great idea, but you should note that a smart manager called Laughing water who have been in this idea for over a year or two sold their shares last year in frustration and 1 Main has greatly reduced their position in the 1st quarter in frustrations as well. The other investors/activist haven't been able to force the company to enhance shareholders as of yet. The board are not up and up but this could all be in the past. I agree it is worth a shot. Nice write up
Thanks Dave. You're correct, though Laughing Water appears to have been playing the situation I noted at the outset, and blew out after the cyberattack. I am personally not reading much into that exit given a far higher entry price. 1 Main I believe has taken its position down from 5.8% to 4.95% of shares outstanding as of Feb. Could be something there, but again a cost basis that is a good bit higher than the current price and still a material stake, with apparently no selling in the 3 months since. That could always change too, but the key players here for me are Radoff and Pully both being on the board. In any event, even if there is a struggle to finally unlock the value here, difficult to see how we sustain a permanent capital loss at these levels.
It could be longer than 18 months, but I doubt it, and certainly not 4 years. Given the comp incentives and activists, I don't think this drags on any longer than necessary. The hang up, imo, is the litigation, which I think gets settled fairly promptly after the motion to dismiss (i.e. I doubt Enzo succeeds in dismissing the case) - and that motion should be decided soon given the briefing is complete. Once that's out of the way, I would think we start seeing some of the cash returned to shareholders.
someone i comment section mentioned they did a $8M upgrade on buildings which would put the real estate value to $18M or $300/sqft (I haven't verified) . Seems reasonable if u compare to the listed buildings for sale here
the ones comparable in size are selling for roughly $200-300/sqft but who knows the condition of those. Either way, your estimate of $250/sqft seems like a reasonable middle value
Yes, cash burn has come down since I wrote this. Would also note that the CEO's compensation has further incentivized her to get a deal done - options with a $2 strike and a Transaction Bonus that pays out only as a percentage of proceeds above $50m.
Agree on the real estate and yeah there's been capex, but just want to be conservative given the interest rate environment and lack of visibility into how attractive these buildings would be to other parties.
I think it's a positive to see this overhang gone. Obviously, would have preferred it to be less, but given the provision they've taken + insurance, it's not particularly material. One step closer to the end goal, as I see it.
Hi Jake, I don’t think they have taken a provision related to this settlement. They just disclosed the inquiry from AG in the notes. Correct me if I’m wrong
Correct, there's a provision for the class action litigation though -- my suggestion is that on the whole (AG investigations + class proceedings), the ransomware liability remains manageable despite the settlement.
Unchanged. The class action is expected to be settled by tomorrow. That's probably a big catalyst one way or the other depending on the amount. Once that overhang is cleared, this story can start moving ahead -- e.g. a return of capital and strategic review.
great idea, but you should note that a smart manager called Laughing water who have been in this idea for over a year or two sold their shares last year in frustration and 1 Main has greatly reduced their position in the 1st quarter in frustrations as well. The other investors/activist haven't been able to force the company to enhance shareholders as of yet. The board are not up and up but this could all be in the past. I agree it is worth a shot. Nice write up
Thanks Dave. You're correct, though Laughing Water appears to have been playing the situation I noted at the outset, and blew out after the cyberattack. I am personally not reading much into that exit given a far higher entry price. 1 Main I believe has taken its position down from 5.8% to 4.95% of shares outstanding as of Feb. Could be something there, but again a cost basis that is a good bit higher than the current price and still a material stake, with apparently no selling in the 3 months since. That could always change too, but the key players here for me are Radoff and Pully both being on the board. In any event, even if there is a struggle to finally unlock the value here, difficult to see how we sustain a permanent capital loss at these levels.
thanks for the thesis. how did you come to the conclusion of 12-18 months, and why is 24-48 months not more reasonable?
It could be longer than 18 months, but I doubt it, and certainly not 4 years. Given the comp incentives and activists, I don't think this drags on any longer than necessary. The hang up, imo, is the litigation, which I think gets settled fairly promptly after the motion to dismiss (i.e. I doubt Enzo succeeds in dismissing the case) - and that motion should be decided soon given the briefing is complete. Once that's out of the way, I would think we start seeing some of the cash returned to shareholders.
fair enough.
also , i did a quick calc and only got 1.3M of cash burn (NCAV reduction) so seems like things are going in the right direction. Also FYI, in the older write up here https://clarkstreetvalue.blogspot.com/2024/02/enzo-biochem-asset-sale-cheap-remainco.html
someone i comment section mentioned they did a $8M upgrade on buildings which would put the real estate value to $18M or $300/sqft (I haven't verified) . Seems reasonable if u compare to the listed buildings for sale here
https://www.loopnet.com/search/commercial-real-estate/farmingdale-ny/for-sale/?sk=7465b149a2b027e6d7d1630fe4fa3b73
the ones comparable in size are selling for roughly $200-300/sqft but who knows the condition of those. Either way, your estimate of $250/sqft seems like a reasonable middle value
Yes, cash burn has come down since I wrote this. Would also note that the CEO's compensation has further incentivized her to get a deal done - options with a $2 strike and a Transaction Bonus that pays out only as a percentage of proceeds above $50m.
Agree on the real estate and yeah there's been capex, but just want to be conservative given the interest rate environment and lack of visibility into how attractive these buildings would be to other parties.
Cheers.
Jake any thoughts on the settlement announced today ?
I think it's a positive to see this overhang gone. Obviously, would have preferred it to be less, but given the provision they've taken + insurance, it's not particularly material. One step closer to the end goal, as I see it.
Hi Jake, I don’t think they have taken a provision related to this settlement. They just disclosed the inquiry from AG in the notes. Correct me if I’m wrong
Correct, there's a provision for the class action litigation though -- my suggestion is that on the whole (AG investigations + class proceedings), the ransomware liability remains manageable despite the settlement.
what is your current opinion on Enzo?
Unchanged. The class action is expected to be settled by tomorrow. That's probably a big catalyst one way or the other depending on the amount. Once that overhang is cleared, this story can start moving ahead -- e.g. a return of capital and strategic review.