The Rational Cloning: Weekly Ideas #33
Alta Fox, Greystone Q1 2022 Letters; Tweets That Make You Go… Hmm 🤔
Welcome to the 33rd edition of the Rational Cloning Newsletter (Weekly Ideas Series).
Helping you discover the best ideas of others.
Happy cloning.
Weekly Investment Ideas
(1) Q1 2022 Alta Fox Letter
We feel very confident about our current collection of portfolio companies. Below, we share a few examples of companies we believe have been unfairly beaten down by the market.
NeoGames S.A. (“NGMS”): NGMS has declined over 70% from all-time highs. The stock now trades at 9x 2023 P/E and 6.7x 2024 P/E for a business that should organically grow revenue at ~20% per year and operating profits even faster.
Daseke (“DSKE”): DSKE has fallen 35% from all-time highs and now trades at a ~20% normalized forward free cash flow to equity yield based on our estimates and <7x 2022 PE.
XPEL, Inc. (“XPEL”): XPEL has fallen 60% from all-time highs and now trades at 16x Alta Fox 2023 estimated EPS.
(2) Q1 2022 Greystone Capital Letter
Currency Exchange International (CURN / CXI.TO)
Currency Exchange is a provider of foreign currency exchange services in North America, with several adjacent business lines in addition to their core. Currency exchange ‘provider’ comprises several things, but the majority of revenue today comes from selling foreign banknotes. Selling banknotes takes place through the company’s retail and wholesale channels, and there is also an international payments business, an online FX service for home currency delivery, and a retail business within airports that CURN has entered into via agency agreements with existing providers. For those less familiar, think of CURN’s banknotes business as the exchange of US dollars for foreign banknotes (or vice versa), where customers pay a small fee to undergo the transaction. The payments business also offers transaction-based check cashing, wire transfers and FX forward transactions, mainly for import/export activity.
There are few comps for CURN. They are not a bank, not a true money service business, and not a fintech. Although they have elements of a bank, and payments sports some fintech-type characteristics, I don’t believe shares will ever trade for revenue multiples of 10-15x. However, I also don’t believe that a low single digit multiple of free cash flow is the correct value to place on this business, one with growth, customer stickiness, market share gains, high returns on equity, and a strong balance sheet.
Our downside is significantly protected by the nearly $15/share in cash on the balance sheet, while buybacks and adding some leverage to the business to lower the cost of capital are also on the table to help bolster returns. I am optimistic that the price we paid for our shares is a favorable one. At the time of our investment, only Peter Rabover of Artko Capital was pounding the table.
Tweets That Make You Go… Hmm 🤔
Check out previous issues of Weekly Ideas👇
And check out previous issues of Mosaic Musings 👇
Authored Books
Nick and Zak's Adventures in Capitalism: Words of Wisdom from the Nomad Partnership Letters
The Little Book of Investing Ideas: A Curated Collection of Investing Wisdom