November 3, 2024

Y H & C Investments Microcap Strategy (Fact Sheet and Video)

Top 5 Positions As of 11/1/2024- Context, Reasons for Owning and Valuations

(Note- valuation statistics come from Seeking Alpha 11/3/2024) 

Foreign Exchange Principal and Agent Supplier- Held Multiple Years- 

Largest non bank provider of foreign exchange services in North America.  Distribution network of nearly 100 owned and 17,000 auxiliary locations, including nearly all major US airports.  Growing online business with low penetration rates and partnership growth opportunities.  Federally chartered bank in Canada with strategic supply relationship with Federal Reserve Bank in NY.  Owns a payments business with potential for acquisition and or monetization events.  Nearly 100 million of cash on balance sheet, with 75% needed for working capital.  Founder owns nearly 25 pct of shares with a very low float.  Grew top line 21% in 2023.  2024 revenues should be close to 100 million in 2024.  Recently opened a new branch in Atlanta and signed agreement to supply organization which services over 2,500 national travel agents specializing in cruise industry.  Working on backend integrations for efficiency and adding more clients in their payments division.  

Valuation Statistics- Negative Enterprise Value P/CF= 3.00 GAAP Trailing P/E= 15.87

Regional Gaming Company-

Reporting quarterly results 11/6/2024-  Owner and operator of casinos in five states with one licensed location.  Three of the casinos have hotels on the property.  Largest revenue contributors are locations in northern Chicago (called the Temporary), Mississippi, and new addition in Cripple Creek, Colorado.  Growing amenities in Colorado and convention business are key to future growth in that market. 3rd Qtr traditionally strongest of the year.  Management team includes ex-CEO of Pinnacle (ex-CFO of Wynn Resorts) and CFO with a long relationship to CEO.  Top line Growth in 2023- 66% with revenues approaching $300 million in 2024.

Valuation Statistics- EV/EBITDA= 10.86  P/CF=6.77 Trailing P/E= NA P/B=3.00

Enterprise and Financial Instrument Liquidation/Financing-  

Reporting quarterly results 11/7/2024- Investors sold off the stock after the report.  Took the opportunity to buy more on the thesis that investors overreacted to credit challenges.  Took a charge against expected future income for the rest of 2024 of $1.6 million.  Largest debt position of book of loans of a specialty borrower- $5.7 million is direct lending and $18.9 million are equity method investments (25% stakes).  Auctioneer of distressed physical and financial assets. Invested in financing business related to financial assets auctions of non performing loans on credit cards, buy now pay later loans, car loans, etc.  Track record of success in real estate liquidations as both principal and agent.  Strong balance sheet with $10 million of net cash and another $30 million of long term investments and receivables, along with net tax loss carryforward of $50 million. Strong position for acquisitions, including in Europe  Long time CEO and operator owns 6% of the company.  Grew top line 28% in 2023.

Valuation Statistics- EV/EBITDA= 3.29 P/CF=4.42 P/E=5.60 P/B=.95

Digital Solutions/Signage Lrg Enterprises- 

Reporting earnings 11/13/2024  Top 10 provider of hardware and software solutions for multi unit enterprises in retail, automotive, media, consumer discretionary, amusement parks and sports stadiums, and quick service restaurants (drive thru menus and readerboards).  High profile client list- Verizon, Chanel, Cedar Fair Theme Parks, Freddies, Panera).

Apple template razor blade model of providing both hardware and software with SAAS piece increasing margin profile as the company gains market share and scale and implements a signed backlog of nearly $100 million.  CEO owns 10% of the company and the CFO owns a large piece as well.  Low public float.  Grew top line 4% in 2023 versus 135% in 2022 (acquisition).  Top line projected to be $60-80 million in 2024.  Recent announcements include expansion initiatives into Mexico.  

Valuation Statistics- EV/EBITDA=9.58 P/CF=14.42 GAAP P/E= NA P/B=1.55

Automotive Warranties and Variety of Specialty Back Office Businesses-  

Reporting quarterly results 11/6/2024-  Recently announced a new acquisition in the IT Services area- Promising acquisition adds nearly 10 million on top line and 3.1 million of adjusted EBITDA (unaudited estimates). Interesting situation as the balance sheet has a valuable asset of $625 million tax loss carryforward.  Revenue split with 75% coming from the automotive warranties segment and rest from a variety of acquisitions including different forms of financial staffing, heart monitoring, and software as a service for the timeshare industry.  Low public float and management owns 65% of outstanding shares.  100 million dollar top line business with 2023 growth of 13%.

Valuation Statistics-  messy because of sales of real estate assets and paydown of debt and warrants.  Approximately 10X EV/EBITDA after considering tax loss value.

Minor and Tracking Positions

Business to Business Payment Processor- Reporting quarterly results 11/06/2024-   80 million dollar top line business with break even to 4-5 million dollar of EBITDA this year.  Recent contract win creates future scale which should improve margin profile.

SAAS provider for Utilities- Reporting quarterly results November 14, 2024.  45-50 million dollar top line break even business with major product introduction asked for by counsel of utilities.  Serves 280 utilities.

Yoga and alternative therapies content provider. Reporting results November 4, 2024- 80 million dollar top line business with new management focused on operating efficiencies related to advertising and capital spend. 

Microcap Investment Objective:  Invest in small companies having qualities which give owners a higher probability of superior equity market performance than a market based index like the Russell 2000.

Context:  The microcap landscape is one which is heavily dominated by retail investors.  Institutions avoid the area like the plague, so much so can be considered an investment wasteland, or zombieville.  It is important to understand this environment to avoid owning companies which have stagnant performance.  More importantly is investing in situations which have structural advantages which give a very high probability of equity performance owners are satisfied with.

Investment Process:  Combine Qualitative Analysis with Quantitative Criteria

Qualitative Analysis: Research corporate governance, management, company filings and recent presentations, conflicts of interest, company financial results, and current market value, market capitalization, and comparison of those metrics against industry competitors and the overall market.  Understand the strategic competitive advantages of the company which allow it to have a strong and improving profitability profile.

Analyze past, present, and future operations of the prospective candidates, with emphasis on growth opportunities, the cash generation capabilities, and the capital intensity of the business.  Focus on owning high quality assets including advantaged real estate and reinvestment for future margin improvement.

Understand the changes taking place in the business and how it is improving (regressing/stagnating).

Quantitative Analysis: Thorough understanding the finances of the company, including balance-sheet metrics like number of shares outstanding, different classes of stock, cash levels, debt levels, debt maturities, tax assets and liabilities, contingent liabilities, lease obligations, and off-balance-sheet arrangements.  Filter companies for advantages in capital structures, tax assets, revenue size, cash flow status, and know the operating performance of a company, including important metrics like gross margin, operating margin, net margin, return on equity, return on assets, turnover ratios, inventory, and accounts-receivable ratios. Understand the current economic environment and its effect on the company.  

Sectors Where Y H & C Investments Owns Positions In Small & Microcap Companies

Foreign Exchange Provider

Enterprise and Financial Instrument Liquidation/Financing 

Regional Gaming

Automotive Warranties and Back Office Provider of Financial Services/ Accounting/Nursing/Leisure Industries

Corporate Communications and Compliance for Private and Public companies

Digital Solutions for Large Enterprises in the Retail, Sports, Quick Service Restaurants, and Automotive Industries

Land and Agriculture Owner with Water Rights and Credits

Digital Solutions and Software for Utility Industry

Agricultural Industry Equipment Calibration

Local Regional Banks

Pipeline of Candidates for Potential Investment

Track and/or invest minimally in selected companies filtered based on size and quality.  Candidates approach the threshold for building larger positions.

Fee Structure and Account Information-

Separately Managed Accounts

1% of Capital Contribution with flexible terms- request longer duration commitment

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