Investments

• Accounts managed by Kerrisdale currently own shares of Urbana Corp. (URB.A and URB on the Toronto Stock Exchange), a closed-end fund with holdings in securities exchanges and financial services companies.
• Urbana is trading at a 30% discount to its Net Asset Value of $2.06. The fund owns three main assets: (1) shares of CBOE, which account for 27% of the portfolio, (2) shares of NYSE Euronext, which account for 40% of the portfolio and (3) shares in the privately held Bombay Stock Exchange, which account for 15% of the portfolio. The rest of the fund’s holdings are comprised of a variety of smaller public and privately held securities exchanges, as well as several public and private financial services companies.
• Owning the company’s portfolio at a 30% discount strikes us as a reasonably attractive proposition. The fund’s investment manager, Tom Caldwell, is an experienced veteran in the exchange space, as well as the broader financial services industry. We hope that he does not make any foolish future investment decisions. The company has been repurchasing shares, which seems to be the best use of capital given the stock’s current discount to NAV…

• Accounts managed by Kerrisdale currently own shares of Aéropostale Inc. (ARO on NYSE), a teen retailer with stores in the United States, Canada and Puerto Rico.
• ARO has historically been a well-managed retailer experiencing strong growth, above-average margins, and high returns on capital. While the company is operating at peak margins, has a maturing store base and faces tough prior year comparisons, the stock’s current valuation is nevertheless too cheap. ARO trades at 4.1x EV/EBITDA and 10x P/E. Its valuation seems too low.
• In addition, in the event of a double-dip recession, ARO is better positioned than most other teen retailers, given its low-price status within the teen fashion segment…

• Accounts managed by Kerrisdale currently own shares of Interval Leisure (IILG on Nasdaq), which runs one of the two global timeshare exchanges.
• While we like various aspects of the business and continue to be holders of the stock, the declining customer count concerns us and we’re watching it closely to see if it stabilizes.

In this post, we’re going to write about Interval Leisure Group, Inc. (IILG on Nasdaq), one of the two global timeshare exchange operators. We own shares in Interval and have for over a year. There’s numerous things we like about IILG – it operates in a duopoly, has high free cash flow margins and returns on capital, is valued at a high free cash flow yield, and the company has unique barriers to entry that protect it from competitive threats. That said, IILG is…

• 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…