Read on Twitter
(1/x) Thread on $BTN, a small cap holding company that is my newest and biggest position. The company has an interesting history and was founded in 1932 as a designer of film projectors; it went public in 1995 with two segments: theater and lighting. The company benefited from
(2/x) the massive tailwind of the movie theater industry transitioning to digital throughout the 2000s, reaching $184M in revenue and $10M in net income in 2011. This is when management hypothesized the growth had petered out, and they acquired a digital media company called
(3/x) Convergent Media. This was an underperforming unit and the company went sideways for a couple of years. In 2015 @kylecerminara started taking a major interest in the company through his PE fund, Fundamental Global. Since being elected on the board and through a stint as
(4/x) CEO, he conducted a (beautifully executed!) turnaround of Convergent Media, leading to the sale of the unit a week ago to SageNet, Inc., an ITSM company for $23.2M including the debt taken on by SageNet. Finally, a secondary offering of about ~3M shares at $2.30/share
(5/x) closed this week for a total of $6.7M raised for the company. This now leaves us with 2 large operating segments and 3 investments held in a $50M company that has paid off its $3.5M in long-term debt now has ~23M in cash on the balance sheet. Let’s see what’s left:
(6/x) 1. Strong Media Systems: This is the legacy screen/movie theater business. Revenue comes from screen system sales ($5.6M in Q1-Q3 2020, $10.3M in Q1-Q3 2019), Digital equipment sales ($4.5M in Q1-Q3 2020, $6.4M in Q1-Q3 2019), warrantee sales, and maintenance/monitoring/
(7/x) installation services ($3.7M in Q1-Q3 2020,. $7.8M in Q1-Q3 2019). Business runs with an operating margin of about 15-20% pre-covid. They are also exclusive suppliers and services to both CNK and IMAX - and the former is one of my other holdings due to being in the best
(8/x) position of the theaters coming out of COVID (thanks to having no debt, very unlike AMC). If the company resumes 2019 levels, they would be running at a GP of $12M and an Operating Profit of ~$7M. I know streaming is all the rage but I personally do not believe theaters are
(9/x) dead, which might be a stupid variant perception; at the core of my thesis is that in lots of small towns (like the one I grew up in in upstate NY), for teenagers going on dates, to hang out, etc., the movie theater still acts as a social venue/date spot for a LOT of people
(10/x) I feel that it is possible more urban/city-dwelling people (who make up a lot of equity analysts) might not figure this into their projections.
(11/x) 2. Firefly Systems, Inc: BTN owns a ~12.9M stake in Firefly Systems, a digital taxicab/ridehailing advertising company backed by Google Ventures. The acquisition of this stake was innovative as well: BTN had a business called Strong Outdoor that owned and rented out the
(12/x) the “billboards” on top of cabs. In May 2019, Strong Outdoor agreed to make 300 digital taxi tops available to Firefly Systems in exchange for a $4.8M stake in Firefly, and in August 2020 Strong Outdoor basically sold itself to Firefly Systems in exchange for equity in
(13/x) Firefly. I think this is a great business in a niche industry with lots of potential - I’ve seen some advertising screens installed in Cabs when I was in the city that looked very promising. Additionally, Cab riders in NYC are basically a wealthy, entrapped audience to
(14/x) advertise to; broke people don’t take cabs.
(15/x) 3. BTN holds a ~30% interest in (formerly $ICLTF) $GFP, Green Forest Products which (1) acquired Kenora Sawmill in Ontario for $11.5M, basically out of bankruptcy, and also (2) holds an investment in FGF, which BTN also owns a 20% interest in (the Swetz/Moglia/Cerminara/
(16/x) Johnson complex is intertwined, beware if you don’t like reading tons of EDGAR/SEDAR). Canadian lumber is currently under a high tax implemented by Trump that Biden might reduce; the Kenora Sawmill purchase involved Paul Rivett and Rick Doman, two Fairfax retirees who
(17/x) are highly praised by Watsa himself; the mill, with 150mbf of lumber production and assuming current lumber prices of ~$950 USD/tbf and expenses of 500 USD in expenses per tbf, gives us revenue of USD ~$140M (!!!) and pre-tariff operating profit of $67M. WIth current
(18/x) Canadian Lumber tariffs at 19.88% for ICLTF, this gives us a post-tariff operating profit of ~$54M, assuming no changes from Biden on the tariffs (which given the prices of lumber, may come down soon just to make homeownership more affordable).
(19/x) This is a company with a market cap of $50M, which has also raised $5M in a secondary that I strongly suspect is the cost of restarting operations at the mill. Great exposure to lumber prices, and historically timberland is one of the best inflation hedges out there.
(20/x) BTN holds a ~21% interest in FG Financial Group, a $24M market cap diversified financial services holding company. This is the business that I had dug the least into (mostly because I felt the above 3 already made BTN too cheap), but after doing more research I also like
(21/x) what Kyle/Swetz are doing in this business as well. It owned a $10M stake in FedNat as of 9/30/20, a $90M market cap insurance company which FGF sold some insurance subsidiaries to in 2019 in exchange for shares in FedNat. Kyle’s PE firm owns >60% of shares outstanding.
(22/x) Kyle is chairman of the board while Larry is CEO as of 11/20. They have 4 segments/investments other than FedNat stock:
(1) a newly created reinsurance subsidiary called Fundamental Global Reinsurance Ltd, which has ~1M in FedNat stock to begin its operations, and it
(1) a newly created reinsurance subsidiary called Fundamental Global Reinsurance Ltd, which has ~1M in FedNat stock to begin its operations, and it
(23/x) does not plan on writing any insurance it is not $100% collateralized for.
(2) Fundamental Global Advisors, a wholly owned subsidiary that is engaged in providing asset management advisory to FedNat per an an agreement at the time of the asset sale in 2019 (but only does
(2) Fundamental Global Advisors, a wholly owned subsidiary that is engaged in providing asset management advisory to FedNat per an an agreement at the time of the asset sale in 2019 (but only does
(24/x) $100K in revenue, so giving that a $0 too)
(3) A planned real estate business that I am also giving a value of $0 to for valuation purposes
(3) A planned real estate business that I am also giving a value of $0 to for valuation purposes
(25/x) (4) an investment into OppFi by helping sponsor OppFi’s FGNA SPAC. This is super exciting and I really like this company as someone with experience in the finch space, especially given the relative valuation of Oppfi compares to other finch companies showing that much
(26/x) promise. Oppfi currently serves 899K customers in the bottom 50% of Americans who face significant barriers to banking services (a huge portion of their customers would be defined as “un/underbanked”).
(27/x) The funnel usually starts with a prospect going to Oppfi looking for emergency financing for an unknown expense (ex. car accident). This application is run through an AI algorithm (although they don’t state what % of applications are approved through AI vs. manually, which
(28/x) I would like to see) and they state that in most cases instant decisions are delivered the next day. OppFi also has an online education platform to educate new customers on how to work towards rebuilding/starting a credit history (*AHEM* @vladtenev ).
(29/x) Given how valuable this relatively unreached demographic of underbanked users is and OppFi’s history of execution, I am optimistic about OppFi’s future (and am definitely comfy enough to let it run as basically a free call option inside $BTN through FGF)
(30/x) OppFi has grown both revenue and EBITDA at a ~100% CAGR since 2017, and given their 2020E projections their equity valuation of $900M gives them a P/E ratio of 16 (which, for a finch platform for the underbanked growing at 100% a year is a screaming good deal - you don’t
(31/x) even want to know what some companies like this are raising in Series E rounds). If you want to get really trusting and assume they hit their 2021P numbers, they are trading at 7x EV/2021 EBITDA and a P/E of 12.2x. Given Joe Moglia's endoresment/investment,
(32/x) his agreement to lock up shares for 2 years after the transaction closes taking OppFi public, his success with TD Ameritrade, and the great fundamental indicators, I really like this business and will be doing some more work this weekend to see if I will take a
(33/x) separate stake in FGNA along with $BTN. This is the first writeup I'm sharing on fintwit so would love any feedback from people smarter than me; cc @IgnoreNarrative @BryanGreenbaum @jj_shipley @larryswets @kcerminara. Excited to continue sharing stuff like this!
(34/x) To put it all together (you can do your own SOTP using whatever valuations you want) ALL of this currently trades for $52M publicly under BTN. Woefully mispriced imo.
