CCUR - CCUR Holdings, Inc.

[porcupine]

Pretty simple story here.

 

An activist investor has been building up his position since mid-2017 and now owns 39% of the company.

 

The company completely finished selling off off their core assets in January of this year.

 

Their current CEO and President was appointed in February of this year and has been on the board (including serving as chairman effective July, 2017) since 2016. The board and management are relatively new.

 

CCUR was delisted from NASDAQ in March of 2018.

 

On top of a real estate subsidiary that they recently established, they have been looking to deploy their cash on hand by acquisition... if no reasonably priced business is found, the company liquidates and returns money to shareholders.

 

Turn to October 2nd, 2018, they signed a letter of intent to buy 80% of a company called LuxeMark Capital. Has anybody ever heard of this company?

 

CCUR currently trades under net liquidation value... seems that the market doesn't think too highly of this potential acquisition. Shares also sold off when they were delisted from NASDAQ... the only operating business they only have right now is their real estate business.

 

[samwise]

Thanks for starting this thread porcupine. I have a position as well.

 

This is trading at 60% of NAV, which is mostly cash. It's actually below cash.

 

Why could that happen? I looked for all the usual reasons and discounted them.

 

Cash burn? No.

Hidden liabilities? No.

Fraud? Not likely. They generated the cash by selling previous businesses. This isn't a Chinese reverse merger.

 

They will sit on the cash for ages? No, they have already started investing in mortgages, have a LOI signed with an acquisition currently in due diligence. The exclusivity period should end soon, so we may get some news from them. The activists have put substantial money into this at much fuller prices. It is likely a big part of their worth, and I doubt they leave it sitting for too long.

 

They will squander the cash in bad acquisitions? This is possible, but they do have a public record going back a couple of decades which shows some skill, as far as I can make out. Happy to hear anything others have uncovered about this. In fact I think they plan to use this company and its tax losses to shield future investments from taxes. I will also discuss the proposed acquisition below.

 

Will they steal the cash? This is the biggest risk, but still unlikely in my estimation. (The people involved have colourful histories with SEC convictions, so one needs to be really going into this with eyes wide open. ) .

So why won't they steal the money? Of course one can argue that the discount is big enough to take that risk.

 

They could steal through a take under.They have been very careful to preserve the NOLs , so they can't buy the rest of it for at least a couple more years. Julian can buy a bit less than ~9.3% today, but is probably restricted until the deal closes. But I think they might want a public listing to value their business at multiples of book. Good behaviour would help with that.

 

They haven't given themselves jobs to extract value through compensation or consulting arrangements. In fact the compensation plan filed in early January is pretty good. Management gets 10% of all gains above a 5% increase in NAV per share. The stock price jumped from 3.3 to 3.75 when this was filed. So I know other people are watching this.

 

Finally the press release they issued announcing the luxemark acquisition read like an advertisement for the business and compared it to onDeck. If you read the Bloomberg article on the founder, his ambition is to make the next 100 million. I don't think he gets that by selling this business for 6 million. He might get it if the stock goes up. The MCA seems to be like payday loans:  highly yield, risky borrowers, risk of regulation. But their previous business earned 8 million on a 1 million capital, or so the article claims. A business a quarter as good as that would not be priced under book value.

 

Also worth reading:

https://www.bloomberg.com/news/features/2015-10-06/how-two-guys-lost-god-and-found-40-million

 

https://www.zerohedge.com/article/commencing-distributed-effort-outsource-secs-information-gathering-and-processing-operation

 

The crimes of the father and uncle are serious, but I couldn't find any wrongdoing since the early 90s. It's still relevant because Julian seems to have inherited his trust money and is carrying out the family investments in his own name now instead of his mom's.

 

Since the risk of stealing assets or the company is one of the biggest risks I see here, I wonder if there are signposts to watch for? They haven't gone dark yet, and have a decent compensation agreement on NAV/share. What else should I be watching?

 

[Foreign Tuffett]

So merchant cash advances might be the scuzziest industry in the US (which is really saying something).....

 

https://www.bloomberg.com/graphics/2018-confessions-of-judgment/

 

Coming out of the recession many value investors were quite bullish on NOL shells. But how many of them have actually worked out well? $RELY went bust. $ALJJ has performed poorly. Someone correct me if I'm wrong, but I don't think $WMIH has been a success either.

 

I think there are two things going on:

1) Holding company overhead drags down results

2) It's quite hard to make successful acquisitions

 

[samwise]

Foreign Tuffet,

 

Price matters.

Agreed about NOL shells. But PRLS worked out. So did CRSS after they lost their patent lawsuits. Even WMIH, if you bought when it was half current price and it wasn't clear how much KKR would modify the terms.

 

We are not paying for the NOLS. We are basically buying cash at a 40% discount. The risks at such a price are that the cash is left sitting for years (see KDUS on VIC ), its squandered on bad acquisitions (PTNT), or stolen by the person in control ( MYRX possibly, though no one knows, its dark) . Those are the risks I discussed above.

 

If you pay for the NOLS, that is a different risk, but we can ignore the NOLs.

 

So the question is really what is cash worth in the hands of Julian Singer?

The market values cash at a premium in the hands of GUD, at about fair value for AC, at a massive premium if are BOMN. Seems related to the same risks: when will the cash get invested and with what results. How bad an acquisition is Julian going to make? I doubt it's very bad. Look up the history of 13D filings of his mom Karen Singer. The zero hedge article claims they make money in small stocks. The uncle stood for election as a director and his bio is there. These are experienced investors and corporate executives with C suite experience.

 

I'm most concerned about the risks for minority shareholders. Possibly scuzzy people involved. That's why I didn't buy until early January when the compensation plan was filed. However I don't want to depend on it too much. Julian may want his managers properly motivated and compensated, but still steal from his partners (us). That's why I asked for sign posts : MYRX went dark and didn't communicate with shareholders. Any other markers you or others have seen of bad intentions?

[Foreign Tuffett]

Foreign Tuffet,

 

Price matters.

Agreed about NOL shells. But PRLS worked out. So did CRSS after they lost their patent lawsuits. Even WMIH, if you bought when it was half current price and it wasn't clear how much KKR would modify the terms.

 

We are not paying for the NOLS. We are basically buying cash at a 40% discount. The risks at such a price are that the cash is left sitting for years (see KDUS on VIC ), its squandered on bad acquisitions (PTNT), or stolen by the person in control ( MYRX possibly, though no one knows, its dark) . Those are the risks I discussed above.

 

If you pay for the NOLS, that is a different risk, but we can ignore the NOLs.

 

So the question is really what is cash worth in the hands of Julian Singer?

The market values cash at a premium in the hands of GUD, at about fair value for AC, at a massive premium if are BOMN. Seems related to the same risks: when will the cash get invested and with what results. How bad an acquisition is Julian going to make? I doubt it's very bad. Look up the history of 13D filings of his mom Karen Singer. The zero hedge article claims they make money in small stocks. The uncle stood for election as a director and his bio is there. These are experienced investors and corporate executives with C suite experience.

 

I'm most concerned about the risks for minority shareholders. Possibly scuzzy people involved. That's why I didn't buy until early January when the compensation plan was filed. However I don't want to depend on it too much. Julian may want his managers properly motivated and compensated, but still steal from his partners (us). That's why I asked for sign posts : MYRX went dark and didn't communicate with shareholders. Any other markers you or others have seen of bad intentions?

 

Let's agree to disagree about this looking like a dumpster fire type situation.

 

Moving on, how big of a discount to net cash is this trading at?

[samwise]

NAV is 54 million and market cap is 34.

 

Approximate balance sheet from September 30th is below.

 

Cash 35

Equities 5

Bonds 10

Mortgages 5

Receivable 3.5

 

Liabilities 5

 

So upto you on how you define net cash here. Just cash - liabilities, or do you add the investments,mortgages and receivable. I think all are financial assets and count them all to get a 40% discount.

 

Cash burn: cfo during the quarter was -0.126 million. So yes I don't see a dumpster fire.

 

Given the 40% discount, they don't have to make successful acquisitions like PRLS did, or like BCOR's first acquisition. They just have to make sure they don't light the money on fire or steal it from us.

 

Best case scenario is we buy under book, and eventually sell at a multiple of earnings. Sleazy pawnshops sell at multiples of their book because they make good money.

 

Worst case is the guys steal it from us.

 

As for the businesses (which they don't own yet, the deal hasn't been diligenced and finalized), look up the VIC write ups for ondeck and CRSS to see how Wall Street looks at this kind of business.

 

 

 

[porcupine]

I got out of this after the Bloomberg articles came out. Way too sketchy of a business for my liking. Nonetheless, the thesis still remains for anyone out there who can stomach the sketchiness.

[Gregmal]

Looks interesting. My only prior experience with this name was maybe 4-5 years ago when John Lebed was paid to pump this shit out of this so a large shareholder could exit. Seems at least from reading the comments that similar stuff still goes on.

[samwise]

Looks interesting. My only prior experience with this name was maybe 4-5 years ago when John Lebed was paid to pump this shit out of this so a large shareholder could exit. Seems at least from reading the comments that similar stuff still goes on.

 

Thanks for mentioning this. I've just read Mr Lebed's Wiki page and Michael Lewis profile. Fascinating stuff.

 

And yes it seems he was pumping CCUR in 2013.

 

Here is the promotion, dated June 12, 2013.

http://www2.thestockmarketwatch.com/newsletters/2013/06/12/if-you-own-ccur-at-todays-close-of-trading/

March 2013: http://www2.thestockmarketwatch.com/newsletters/2013/03/27/ccur-new-highs-coming-after-gaining-7-straight-days/

 

He notes that he is affiliated with a firm that intends to sell in the open market. The number of shares he mentions makes me think the seller was Skellig capital. Never heard about them.

 

https://www.sec.gov/Archives/edgar/data/749038/000091957413000554/d1355176_13d-a.htm

 

 

Interestingly Julian's mom and Lloyd Miller were also selling as filed with the SEC: https://www.sec.gov/Archives/edgar/data/749038/000114420413043981/v352392_sc13da.htm

 

They kept selling slowly to next February. The price seems to have stayed around 8 based by on the selling price listed. The company would have reported a few times. So there was probably some basis in that price. No pump can last that long.

 

https://www.sec.gov/Archives/edgar/data/749038/000114420414007281/v367836_sc13da.htm

 

Where do you see evidence of similar stuff still going on? I would like to monitor it and be forewarned,if possible.

 

Thanks again for the fascinating reference on Lebed.