A few position updates

Plus a preview of the next Stockpicking article

I hope you had a great week and are as excited for the weekend as I am. 

For those who didn’t see it, last week I did an interview with Edwin Dorsey of “The Bear Cave” at his “Sunday’s Idea Brunch” site. 

This interview caused a huge spike in subscribers here, so I am grateful to Edwin for featuring me.

The interview can be found here. 

Update - P10

On August 29th, P10 (Featured here as a potential long-term holding) acquired Western Technology Investment (WTI). 

This deal is the perfect example of how P10 will be able to grow by “marrying” additional high quality asset managers into the P10 stable. Like with P10’s existing businesses, management fees are highly stable and subject to a 10-year lockup period. 

The structure of the deal was also interesting, combining cash and stock plus an earnout agreement that increases consideration if the WTI team is able to grow EBITDA beyond certain threshold points. 

This structure allows P10 to pay around a 12X multiple for the existing business, but much less for future growth. If WTI is able to hit the $25M EBITDA target, the full deal will be at only a ~9X multiple vs. P10’s current valuation of near 16X.

This is an excellent deal for P10 while also providing a huge incentive for the WTI team to grow their business. 

While P10’s share price initially popped up on the deal announcement, it subsequently pulled back with the general market. In my view, both of these events made the stock a better buy for long-term investors.

P10 vs. other “Alt” managers

One note on P10’s value vs. many other alternative asset managers. 100% of P10’s revenue is from highly stable, long-term contracted management fees.

This is unlike many other alternative asset managers, where a large portion (in some cases the largest portion) of income comes from internal investment gains/income, bonus fees, and profit participation fees earned on client assets. 

Contrast this with P10’s revenue stream, as described by Co-CEO Webb:

“we set out to build a financial engine that in many respects mirrored a compounding bond with highly predictable contractual and growing revenues, visible and manageable expenses, limited CapEx and tax leakage and very strong returns on capital”

A “compounding bond” is very different from portfolio gains/losses or incentive fees that can have substantial period-to-period swings. P10’s economics are the portion of earnings that are most stable and predictable, while tying up no invested capital.

In addition, I see P10’s small size as an advantage. It is easier to grow off of a small base, and there is substantial room to grow within P10’s market niche. 

Update - Rave Restaurants Group (RAVE):

Earlier this week, the company put out a press release providing details on the new store model, including mock-up photos (Once again, this press release is not found on their own corporate website - a typical micro-cap oversight).

A few excerpts:

“Now that we’re in our post-pandemic era, it’s time to express the brand in a compelling and modern way across all of our customer touch points” 

“Few brands can withstand the test of time, increased competition and ‌ a pandemic–but we did. And, we have eight consecutive quarters of profitability behind us to prove it. We are working hard on the economics of this new concept to create a cost-effective design that delivers on customer experience while making financial sense for franchisees and investors alike.”

“It’s time we shared our brand story,” Chaz Black, senior director of marketing, said in a statement.  “We’ve enhanced our dine-in experience and I’m so excited to see this come to life both in person and via social media. Whether our guests are celebrating a birthday in the party room under a customizable kiosk, snapping a selfie in front of the pizza wing Instagram wall, or stacking as many sundae toppings as possible at the sundae bar, Pizza Inn’s dining room is as craveable as our pizzas. The social opportunities to celebrate, snap, and share are going to make our new restaurant concept a must dine.”"

“Pizza Inn tapped nationally acclaimed advertising agency, BooneOakley and award-winning retail design firm Chute Gerdeman, to imagine the Pizza Inn retail experience of tomorrow.”

I love to see that this teeny company is using nationally credible design and marketing firms vs. attempting to do the rebranding/new store model in house.

As I state in the full article (found here) this is a very small micro-cap company below my usual size and liquidity thresholds. Anyone who considers an investment needs to take this into account. 

I plan to add to my position if results confirm the hypothesis, which (regardless of outcome) will take years to play out.

Next Feature Article: 

My next premium article will feature two stocks that I have been buying on the dip.

One of the setups is a concept that I described in the “Sunday’s Idea’s Brunch” interview - those of you who enjoyed that interview might find this one particularly interesting.

In both cases, I think we are buying below fair value with very strong M&A potential.

Both stocks have large insider ownership and controlling/activist shareholders who will likely push for a sale/take private. If this does not occur, I see potential for expanding margins and EPS growth, so we have two ways to win. Stay tuned…

I/we own shares of PX, RAVE

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Our analysis is based on SEC filings, current events, interviews, corporate press releases, and other sources of public information. It may contain errors and you shouldn’t make any investment decision based solely on what you read here. There is no guarantee, or suggestion of a guarantee, that our ideas will perform as they have in the past.

I/my clients or affiliates may hold positions in securities that I write about, which will be disclosed at the time of publication. To the extent such persons do have such positions, there is no guarantee that such persons will maintain such positions.

Neither the author nor any of its affiliates accepts any liability whatsoever for any direct or consequential loss arising, directly or indirectly, from any use of the information contained herein. Nothing presented on this herein constitutes an offer or solicitation to buy or sell any security.