The Rational Cloning: Weekly Ideas #3
Kuppy on Uranium, YAVB on Greenfirst Forest, Carlo Cannell on Lee Enterprises, ShadowStock on Spark Networks, and More
Welcome to the 3rd edition of the Rational Cloning Newsletter (Weekly Ideas Series).
Helping you discover the best ideas of others.
Happy cloning.
New Investment Ideas
(1) The Absolute Return Partners September 2021 Letter (LINK)
“We have identified six megatrends that drive our thinking and our portfolio construction. Do you realise that healthcare spending will be affected by at least two of those six megatrends?
The forthcoming explosive growth in the number of elderly, and the impact it is going to have on healthcare spending, is well advertised.
(2) Rowan Street Capital (LINK)
a. Facebook
In spite of these huge expense increases, we estimated that their revenue would still grow at least 20% and their future expense increases would be closer to revenue growth. We were convinced that FB remains an extraordinary business with incredible moat (2.9B users), and they still have tons of opportunities to profitably reinvest their capital. We have been very impressed with how Zuck & Co. handled a long list of challenges over the past few years and managed to keep growing and innovating! We have doubled our money thus far on our Facebook investment over the past 3 years, and are happy to remain shareholders as future prospects remain bright for the company.
b. Spotify
In an economy driven by AI and digital technology, small, focused, and nimble companies can leverage technology platforms to effectively compete against big, mass-market entities. The small can do this because they can rent scale that companies used to need to build. The small can rent computing in the cloud, rent access to consumers on social media, rent production from contract manufacturers all over the world — and they can use AI to automate many tasks that used to require expensive investments in equipment and people…
This is the essence of unscaling: technology is devaluing mass production and mass marketing and empowering customized miscroproduction and finely targeted marketing.”
…we believe that Spotify is Unscaling a couple of industries in addition to creating new demand that didn’t even exist before.
(3) Kuppy/AIC: Uranium (published September 2, 2021) (LINK)
In any case, when I saw the rate at which SPUT was issuing shares, I legged into a rather large pile of SPUT. I’m also long a few producers along with some juniors for extra kick. (Please don’t ask me which—if I wanted to name them, I would have).
Uranium just broke out to 5-year highs. New highs bring in publicity, which often brings in new buyers and the cycle repeats. I like buying new highs from a big base—especially with SPUT out there playing Pac-Man. I pulled back my exposure all summer as I was awaiting something interesting. I don’t think I’ll see anything better than uranium for a while.
Let’s just say that I’m suddenly back to being VERY fully invested.
(4) NoNameStocks: Treecon Resources(published August 30, 2021) (LINK)
At a stock price os $0.35 the stock trades at 2x earnings, 1/10 of TTM sales, 1/5 of the most recently reported book value. The risk is you don’t really know everything behind the curtain but that’s also the allure. What happens when that timber land is ready for harvest?
(5) YAVB: GreenFirst Forest Products(published August 18, 2021) (VIDEO LINK)
Fintwit fav (maybe not so much after falling from $8 to $1.5). Worth a look since there seemed to be a blood in the streets due to a botched rights offering. Seems cheap- trades at 2.4x EV/EBITDA and 0.45 Debt/EBITDA.
(6) ShadowStock: Spark Networks (LINK)
Came across this after seeing a cluster of insider buying for LOV.
Spark Networks has a growing portfolio of dating apps with branded websites. The company has around one million monthly paying subscribers. Brand names are Zoosk, EliteSingles, SilverSingles, Christian Mingle, Jdate, JSwipe. Affinitas GmbH merged with Spark Networks in 2017 to create the publicly listed LOV (Spark Networks) with the addition of Zoosk in 2019. Headquarters are in Berlin, Germany, with offices in New York and Utah.
The market is ignoring Spark’s transformation and the extreme valuation discount to competitors. Yes, it’s risky. But the rewards are asymmetrical if they prove further progress. Improvements include a new C-level management team. Research and development of 54.10M spent over the last two years for crucial product enhancements. Investor transparency by transitioning to U.S. domestic filer with quarterly filings and an investor outreach campaign.
Spark is at the end of its transformation with new management, expense reduction opportunities, product enhancements, and consolidating brands under a single platform. Additionally, debt refinancing is likely with the new CFO and has an attractive asset-light business model with recurring revenues trading at multiples seen with a distressed retailer. Management is forecasting improved results. Free cash flow reported was 25.95M for the prior period 06/2018 to 12/2020, 37.17M for CFFO. Further, Spark transitioned to U.S. domestic filer with quarterly filings and with an investor outreach campaign. The new management team is incentivized with equity (12.09M in stock-based compensation from 06/2018 to 12/2020). The new team replaces a prior management disaster.
Activists / 13Ds
(1) B. Riley and Global Ship Lease (LINK)
B. Riley Financial has purchased 3 million Class A common shares of GSL from Kelso & Company at a price of $19.17 per share, a discount of 5% to the closing price on August 31, 2021.
(2) Jana Partners and Vonage (LINK)
Activist investment firm Jana Partners has called on internet phone company Vonage Holdings Corp to hire advisers to explore strategic alternatives, including a possible sale of all or parts of its business.
(3) Cannell Capital Investment on Lee Enterprises, Inc. (LINK) (LETTER LINK)
LEE is the second largest provider of original local content in the U.S. with 77 media properties, most of which are the “only game in town” in small cities – a hot place in which to do business now because of the pandemic.
We believe the gap between its economic and the accounting value is enormous. The stock is $25 today. Our Blue Sky is $250 under the right management.
Share Repurchases
FS Bancorp authorrized the buyback of up to an additional $10 million worth of shares.
WesBanco authorized a buyback of up to an additional 3.2 million shares.