August 3, 2022

This was a quiet week, and so I’m going to use my introduction to share an update on Cogstate (COGZF), which reported preliminary fiscal 2022 results.

Cogstate reported a wonderful year.

In total, revenue increased 38% to $45MM driven by continued strong Alzheimer’s trial revenue.

EBIT came in at $10.5MM, up over 200% y/y.

The company executed $82.5MM of new clinical trial sales contracts, up 74% from the prior year.

The one slight negative was Q4 2022 revenue was negatively impacted by slower than expected patient enrollment in a key Alzheimer’s trail that delayed revenue recognition.

Contracted revenue increased 72% on a y/y basis.

The backlog did decrease slightly q/q due to 1) manufacturing problems for a drug and 2) enrollment issues.

Nonetheless, the long-term outlook for Cogstate looks excellent:

• Eisai’s lecanemab is expected to read out the Phase III data towards the end of this year (November estimate).
• Roche’s gantenerumab data expected in Q4 2022.
• Lilly’s donanemab data expected mid-2023.

If these data readouts are positive, it’s going to result in even more spending on clinical trials as pharma companies try to further understand their drugs and get additional data.

Further, a positive read out would increase optimism for Cogstate’s healthcare (DTC testing) business.

All things considered, the thesis remains on track.

Besides Cogstate, there were no meaningful updates this week; you can review the latest updates below.

Original Write-up. Buy under 1.80

The next issue of Cabot Micro-Cap Insider will be published on Wednesday, August 10. As always, if you have any questions, please email me at rich@cabotwealth.com.

Changes This Week
None

Updates
Aptevo (APVO) has had no news in a few weeks. The company announced positive data during the week of June 9 from its phase 1b trial in MDS patients treated with APVO436. Thirty-six percent of patients achieved a remission. As of March 31, 2022, Aptevo has $30MM of net cash and expects to receive an additional $22.5MM over the next few years. Aptevo’s cash burn over the past year was $22MM. As such, it can probably make it another two years without raising cash. However, the company probably does want to raise capital at some point. From a fundamental perspective, Aptevo continues to report good data for its lead compound APVO436 in patients with acute myeloid leukemia (AML). This biotech bear market is no fun, but Aptevo continues to be an asymmetric bet. Original Write-up. Buy under 7.50

Atento S.A. (ATTO) had no news this week. The company reached a settlement with an activist investor, Kyma Capital, in early June. Kyma owns 8.5% of the company. Under the terms of the agreement, Kyma will get a board seat and will work with the Board of Directors to evaluate all options to increase shareholder value. Kyma also has permission to increase its position to 19.9%. While the most recent quarter was weak, the stock looks very cheap. And the agreement is a positive. Atento is trading at just 3x EBITDA while peers trade at closer to 12x EBITDA. Original Write-up. Buy under 20.00

Cipher Pharma (CPHRF) had no news this week. The company reported earnings in May. They were great. Revenue was flat year over year, but EPS increased from $0.05 last year to $0.08 this year. The EPS increase was driven by cost cutting (operating expenses decreased 25%). Meanwhile, ~2% of shares were repurchased during the quarter. Cipher currently has $22MM of net cash on its balance sheet, representing 48% of the company’s market cap. Cash flow should be stable for at least the next 4-5 years which will provide time for the pipeline to emerge. The company continues to move its pipeline forward and evaluate accretive acquisition opportunities. Original Write-up. Buy under 2.00

Cogstate Ltd (COGZF) was covered above.

Crossroads Impact Corp. (CRSS) had no news this week. On July 11, 2022, the company announced that P10 Holdings (PX), another CMCI recommendation, is investing $180MM of equity capital (through one of its investment funds) at $10.76 with the ability to commit an additional $310MM of equity capital at the same price. This will enable Crossroads to really ramp up its ESG lending ability and grow earnings. It will also enable Crossroads to scale up and eventually explore an uplisting to a major exchange. Original Write-up. Buy under 15.00

Currency Exchange International (CURN) reported earnings on June 14. Results were strong, but not strong enough, as the stock has sold off since. Revenue increased 109% y/y to $13.3MM. Net operating income increased to $2.9MM up from a loss of $0.6MM last year. Both Banknotes (+103%) and Payments (+127%) grew very strongly. Importantly, management noted that it expects a strong summer travel season which should drive (my opinion) record results. The stock continues to look very cheap. Original Write-up. Buy under 16.00

Dorchester Minerals LP (DMLP) had no news this week. Last week, the company announced its latest distribution of $0.97 and, as a result, the stock has rallied. The company continues to print free cash flow. Dorchester’s latest distribution annualizes to a 13% yield. While commodity prices will continue to be volatile, I expect them to remain elevated for the foreseeable future. Dorchester will pay out all windfall profits to shareholders. Original Write-up. Buy under 25.00

Epsilon Energy (EPSN) announced in June that its CEO and CFO have retired. I’ve gotten more color on this announcement and understand that it was part of a planned transition and that the CEO and CFO will both stay on as consultants for some time. Natural gas prices have stabilized after pulling back and remain quite elevated. Last year, the company produced tremendous free cash flow and will likely do so again this year. The company currently has $30MM of cash (20% of its market cap) and no debt. Epsilon recently committed to paying a quarterly dividend of $0.0625 per share starting on March 31. This works out to a 4% dividend yield. In addition, the company is actively buying back shares (1.1MM share repurchase authorization). Original Write-up. Buy under 8.00

Esquire Financial Holdings (ESQ) reported earnings on July 25^th. Results were excellent. Revenue grew 23% y/y while EPS grew 37%. Credit metrics look very strong as the company has an allowance to loans ratio of 1.2%. The company has a long runway for growth, as articulated by CEO Andrew Sagliocca: “There is tremendous growth potential in both our national platforms due to the limited number of participants and the fragmented approach to finance and technology in both markets.” Despite its strong outlook, the stock trades at just 14x earnings. Original Write-up. Buy under 35.00

IDT Corporation (IDT) had no news this week. The company reported quarterly results on June 2, 2022. At a high level, the quarter didn’t look great. Revenue decreased 12% y/y which was driven by a 17% decline in traditional communications revenue. This segment benefitted from the boom in paid calling during the pandemic, but that surge is normalizing. Most importantly, IDT’s high-growth segments continue to grow well. National Retail Solutions (NRS), IDT’s payment terminal business, grew 102% y/y. Net2phone, IDT’s other highly valuable subsidiary, grew recurring revenue by 42%. Further, IDT expects subsidiary growth to contribute to consolidated profitability in the second half of this year. While the spin-off of net2phone has been temporarily delayed, we know that it and NRS will ultimately be monetized. The investment case remains on track and my price target is 55 based on an updated sum-of-the-parts analysis. Original Write-up. Buy under 45.00

Kistos PLC (KIST: GB) had no news this week. It is a U.K. natural gas provider and is run by an experienced oil and gas operator that created a 40x return on his last public energy company. Kistos is taking advantage of a booming natural gas market in Europe yet only trades at 1x current free cash flow. It has very little debt. The management team is excellent, and they own ~20% of the company, ensuring that we are well aligned. I see at least 100% upside ahead. Original Write-up. Buy under 5.50

Liberated Syndication (LSYN) has had no news recently. However, I had a chance to speak to the CEO on June 20. He said the team is working through re-filing its financials, and he expects to “go public” again by the end of September. Instead of just “turning on” trading, he would like to raise a little capital and also pick up coverage from some sell-side analysts. He noted the advertising business is growing very well and that the podcast hosting business is growing again. It had experienced limited growth last year given free hosting competition, but business has picked back up. While Libsyn has been a frustrating stock, I think (and hope!) our patience will be rewarded by the end of September. Since you can’t actually buy the stock until then, I rate it a Hold for those who already own it. Original Write-up. Hold

Medexus Pharma (MEDXF) announced on July 25, 2022, that its partner, Medac, has provided the FDA with the information that it requested for its Treosulfan review. We will find out within a month whether the FDA deems the re-submission complete. If it does, the FDA will decide on Treosulfan’s approval within six months. Approval would be a huge catalyst for Medexus as its revenue potential would double. I continue to think the risk/reward profile of Medexus is asymmetric to the upside. Original Write-up. Buy under 3.50

NexPoint (NXDT) had no news this week. In mid-July, we saw more insider buying by CEO Peter Dondero. On July 12, the company announced that its long-awaited transition to a REIT is complete. NexPoint will hold an update call on August 10, 2022 (date got pushed back by a week). This is exciting news, and I’m eager to hear more about the strategy going forward. The thesis remains on track, and I see ~50% upside in the next 12 months. Original Write-Up. Buy under 17.00

P10 Holdings (PX) reported another great quarter in May. Revenue increased 32% to $43.3MM while adjusted EBITDA increased 31% to $22.5MM. Assets under management increased 34% to $17.6BN. Higher assets under management will drive continued revenue and earnings growth. The company also announced a $20MM share repurchase. P10 is currently trading at 15x 2022 adjusted EBITDA which is a very reasonable valuation for such a stable business with strong organic growth potential. Original Write-up. Buy under 15.00

RediShred (RDCPF) had no news this week. It’s a Canada-based, leading document destruction services company. Insiders own more than 30% of the company. It has grown revenue at a 31% CAGR and EBITDA at an 80% CAGR over the past 10 years through organic and inorganic growth. Future growth is poised to continue, yet the stock trades at just 5x forward EBITDA. I see 100% upside over the next 12 months and significantly more upside looking out a few years. Original Write-up. Buy under 0.70

Truxton (TRUX) reported a great quarter on July 21. Despite a volatile market, pre-provision net revenue grew 9% sequentially and 30% y/y. EPS grew 16% y/y. Credit metrics remain strong. The bank has $0 non-performing loans and $0 net charge offs. During the quarter, the company repurchased 22,000 shares for an average price of $70.05. The Truxton investment case remains on track. The bank will continue to grow loans and earnings prudently while returning excess cash to shareholders through dividends and share buybacks. The stock is trading at just 14x annualized earnings. This isn’t the most exciting stock, but it’s a slow and steady winner. Original Write-up. Buy under 75.00

Zedge, Inc. (ZDGE) had no news this week. In mid-July, the company did disclose some insider buying – a welcome sign after investors seemed underwhelmed following the company’s June 18 earnings report. The stock fell as revenue grew by 18% but declined sequentially. Monthly active users (MAUs) in both developing and developed countries also fell sequentially. However, management noted that MAUs are growing again and that they are cautiously optimistic that these trends will continue. Further, the recent quarter included no contribution from the recent acquisition of GuruShots. Given strong recent insider buying, I’m expecting positive news when we hear more details about the integration of GuruShots. The stock remains very cheap, trading at 3.4x EBITDA. Original Write-up. Buy under 6.00

Disclosure: Rich Howe owns shares in KIST:GB, LSYN, MEDXF, PX, IDT, APVO, DMLP, and NXDT. Rich will only buy shares after he has shared his recommendation with Cabot Micro-Cap Insider members.

Buy means accumulate shares at or around the current price.*Includes dividends received
Hold means just that; hold what you have. Don’t buy, or sell, shares.
Sell means the original reasons for buying the stock no longer apply, and I recommend exiting the position.
Sell a Half means it’s time to take partial profits. Sell half (or whatever portion feels right to you) to lock in a gain and hold on to the rest until another ratings change is issued.