valueyoda

Hate to say it, but it turned out to be an unmitigated disaster for current shareholders.

It will be very hard for SYTE to overcome the SG&A burden as a small company with limited prospects of revenue growth. Therefore, a substantial price re-evaluation of the stock will be unlikely. It is even more likely that the stock will trade at a discount to adjusted book value going forward with the current problems facing the company. Also unsure whether this stock can absorb any large selling by large holders. Especially since we are getting closer toward the end of the economic cycle and with current market valuations, large upside from stakes in associated funds seems less likely.

It sounds bad. Let's hope they can get the company back on track.

Absolutely, the balance sheet margin of safety was gone with the buyout of Saraf, so then it became a bet on the underlying business, and we never felt comfortable enough that the company in its current form would or could produce sustainable profits. I don't envy Tim, who has been dealt a tough hand despite his good efforts, in this situation.

The fund managers are highly competent, but the SG&A at SYTE for running a public company and the relatively small size of the funds will make growing its book value or sum-of-the-parts valuation over time highly difficult. Plus the share price had already risen far beyond a fair valuation for the company before all of this chaos unfolded. It is hard to see a fair value beyond $5 for the stock (even if you don't take huge writedown hits on the real estate; the internet business is a melting ice-cube that deserves an extremely low multiple; the value of off balance sheet fund rev. sharing agreements are fairly insignificant at this point). The huge premium of the stock above that $5 is essentially the call option premium that investors are willing to pay for value growth beyond the status quo with regard to AUM and performance fees with both funds and optionality that management will add value in new areas in the future. Running a successful holding company structure is very difficult when you are the size of SYTE. In my experience, it tends to work better when the size of the holding company gets above $75mln, because your fixed expenses relative to the size of the company and investments are more manageable. I wouldn't be amazed if the stock would trade below adjusted book value in the future once a true reset kicks in.

It is hard to grow a hedge fund beyond a certain size (e.g. $50mln) nowadays. Smaller hedge funds can be lucrative for their operators when they keep costs down and perform well. However, it is hard for these revenue sharing agreements to add substantial value to SYTE beyond the ongoing operating expenses, especially if both funds' sizes remain moderately small or if these funds have a period of below average performance.

Thanks. Yes, I did my assumptions before knowing all the facts. Easy to do so when you have no position haha. I still fail to see how with the revenue sharing agreements based on those AUMs and normalized returns really adds substantial value, unless AUM really grow substantially or if they would continue to perform well. Hedge fund partnership interests are notoriously undervalued by the market due to the erratic nature of the performance fee cash flows.

What is the AUM of the Alluvial Fund and Bonhoeffer fund? At least, then we can make some assumptions what those revenue streams could be worth.

RRGB after hours. This restaurant chain trades at extremely low EV/EBITDA ratio and normalized owner's earnings. The company needs a good operator to dial back its aggressive restaurant opening schedule and to focus on improving its menu and restaurant image. The chain is not broken beyond repair, but has disappointed now so many quarters that I would be amazed if the company doesn't get bought by PE.

As much as I distrust Biglari, the discount really starts to become appealing. Biglari needs to sell Maxim as soon as possible and find a great operator for SNS. It is kinda ironic that Biglari blasted Cracker Barrel for operating inefficiently and poor capital allocation, while CBRL almost hits all time highs in both stock price and operating performance and SNS is hitting its worst performance on a restaurant basis in many years.

The premium placed on the entire holding company was in my opinion unsustainable, and the decline so far has only put a dent into this premium valuation. Even being generous when it comes to the asset management business, I still think that the stock should trade at a discount to book (and the question now becomes how overstated book value is).

Hey Tim. I agree with most of your points. But what is the bull case at this price?

The current price still looks extremely expensive too me, given the likely writedowns on the real estate portfolio, the discount that should be placed on corporate governance issues and the ongoing volatile nature of cash flows from the asset management division. How do some of the bulls value this company now given these headwinds? I can't put more than a $5 valuation on the company if I am generous.

I don't get it why you are interested in the warrants at this point, when you can replace the warrants with Leaps for a far lower price (even when you take into account a strike price reduction due to excess dividends). The LEAPS are getting interesting though, even though AIG's operational performance has been poor for years now.

implied vol on the 180-200 May puts is too high in my opinion, offering a very appealing short term income opportunity.