Callidus Capital Corp(TSE:CBL)

Web Site
Google Finance
Filing


Nov. 20, 2016
2016 Q3 Data
Current Price: $18

1.Basic Information
(1) History
Asset based lender(ABL) created and majorly owned by Catalyst Capital at around 2006. Catalyst Capital is a private equity firm mainly specialized on distressed debt investment. It seems Catalyst is more on buying distressed debt while Callidus is to offer distressed debt.

(2) Business related:

(3) Management.
Newton Glassman is the key person of both the parent and the company. Very good tracking record managing Catalyst. The equity fund might be around $4B in assets.

(4) Debt and Credit facility.

(5) Insider holding, options, Insider trading info, share buy back.

(6) Employee numbers

(7) Auditor


(8) Industry comparison.

(9) Major events

The company started a tender offer at April 2016 at $14/share for up to 3.57m shares. It bought back 1.1m shares. Later it increased the price to $15.5 and then to $16.5, totally bought back another 1.5m shares. Currently it the $16.5 buy back still in effect until Nov. 30. But I don't think anyone will tender it since it below current market price. 

2. Financial data.
3. Valuation
Currently around $1.3B loan outstanding. Allowance for loan losses is $78m. Total debt liability is around $520m, total equity is around $500m.

The company is very likely going private next year. At April 2016 Nation Bank has a valuation at $18-$22. But Glassman says $22 should be a base for the price, I would expect maybe a little more than that. $18 in kind of a bottom line.

4. Risk
(1) The company got involved with litigation with West Face regarding a former employee who joined West Face. Also regarding a short report generated by West Face at 2015. In my opinion, this is quite unnecessary.

(2) The West Face report doesn't provide much valid concern except it mentioned a company called Xchange Technology which owned the company more than $40m in loan. But seems Xchange is worth much less than that.  However, at march 2016, the parent company Catalyst took over the loan and paid Callidus $101m under a guaranty agreement which is not bad for Callidus.

(3) I think the only problem the company could have is that it underestimate its bad debt allowance. Or maybe fraud behaviour could related to this. Since its loan are usually short (12m-18m), it can't hide the lost unless it keep refinance previous loans.  Based on Q1 2016 presentation, since 2006 till may 2016 , the company got 1 loan was acquired by Catalyst which I think is the Xchange case. 5 companies went restructuring and repaid loan in full. 4 companies went restructuring and result a loss of $17m. There are 8 loans in restructuring. Totally 34 loans outstanding at Q1 2016.

Gray Agua Group: Don't know when and how much the company owns to CBL. At Q4 2015, it had trouble and later filed for bankruptcy again in 3 years. In total it has $55 million in debt. At Q4 2015 CBL write down $22.6m in loan. At Q2 2016 CBL wrote down another $12m. In total in has recorded $37.4m in provision for Gray Aqua. At Dec. 2016, Marine Harvest acquired Gray Aqua for $15m. Don't know whether it includes CBL's claim of Gray Aqua.

(4) Glassman talked a lot about Yield Enhancement in Q3 conference call. I don't really understand it.

(5) The privatization may be fail or last long and then the stock may be repriced by the market.

(6) Currently the company keep the tender offer going one and may increase the price again in future. Anyway, the $16.5/share provides a downside protection currently. However, the company will eventually end the tender offer before it can strike an offer from third party. It might get down again once the tender offer is expired.

5. Conclusion
Current $18 is pretty attractive and the downside is quite protected, major risk is whether and when the privatization will be done.

6.Links

Mar. 31, 2017
Current Price $18.27
The company recorded big bad loan allowance which is unexpected to me. Also it indicated the biding price for privatization might be close the previous tender offer price $16.5 if I comprehended it correctly.

Collectors Universe, Inc.(NASDAQ:CLCT)

Web Site
Google Finance
Filing


Nov. 4, 2016
2015 Q2 Data, Year end June 30.
Current Price: $17.6

1.Basic Information
(1) History
Found by David Hall at 1986, named Professional Coin Grading Service(PCGS), later created Professional Sports Authenticator(PSA). At 1999 it became Collectors Universe and IPO'd at 1999 at $6/share. Its main business include coins grading. sports card grading, autograph authentication. At 2000, its revenue boomed to over $40m. Then down at 2002, 2004, 2009.  Currently is around $60m.

(2) Business-related:

In 2016, total revenue $61m, of which around 62%($38m) in coin business, 15%($9m) in card business, 8%($5m) autograph business, rest 15%($9m) in other business.

Gross margin stayed 60% since 2010, quite a high margin business.

Pretty capital light, only $3m in fixed assets.

(3) Management.
Robert G. Deuster became current CEO since 2012. Before that, he was CEO of Newport Corporation since 1996 and retired at 2007. Newport was sky-rocked at 2000 and had a rough time at 2002 period but recovered pretty well. Early 2016 it was sold at around $900m. Its revenue is roughly 10 time of CLCT's. It is quite amazed me that he came out from 5 years of retirement to accept the job.


(4) Debt and Credit Facility.
No Debt and around 10m in cash.

(5) Insider holding, options, Insider trading info, share buyback.

David Hall still holds around 600k shares which probably the most in management.
CEO holds only 80k


(6) Employee numbers

(7) Auditor


(8) Industry comparison.

(9) Major events

At Aug. 2016, it entered a contract with China Guojin Gold(国金黄金) for until 2020, will likely creates $2.8m to $4.6m yearly revenue. 

2. Financial data.
3. Valuation

(1) Adjusted for the 3:1 reverse split. The stock is actually trading below its IPO price of $6 after 17 years.  Revenue is just 50% higher than origin. However, profit seems much better, especially since 2010, net income was much stable and quite profitable at more than 12%.

(2) Currently, it pays a $1.4/share dividend which is $12m/year. Very generous but fall short of cash generation by at least $5m, so now the cash is only $12m. I doubt if they can continue to support the dividend without taking any debt.

(3) Currently, it is trading at 20 P/E, not really cheap.

4. Risk
(1) Collections tend to tie to economic conditions. When the economy was down at 2002-2004 and 2009, it got hit hard. In the future, the same will happen if there is a recession.

(2) The high dividend might not be preserved in the future. If been cut, no one will be happy. The company even hiked dividend last year which is totally unnecessary. It should reserve some cash or even looking into some acquisition to diversify the business.


5. Conclusion

6.Links

Sept. 1, 2018
2018 data.
Price: $14.91. Shares: 9m. Cap: $135m.
(1) After two years since I first wrote about it, the company had quite a show. The year 2017 was a good year with net income of $8.5m and the share price had raised up to $30. However, by early 2018, the business had pulled back and it cut the dividend by half to $70c/share/year, which equals around $6m/year. after two dismal quarters, Q4 2018 seems stabilized and the share went back from $14 to close $15.

(2) The business seems still below its historic performance with gross margin below the normal level. The real income might be just $6 to $7 level which makes current P/E is still around 20. The major reason is currently sales for newly minted coins were down due to the low gold price I guess.

(3) I believe the business could recover to $7.5m level. The dividend cut is very necessary although it is still high in my view. Current price is not that cheap if the business can't grow back.

Tesla Motors Inc(NASDAQ:TSLA)

Web Site
Google Finance
Filing

Nov. 01, 2016
Current price : $190

Tesla is a typical growth stock. There is no much to write as from a value point. I actually find most of the writings on SeekingAlpha are not quite useful.

Good parts:
1. Innovative and disruptive in almost every aspect from manufacturing to end sales. In my opinion, if it makes gasoline cars, it still makes great cars. Maybe even easier for the company to success.

2. Tesla's car has around 30% gross margin compare to 25% from Toyota. The main saving is probably because it doesn't pay dealers.

3. Tesla's marketing expense should be much lower than others.

Risks:
1. It needs big cash investment for foreseen future.

2. It is solely relies on Elon Musk. 

Valuation:

1. From value point, the company is no way a candidate. There is no profit and big negative cash flow. 

2. I am trying to use a simple logic to guess its value. Because of the saving on dealer's profit and marketing, maybe manufacturing as well. Eventually its profit margin should be double the next player. The market may valuate it as 1.5-2.0 times of its sales at 2020 or later.  

3. By 2018, it plans to ship 500k cars, assuming average USD$50k price, plus service revenue etc. It could be close to $30B in sales. Let assume it can't achieve that and only get $20B in revenue which might ship only 400k cars. Using 2 times price/sales ratio, given some share dilution, it can still be valued at $500/share. 

4. If using more conservative estimate $30B sales at 2020, then it wouldn't worth too much than today's price. 

5. The Solarcity deal would increase Telsa's shares by 11m. It will add $1B sales annually now. Personally I feel the deal is more likely be approved. Buying Solarcity's stock would be equal to buy Tesla's around $170 level.