What I am looking at now
A few notes, a quick look at a "beaten down" name, preview of next article
Updates
SIRE/NRP
I am grouping these together as it relates to the soda ash asset (Sisecam Wyoming LLC) that they jointly own.
On 1/18, GEL (which owns a very similar soda ash business in Wyoming) reported that,
“The price for approximately 85% of anticipated sales volumes of soda ash and related products has been contractually agreed for 2023. We expect weighted average realized prices for the full year to exceed 2022 prices”
(Note: I would like to thank @htm8151 for bringing the GEL 8-K to my attention)
It seems probable that this favorable pricing situation will apply to Sisecam Wyoming LLC as well.
In my view, the continued favorable pricing environment makes it more likely that:
The Sisecam Resources L.P. potential buyout will need a substantial bump in order to close.
Distributions will be going up in 2023 regardless of if the deal closes.
If the deal closes, this larger distribution would benefit NRP, as it will continue to own 49% of the underlying business.
My articles on the two stocks can be found here:
SIRE
A compelling special situation buyout opportunity
An update on Sisecam Resources LP
NRP
An under-the-radar commodity play
A second look at Natural Resource Partners LP
NATH
Nathan’s Famous’s is still very undervalued - trading at hardly over 9X my estimate of fiscal 2023 (ending 3/31/2023) EV/EBITDA.
This is an asset light, high ROIC business with tailwinds as we move out of Covid in both their restaurant and food service (ball parks, amusement parks, etc) business.
NATH’s “gem” business here is their grocery licensing business, which is nearly pure free cash flow.
Recently, the company announced an initiative to re-invigorate the franchise restaurant network. It looks like an expansion of the work they started in late 2019-early 2020 that was subsequently throttled by Covid.
I think the franchise site looks terrific. While the jury will be out on the effectiveness of these initiatives, any success could be profoundly positive for the stock, given it is classified as a restaurant and increased revenue (as a franchise business) would be nearly pure free cash flow.
I am expecting that NATH’s fiscal Q3 (ending 12/31/2022) will show another quarter of mid-double digit EPS growth (Q2 was up 70% year-over-year).
In my view, this could draw more eyes to the stock just as folks realize it is likely to be re-added to the Russell 2000 this May (after having been booted out in 2022). The conjunction of these two things could stimulate demand for the shares in coming months.
If not, I still see fair value as well over $100/share - so it is cheap regardless of these near-term catalysts.
SWKH
I noticed that SWK’s Narcan royalty was bought out (page 133 here) for a total of $25 million, $2.5M of which will go to SWK. This deal is a great example of how credit in this space can create high IRR potential investments that are not fully accounted for by GAAP accounting.
SWK’s initial investment of $17.5M was made in 2016, and paid off ($26.25M) in early 2018. As of 3/31/2018 quarter end, the Narcan royalty had a GAAP balance of just $707K.
Yet since that time (including that quarter plus this final $2.5M payment), the Narcan royalty paid SWK an additional $19M in revenue with zero attached costs.
In the Q3 call, CEO Jody Staggs stated that they are working with advisors to assess the value of Enteris, SWK’s fully-owned oral drug delivery platform.
I am hopeful that we get additional information on this effort in the Q4 earnings release/call - it could be a case of another asset that has substantially more value than GAAP accounting suggests.
In my view it is likely that at some point SWK will look to sell this asset - it doesn’t fit in with their go-forward focus on credit business.