. At a nearly 7% free cash flow yield and assuming only modest annual increases in assets under management, it is easy to see returns in the low teens from here. But of course, P10 will not be satisfied with the status quo. Rather, the firm will continue to acquire additional alternative asset managers, growing assets under management and cash earnings per share.

Even with all P10’s successes, the company remains nearly completely unknown. I believe this will change in 2021. The firm is preparing its return to fully-reporting status and will up-list to a major exchange. At that point, I think a much larger pool of investors will like what they see.

No matter what shares of P10 may do, I intend to limit their weighting in the Alluvial Fund portfolio to 20%. At the time of this writing, P10 has a 17% weighting in the fund. My extraordinary confidence in P10’s management, business strategy, outlook, and valuation is tempered by my sober responsibility to maintain a proper appreciation for risk. The world is unpredictable. Bad things can happen to any company or industry completely out of the blue. The role of the portfolio manager is to ensure that an adverse result in any particular investment does not threaten the viability of the fund itself or permanently impair its partners’ capital.

https://alluvialcapital.com/wp-content/uploads/2021/02/Alluvial-Capital-Management-Q4-2020-Letter-to-Partners-1.pdf