PDH - Premier Diversified Holdings Inc.

[rkbabang]

This really sucks -- a typical 'sunk cost' that went too long. Have to learn to walk and be independent before shooting for the stars.

 

To me, it doesn't sound like a sunk cost that went too long. From what Sanjeev said, it sounds like there was a reasonable chance of success right up until a few weeks ago. The way I see things--that is, assuming none of the people involved is clairvoyant--it sounds like it was shut down at exactly the right time.

 

Yes, It may have seemed like a reasonable bet to make, but benchmark has a point that a much larger well capitalized company could have more safely made such a bet. And could have even afforded to give it a few more years to play out.

 

[shalab]

What happens next to corner capital market hedge fund? I thought it was heavily into PDH. From yahoo finance, the market cap of PDH is now 9 MM, if the book value is going to go down to 2.5 MM, it could fall a lot still?

 

This really sucks -- a typical 'sunk cost' that went too long. Have to learn to walk and be independent before shooting for the stars.

 

To me, it doesn't sound like a sunk cost that went too long. From what Sanjeev said, it sounds like there was a reasonable chance of success right up until a few weeks ago. The way I see things--that is, assuming none of the people involved is clairvoyant--it sounds like it was shut down at exactly the right time.

 

Yes, It may have seemed like a reasonable bet to make, but benchmark has a point that a much larger well capitalized company could have more safely made such a bet. And could have even afforded to give it a few more years to play out.

[Parsad]

What happens next to corner capital market hedge fund? I thought it was heavily into PDH. From yahoo finance, the market cap of PDH is now 9 MM, if the book value is going to go down to 2.5 MM, it could fall a lot still?

 

This really sucks -- a typical 'sunk cost' that went too long. Have to learn to walk and be independent before shooting for the stars.

 

To me, it doesn't sound like a sunk cost that went too long. From what Sanjeev said, it sounds like there was a reasonable chance of success right up until a few weeks ago. The way I see things--that is, assuming none of the people involved is clairvoyant--it sounds like it was shut down at exactly the right time.

 

Yes, It may have seemed like a reasonable bet to make, but benchmark has a point that a much larger well capitalized company could have more safely made such a bet. And could have even afforded to give it a few more years to play out.

 

Clinic, stake in goevisit, real estate investments, cash and other investments...worth over $9M on their own...even if equity falls.  Clinic, goevisit, real estate are all carried at cost...not what their current value is. 

 

Hedge fund is actually in really good shape...PDH was down alot in 2017, but non-PDH assets climbed more than drop in PDH. 

 

Can't really say more than that...you'll have to read PDH annual letter at the end of the month and MPIC annual report when it shows up on CMC website in September/October.  Cheers! 

[netnet]

Of course the liquidation and the stock price declines are painful, but at this point you are paying about the estimated book for the business, with no growth factored in; plus I might add you get Parsad for free, as it were.

 

You have the business value there in front of you with the bad news out and already priced in.

[Junto]

Of course the liquidation and the stock price declines are painful, but at this point you are paying about the estimated book for the business, with no growth factored in; plus I might add you get Parsad for free, as it were.

 

You have the business value there in front of you with the bad news out and already priced in.

 

I think you are living in a bubble. Look at the fundamentals. This is not even close to "already priced in" for valuation. For value investors, many of you are forgetting basic balance sheet and cash flow analysis.

[tombgrt]

Correct Junto. I'm surprised this is still trading where it is.

 

Halo and bandwagon effect are a b*tch. Learn from it and move on.

 

 

plus I might add you get Parsad for free, as it were.

 

 

Honest question: Would you say this has been a net positive or net negative for the company and its investors?

 

And doesn't he get paid?  ???

[netnet]

Of course the liquidation and the stock price declines are painful, but at this point you are paying about the estimated book for the business, with no growth factored in; plus I might add you get Parsad for free, as it were.

 

You have the business value there in front of you with the bad news out and already priced in.

 

I think you are living in a bubble. Look at the fundamentals. This is not even close to "already priced in" for valuation. For value investors, many of you are forgetting basic balance sheet and cash flow analysis.

Balance sheet analysis is only the beginning not the end of valuation, so the question is whether assets carried at cost are worth more than that.  I personally believe Parsad when he says:

Clinic, stake in goevisit, real estate investments, cash and other investments...worth over $9M on their own...even if equity falls.  Clinic, goevisit, real estate are all carried at cost...not what their current value is.

 

I'm not an investor, as I only buy pure jockey stocks after one complete cycle, one failure, and multiple outstanding successes, unless the business fundamentals are overwhelming positive, in which case it is not a pure jockey stock.

 

[KFRCanuk]

We will continue to focus on the clinic business, goevisit.com and real estate which are all doing wonderfully, and we'll work hard to recoup these losses over the next few years!  Cheers!

 

I'm Canadian and signed up for goevisit.com . I don't have a need for it today (I'm not sick) but at somepoint I will try it out.

[Spekulatius]

The problem with PDH is that the capital  ase and the potential returns from it are way too small to carry the current overhead. The loss in Sequant makes this problem much worse.

 

Shareholders look at continued losses and dilution here.

[compoundinglife]

It will be fun to look back on this many years from now.

 

Will we look like geniuses for getting in at the ground floor with a budding unknown operator/allocator who made us a truckload of money?

 

Will we look like idiots because we invested in some rando on the internet with a website that has berkshire and fairfax in the name?

 

 

 

 

[compoundinglife]

It was not an easy decision, but we spent the last three months in due diligence with an offer for $2M in the holding company and $50M in the ILS portfolio.  We were so close...but right before Christmas, this very well known firm decided to pull out.  So at last Thursday's Sequant board meeting, it was decided to put it into liquidation after exhausting all of our contacts.  We will have more details in the annual letter at the end of the month.

 

Look forward to reading the annual letter. One of the main questions I have is given all insurance industry connections between you, Guy, American Safety Re, Fairfax etc... Why was it so hard to find an institutional partner? Was there a critical gap in the idea behind Sequant? ILS and CAT bonds appear to still be in their infancy, were you too early in the market?

 

I did not know anything about ILS before Sequant so curious to learn what the mistakes were.

 

 

[wescobrk]

What was the total loss on sequant?

[OracleofCarolina]

What was the total loss on sequant?

 

This is form the press release,

 

As a result of the liquidation of SRHL, the Company will write down the carrying value of the Investment in Associate in the amount of approximately $2,500,000 to $nil as of September 30, 2017.

[redhots]

I think their cost is closer to $5M CDN.  Not sure why the writedown is different.

[ourkid8]

http://thecse.com/sites/default/files/PDH_-_2017_Letter_to_Shareholders_0.pdf

http://thecse.com/sites/default/files/Premier_-_MDA_YE17_-_FINAL.PDF

 

[warrior]

That was a huge loss as a for start-up  busseness. Im not sure what was the rational  to bet that much on Sequant re and keep adding into it...

"In order to succeed you must first survive" and avoid ruin.

Sanjeev, I  do wish you luck.

[benchmark]

http://thecse.com/sites/default/files/PDH_-_2017_Letter_to_Shareholders_0.pdf

http://thecse.com/sites/default/files/Premier_-_MDA_YE17_-_FINAL.PDF

 

Seems that PDH has a tendency to be a VC (Sequent Re, MyCare), which usually fail. Let's get back to invest in business that solid track records of making money :(

[ourkid8]

I am fine with MyCare because Sanjeev seems to have learned his lesson with SequantRe, it is relatively small and related to PDC.  Sanjeev, would you please provide growth details on MyCare along with those growth targets? 

 

PDC seems to be firing on all cylinders, which is great! This business comes with sexy gross margins!

 

"After learning our lesson with Sequant, we told MyCare earlier in 2017 that they will have to find outside funding

going forward, or be self-financing, as we have completed our financing commitment. Recently, they signed a

$2.5M outside financing, at a $8M valuation for MyCare. The financing comes with some tight targets and

deadlines for MyCare, including a liquidity event in 2019. Expectations are high for MyCare! "

 

 

http://thecse.com/sites/default/files/PDH_-_2017_Letter_to_Shareholders_0.pdf

http://thecse.com/sites/default/files/Premier_-_MDA_YE17_-_FINAL.PDF

 

Seems that PDH has a tendency to be a VC (Sequent Re, MyCare), which usually fail. Let's get back to invest in business that solid track records of making money :(

[benchmark]

I am fine with MyCare because Sanjeev seems to have learned his lesson with SequantRe, it is relatively small and related to PDC.  Sanjeev, would you please provide growth details on MyCare along with those growth targets? 

 

PDC is also showing significant growth which is great with sexy gross margins!

 

"After learning our lesson with Sequant, we told MyCare earlier in 2017 that they will have to find outside funding

going forward, or be self-financing, as we have completed our financing commitment. Recently, they signed a

$2.5M outside financing, at a $8M valuation for MyCare. The financing comes with some tight targets and

deadlines for MyCare, including a liquidity event in 2019. Expectations are high for MyCare! "

 

 

http://thecse.com/sites/default/files/PDH_-_2017_Letter_to_Shareholders_0.pdf

http://thecse.com/sites/default/files/Premier_-_MDA_YE17_-_FINAL.PDF

 

Seems that PDH has a tendency to be a VC (Sequent Re, MyCare), which usually fail. Let's get back to invest in business that solid track records of making money :(

 

I'm glad that Sanjeev learned his lesson and stopped funding MyCare. I'm curious about what Sanjeev's thought process on investing in Sequant and MyCare (or maybe there are numbers that we don't know about these businesses) -- as I assume he surely knows that most VC funded venture fails.

[ourkid8]

I wanted to perform a sum of parts analysis on PDH based on the data Sanjeev provided.  We are looking at a value of ~$4M without factoring in PDC however there is a substantial burn rate.  At the current market cap of ~$6.5M, it looks to be fair/slightly under valued unless PDC is worth substantially more than $2.5M

 

-Cash and equivalent $566,695

-MyCare investment - $2,400,000 (Valuation based on outside financing)

-Russell - $381,400 (This is already distributed as cash so i'll value it at $0)

-Bentley - $425,625 (Roughly ~13.5% increase in value based on the comps Sanjeev provided)

-Arcola - $620,000 (Roughly ~31% increase in value based on the comps Sanjeev provided)

-PDC - Anyone have any idea how to value this business? It does ~$1.3M in revenue which grew @ 23% and has a gross margin of 69.2%

-Recovery of assets from China operations, $100-$200k at a minimum? MRI equipment is not cheap...

 

Feedback? 

[wabuffo]

Recovery of assets from China operations, $100-$200k at a minimum? MRI equipment is not cheap...

 

Aren't the China assets a zero?

Subsequent to September 30, 2017, the Company entered into a sale agreement ... with a director of the Company’s Chinese Entities to sell those entities to the director. Pursuant to the Agreement, the Company will transfer all the assets and liabilities of Premier Diagnostic (Hong Kong) Ltd., and Premier Diagnostic (China) Corporation (the “Disposal Group”) to the director, for $nil proceeds

 

wabuffo

[ourkid8]

Sanjeev's letter to shareholders:

 

In 2017 we began efforts to sell the China operations. These discussions continue and are inherently long in nature,

so we have decided to take the conservative route and write-down the China operations at this time. Any recovery

of assets will be treated as a gain in subsequent quarters.

 

Recovery of assets from China operations, $100-$200k at a minimum? MRI equipment is not cheap...

 

Aren't the China assets a zero?

Subsequent to September 30, 2017, the Company entered into a sale agreement ... with a director of the Company’s Chinese Entities to sell those entities to the director. Pursuant to the Agreement, the Company will transfer all the assets and liabilities of Premier Diagnostic (Hong Kong) Ltd., and Premier Diagnostic (China) Corporation (the “Disposal Group”) to the director, for $nil proceeds

 

wabuffo

[benchmark]

I wanted to perform a sum of parts analysis on PDH based on the data Sanjeev provided.  We are looking at a value of ~$4M without factoring in PDC however there is a substantial burn rate.  At the current market cap of ~$6.5M, it looks to be fair/slightly under valued unless PDC is worth substantially more than $2.5M

 

-Cash and equivalent $566,695

-MyCare investment - $2,400,000 (Valuation based on outside financing)

-Russell - $381,400 (This is already distributed as cash so i'll value it at $0)

-Bentley - $425,625 (Roughly ~13.5% increase in value based on the comps Sanjeev provided)

-Arcola - $620,000 (Roughly ~31% increase in value based on the comps Sanjeev provided)

-PDC - Anyone have any idea how to value this business? It does ~$1.3M in revenue which grew @ 23% and has a gross margin of 69.2%

-Recovery of assets from China operations, $100-$200k at a minimum? MRI equipment is not cheap...

 

Feedback?

 

Without numbers on MyCare, it's hard to know if 2.4M is the right number. Usually VC numbers should be discounted unfortunately :(

[wabuffo]

I dunno - the disclosure in the audited statements seems pretty clear but what do I know. 

 

In Note 19, it says that all of the assets of Premier Diagnostic (China) Corp (a/k/a - Premier International Medical Equipment Technology Services Ltd.) were sold for nil.  This subsidiary appears to be 100% owned by Premier Hong Kong Ltd.

 

This was after the date of the financial statements.  I saw the comment in the letter but I have to say the letter is confusing vs the financial disclosures.

 

In addition, it appears the assets of the other two Chinese subsidiaries - Premier Investment Hong Kong and Premier Investment Shanghai were not part of the deal.  Still the main asset of these two subs (Hong Kong owns 100% of Shanghai) was a net cash balance which was also written off.

 

I'm not sure - your guess is as good as mine.

 

wabuffo

[Ballinvarosig Investors]

I wanted to perform a sum of parts analysis on PDH based on the data Sanjeev provided.  We are looking at a value of ~$4M without factoring in PDC however there is a substantial burn rate.  At the current market cap of ~$6.5M, it looks to be fair/slightly under valued unless PDC is worth substantially more than $2.5M

 

-Cash and equivalent $566,695

-MyCare investment - $2,400,000 (Valuation based on outside financing)

-Russell - $381,400 (This is already distributed as cash so i'll value it at $0)

-Bentley - $425,625 (Roughly ~13.5% increase in value based on the comps Sanjeev provided)

-Arcola - $620,000 (Roughly ~31% increase in value based on the comps Sanjeev provided)

-PDC - Anyone have any idea how to value this business? It does ~$1.3M in revenue which grew @ 23% and has a gross margin of 69.2%

-Recovery of assets from China operations, $100-$200k at a minimum? MRI equipment is not cheap...

 

Feedback?

Your cash balance estimate is wrong as it doesn't include the distribution of $0.035 from the second distribution from the Russell Brewery liquidation. I estimate that the cash on hand is almost $1.1m on the dot, that is before cash burn from continuing operations.

 

I think that while shareholders have too little information to value Bentley and Arcola, my guess is that your valuations also looks too low. For example, PDH holds a 40.5% interest in Bentley which they paid $375k for. They intend on developing 4 properties which Parsad says could sell for $800 a sq/ft. If they are developing 4,500 sq ft worth of property (which seems reasonable for 4 bi duplex properties), then that is gross proceeds of $3.6m, or $1.46m for PDH's 40.5% share. I am purely guessing here, but I reckon the initial money raised for Bentley paid for the site, and that they would need the same amount again in financing to bring the project to completion. That would give us $1.46m in gross receipts, minus $375k for the site, minus $375k for development. That would give PDH a profit before taxes of $760k or so, This seems reasonable to me given how much Canadian property has run up since the initial purchase. My feeling is that the same holds true for Arcola.

 

The only other thing I would question is whether the liquidation of the Chinese business and Sequant will yield nothing. Surely there is something left there?

 

I said a few weeks ago, I don't see how PDH can continue as a viable entity with their current rate of equity and cash burn. I don't really see anything to change that. In fact, I wouldn't be surprised if PDH aren't actively considering, or putting their remaining assets on the market with a view to liquidating.