Friday, August 26

A Market Mispriced Opportunity? Black Diamond

Black Diamond (BDE) designs manufactures and markets outdoor equipment and apparel for climbing, mountaineering, backpacking, skiing, cycling and other leisure related activities.

Summary Investing Points:

1) Global financial advisory Rothschild was hired on November 9, 2015 to assist company in redeployment of significant cash balance and NOL.  

2) Black Diamond is an industry respected brand name with a loyal following. Read positive reviews on the many products sold through Amazon.

3) An incomplete strategic review process initiated March 2015 did result in a profitable sale of equity interest in POC for 65M on October 2015. Black Diamond originally acquired POC in July 2012 for approximately $44.9M increasing value to 65M. Post-transaction, the Company expects to have approximately $100.0 million in cash, $22.6 million in debt and around $167.0 million in net operating loss carry forwards. 

4) Executive chairman Warren Kanders is a proven capital allocator. He holds 25% of the shares outstanding. Kanders used CLRS.PK (a shell company with no current operating business but instead 86 million in cash and 223 million in NOLs) to acquire both Black Diamond Equipment, Ltd. ("Black Diamond") and Gregory Mountain Products, Inc. ("Gregory") during 2010. 
See my original Seeking Alpha post on Clarus ("Ideal Market Environment for Clarus").

Further, it's important to note Mr. Kanders and Schiller (5.1% owner and board member of BDE) built up a company called Armor (AH). They made over 30 acquisitions during a 12 year period. On July 2007 they sold AH (Armor) to BAE Systems for 3.1 Billion.


Black Diamond trades at a large discount to its historical and relative valuation. Trades for only 1 times its TTM gross profit of 54.5M.NCAV is 3.99 versus the current price of $4.49. Company's renewed focus on its growing climbing industry. A cult following with a lower cost structure from restructuring will generate future free cash flow. "During 2016, we expect to generate free cash flows of around $5 million before corporate costs and related activities. We continue to target combined 10% EBITDA margins for Black Diamond Equipment and PIEPS in 2017."

The most recent quarter disappointed from negative foreign currency impact, manufacturing operation move from China to Utah and unfavorable product mix impacting gross margins. "Second quarter SGA, which excludes restructuring, merger, and integration transaction, costs were down 18% to $11.6 million."  This decline from realization of savings from restructuring plan implemented in 2015.

Further evidence it trades at a large discount to historical and relative valuations.  
Modest share count reduction, 2012 shares outstanding were 31.76M down to MRQ 30.85M. Improving F score is 5 for the most recent quarter compared from 2 for 2012. NCAV is $3.99 versus .99 for 2013. Enterprise value is 57.90M versus EV of 466.10 for 2013. EV/Rev = .38 versus 3.08 for 2013. P/TB = 1.03 versus 4.23 for 2013. Short as a % of float was 19.04% for 09/2013, 8.20% June 2016 and is now at 3.70% on August 15, 2016. The company sale is likely after additional acquisitions based on Kanders historic record in my opinion.




  Long BDE

Tuesday, August 16

Adverse News Creates Specfic Opportunity in a Depressed Industry

Tuesday, August 16, 2016 Rand Logistics (RLOG) issued an 8K announcing it’s currently in default under the Credit Agreement dated as of March 27, 2015. Further, the first fiscal quarter ended June 30, 2016 financial results were released today. RLOG closed down today at $0.81 or 14 M market cap down 16%. Rand Logistics is a bulk carrier shipping company in the Great Lakes. It transports construction aggregates, salt, grain, iron ore, and other dry bulk commodities.

For the quarter ending 06/30/16, RLOG reported EBITDA of $11.2 million down 6.3% versus $12 million in the prior year period. Net income per share before impairment charge and restructuring was $0.07 for the quarter ended June 30, 2016. Net income is $1.3 million before impairment charge on a retired vessel and restructuring reserve of $4.3 million compared to net income of $2.6 million in the prior year period.

During today’s conference call management was optimistic on a new credit waiver. The main concern was to increase credit flexibility.
“The current covenant levels were set in early 2014 when the Canadian and U.S. dollars were at par. Since then, the Canadian dollar has declined by over 30%. Every one penny move in relation to U.S. versus the Canadian dollar equates to approximately $275,000 of reported U.S. EBITDA. This has resulted in a $6.5 million annual reduction to our earnings at current levels and has made our covenants which are measured in U.S. dollars, tight each quarter. As part of our discussion with our lenders, we are seeking to amend our covenants to provide more quarterly cushion and offset the impact in the decline of the Canadian dollar. We anticipate reaching a resoluti/on in the next week and releasing our 10-Q at that time.”
Customer demand for 2016 is expected to reach forecasts and to sail at least 3,405 days this fiscal year. Management remains optimistic about demand for the remainder of 2016. “Based on customer conversations, we are optimistic about our future aggregates demand due to a recently approved legislative bill in Michigan, which is aimed at increasing funding for roads and infrastructure. We anticipate that this is likely to have a positive impact on aggregate demand for the foreseeable future.Additionally, management is increasing their previously disclosed cost savings targets by $1 to $3 million to reach $5 million of annual savings. This is to be recognized over the next 12 months. The cost savings program is part of an initiative to improve return on invested capital and reduce debt outstanding.

This depressed industry sees competitors on the Canadian side scrapping vessels and reducing capacity. These factors may indicate a bottom in an industry near multi decade lows and a specific opportunity with RLOG.


Monday, August 1

Declining Short Position to Uncover Improved Valuation

This post started by finding companies with aggressive short covering for less than 2 billion in market size. The thought is research shows companies with high shorts positions underperform the market as a group. Therefore, why not invert the research to find companies with aggressive short covering. This can create a pool of ideas to research for overlooked improved fundamentals. Further filtering stocks by selecting stocks with negative YTD stock returns,market size less than 120M,improving capital structure and valuation   


 % price change as of 08/19/16 versus Post Date on 08/01/16

ACW +30.60% BBRG -41.48% HBIO -8.07% HHS +9.04%

MRIN + 10.40% NVLS +23.72% VISI +7.92% 

VOXX +12.83%

ACW;Accuride Corp is a manufacturer and supplier of commercial vehicle components (over 40% market share) in North America. Its products include commercial vehicle wheels, wheel-end components/assemblies, truck body and chassis parts, ductile and gray iron castings.

Accuride emerged from bankruptcy during 2010 with a new CEO and a strong capital expenditure commitment to modernize. These investment should be realized.

BBRG;"Bravo Brio Restaurant Group is the owner and operator of two Italian restaurant brands, BRAVO! Cucina Italiana (BRAVO!) and BRIO Tuscan Grille (BRIO)." Morningstar

Aggressive share buybacks, 2013 shares outstanding were 19.54M reduced by 25% to the MRQ 14.77M. Value institutions have been purchasing shares over the most recent quarter. HEARTLAND ADVISORS added 26,200 shares during the quarter ending 03/31/16 to reach 906,975 shares held. PORTOLAN CAPITAL added 261,678 shares for quarter ending 03/31/16 shares to reach a balance of 593,201. Kennedy Capital added 33,695 shares to reach current shares held 478,403.

Shares short as a percentage of float was 7.07% May 15 , 2016 progressively reduced to 1.47%

HBIO; "Harvard Bioscience Inc is a developer, manufacturer and marketer of scientific instruments, systems and lab consumables used to advance life science for basic research, drug discovery, clinical and environmental testing". Morningstar

HHS;"Harte-Hanks Inc is a multi-channel marketing company. The Company develops integrated solutions that connect brands with prospects and customers, moving them beyond awareness to transactions and brand loyalty". Morningstar

MRIN; "Marin Software Inc provides a cloud-based digital advertising management solution for search, display, social and mobile advertising channels to improve financial performance, realize efficiencies and time savings, and improve business decisions"

NVLS; "Nivalis Therapeutics Inc is engaged in developing small molecule therapeutics for the treatment of diseases such as cystic fibrosis, asthma, chronic obstructive pulmonary disease, inflammatory bowel disease and certain cardiovascular disorders".

VISI; "Volt Information Sciences Inc provides staffing services, outsourcing solutions, and information technology infrastructure services. The Company's business segments are staffing services and other". Morningstar

VOXX; "VOXX International Corp is a manufacturer and distributor in the Automotive, Premium Audio and Consumer Accessories industries. It manufactures, distributes and markets rear-seat entertainment devices, home theater systems, music systems, among others."