John Lewis Finding Value In Canadian Small Caps

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John Lewis is a Founder and Managing Partner of Osmium Partners, which is in its 10th year of operation. Osmium invests in high quality small cap businesses with a long term time horizon. The investment process is driven by eight key variables known as the Osmium.

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John Lewis spoke at the 9th Annual Value Investing Congress, also see NAFTA: Canada, Mexico And The United States, And The Future. Below are notes from his presentation.

Highlights from John Lewis’s presentation

Osmium partners focus on small cap

2002 launch 100m to 1000m market cap focus

2-4 year holding period

17% annualized

Idea 1: Tucows Inc. (NASDAQ:TCX) (TSE:TC)

Elliot Noss CEO is Henry Singleton of small caps

Bought back 40% of shares

7 dutch tenders

Stock $12. Average buyback at $4. Worth $21-22

Two business:

Domain wholesale business: $105M revenue, 11% ebitda margin, 14M domains managed.

Worth $11-16 a share

Wireless business. Mvno called ting. Low customer acquisition cost. Low cost mobile service. No contract. Churn is 7%. $10 a share value for this

Catalyst: IPO of Go Daddy. Demand media spinoff. Throws light on relative valuation

2) Rst today $11. Presented last year already

Moving from CD sales to SAAS

Enterprise and education is 100 percent saas with 80 percent renewal

With 135m sales.  Ebitda double in 2 years. Excluding growth R&D spend 15% ebitda margins.

Stock at 0.5x sales.

Peer group 4-6x sales. M/a at 3-6x sales. At 3x sales 100 percent upside.  Made few acquisitions in past couple of years.

Share repurchase authorized. Funded with cash. Bought 5% shares at current prices.

SOTP valuation

Enterprise business, $21.8 at 3x sales

Consumer CD business: $3.8 at 0.5x sales

Cash 3.3

$28.9, 150% upside.

Idea 2: Intersections Inc. (NASDAQ:INTX)

ID theft protection

Board and management owns 50%

No coverage

$21M cash on balance sheet

12% yield

20% short

3 businesses:

Core is dependent on Boa. Valued at 2x ocf

Id Guard is a new product, no litigation

Valued at 15x ebitda or 2.2x sales

Worth 6.5

Voyce paid 11M for IP. Tracks pets.

Soto. 2.5 plus 6.5 plus 1.7 plus 1 cash 11.75

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