Following up on yesterday’s portfolio update, there has been a decent bit of earnings announcements in my portfolio in the past few days. Specifically, Universal (UUU), Asta (ASFI), and Meritage (MHGU) all announced or pre-announced earnings. Here are my quick thoughts on each0 please refer to the links above if you’re unfamiliar with the names or are looking for more detailed write ups.
First up is Meritage (results here). I first wrote about them a long, long time ago (please note that they are a very small, very speculative portion of my portfolio. They are a very leveraged, very thinly traded micro-cap, so be careful when investing in them). Since that time, basically all of the thesis has played out except for the more speculative portion relating to their Bermuda real estate. As a simple valuation exercise, if you took their projected EBITDA for the upcoming year ($6.0-6.5m), and applied a 6x multiple to it (I did a very fast scan of 10 or so restaurants I found and couldn’t find a single one trading below 6x), you’d end up with a projected EV of $36-40m. After backing out ~$19m of net debt and preferreds, you’d end up with an estimated market cap of $17-21m, which would imply a share price of $3.10 on the low end. Simplistic, yes- but it also mainly ignores the value for their substantial real estate holdings.
Next up is Universal (UUU). The company reported solid, if unspectacular, earnings. Book value sits at $11.26 per share, more than double today’s share price of ~$5.60. Most importantly, the company is aggressively executing its buyback- they repurchased almost 2% of shares outstanding from October to today, an annualized rate of ~5%. Not bad.
Speaking of executing share repurchases, Asta (ASFI) is annoying because they continue to do the exact opposite. Despite tons of cash- net cash and investments sit just below $7.50 per share, or roughly today’s share price- and a deeply undervalued stock price, the company repurchased ZERO shares during the last quarter. I haven’t had a chance to listen to the conference call yet, but apparently they said they were in a quiet period relating to the new JV they were setting up. Maybe this is true, maybe it isn’t (last quarter, they said they couldn’t buy back shares due to trading restrictions. The answer appeared very flimsy to me)- but if it is true, why aren’t they announcing a huge tender to repurchase as many of their shares as they can right now????
Anyway, results here were again solid, if unspectacular. Because they haven’t been active in investing in new portfolios, most of their current recoveries are coming from zero basis portfolios. Still, cash flows are relatively strong, and there’s really nothing much to update here. The new JV sounds nice when viewed through management spin, but (and I could be wrong here) it looks like a terrible deal plagued by insider relationships. However, even if it’s a zero, it’s small relative to ASFI and ASFI would still be ridiculously undervalued.
Disclosure- Long ASFI, MHGU, UUU
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