The stock Neuhauser picked out as his favorite small-cap was Jadestone Energy. The partnership was initially attracted to Jadestone as it believed it could unlock significant value by replacing the management, and using the business to acquire depressed operating assets. Here’s David explaining his thesis back in 2016:
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"When we first took a position in Jadestone, we saw an opportunity to transform the company by replacing the management and board and using the business to acquire depressed operating assets others must sell to de-lever their balance sheets and focus on core basins. Producing assets (not exploration) with real cash flows and deep value. We feel that we’ve made excellent progress on this. New management has been brought in, and the company has been transformed. New Jadestone is built on an “acquire and exploit” strategy not unfamiliar to some domestic E&P companies, whereby bringing operating capability and new capital to under-invested assets (or assets in the hands of super-majors for whom materiality in future activity is a concern to them), can add significant incremental value. The difference with New Jadestone, compared to North American plays is that the company is focused on Asia Pacific opportunity where the returns are on average two or three times better than North America (IHS Herold annual performance reports), where the competition is very limited and therefore purchase price is very modest (often assets are sold on bilateral deals – no competition), and finally where opportunity options are on the increase."
He went on to say that he believes Jadestone could ultimately be worth $2 per share or more, as the company continues to roll-up assets:
"Timing is tough to determine, but today even with our capital raise, the shares are very cheap. Trading at only $15,000 a flowing barrel and a discounted 0.30 net asset value per share with no debt, $20 million of cash on the balance sheet and plenty of development opportunities in the pipeline this is a very compelling opportunity where we believe the downside is limited."
Two years later, and plenty has changed. So far this year, the stock is up 50% and recently completed a significant acquisition that has the potential to throw off $100 million in annual free cash flow.
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