Reminiscences of a Stockblogger

Research: Big 5 Sporting Goods

I have been surprised that Big 5 has not performed better.  One reasonable bear case I can think of is that this year will be a flash in the pan.  I looked back at the historical results to see how Big 5 has performed over the last 10 years.

Highlights from Q2:

Q220 result highlights:

• SSS increased 31.9% in July
• at end of July had no debt and $38mm cash position
• in Q220 they had SSS decrease 4.2% yoy
• in second half of Q2 SSS increased 15.5%
• they had much higher GMs, up to 31.7% from 30.3% yoy – due to product mix favoring high margin categories, less promotional activity
• also they have reduced costs, and reduced warehousing
• SG&A was lower because of “lower employee labor expense reflecting reduced store operating hours and lower advertising expense during the period”
• they are guiding for 5% to 15% SSS increase through the rest of Q320 – would mean 14% to 20% SSS for Q3 as a whole
• EPS for the quarter would be $1-$1.30 per share
• still have 431 stores in operation
• they had opened all closed stores by May

HIBB Comp:

Research: YRC Worldwide

• this is from a Stifel note
• they started YRCW at hold, $5 target

we don’t expect much focus on a company employing union workers in an election year that is going to be usingthe money to buy equipment from U.S. manufacturers.

• YRC has oldest fleet in the industry
• new trucks will save $20k per year in opex
• if they spent $400mm on new tractors, run rate EBITDA would improve $60mm by YE 2021
• even a 5-year old truck would be newer than their fleet right now
• when you add the $700mm from the gov’t onto existing debt total debt is $1.57b by YE 2021
• the EBITDA increase from the new equipment isn’t likely to be beyond $60mm IMO – in the YRC Q2 call they said:

our maintenance expense for a 1-year unit is somewhere in the $1,000 to $2,000 range. Obviously, a full powertrain warranty. And you might ask why $1,000 to $2,000, well you’ve got few — I mean, you’ve got brakes, you’ve got antifreeze, you’ve got oil. You got everything that goes with the daily maintenance of that unit. And then you go out to 5, 6, 7, 8, 9, 10 years, you get in into a number that is probably closer to $11,000, $12,000. So we can easily clip a 10,000, maybe a little bit more coupon per tractor on maintenance expense alone and does nothing to take into consideration what we can get on miles per gallon and fuel efficiency.

• so really, you’ve got a market cap of $170mm and a 2021 EV of $1.74b – even at $300mm EBITDA you are at almost 6x EV/EBITDA
• when I look at an ArcBest they are cheaper than that (~4x EV/EBITDA) and a better company.  The idea that YRC should trade at any premium to the average trucking name is kinda crazy
• its been a nice run but really this was just about getting a ramp from the short interest and the government bailout.  It is probably time to get out

Research: Artemis Gold

Artemis Gold

• at $4.65 has a $569mm market cap – 122.5mm shares
• cash balance of $58mm as of Aug 24/20
• these guys were spun out of Atlantic Gold
• they just bought the Blackwater project from NewGold – closed today
• payment is:
  •  $140mm
  • 7.407mm shares at $2.70
  • cash payment of $50mm after one year
  • secured gold streaming participation for New Gold – 8% of production at 35% of the gold price until 279,908 ounces, then reduces to 4% – so that’s like after 3.5Moz produced
• they completed an offering of 64.8mm shares at $2.70
• they announced the PP back in June, also announced Blackwater acquisition in June
• this was the result of the 2014 feasibility study on Blackwater:

at US $1,300 per ounce gold, US $22 per ounce silver and a 0.95 US$/C$ foreign exchange rate, or CAD$1,368/oz equivalent (compared to current consensus of over CAD $1,900/oz. equivalent and current spot of approximately CAD $2,300/oz. equivalent), Blackwater had a pre-tax 5% NPV of $1,044 million, an IRR of 11.3% and a payback period of 6.2 years

• IRR of 11.3% isn’t much to write home about at $1,300 gold
• 8.2 Moz reserves, so-so grade of 0.95g/t
• there is another royalty to First Nations, not sure how much
• expected to have 17y mine life
• construction of 2 years – cost of $129mm
• located 160km SW of Prince George
• I haven’t read all the background but it doesn’t look like this project was smooth sailing the last few years, probably b/c of economics
• New Gold recorded a $218mm impairment in 2019
• in the New Gold 2020 guidance they were hardly spending anything on exploration at Blackwater – $2mm of exploration
• before buying Blackwater they had some copper-porphyry project and a 39% interest in a company called Velocity Minerals
• this doesn’t seem that cheap to me – $569mm market cap is $70/oz which is fine I guess, but NG only had an EV of ~$1.5b for everything at the time they sold it, and New Gold sold it for $190mm but this stock is nearly triple that

Research – Supremex

Supremex

• market cap of $31mm at $1.12
• they have $100mm of net debt
• in Q220 had earnings of 7c, EBITDA of $6.9mm, revenue of $47.7mm
• revenue was flat yoy, envelope revenue was down 3.5%
• net cash flow from ops was $10.7mm, up from $5mm yoy
• they get $22mm of revenue from Canadian envelope segment, $10.6mm from US envelope segment
• EBITDA was $14.6mm from H1 – so that is $30mm of EBITDA on a $130mm EV
• leading manufacturer of envelopes and paper packaging
• operate 13 facilities across 6 provinces in Canada, 3 facilities in US
• manufactures stock and custom envelopes
• corrugated boxes, folding carton packaging, e-comm fulfillment solutions
• also these products: Conformer Products®1, polyethylene bags for courier applications, bubble mailers, Enviro-logiX®2and Tyvek®3and other related products such as RFID protective envelopes, X-ray envelopes, medical and file folders, repositionable notes, membership cards as well as labelling products
• Q220 results
• they have been developing new e-comm relationships
• extracting synergies from Royal Envelope acquisition
• they bought Royal Envelope for $27mm – had $30mm of revenue
•                 margins roughly the same as SXP – from Q120 call
• if I assume Royal had 15% EBITDA margins like SXP they would have bought it at 6x EBITDA – not exactly a steal if this is the case
• they are planning to use Royal capacity to expand US business
• said they can increase production 10-15% now without any more bodies
• their envelope segment revenue is declining
•                 down 4.7% yoy in Canada
•                 down 1% yoy in US
• revenue from packaging and specialty products has been up – 8.9% yoy
• 54% of revenue came from packaging in Q220
• I’m guessing that the stock tanked because of comments like this, though it seems like they’ve righted the ship and the stock is still down:

We announced with Q1 results that in April, we were experiencing a revenue decline of approximately 20% on the legacy business and 6%, including Royal Envelope. Fortunately, between the combination of continued onboarding of e-commerce wins and a general improvement in market conditions starting in mid-May and into June, we were able to finish the quarter at essentially flat for the corresponding quarter in 2019.

• it lines up with the chart – stock was doing pretty well until May 14 when it tanked on earnings and then kept going
• when you go back and look at last 10 years, it doesn’t really look like a melting icecube as a whole though the envelope side obviously is

• they have been using acquisitions to grow/maintain the top line, so there’s that
• even with the underlying envelope business shrinking, the fcf is still reasonably strong and this year’s FCF before WC is setting up to be $20mm+
• EBITDA seems to have stabilized and it looks on track to be higher yoy even with the pnademic
• so again, it may not be a growth business, but it isn’t a disaster and it generates a lot of cash
• there has been a couple of insider buys around the current stock level – $1.27ish
• I don’t really get why this stock is as cheap as it is TBH, the bad news from Q1 didn’t really come to pass but the stock never recovered from it
• 1.5-2x 2020e FCF (I’m not including acquisition capex) seems a little low

I bought some of this one last week.  Not expecting the world but do think it can get back to $2.