Monday, January 16

Real Estate Rich, Deep Value,Unloved

publicly traded restaurant company, Ruby Tuesday (RT). 


Ruby Tuesday a distressed restaurant chain founded in 1920. They own, run and franchise casual dining restaurants in 42 states and 14 foreign countries. As of November 29, 2016, Ruby Tuesday owns and operates 546, and franchised 67, Ruby Tuesday restaurants. 

On 08/11/16 announced a plan to close 95 Company owned restaurants. The plan streamlines the organization through asset rationalization, improve financial profitability, and create long-term value for shareholders. Restaurants closed during the first quarter of fiscal year 2017.  

There are countless reasons not to own this stock. Negative operating income every year since 2012. A less than exciting plan is the new healthy menu changes (salad bar improvements) to address the negative comps, improve brand image and key ingredient in the turnaround strategy. Management hints to traction with the new menu.  

My rationale for considering after further research is the Real Estate liquidation value. That alone is likely to support the current price of $2.24 (01/17/16) with options available to create shareholder value. Such as selling part of the real estate portfolio and focus on franchising. But these option are unlikely and make the stock at today's price of 2.20 risky. 

Per the 05/2016 10K; own land and buildings for 303 restaurants. The buildings with non-cancelable long-term land leases are 252 restaurants, and 91 restaurants with non-cancelable leases covering land and buildings. Restaurant Support Services Center in Maryville, Tennessee, opened in 1998. It comprises two office buildings owned by the Company.

Further, it seems plausible that future profitability achievable given the size of the enterprise (number of restaurants). A small improvement in check size and traffic translates easily into operating income.But management has done nothing to prove they have a viable turn around strategy. I still purchased a few shares at today's price of $2.20 and may purchase more on further weakness.

RT price performance for 24 weeks = -42.27%, 52Weeks = -56.25%,3yrAnnualized = -27.18%, 5yrAnnulaized = -20.49%,10yrAnnualized = -20.83%

Historically cheap based on EV/GP,EV/Revenue,P/TB, reducing shares outstanding

Positive insider activity 2016 and 2017

Current Statistics from Yahoo:
Market Cap 134.03M ,Enterprise Value  318.7M , Price/Book (mrq)  0.36
Enterprise Value/Revenue    0.31, Enterprise Value/EBITDA   6.70
Revenue (ttm)  1.02B , Revenue Per Share (ttm) 16.99
Quarterly Revenue Growth (yoy)  -17.70%
Gross Profit (ttm)   188.62M , EBITDA  47.6M
Total Cash (mrq) 38.56M ,Total Cash Per Share (mrq) 0.64
Total Debt (mrq)   223.24M ,Total Debt/Equity (mrq) 66.98
Current Ratio (mrq) 0.91 , Book Value Per Share (mrq) 6.23
Operating Cash Flow (ttm)  18.71M , Levered Free Cash Flow (ttm)    10.48M
52-Week Change  -60.18%,52 Week High  5.63 ,52 Week Low 2.08
% Held by Insiders   3.01% ,% Held by Institutions   88.70%
Short % of Float  5.95%

Long: RT

Thursday, January 12

Deep Discount to its Net Asset Value;HARRIS & HARRIS GROUP (TINY)

HARRIS and HARRIS GROUP  (TINY) operates as a BDC (Business Development Company) similar to venture capital/private equity. Harris and Harris (TINY) provides a public way to participate in the open market. The stock is operationally troubled but I believe the current price may offer a value trade for investors. I can't know but currently own shares.
January 10, 2017 management held a shareholder meeting ("transforming the future") to discuss restructuring benefits.
Announced changes .... separate Harris and Harris Group into two companies.
A)   180 Degree Capital ("180") to manage existing portfolio in what they believe are undervalued small public companies in a structure that seeks to reduce Harris and Harris expenses.
B) Corp ("HALE")  an operating company that takes a portion of Harris Group precision health and medicine assets and combine them to deliver products with potential to change how physicians provide healthcare.

Harris Group believes the benefits of restructuring are 1) best opportunity to increase shareholder value 2) focuses the company and improves strategic messaging 3) allows maturing portfolio to reach exits in a cost effective manner 4) provide income and net asset growth over shorter more predictable time frames. 5)enable precision health and medicine assets to grow by combining them into a controlled operating company. 

Therefore, 180 Degree Capital ("180") formed from investment management business of Harris group restructured into a closed end fund from its BDC. Management believes the current structure has inherent unrecognized value. The new simplified structure and focus management believes could lead to partnerships and other opportunities. 
Investment focus going forward is to identify deeply undervalued public companies, purchase meaningful ownership/control, hands on constructive activism, with an initial focus on less than 100 Million in market capitalization. If the current BDC structure is changed to a closed end fund it will result in lower operating expenses from less regulatory burden.
The proposed restructuring of the Company, including the formation of 180 Degree Capital Corp ("180") and Corp. ("HALE") requires shareholder and regulatory approval.


52-Week Change        -33.71%
% Held by Insiders    7.58%
% Held by Institutions    31.90%