Investments

• Accounts managed by Kerrisdale currently own shares of PriceSmart Inc. (PSMT on Nasdaq), which runs Costco-style warehouse clubs in Central America
• PSMT is a well-managed, steadily growing company in a region (Central America) and industry (warehouse clubs) with promising long-term growth prospects. Capital allocation has been intelligent since the 2003/2004 restructuring and operational execution has been top-notch
• While not especially cheap, the valuation is low enough to warrant a place in our portfolio. The company trades at similar valuation multiples as its peers, but is posting materially higher growth / margin metrics…

• Accounts managed by Kerrisdale currently own shares of CPEX Pharmaceuticals, Inc. (CPEX on Nasdaq), a biotech company that has recently suspended its R&D efforts and is exploring a sale of itself.
• Typically, our posts focus on the investment thesis behind a given investment. While we own CPEX and think it presents an attractive risk-reward opportunity, this post will only briefly touch on our investment thesis. We’ll spend more of this post discussing the activist campaign undertaken by Richard Rofe of Arcadia Capital Advisers, because it provides an interesting case study of how activists can add shareholder value for small biotechs with multiple disparate drug businesses…

• Accounts managed by Kerrisdale currently own shares of Coventree Inc. (COF/H CN), a former Canadian packager of non-bank asset-backed commercial paper currently in the process of liquidation
• Coventree has a market cap of $57m at the current share price of $3.79, compared to a net asset value of $85m. The Company is in litigation with the Ontario Securities Commission, but based on our view of its potential loss liability, the timeline of the litigation, and the timing of potential distributions to shareholders, we think Coventree is an attractive investment opportunity…

• This post expresses a bullish view on Cash Store Australia Holdings, Inc. (AUC), an emerging payday lender in Australia.
• AUC is a well-managed payday lender expanding in a country where the payday loan market is still in its early stages. Assuming that legislators decide to keep payday lending legalized, AUC should experience rapid growth in both revenue and profitability over the next 5-7 years.

In this post, I’m going to write about Cash Store Australia Holdings Inc., which trades under the ticker AUC on the Toronto Venture Exchange. Cash Store Australia is a startup payday lender in Australia with 44 branches as of December 31, 2009. Regulatory risks notwithstanding, AUC is a fast-growing, well-run business with high returns on invested capital and an ability to generate substantial amounts of free cash flow on a per-store basis…

• This post expresses a bullish view on IntercontinentalExchange Inc. (ICE), an operator of futures exchanges and OTC markets
• Futures exchanges and derivatives clearinghouses are exceptional business models, and ICE’s mix of derivatives products is particularly good. The current valuation is sufficiently attractive.

In this post, I’m going to write about the derivatives exchange IntercontinentalExchange Inc., which goes by the ticker ICE on NYSE.

I think ICE is undervalued. While there could be adverse regulatory changes over the long-term, this post will discuss how the current stock price is nevertheless attractive from a risk-reward perspective…

• This post expresses a bullish view on SmartPros, Ltd. (SPRO)
• SmartPros generates material cash flow and trades at a low valuation
• Its CEO, Allen Greene, has built a strong track record since taking over the company in 2001, in terms of making intelligent acquisitions, steadily increasing the cash flow of the Company’s underlying business segments, and acting in a shareholder-friendly manner

In this post, I’m going to discuss a microcap called SmartPros Ltd., which trades under the ticker SPRO on NASDAQ. SmartPros is a small continuing education provider for the accounting, engineering, legal and finance industries. It’s a well-managed microcap that generates decent cash flow, and trades at a low multiple on all valuation metrics, particularly any valuation metrics that focus on cash flow. That cash flow should grow steadily over time…

• This post discusses why common unit holders of Eagle Rock Energy Partners, LP (EROC) should vote NO to the most recently proposed recapitalization. We have set up a website at www.fair-eroc.com where we explain why we believe unit holders should vote NO.
• That website discusses EROC’s current recapitalization proposal, while this post discusses EROC’s background, business and the stock’s potential total return if NGL prices stay roughly constant.

Eagle Rock Energy Partners, LP trades under the ticker EROC on Nasdaq. EROC is an oil and natural gas MLP…

• This post expresses a bullish view on Bank of Internet (BOFI)
• BOFI is a well-run bank trading at a low valuation that should continue to grow earnings and/or tangible book value for the foreseeable future
• While its earnings growth will slow in 2010, and earnings could contract when the yield curve flattens, the current valuation is still too low given the company’s near-term and long-term growth prospects
• The PDF materials referenced in this post can be downloaded here…

• This post expresses a bullish view on MTN Group, an Africa-based wireless operator
• MTN’s recent merger with India-based Bharti collapsed two weeks ago, creating an opportunity to purchase a standalone MTN Group at a somewhat depressed valuation
• MTN is a leading wireless operator in Africa and the Middle East, with operations in (i) fast-growing emerging markets like Nigeria, Ghana and Iran and (ii) South Africa, a market that’s more mature but where MTN is generating solid free cash flow. Overall, MTN has been a rapidly growing business since inception and that growth should continue for at least several more years. Key countries where it has large operations still have relatively low wireless penetration, implying continued organic expansion over the next several years
• The current valuation is cheap (5x EBITDA and 14x PE) given MTN’s growth potential. The valuation is low, in my opinion, because (a) Bharti was not offering a particularly high price for MTN and (b) the proposed merger was complicated, due to share swaps, equity raises and other unusual features, which resulted in MTN’s stock price remaining depressed as public holders waited for transaction details to finalize
• Materials on MTN referenced in this post are available here…

• This post indicates a bullish view on Cheniere Energy Partners, LP (CQP on AMEX)
• CQP has a high 17.5% dividend yield and I believe that the dividend is not in danger of being discontinued
• CQP has long-term take-or-pay contracts with two large customers that help ensure continued payment of the dividend. While CQP’s parent may go bankrupt, the parent’s creditors are incentivized to continue facilitating CQP’s dividend while the parent is in bankruptcy

This post will be about Cheniere Energy Partners, LP (CQP), a master limited partnership, or MLP, which operates receiving terminals for liquefied natural gas in Louisiana. The underlying thesis is that CQP is an attractive investment because it yields a 17.5% dividend which I view as stable over the next 20 years. I think a more appropriate dividend yield is around 12% – 15%, which yields a stock price range of $11.33-$14.17. That implies stock appreciation of 16% to 46% based on Friday’s close price of $9.72. While one waits for that capital appreciation to occur, an investor in CQP can clip a fairly large quarterly dividend…

• This post expresses a bearish view on the solar industry, specifically with regard to manufacturers of solar photovoltaic cells.
• Although demand is growing, and over the long-term the solar sector will become very large, there is currently a massive oversupply of solar PV cells. This oversupply should become much worse in 2010 and 2011. Solar cells are essentially commodity products, and the large supply-demand imbalance should render most high-cost producers insolvent. Low-cost producers will also have trouble generating profits.
• Accounts managed by Kerrisdale are short shares of certain solar companies mentioned in this report

This week, I’m going to write about companies that sell solar photovoltaic cells, and how I think 50%+ may go bankrupt over the next several years. I think solar cell companies are in the fourth inning of an unmitigated disaster, and the looming supply-demand imbalance in the industry is one of the most violent I’ve ever witnessed in any commodity sector…

• This post discusses the emerging market wireless sector. These are businesses that offer cell phone services in countries like Paraguay, Syria or Chad.
• I’m bullish on this sector. While I have reservations about mature wireless companies, emerging markets still benefit from under-penetration, and there is room for continued rapid growth over the next several years.
• If a given emerging market avoids currency depreciation, political turmoil, or excessive competition in the wireless market, the mobile telephony business is quite a good one as the resident country grows from low mobile penetration to high penetration.
• The emerging market PDF materials discussed in this post can be downloaded here…