I’m back in Massachusetts after a week of vacation on Sanibel Island, last week.
It was great to spend a week in Florida with my family and visit with my parents.
Highlights include:
- Spending a lot of time at the beach (the weather was incredible).
- My daughter learning how to swim without any assistance.
- Catching (and eating) 15 Spanish Mackerels and a 5-foot shark (!).
But it’s great coming back to work.
When I worked at Citi (my last corporate job), I always hated Mondays. There were many things I loved about my time at Citi (the people and learning the private equity business), but overall, the corporate bureaucracy was soul-sucking.
Today, I absolutely love my job. I get paid to find interesting new investment ideas that are too small for large, sophisticated investors.
The events recently in Russia re-enforced a valuable lesson: stay within your circle of competence.
Last week, many were calling Russia a generational buying opportunity, as Russian shares plummeted.
It looked moderately tempting given that the VanEck Russia ETF (RSX) had plunged ~40% in a week.
Of course, this week, VanEck Russia ETF has plunged ANOTHER 40% as Russia is restricting foreign investors from withdrawing assets.
Glad I didn’t dip my toe into the Russia market!
I need to beat it into my head. Stay focused on your area of expertise: micro-cap stocks and special situations.
This week, there were a couple of things that I wanted to highlight (full details below):
- Epsilon Energy (EPSN) announced a quarterly dividend and increased share repurchase authorization.
- P10 Holdings (PX) reported great year-end results. Revenue increased 123% y/y. Adjusted EBITDA increased 162% y/y to $83MM. More details below, but the investment case remains on track.
- Medexus (MEDXF) announced that it has acquired exclusive rights to sell Gleolan in the United States. Medexus estimates that this is a $14MM USD opportunity. Medexus currently sells Gleolan in Canada and is very familiar with the product. This is a big positive as it increases the company’s revenue run rate by ~16%.
The next issue of Cabot Micro-Cap Insider will be published on Wednesday, March 9. As always, if you have any questions, please email me at rich@cabotwealth.com.
Changes This Week
Increase limit on Epsilon Energy (EPSN) to Buy under 6.00
Updates
Aptevo (APVO) recently announced that it received a $10MM milestone payment from Ruxience. With this the company is optimistic that Ruxience will lead to additional earnings of $22.5MM over the next two years. This $10MM will be used to pay down their MidCap Financial debt, reducing their principal on the debt to $5MM, overall strengthening their balance sheet. Aptevo continues to suffer in the biotech bear market. Nonetheless, I think there are many positive catalysts on the horizon. Aptevo will report additional data from its ongoing trials in 2022, and any positive news will move the stock upwards. Original Write-up. Buy under 15.00
Atento S.A. (ATTO) had no news this week. The most recent development is that an activist investor, Kyma Capital, now owns 5% of the company, and is engaging with the management team to unlock value. This is a strong positive, given healthy fundamentals and an incredibly cheap valuation. 2022 could be the year that Atento gets sold. Original Write-up. Buy under 30.00
BBX Capital (BBXIA) recently announced yet another share repurchase authorization, this time for an additional $15MM. I’m looking forward to BBX reporting its annual results so that I can add up all the shares that have been repurchased since the initial spin-off. Well over 20% of shares outstanding have been retired. While BBX has performed very well since our initial recommendation, it remains a high-conviction idea, given 1) positive fundamentals (real estate in Florida is hot) and 2) a very cheap valuation (the stock is still trading at a 50% discount to book value). Original Write-up. Buy under 11.00
Cipher Pharma (CPHRF) has started to trend back up after selling off in November and December. The stock is currently dirt cheap, has no debt, and significant optionality. Finally, insiders own a significant portfolio of shares outstanding and are incentivized to maximize value. The company is buying back shares aggressively. Original Write-up. Buy under 2.00
Crossroads Systems (CRSS) is my latest recommendation. It is a “jockey bet.” In other words, we are betting on the management team and board of directors to create significant value going forward. The investors that control Crossroad Systems are the same investors that control P10 Holdings (PX), a Cabot Micro-Cap Insider recommendation that is up over 300% since I originally recommended it. I think a similar situation could play out with Crossroad Systems as the stock is cheap, trading slightly above book value, yet has significant option value that is being heavily discounted by the market. Currently, Crossroads’ adjusted book value is $12.70. The stock trades a few dollars above this level, but I view adjusted book value as a good downside scenario. The management team and board of directors have a track record of creating shareholder value (it paid a special dividend of $40/per share in 2021 due to windfalls from the PPP program).Original Write-up. Buy under 15.00
Dorchester Minerals LP (DMLP) paid out its latest dividend of $0.639 per unit on February 10, 2022. On an annualized basis, Dorchester is yielding 11.3%. The stock continues to look attractive. I’m optimistic that the current COVID wave caused by the Omicron variant will be the last and we will see strong economic activity in 2022 that drives energy prices higher. Original Write-up. Buy under 24.00
Epsilon Energy (EPSN) announced a new capital return policy (as was hinted at in its last earnings release). It will start paying a quarterly dividend of $0.0625 per share on March 31, 2022. This works out to a 4.2% dividend yield. In addition, the company approved a share repurchase authorization to buy 1.1MM shares at an average price of no more than $6.76 per share. I look forward to the company’s quarterly report which should be released later in March. Given the positive recent news, I’m increasing my buy limit for Epsilon to Buy under 6.00. Original Write-up. Buy under 6.00
Esquire Financial Holdings (ESQ) reported a great quarter in January. For the year, the company generated $2.26 of EPS, up 37% from last year. Asset quality remains high as the company’s allowance for bad loans is just 1.7% of total loans. Esquire dominates its niche, the liquidation industry. Due to its specialty and expertise, it has been able to grow very well, and I expect that growth to continue. Importantly, the company’s investment in digital marketing and sales is paying off as digital accounted for half of commercial loan originations in 2021. This expertise will enable Esquire to grow beyond its current New York and New Jersey focus. Despite strong historical growth (~20% per year), the stock trades at ~10x forward earnings. Looking out a couple of years, Esquire should be trading significantly higher. Original Write-up. Buy under 35.00
IDT Corporation (IDT) has recently stabilized although it is down considerably from its all-time high. What drove the sell-off? It’s hard to say with certainty, but I think it’s been a combination of three factors: 1) the sell-off in high-growth companies that are valuation comps to NRS and net2phone, 2) a sell-off in the small- and micro-cap markets, and 3) investors thinking that a spin-off may be delayed given the rocky environment for growth stocks. Nonetheless, I’m maintaining my position in the stock. I updated my sum-of-the-parts with lower multiples (to reflect lower multiples for growth stocks) and got an updated fair value of $55 per share. Original Write-up. Buy under 45.00
Liberated Syndication (LSYN) had no news this week. It filed an 8-K in early January announcing that it had canceled 7.5MM shares (22% of shares outstanding!) that had been fraudulently issued to Zhang Parties prior to LSYN’s spin-off. This is a major positive. Zhang Parties have 90 days to challenge the cancellation. Given that Zhang Parties didn’t respond to the initial lawsuit that resulted in the cancellation of shares, it’s possible that there will be no challenge. While I do have some questions regarding LSYN’s business trajectory, I think it remains quite attractive at its current valuation. I estimate that it’s trading at 3.0x (EV/revenue) with high-teens revenue growth. Original Write-up. Buy under 5.00
Medexus Pharma (MEDXF) announced that it has acquired exclusive rights to sell Gleolan in the United States. Medexus estimates that this is a $14MM USD opportunity. Medexus currently sells Gleolan in Canada and is very familiar with the product. This is a big positive as it increases the company’s revenue run rate by ~16%. In February, Medexus posted their Q3 earnings results, and reported sales of $21.3MM, beating consensus of $18.8MM. They also posted positive EBITDA of $1.9MM, which was expected to be negative $1.6MM. Revenue was $17.9MM last quarter. So sequential improvement of 18% is excellent from my perspective. Looks like IXINITY is getting back on track (Medexus noted IXINITY drove the sequential improvement). Key things to note from the earnings call, the company received a $2MM order for IXINITY late in the quarter so it was a little higher than expected. Next quarter might be a little lower revenue but should be breakeven EBITDA. But remember, the company is carrying costs for Treo so excluding that spend, the company would be profitable. I continue to believe that the risk/reward for Medexus looks attractive heading into the second half of the year. Original Write-up. Buy under 3.50
NexPoint Diversified REIT (NXDT) had no news this week. It is a closed end fund that is transitioning into a real estate investment trust (REIT). It trades at a 40% discount to NAV and is significantly below where it traded pre-pandemic. Once the transition to a REIT is complete, it will be eligible for many more investors to own including funds and ETFs. This will likely drive indiscriminate buying pressure. The CEO owns 14% of the company and has been buying the stock in the open market relentlessly. A near-term re-rate to NAV could drive 50%+ upside, but longer term, a bigger opportunity could materialize as the REIT is repositioned to capture value. Original Write-Up. Buy under 15.00
P10 Holdings (PX) reported excellent year-end results this week. Revenue increased 123% y/y. Adjusted EBITDA increased 162% y/y to $83MM. P10 Holdings has equity stakes in six private equity focused strategies: 1) RCP Advisors, 2) TrueBridge Capital Partners, 3) Enhanced Capital, 4) Five Points Capital, 5) Hark Capital, and 6) Bonaccord Capital Partners. All of these managers have strong track records which will enable them to continue to raise additional assets under management. This drive continued revenue and earnings growth. P10 is currently trading at 19x 2021 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
Truxton (TRUX) reported a great quarter in January and announced a $1 per share special dividend and $5MM share repurchase authorization. For the full year, EPS increased 29% to $5.02. Meanwhile, the stock trades at just 14.3x earnings. Loan quality remains excellent as the company wrote off just $2k in loan losses. Allowance for loan losses remains very low at 0.9% of all loans. I expect strong performance to continue in the future and anticipate significant upside in the years ahead. Original Write-up. Buy under 75.00
| Stock | Price Bought | Date Bought | Price on 3/1/22 | Profit | Rating |
| Aptevo Therapeutics (APVO) | 32.01 | 3/10/21 | 5.54 | -83% | Buy under 15.00 |
| Atento SA (ATTO) | 21.57 | 8/24/21 | 25.25 | 17% | Buy under 30.00 |
| BBX Capital (BBXIA) | 3.17 | 10/5/20 | 11.50 | 263% | Buy under 11.00 |
| Cipher Pharma (CPHRF) | 1.80 | 9/8/21 | 1.55 | -14% | Buy under 2.00 |
| Crossroad Systems (CRSS) | 14.38 | 2/9/22 | 12.90 | -10% | Buy under 15.00 |
| Dorchester Minerals LP (DMLP)* | 10.45 | 10/14/20 | 23.71 | 127% | Buy under 24.00 |
| Epsilon Energy (EPSN) | 5.00 | 8/11/21 | 5.98 | 20% | Buy under 6.00 |
| Esquire Financial Holdings (ESQ) | 34.10 | 11/10/21 | 31.81 | -7% | Buy under 35.00 |
| IDT Corporation (IDT) | 19.37 | 2/10/21 | 35.55 | 84% | Buy under 45.00 |
| Liberated Syndication (LSYN) | 3.06 | 6/10/20 | 3.45 | 13% | Buy under 5.00 |
| Medexus Pharma (MEDXF) | 1.78 | 5/13/20 | 2.59 | 46% | Buy under 3.50 |
| NexPoint Diversified Real Estate Trust (NXDT) | 14.15 | 1/12/22 | 14.88 | 5% | Buy under 15.00 |
| P10 Holdings (PX)** | 2.98 | 4/28/20 | 11.91 | 300% | Buy under 15.00 |
| Truxton Corp (TRUX) | 69.50 | 12/8/21 | 72.91 | 5% | Buy under 75.00 |
* Return calculation includes dividends
**Original Price adjusted for reverse split.
Disclosure: Rich Howe owns shares in BBXIA, LSYN, MEDXF, PIOE, FPAY, IDT, APVO, DMLP, LEAT, and NXDT. Rich will only buy shares after he has shared his recommendation with Cabot Micro-Cap Insider members
Sell means the original reasons for buying the stock no longer apply, and I recommend exiting the position.
Hold means just that; hold what you have. Don’t buy, or sell, shares.
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.