PD-Rx Pharmaceuticals reports great FY2014 results

When I initially bought PD-Rx Pharmaceuticals a bit more than a year ago I was mainly attracted to the company because it was cheap on almost all metrics while it has a solid history of growth and profitability. The great thing about a blog is that you often have visitors that know more about the company than you do, and in the case of PD-Rx someone mentioned that a big competitor had left the business. Because of that development I expected that fiscal year 2014 would be a good one, and the company didn’t disappoint today.

Revenue was up 12% and, thanks to higher margins and operating leverage, earnings increased with a whopping 63% from $0.70/share to $1.14/share. The market didn’t ignore this, but with the stock up 52% it is – based on trailing earnings – just as cheap today as it was yesterday. The company is now trading 6.7x PE-ratio which is pretty cheap in itself even if you don’t expect any growth going forward. At the same time this ratio doesn’t give the company credit for the large, and rapidly growing, cash balance. The PE-ratio ex-cash is just 3.5x and the EV/EBIT ratio is now 2.2x. Amazing to have a stock in your portfolio that is up >150% but is still at this valuation.

PD-Rx historical financials 2014 update


Author is long PDRX

Thanks Leon Cooperman

I have exited my positions in ATLS and TRGP after Leon Cooperman appeared on CNBC to tell the world how much he liked Atlas Energy. I haven’t even watched the video above myself to be honest because I don’t give a fuck what Leon Cooperman thinks, but when the stocks pops as a result I’m happy to sell. When you compare the implied stub price of one week ago (left) with the picture today (right) you see that the market is suddenly valuing the stub a lot higher:

Change in new Atlas Energy Group stub price

I think the current implied stub price is probably not very far removed from intrinsic value. Unfortunately my gains on this trade are limited because the merger spread between APL and NGLS increased. Making money on a merger arb while the spread increases is not bad though.


No positions anymore

Clarke Inc launching tender offer

When I entered my position in Clarke in the beginning of December I wrote the following:

Given the large cash balance after the sale of Supremex there might even be more in the cards than just the current repurchase program.

This proved to be a prescient comment since the company announced a sizable tender offer yesterday for 2.5 million shares at a price of $9.5. The 2.5 million shares represent 12.8% of the outstanding shares, and given the ~30% discount to NAV this transaction could provide a nice boost to intrinsic value. If they are able to repurchase 2.5 million shares NAV per share (adjusted for unrecognized pension assets) would increase with 4.35%. That’s an easy way to make money. Whether or not they will be able to repurchase the full 2.5 million shares remains to be seen since they are offering a small premium compared to the last trading price.


Author is long Clarke Inc

Reduced my position in Conduril

I have been reducing my position in Conduril this month because I think the risk/reward is at the moment not as attractive as it was earlier this year. This despite the fact that the share price declined with more than 25% from a high of €88/share to the current €65/share. The main reason is the sharply declining oil price, and the possible effect that it will have on Angola. Conduril is generating roughly 50% of its revenues from Angola while the country relies on oil for approximately 80% of its tax revenues. With oil below $60/barrel they have a problem:

fitch-report-on-oil-vulnerabilitiesI’m not someone who focuses on macro factors with my investments, but there is a difference between making predictions and recognizing reality as it is. And when a lot of future tax revenue is gone it isn’t exactly a stretch to assume that there will be a lot less money available in the coming years for stuff like public infrastructure: the kind of work Conduril does. It also increases Conduril’s credit risk on its outstanding receivables.

I don’t know if this realization is driving the decline behind Mota-Engil Africa’s share price. I called this company a good comparable to Conduril just two weeks ago because it’s active in the same sector and it is also getting roughly 50% of its revenues from Angola (it does however have a more leveraged balance sheet). When you see that Mota-Engil Africa is down more than 50% since its listing in Amsterdam three weeks ago the recent decline in Conduril’s share price suddenly doesn’t look that bad:

CDU vs MEAFR share price

Despite the sales Conduril is still my biggest position, just not as big as earlier this year.


Author is long Conduril, no position in Mota-Engil Africa


Entered the ATLS/TRGP merger arb/stub trade

After my post on the Atlas Energy merger arb/spin off a lot has changed in just a few days because the carnage in the MLP land has continued unabated. This also has had big effect on the implied new Atlas Energy Group stub price that has tumbled from $4.21/share to $0.42/share. This is however a bit of a deceptive figure since it does not account for the merger risk inherent in buying the stub. We can estimate the merger risk by looking at the NPL/NGLS deal that is codependent on the ATLS/TRGP deal, and the deal spread has grown together with the carnage in the sector. If we adjust for the merger risk we get the following price:

Implied price Atlas Energy Group

The estimate of the merger risk is of course just that, an estimate, because while both deals have the same probability of completion the downside risk might not be identical when the deal fails. I don’t think this difference is material though, although the ATLS deal might have a bit more risk since a larger percentage of the price is paid in cash. But we also get paid a whole lot more than the 7.13% of the APL/NGLS deal. If we only look at the value of the ARP LP units that the new Atlas Energy Group owns we already get a value of $2.26/share:

ARP LP units value minus debt

In addition to this we also get:

  • 100% of the GP and IDR units of ARP (probably worth at least $0.50/share in current environment and a potentially extremely valuable option on a oil price recovery).
  • A 12% LP stake in Lightfood that owns 40% of ARCX (worth $0.29/share).
  • A 15.9% GP interest in Lightfood (no idea how valuable).
  • A 80% GP interest in the E&P development subsidiary and a 2.5% LP interest.
  • 11.5MMcfd of gas production in the Arkoma basis (valued by management at $1.15/share, and gas prices have remained basically unchanged)

I honestly don’t know exactly how to value all these various interests, but when you get a bunch of potentially valuable assets basically for free I think this almost has to be a good bet with a positive expectation. So I have initiated a small position yesterday. Anything else than a small position is probably not wise/doable though since you need to tie up a lot of capital, and you get a lot of deal risk as well. You could theoretically hedge the deal risk to some extent by shorting APL and buying NGLS, but that would require even more capital.


Long ATLS, Short TRGP. No (direct) position in ARP, ARCX, APL or NGLS.