Dec 5, 2019 – Written by Thomas Linzmeier, founder Access Vietnam Group, LLC
#1 Calumet Specialty Products (CLMT)* $3.06
Regular readers know this story well from previous posts. Calumet is an unappreciated success story in an amazing three year turn around at a $3.5 billion revenue company. CLMT now has $150 million in positive cash flow and a 50% debt reduction over the three years. This should be the final opportunity to buy under $4.00 – maybe $5.00. Management bonus incentives are awarded if management 1) gets the share price to $16.00 and 2) reinstates the dividend. Dividend reinstatement could happen in 2020. All aboard for a great return in 2020 for Calumet. Projected P/E ratio for 2020 is 8.2. A refinery in Great Falls Montana has been identified by management as an asset sale that could cut remaining debt in half. There is no hurry to sell as the asset is generating a very acceptable level of positive cash flow. From the tone of management in conference calls, I am guessing the sale will come in 2020. Big upside potential here.
#2 Sprott Inc (SPOXF)* $2.25
Sprott Inc is little known asset management company, led By Eric Sprott, a top ten wealthiest person in Canada, who made his money in precious metals and is totally focused on investing in precious metals. The risk is obvious here. If precious metals fall out of favor, the fund will have redemptions and fall in price. On the positive side, if we are in the early stages of a multi-year move upwards in precious metals, this could be very hot AUM (assets under management) grower. Precious metals have the wind at their back, fundamental and technical performance is strong. The catalyst for a price pop in 2020 is a merger that increases the assets under management that is immediately accretive. This deal is expected to close in January, 2020. In addition, there seems to be a global asset shift towards owning precious metals with precious metal bullion prices rising.
Website: https://www.sprott.com/
Sprott has Assets Under Management (AUM) of about US$9 Billion. The accretive acquisition will add about US$2 billion in additional assets in January.
With $11 Billion under management Sprott is not a small company and when considering the size of the precious metal markets served. With Eric Sprott at the helm, Sprott Inc would be considered an industry leader.
Financial Overview (3 months ending Sept 30, 2019) presented in Canadian dollars
- Assets Under Management (“AUM”) were $11.3 billion as at September 30, 2019, up $0.7 billion (6%) from June 30, 2019
- Total net revenues (net of commission expenses, trailer fees and sub-advisor fees, carried interest and performance fee payouts) were $23.2 million, reflecting an increase of $7.7 million (50%) from the quarter ended September 30, 2018.
- Total expenses (excluding commission expenses, trailer fees and sub-advisor fees, carried interest and performance fee payouts) were $15.5 million, reflecting an increase of $2.1 million (15%) from the quarter ended September 30, 2018.
- Net income was $5.7 million ($0.02 per share), reflecting an increase of $3.7 million from the quarter ended September 30, 2018.
- Adjusted Base EBITDA was $10.0 million ($0.04 per share), an increase of $0.3 million (4%) from the quarter ended September 30, 2018 Source November 8, 2019 announcement by Sprott.
#3 ECA (Encana) $4.07
Encana is a Canadian energy company outperforming its expectations yet cannot get respect. With the shares trading under 10 times forward earnings and cash flow expected to be strong in the fourth quarter, we would expect a snapback rally into January. The company recently bought back $1.2 billion dollars of stock in the open market.
- Broker price target is $6.94
- Annual revenue is $7.4 Billion
- Earnings projected for 2021 are $0.59 for a forward PE of about 6.9
- Ten times earnings would give you a target of $5.90
- Seems to be some short covering going on in the current market.
Source: Finviz
From a Recent Earnings Report:
- As of Sep 30, Encana had cash and cash equivalents of $138 million, and long-term debt of more than $7 billion. Its debt-to-capitalization ratio was 49.8%.
- In the quarter under review, the company completed repurchasing 196.7 million common shares at an average price of $6.35 per share. Investment in the program totaled, $1,250 million
- NOTE: The company is expected to generate significant free cash flow in the fourth quarter.
- Encana delivered operating earnings of 15 cents per share, outperforming the Zacks Consensus Estimate of 14 cents.
- delivered operating earnings of 15 cents per share, outperforming the Zacks Consensus Estimate of 14 cents.
* An account related to LOTM holds a position in this security. Neither LOTM nor Tom Linzmeier is a Registered Investment Advisor.
Please refer to our web site for full disclosure at www.LivingOffTheMarket
ZTA Capital Group, Inc.
Attn: Thomas Linzmeier
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