Category: Equity

Input Capital – Really suspicious

Input Capital (TSXV: INP) announced they were going to be bought out by a company (Bridgeway, trading as BDGY) for $1.75 in cash.

This represented nearly a double in share price and a total purchase price of nearly $100 million dollars.

The only problem is that when I am doing research on Bridgeway, I am getting the shell of an entity with a market cap of about $600,000 (yes, six-hundred thousand dollars).

I dig into the SEC filings. They are late on their 10-K and 10-Q filings. Their last snapshot comes from their S-1 (registration statement) where on page 47 we see a financial statement, as of September 2019, that contains nowhere close to $100 million in cash. Indeed, it is about $1.7 million in cash and a whole bunch of liabilities (about $40 million).

There are no 8-K filings indicating they are in the receipt of any further financing except for about $750k (not million) they raised in March 2020.

I couldn’t find shares to borrow, hence this post. While I don’t give investing advice, I think my conclusion from this post is quite obvious.

Ag Growth International – Q2-2020 – steady as she goes

My thesis in Ag Growth International (TSX: AFN) was written in a very condensed form back in “we are all going to die of COVID” April, which seems like an eternity ago.

After reviewing AFN’s quarterly report, business is even better than I was thinking post-COVID. The stock price is now a closer reflection to where it will be going, i.e. still higher.

In fact, if I didn’t already have as high a position in this stock as I did (I took a fairly large position in early April and that has ballooned due to appreciation), I would be buying more.

Nearly nobody in retail-land follows this stock – the lack of commentary on places like Seeking Alpha or Stockhouse is comforting. I don’t see people on Robinhood flipping this stock around. Even after reporting what is unarguably a good quarterly report, the stock only traded a shade under 200k shares.

There are some related companies with somewhat less in the way of competitive advantages that are trading relatively cheaply as well, but business-wise AFN is in the sweet spot. I managed to get shares of one of these other related companies, but it was a ridiculously small position before their stock took off as well.

Transforce is run by a genius

Alain Bédard is very good in capital allocation. TFI International (TSX: TFII) announced they are going to sell 4 million shares to the market.

Their stock chart looks like this:

When you have a stock chart like this, what do you do? Raise equity capital while the going is good. Especially after you’ve exercised and dumped a bunch of stock options (he still owns about 4.1 million shares at present, so still plenty of skin in the game).

I took a small shot at them last February for selling equity after buying back shares, but this move I think is admirable – will also get their debt down to something a little more comfortable. They’ve acquired a couple companies since the Covid-19 debacle began.

Bitcoin Bubble #2

My goodness – Microstrategy adopts a treasury policy where half of their cash ($250 million) is invested in bitcoin:

MicroStrategy® Incorporated (Nasdaq: MSTR), the largest independent publicly-traded business intelligence company, today announced that it has purchased 21,454 bitcoins at an aggregate purchase price of $250 million, inclusive of fees and expenses. The purchase of Bitcoin cryptocurrency was made pursuant to the two-pronged capital allocation strategy previously announced by the company when it released its second quarter 2020 financial results on July 28, 2020.

The company addressed the first prong, which called for returning a portion of its excess cash to shareholders, when it announced today that it had launched a cash tender offer for up to $250 million of MicroStrategy’s class A common stock via a modified Dutch Auction offer. By acquiring 21,454 bitcoins, MicroStrategy addressed the other prong of its capital allocation strategy, which called for investing up to $250 million in one or more alternative investments or assets.

This is the first instance I can think of a company that doesn’t specialize in the field (i.e. an ETF dedicated towards purchasing bitcoins or mining them) that has thrown bulk quantities of cash into Bitcoin.

What’s even more amazing is that their stock went up about 10% on this news (in conjunction with the Dutch Auction Tender they proposed on the same day). I’m guessing the bulk of it was due to the dutch auction rather than the bitcoin acquisition, but who knows?

Will other companies follow suit and diversify their US cash holdings into alternative assets? If so, things will get quite interesting – and will likely inflate the price of Bitcoin. I also don’t know if this had anything to do with the huge drop in gold today, but I also note that long-term US bond interest rates took quite a leap as well. Interesting times we live in.

Finally, if you feel like you are missing out, take solace that the best store of value historically has been in ownership of competently managed businesses that will continue to produce goods or services that will be in demand for the foreseeable future.

What it costs to run a cruise ship company

Just skimming through Royal Caribbean’s (NYSE: RCL) quarterly report:

The Company estimates its cash burn to be, on average, in the range of approximately $250 million to $290 million per month during a prolonged suspension of operations. This range includes all interest expenses, including the increases driven by the latest capital raises. It also includes ongoing ship operating expenses, administrative expenses, hedging costs, expected necessary capital expenditures (net of committed financings in the case of newbuilds) and excludes cash refunds of customer deposits, commissions, debt obligations and cash inflows from new and existing bookings.

$3.2 billion/year is an impressive burn rate, but when considering all the infrastructure it takes to maintain the vessels even when they’re not in use, it isn’t surprising.

As of June 30, 2020, the Company had $1.8 billion in customer deposits of which approximately $300 million correspond to fourth quarter 2020 sailings. Approximately 48% of the guests booked on cancelled sailings have requested cash refunds.

What is surprising here is customers would trust their currency in a company in an industry that has obvious material risks. The value of this capital is in the form of an unsecured on-demand loan paying 0% interest, which is an exceptionally good deal for RCL.

I did place an order to buy RCL stock in mid-May, but sadly the stock narrowly missed my buy limit before it set sail. You can see a chart of it and guess where that happened. Fortunately there were other fish in the ocean at the time.