Jeremy Deal presented his in-depth investment thesis on ALJ Regional Holdings (OTC: ALJJ) at Best Ideas 2016.
Please note: This presentation focuses on a micro-cap investment idea. Micro-cap ideas may be particularly risky due to their low float, often spotty disclosures, and a higher-than-usual potential for market manipulation. While it is always essential to do your own work on every potential investment before committing to it, it is especially important to be extremely careful with micro-cap ideas. We bring the following presentation to you because we respect the instructor, but we warn that the idea may not be an appropriate investment. (This implies no endorsement of other ideas presented at this conference.)
ALJ Regional Holdings is an obscure micro-cap permanent capital vehicle with excessive NOLs, controlled by investment banker Jess Ravich. ALJJ is a holding company focused on industry-agnostic buyouts of orphaned corporate divestitures that generate 30+% cash-on-cash IRRs. A successful string of recent buyouts, combined with tax-shielding NOLs, has grown EBITDA from zero to $40 million in just over two years. Despite the stock being up 500% in three years and 2,600% since current management took over, ALJ’s equity remains attractive at ~4x EBITDA, ~16% FCF yield, and 1.6x book value (FY16E) considering the growth trajectory and structural runway to become a much larger company. ALJ is our pick for three reasons: (i) the price does not reflect the large acquisition of Phoenix Color announced in August 2015; (ii) the remaining $155 million in NOLs creates rapid debt paydown that the market is missing, which causes book value to compound at 30+% annually; and (iii) the recently announced up-listing to a major exchange should create more liquidity and multiple expansion.
About the instructor:
Jeremy Deal founded JDP Capital Management LLC, a San Diego-based hedge fund manager, in 2011. The firm is a Registered Investment Advisor that manages a private limited partnership focused on deep value, distressed, and special situations within public companies. The investment strategy seeks risk-adjusted, unleveraged outperformance though a private equity-like fundamental research process on each portfolio company.
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