Thursday, January 12

Deep Discount to its Net Asset Value;HARRIS & HARRIS GROUP (TINY)

HARRIS and HARRIS GROUP  (TINY) operates as a BDC (Business Development Company) similar to venture capital/private equity. Harris and Harris (TINY) provides a public way to participate in the open market. The stock is operationally troubled but I believe the current price may offer a value trade for investors. I can't know but currently own shares.
January 10, 2017 management held a shareholder meeting ("transforming the future") to discuss restructuring benefits.
Announced changes .... separate Harris and Harris Group into two companies.
A)   180 Degree Capital ("180") to manage existing portfolio in what they believe are undervalued small public companies in a structure that seeks to reduce Harris and Harris expenses.
B) Corp ("HALE")  an operating company that takes a portion of Harris Group precision health and medicine assets and combine them to deliver products with potential to change how physicians provide healthcare.

Harris Group believes the benefits of restructuring are 1) best opportunity to increase shareholder value 2) focuses the company and improves strategic messaging 3) allows maturing portfolio to reach exits in a cost effective manner 4) provide income and net asset growth over shorter more predictable time frames. 5)enable precision health and medicine assets to grow by combining them into a controlled operating company. 

Therefore, 180 Degree Capital ("180") formed from investment management business of Harris group restructured into a closed end fund from its BDC. Management believes the current structure has inherent unrecognized value. The new simplified structure and focus management believes could lead to partnerships and other opportunities. 
Investment focus going forward is to identify deeply undervalued public companies, purchase meaningful ownership/control, hands on constructive activism, with an initial focus on less than 100 Million in market capitalization. If the current BDC structure is changed to a closed end fund it will result in lower operating expenses from less regulatory burden.
The proposed restructuring of the Company, including the formation of 180 Degree Capital Corp ("180") and Corp. ("HALE") requires shareholder and regulatory approval.


52-Week Change        -33.71%
% Held by Insiders    7.58%
% Held by Institutions    31.90%


Monday, January 9

Value Ideas with Risk for the day ending 01/10/16 (Great Elm Capital (GEC) and Harte-Hanks (HHS))

Great Elm Capital Group (GEC) was a patent licensing business as of 06/30/16 that has recently shifted to leveraging their NOL assets and cash into a asset management company to focus on return on investment and long term value creation.

Net cash per share is $2.31 and $3.19 for net current assets for the quarterly period ending 09/30/16 versus the current price of $3.55 on 01/10/17. The new asset management business is virtually free.

Material insider buying over the past 10 days.

Taken from the company website published 09/30/16

Future additional capital raises is likely through the sale of equity or debt to fund growth activities.

"Great Elm’s first investment vehicle is Great Elm Capital Corp. (“GECC”), a business development company.
Partnering with thoughtful investors, Great Elm will structure bespoke investment products to create compelling after-tax returns for both Great Elm and its partners.
Building on our team’s experience in long-term investing, Great Elm intends to leverage its core competencies in M&A and leveraged finance to buy, grow and hold high quality businesses in attractive industries. Great Elm intends to build a portfolio of control investments with a view toward owning these companies for the long-term. Great Elm will then seek to grow these portfolio companies both organically and through M&A."

Long GEC  

Harte-Hanks (HHS)is a multi-channel marketing company. The Company develops integrated solutions that get people to act, click, buy, stay loyal. Connect brands by creating innovations that extend in powerful ways.

A commoditized industry(marketing)company with recent (12/2016) division sale (Trillium Software) for 112M that will be used to pay off debt.

Note that the proceed of the sale on 12/16 were not included in the numbers below given it occurred after 09/30/16 quarter end.


Even before the sale of Trillium Software the financial results are positive when compared to the stock's price.

note the following financial metrics;
Gross margin improvements, debt and share count reductions, short as % of float dropping,average GM% from 2010 to 2013 was 68.40% versus 74% for the TTM.Debt per share for 2010 = 3.03 versus TTM = .93
full diluted shares outstanding for 2010 = 64.139M versus TTM = 61.543, 70% drop in the enterprise value from a 2013 balance of 498.70M to the MRQ of 147.30M.
The sale of Trillium Software on 12/23/16 for 112M is not included in the MRQ (09/30/16) enterprise value of 147.30M or 2.31 EV per share. The proceed will be used to retire its outstanding debt including a 53M pension liability.

Annual revenues dropped 15% from a 2013 balance of 559.60M to TTM 473M. But CFFO has been positive. EV/revenue improved from .90 for 2013 to .30 for the TTM. EV/CFFO 8.37 for 2013 to 4.99 for the TTM.

Insider buying with no sales for 2016. CEO purchased 37,100 shares at $1.48 on 12/15/16, Director 30,000 on 06/14/16 for $1.72 and COO 14,233 shares for $1.60 on 06/10/16.

Long HHS