Despite the busy season at work, and the way it may seem based on my sparse posting here, this past quarter was an eventful one for my portfolio.
At one time, Callidus Capital was going to be taken private on June 30th. It did not happen. This was a small speculative position for me, but also one I was hoping I could use to park cash for the start of the summer. I first recommended it at $19.xx, and then averaged down with a whack of shares at $14.70. This enabled me to make a trade and sell at $15.50 for a small profit. I hold a few shares still as a purely speculative holding. Overall this was a disappointment, but I minimized the damage.
It really seems to me like money is freely available to anybody that needs it, and this means that relatively expensive royalty financing isn’t in very high demand right now. Below is an excerpt from Callidus Capital’s CEO Newton Glassman’s letter to shareholders:
During 2017, we have seen changes in the credit market to which we have and will continue to adapt. Capital is more plentiful, and therefore credit pricing generally is under downward pressure, albeit less so in our segment. For competitive reasons, we may lower interest rates, or alter credit features like term, or provide the option to pay a small portion of interest in-kind.
You may remember that DIV sold off one of their royalty streams, and was holding the cash while looking for a new royalty deal to sign. During this time however the dividend was not cut and the company was paying dividends out of the large cash pile in the hopes of finding a new royalty shortly. But looking at the lack of deals from Alaris and others, it seems like one could be waiting a long time before DIV makes another deal. In particular a high quality royalty. Each month the dividend is overpaid and no new royalty is signed, the company is worth less, and when I tried to do a valuation on what there is of the company, I found the stock overvalued. So I decided to slowly sell my position, and I am officially out of the stock now. I like the management team, so if the stock trades down below my fair value estimate of $2.40, I would have no problem buying again.
When I first bought IAM, I figured the stock should trade at $1.49 by the end of September. Nothing has changed to make me revise that target, and currently the stock is trading in a range of $1.40-$1.45. I am watching the price and looking to take advantage of prices at the bottom of the aforementioned range to build the position a bit larger. This has proven to be a sleepy little position, and I will happily buy more. The company has been investing a lot of money the past two quarters, which will contribute to recurring management fee revenue, and growing/consistent cashflow.
Enercare has long been one of my favourite holdings. The rental business model allows for recurring, easily forecast-able cashflow, and management has shown they are good allocators of capital. The stock price was recently beaten up after EBITDA dropped (due to the new Service Experts acquisition being a seasonal earner). I took advantage of this opportunity to add to my position at $18.70. The stock price has taken off above $20 again, so I’ve already made the easy money. If the price rises above $22, I may trim a bit, but I have every intention of Enercare remaining a large part of my portfolio.
Brookfield Asset Management
I’ve added a bit to my Brookfield position. It continues to remain my largest position by a lot.
Not much new to report. I believe the share price is still too low, but there isn’t a catalyst in the near term. Once railway tie or utility pole sales increase again (as part of their normal cycles), Stella-Jones will likely continue to remain an attractive value.
Input should be releasing their quarterly operations update on today or tomorrow, so we’ll have to see the numbers. The last update caused a 10% jump in the stock price, however the quarter which just passed included the time when farmers are busy planting and spraying, so it’s unlikely the capital deployment or number of streams signed will be an eye-catching surprise again.
The newest position in my portfolio. Nothing has changed since I posted my thesis on the weekend, so you might as well just read that.
The rest of the portfolio remains fairly static. After the sales of Callidus and Diversified, I have reduced my leverage a bit. That isn’t a call on the markets, I jut haven’t gotten around to reinvesting all of the proceeds of those sales. I have a few stocks on my watchlist, and will write up something on the companies, once I’m done other important things such as actually investing in the stocks.