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LD Micro Small-Cap Activity: Highlights and Anomalies in the Fourth Week of July

From Chris Lahiji comes a new summary of the LD Micro newsletter covering microcap activity during the fourth week of July (July 22-29). The newsletter briefly speaks about private company Lahiji Fishing Services, headquartered in Del Mar, which is expected to make its debut presentation at the LD Micro 2018 Invitational in December. The company will “offset the loss of West Marine (WMAR) last year to private equity firm Monomoy Capital,” Lahiji says.

The newsletter also underlines that the Dow Jones Industrial Average had a good week, while the LD Micro Index, Nasdaq and Russell 2000 all suffered drops of over two percent.

As in previous weeks, a dedicated section is featured, highlighting the most notable anomalies among the biggest gainers and volume leaders. This section was put together by researcher Christian Galatti of Phase 4Research.

  • The Importance of Valuation for Bridgepoint Education (BPI) – Earnings Beat Allows Enterprise Value to Drive the Stock.

Education services company Bridgepoint Education, Inc. went up 64 percent for the week, but remains under 1x Sales due to the stigma associated with the for-profit education sector after a steady downward path in the absence of government stimulus for growth. The company offers campus and online postsecondary programs through two universities, Ashford University and University of the Rockies.

According to Q2 results, Bridgepoint Education had $191 million in cash, cash equivalents and restricted cash at the end of June 2018. The company reported revenue of $120.8 million in Q2 and no long-term debt, leading to an enterprise value of $140 million or .3x EV-to-sales with a market cap of $335 million. With this earnings beat, there was an immediate stock reaction to the deep value proposition, according to Galatti. “Rather than being EPS driven, BPI is now enterprise value driven. Sometimes valuation matters.

  • Dover Downs Merges with Twin River Holdings (DDE) – A Reverse Shell Merge is Dead On.

On July 22, gaming and entertainment company Dover Downs Gaming & Entertainment, Inc. announced a definitive merge agreement with private company Twin River Worldwide Holdings, Inc., owner and manager of several casinos. Under the agreement, Dover Downs stockholders will exchange DDE stock for Twin River common shares representing 7.225 percent of the combined company’s equity at closing. The transaction will transform Twin River into a public company, with strategically placed gaming and entertainment holdings throughout the U.S.

Following the announcement, Dover Downs rose 45 percent. Peers like Pinnacle Entertainment Inc. (PNK), Penn National Gaming Inc. (PENN) and Boyd Gaming Corporation (BYD) are trading at near 20x earnings and Dover Downs should do the same. Placing the Twin River stock price at about $130 (20 x $6.5 EPS), it’s obvious the market tried to figure out the equity arbitrage, Galatti notes.

Galatti also underlines that the 45 percent move was dead on, when taking into consideration the .0225 ratio of DDE per Twin River stock, as the calculation comes out exactly at the same value the stock closed on Friday, July 20th, before the merger announcement – $2.92.

 And here are some of the newsletter’s links to other key announcements:

Farmland Partners ($FPI) Files Lawsuit Against Rota Fortunae and Co-Conspirators for “Short and Distort” Attack

Micron Waste ($MWM.CN) Announces Cannabis Industry Expert Judges for Cannabis Waste Digester Naming Contest – there are over 1,600 entries from Canada and the United States

Liberty Tax lost chairman and founder, numerous board members, and yet one resigning board member will remain on as CEO – company also risks losing NASDAQ listing after failing to file Annual Report on Form 10-K for the fiscal year ended April 30, 2018

SEC Charges Failed Fyre Festival Founder and Others With $27.4 Million Offering Fraud – over 100 investors have been affected

AGT Food and Ingredients ($AGT.TO) Announces Receipt of a Proposal to Effect a Management Buyout

TRT Holdings, Inc. Exploring Possible Sale Of Gold’s Gym – the iconic fitness brand has more than 700 locations serving three million people across six continents

Eventbrite Files Confidentially for IPO

Disney and Fox shareholders approve blockbuster $71-billion deal

$TZOO was down big on Q2 results – despite reported rise in revenue year-over-year

CV Sciences, Inc. ($CVSI) Pre-Announces Record Second Quarter 2018 Sales – company expects to report sales of $12.3 million, up 203% from the same quarter in 2017

DHX Media ($DHXM) Closes Sale to Sony of Minority Stake in Peanuts – has indirectly purchased 49% of DHX Media’s 80% interest in Peanuts for C$235.6 million in cash

AudioCodes ($AUDC) Reports Second Quarter 2018 Results – quarterly GAAP net income was $2.4 million, or $0.08 per diluted share

PCM ($PCMI) rose on Q2 results – raises gross margin and non-GAAP earnings guidance

RMS Medical ($REPR) Pre-Announces Strong Quarterly Sales Growth and Change in Leadership – quarterly net sales increased 17.6%

JAKKS Pacific ($JAKK) Reports Second Quarter 2018 Financial Results – net loss of $18.6m

Twitter ($TWTR) plummeted after reporting a decline in monthly active users, despite big growth in EBITDA

For more information on LD Micro, visit www.LDMicro.com

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