Updates on Mesa Labs, National Beverage, SWK Holdings, FTD Companies, and Consolidated Tomoka
|November 5, 2014||Posted by Nat Stewart under Cash Flow Stocks, Compounding Machines||
Mesa Labs (MLAB, last article found here) came out with a strong earnings report yesterday (earnings up 65% and revenue up 45%). The CEO also made some comments that directly address my valuation framework and the “What I will be watching for moving forward” paragraph from my article. For example, he stated:
“It is extremely important that revenue growth also leads to improved earnings, and in this regard, results for the second quarter were very good. I am especially pleased that adjusted net income for the second quarter was 20% of revenues, which is a key target metric for Mesa, and exceeded $1.00 per diluted share.”
Needless to say I am very pleased with the company’s results. With the stock up 45% in a little over one month, the undervaluation hypothesis has been fulfilled ahead of schedule.
National Beverage (FIZZ, last article here) A great earnings report and what I believe is a broader understanding of the CEO’s value maximizing plan has the stock up 35% since my article. As such, the undervaluation hypothesis of the article has been fulfilled. Regardless, I continue to believe that those who only look at history will fail to see the imbedded potential of this company. I am super exited about a new LaCroix variety called NiCola, which has been specifically created to appeal to diet cola drinkers who are looking for a more natural, healthy product. Lucky for me Chicago is a test market, so I will get a chance to sample the product this weekend when they will be at a Marianos supermarket near where I live. Stay tuned! I believe a larger distribution deal or even a sale of key brands such as LaCroix is still very possible, though my previous timing on this was off.
SWK Holdings: (SWKH, article here) Lots of developments! First, the capital raise is mostly complete and on terms that appear very favorable to minority shareholders:
The series of transactions is as follows:
|(i)||First, on August 18, 2014, the Company consummated the issuance of 55,908,000 shares of common stock to the Stockholder at $1.37 per share for total proceeds of approximately $76.6 million.|
|(ii)||Second, a $12.5 million Rights Offering based on a subscription price of $0.86 per share. Existing stockholders, including Carlson based on its 28.9% ownership prior to the share issuance on August 18, 2014, may elect to participate in the Rights Offering on a pro rata basis. The Rights Offering commenced today.|
|(iii)||Lastly, following completion of the Rights Offering, the issuance of a to-be-determined number of shares to Stockholder at a price of $1.37 per share such that Carlson will have a voting 69.0% ownership interest in the Company.|
Their quarterly earnings were also out yesterday, which were very strong. The company is in a great position to move forward with their strategy. I was exited to see that they have already invested an additional $30m since the quarter closed on Sept 30th. Apparently they are no longer filing 8-k statements when they make new investments, so we will have to wait untill quarter end to know what they have been up to. Kind of a bummer, but given that the stock is up 33% since the time of my article (including implied exercised value of the rights), very fair treatment so far from the majority shareholder, and a bright future, we don’t have much to complain about. The faster they can get all the new cash invested without sacrificing quality, the better. I think we will make money both on the IRR of the investments, but also an eventual, substantial premium price relative to book value (if all goes well).
Ftd companies (FTD, article here) This has been the least exiting of the bunch. The big news is that the company will be “acquiring” Provide Commerce from Liberty Interactive. I put “acquired” in quotation marks, because while technically true, in a sense something else has occurred. Liberty Interactive will be receiving shares equal to 35% of FTD as part of the transaction, plus $121M in cash. This makes Liberty Interactive by far the largest shareholder. The most likely outcome is that Liberty will encourage the company to cut/hold costs steady, and then execute on massive share buyback programs, as Liberty has done with other companies. This will automatically raise Liberty’s percent ownership over time. Though the plan will likely work, I became less confident about the industry’s economics and decided to sell my shares earlier this year on a move over 34. Regardless, the stock is currently up about 17% from the time of my article.
Consolidated Tomoka (CTO, article teaser here). Lots of exiting developments at the company, and a roller coaster share performance. The evening of the publication date of this article at Seeking Alpha, the company announced the sale of the land to Trader Joe’s that my article had written about. This caused the stock to shoot up the next morning, and ultimately make a run to over 60 per share (greater than a 20% gain relative to the $50 price on the morning of publication). Then, the stock started a relentless decline – day after day, with hardly an uptick, all the way down to around 45 per share. I admit it was painful to watch, as I felt some of the readers likely bought at a bad time relative to the decline. Regardless, I can’t control that, and ultimately it was good news – in fact the best thing that could have happened for longer term investors. The decline back to 45 provided a great opportunity to buy in at a lower price. Amazingly, during this decline, all news from the company (including a great quarter and an additional, smaller land sale) has been terrific. They currently have $45M of purchase and sale agreements signed with anticipated closing dates between now and second quarter 2016. They purchased a Whole Foods plaza for $20m, and made an additional, substantial loan investment. Interestingly, they also replaced their corporate secretary with Dan Smith. Dan Smith… Why is this interesting? Allow me to quote the press release:
“Dan joins us from Goldman Sachs Realty Management, located in Irving, Texas. His background as a real estate transactional and corporate attorney, along with his previous experience representing a large publicly-traded REIT, Crescent Real Estate Equities, make him an excellent fit for us as we position the Company for further growth.”
In other words, not a typical replacement for a loyal, excellent corporate secretary, but something else indeed. Albright is building out his team to fulfill this companies ultimate potential. In my opinion, guys like Albright and Mr. Smith would not have joined the company if the potential was not very large. At $53 per share CTO is still a strong buy. Im considering an updated feature article before year-end.