Just a brief news post today. First, have a look at Alluvial Capital Management’s investing thoughts by reading Alluvial’s third quarter letter to clients.
Alluvial Capital Management Third Quarter 2015 Letter to Clients
In the quarter, all Alluvial strategies outpaced their benchmarks by healthy margins. Alluvial offers separately-managed accounts with a focus on micro-caps, thinly-traded securities and special situations. I welcome feedback and inquiries from potential clients or those who simply wish to shoot the breeze about Alluvial’s holdings and strategy.
Second, there is still time to register for The MicroCap Conference, taking place in Philadelphia on November 5. Plenty of interesting companies and speakers and practitioners are on the agenda. Industry groups represented include energy, pharmaceuticals, manufacturing, social media, and many more.
Finally, I was recently the subject of a detailed article written by Nadav Manham at The Private Investment Brief. The PIB profiles little-known but up-and-coming investment managers, and provides other excellent investment commentary. It’s an invaluable resource for capital allocators. I cannot share the profile here, but I highly recommend contacting Mr. Manham if you are interested in learning more about his publication.
I’ll be back later this week with another post on my favorite kind of company: old, obscure, and successful.
OTCAdventures.com is an Alluvial Capital Management, LLC publication. For information on Alluvial’s managed accounts, please see alluvialcapital.com.
Thanks much for posting your letter. One of the stocks you talk about, Cross-Harbour Holdings, looks like being worth additional investigation. As free cash flow is ultimately the driver of most, although not all companies, it seems that cash from operations (starting point) is low relative to earnings. This stuck out to me as something to look at in particular.
I agree that in the long-term, earnings must be supported by corresponding cash flows. Most of Cross-Harbour’s cash flows show up in cash from investing, because the company’s tunnel concessions are unconsolidated in the financial statements. The only consolidated businesses are the minor driving school and toll booth operations the company owns majority stakes in. If you look at cash flows from investing, you’ll see the company receives over 700 billion HKD in dividends from its tunnel investments each year, or almost 20% of the current market cap. These cash flows won’t last forever, but the company will receive an extraordinary amount of cash between now and the expiration of the tunnel concessions.
Hi Dave. I was wondering if you can elaborate on the statement: ” The market is currently valuing WMIH’s NOLs at about 27% of their potential tax benefit.” How can you tell how much the market is currently valuing a company’s NOL.
Thanks
Sure thing. Essentially, I just took WMIH’s NOLs (about $6 billion) and multiplied them by an assumed tax rate of 35% to find the theoretical maximum tax benefit. Then I calculated the enterprise value of the company and divided that by the maximum tax benefit. The figures are slightly subjective because of the tax rate assumption and WMIH’s capital structure, but I got a valuation of around 27% of the NOLs.
Pretty sure I identified your “NOL Inc”.
Two questions:
– do I read it right that an ownership change is triggered in the US if >=50% of stocks are cumulatively exchanged between all 5%+ shareholders (with free float and <5% together count as one "5+ shareholder") in any fiscal quarter?
– the upside tax advantge might be worth X times more than the money at risk (about 40% mkt cap), but how will you as a shareholder capture this: aren't huge capital raises first required, and as such, does it still hold that in the end you make X times your money-at-risk back.
Huge fan of your blog!
TC
Networking is important at events; however, we do have some clients that go with just a basic app that strips all of the interactive features out of it. We can accommodate a solution that is right for your event. We power similar conferences like yours and I guarantee you would find it beneficial.