Guy Gottfried- Rational Investment Group
“Thinking Small: Scouring for Bargains in a Hot Market
Misunderstood, market hasn’t caught on to fundamental change
Undervalued
Strong balance sheet
Skin in the game
HOLLOWAY LODGING RE INVST (PINK:HLREF) (TSE:HLR.UN) stock was up over 8% after the presentation.
$53M Market Cap, EV $165M, 18.8M shares outstanding selling at $2.80
Western Canadian hotel portfolio
Loan to Value is below 60%
Serious takeover candidate
Massive insider buying in recent months
It is underfollowed, no calls, no analysts
Historically mismanaged
Suspended dividend in 2009
Just completed a highly dilutive debt recapitalization
Stock was at $150 pre split in mid 2008 (split adjusted)
Debt maturities have been pushed out several years
90% of market value thriving in Western Canada
Vast majority of lodging in oil and gas producing regions
Panic Buying by Insiders
Geosam and Temple own approximately half of the company
Geosam is an activist/control investor of small cap Canadian stocks
Temple is a fellow Canadian hotel REIT
Cap rate of 12.5% highly attractive valuation given portfolio in thriving region and experiencing significant growth
Catalysts:
Takeover target
Cheap valuation
Sizable platform in Canada
Temple’s stock has been on a great run, while Holloway and the industry have tanked
Upside 60-100% within a year to a year in half thinks the deal will go through
Just announced a 5% repurchase authorization
Potential for a dividend resumption—40% payout ratio could pay 5% yield
Trans World Entertainment Corporation (NASDAQ:TWMC)
The stock was up over 12% today after the presentation.
Retailer, music products
$74M Mkt cap, Enterprise Value $37Million
Profitable net net with stellar balance sheet
Trades at 53% of NWC
EV of 1.7x FCF
Avg cash per share = half of stock price, right now actually above stock price
CEO own over 50% and a good operator
Structurally declining business
Consecutive string of annual losses prior to last year
Underfollowed, no analyst coverage, illiquid due to CEO ownership
Shrinking store base from 992 to 390 over 5 year period
Sales from 1471 to $543
Op income 0- to negative to now positive 6M
Sensible operational strategy
De-emphasizing music, adding exposures to electronics (eg apple accessories)
80% of store leases expire by 2013 or company will continue to reduce store base and monetize working capital
CEO Higgins founded company in 1972
Purchased 2.2M in past 3 years
Tried to take company private in 2008 at $5, pulled out when credit markets froze
P/NWC at 53%
It has a hidden asset very few know about, acquired a walgreens building in 2009 ( 60 yr lease, with 25 guarantee, generating $1.6M in rental income per year) 8% cap rate, property worth $20M or .61 cents per share
Adding this rental income would bring NWC down to 47%
EV/share .51
EV/FCF 1.7x
Trans World does not pay taxes due to NOL’s
Catalysts:
Company goes private
Run off mode and continues to generate cash and sell off store bases
Profitable business, seems to be doing well
Compelling margin of safety, trades at half NWC, Very well run, CEO large owner, Multiple ways to win
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