March 30, 2022

Well - it’s almost April and yet its 25 degrees outside. The joys of living in Massachusetts!

Luckily, we are going to get back to the 60s by Friday. But it’s not fun busting out the winter coats again.

The recovery in the stock market (that I touched on last week) has been stunning. The S&P 500 has had an impressive run and is almost back to flat on the year.

Sentiment has snapped back but remains slightly negative. This leads me to believe that we could see some additional strength in the market.

In terms of the stocks that I’m recommending in Cabot Micro-Cap Insider, I feel terrific. Across the board, I’m seeing positive fundamental developments yet continued reasonable to very cheap valuations. This is a good setup for positive returns going forward.

This week, there are a couple of things I want to highlight (full details below):

• Aptevo (APVO) reported full-year results. The biggest takeaways for me were: 1) 11 of 40 patients that were treated with APVO436 showed promising clinical activity and 2 had complete remissions. 2) Aptevo has cash on its balance sheet of $46MM which is enough for the next 12 months.
• Cipher Pharma (CPHRF) reported earnings recently. Results were excellent and the company bought back ~5% of shares outstanding during the year.
• Epsilon Energy (EPSN) reported great results given soaring natural gas prices. The stock continues to look attractive.
• NexPoint (NXDT) filed its proxy statement and disclosed “the Conversion process is nearly complete.” This is a major positive as the conversion to REIT will allow passive funds to buy the stock and should drive the stock price higher.

The next issue of Cabot Micro-Cap Insider will be published on Wednesday, April 13. As always, if you have any questions, please email me at rich@cabotwealth.com.

Changes This Week
Increase buy limit for NexPoint (NXDT) to Buy under 16.00
Increase buy limit for Atento (ATTO) to Buy under 35.00

Updates
Aptevo (APVO) reported 2021 results last week. As noted above, the biggest takeaways were: 1) 11 of 40 patients that were treated with APVO436 showed promising clinical activity and 2 had complete remissions. 2) Aptevo has cash on its balance sheet of $46MM which is enough for the next 12 months. The stock continues to look incredibly cheap, but the entire biotech market is in a bear market. What could get the stock going again? It’s tough to say with certainty, but Aptevo will report additional data from its ongoing trials this year, and any positive news will move the stock upwards. Original Write-up. Buy under 15.00

Atento S.A. (ATTO) has hired Goldman Sachs to review strategic alternatives, according to Bloomberg. My thesis has always been that Atento is likely to be sold to a strategic partner and it looks like the sales process has begun. The stock looks very cheap. I think a takeout would be in the $45/share range. Original Write-up. Buy under 35.00

BBX Capital (BBXIA) reported earnings last week. They were excellent. Book value per share now stands at $20.79, up over a dollar since last quarter. The aggressive buybacks are really paying off. Since the spin-off, shares outstanding have declined by 16%. The company has a market cap of $162MM. Meanwhile it has net cash + notes receivable of $113MM ($6.96 per share). In 2021 it generated $29MM in free cash flow and that is set to continue given the real estate market is booming in Florida. My new price target is $12.50 (60% of book value). Original Write-up. Buy under 11.00

Cipher Pharma (CPHRF) reported earnings recently. The results were great. On the year, revenue was up 1% to $21.9MM. SG&A decreased 18.3% to $5.1MM and this drove a dramatic increase in EBITDA. EBITDA increased 46% to $11.8MM. The company bought back ~5% of shares during the year. The company has no debt and $20.5MM ($0.79 per share) of cash on its balance sheet. Meanwhile the company continues to move its pipeline forward and evaluate accretive acquisition opportunities. Original Write-up. Buy under 2.00

Crossroads Systems (CRSS) reported results recently. Not much info was shared and I’m going to follow up with the company to learn more. My biggest question is why adjusted book value declined from $12.70 to $11.68. I continue to think it looks attractive. The stock is trading slightly above book value ($11.68) yet has significant optionality. The management team and board of directors have a track record of creating shareholder value (company 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) disclosed recently that two insiders bought shares in the open market last week. Insider buying is always a positive. The company is benefitting from soaring commodity prices due to the geopolitical conflict in Ukraine. Dorchester will pay out all windfall profits to shareholders. The company paid out its latest dividend of $0.639 per unit on February 10. On an annualized basis, Dorchester is yielding 11%. The stock continues to look attractive. Original Write-up. Buy under 25.00

Epsilon Energy (EPSN) recently reported full-year results. Epsilon had an incredibly year. Revenue grew 73% due to soaring natural gas prices. Adjusted EBITDA grew 53%. The company produced tremendous free cash flow and currently has $27.1MM of cash (18% of its market cap) and no debt. The company recently committed to paying a quarterly dividend of $0.0625 per share starting on March 31. This works out to a 4.0% 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. Original Write-up. Buy under 6.00

Esquire Financial Holdings (ESQ) had no news this week. The company reported a great quarter in January. For the year, Esquire 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) reported earnings in early March. The headline number didn’t look great, but the investment case remains on track. Revenue was down slightly year over year, but IDT’s two key segments, NRS and net2phone, generated excellent results. NRS revenue grew 104% to $10.6MM while net2phone subscription revenue increased 32.5% to $12.5MM. IDT announced its goal is to spin net2phone off before the end of its fiscal year (July 31 year-end). 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

Liberated Syndication (LSYN) announced that it sold 1.1MM shares to insiders including Camac Partners at a price of $3.75. The proceeds are being used to pay for a milestone payment due to AdvertiseCast. I was initially a little annoyed that capital was raised given that Libsyn has a strong net cash balance sheet. However, I was able to speak to the company’s CEO last week and got some additional perspective on the equity raise. Essentially, it’s important for Libsyn to have a very strong balance sheet so that advertising partners have confidence in working with the company. The CEO also implied that they are very close to restating their financials which will be a major positive for the stock. I’m bullish on the stock and expect 2022 to be a good year. Original Write-up. Buy under 5.00

Medexus Pharma (MEDXF) recently 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) filed its proxy statement this week and disclosed that “the Conversion process is nearly complete.” This is a major positive as it will enable many new shareholders to invest in the stock (most professional investors don’t invest in closed end funds). The company also recently announced that it made a major realization on its MGM investment. The company disclosed that it received $45MM in cash due to Amazon’s acquisition of MGM. However, what is more interesting, is the company disclosed that it expects to receive an additional $81MM from indirect investments in MGM. I spoke to the company, and the indirect investments are attributed to the company’s CLO holdings. I believe the CLOs are heavily discounted due to liquidity. As such, once they are realized, NAV should increase. Given the positive news, I’m increasing my buy limit to 16.00. Original Write-Up. Buy under 16.00

P10 Holdings (PX) reported excellent year-end results in early March. 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 drives 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 (payable on March 31) 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

Zedge Inc (ZDGE) reported a great quarter last week with 32% revenue growth. Revenue came in at $6.9MM, beating consensus of $6.0MM. EBITDA of $3.4MM grew 16% and beat consensus expectations of $3.1MM. EPS of $0.16 beat consensus expectations of $0.12. The only downside is that management didn’t increase revenue growth guidance which was maintained at 25% to 30%. The management team is very conservative, and guidance looks conservative given revenue grew 60% in Q1 and 32% in Q2. The investment case remains on track. Original Write-up. Buy under 6.00

*Includes dividends received

Buy means accumulate shares at or around the current price.
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.

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