|Shares Out. (in M):||793||P/E||0||0|
|Market Cap (in $M):||119||P/FCF||0||0|
|Net Debt (in $M):||-158||EBIT||0||0|
Pendrell is an NOL shell company trading at a discount to net cash with reasonable upside to a liquidation and substantial upside if the company is able to effectively monetize its large NOL. While management continues to look for an acquisition to crystallize the value of the NOL, the Company has continued to buyback stock, repurchasing ~18% of the shares outstanding from 12/31/17 to 2/15/19 at a discount to net cash / share.
PCOA owns three assets and has no debt:
1) $2.5bn of Net Operating Losses ("NOLs") with the bulk of them expiring in 2032.
2) ~$158mm of net cash (my estimate pro forma for the Feb 15, 2019 press release which allows you to back into shares repurchased since last filing date).
3) A low-maintenance patent portfolio from its legacy "patent-trolling" business.
I believe that Pendrell shares are undervalued due to the following factors that have resulted in a lack of a natural ownership base:
1) The company does not file financials after "going dark" in 2018.
2) The company executed a large reverse split to facilitate the "going dark" transaction. As a result the float is very thin and the $150,000 price/share discourages smaller investors from buying shares. Since effecting the final 250-for-1 reverse split in Aug 2018, the shares have traded down ~13%.
3) PCOA only trades on the OTC.
The stock has a very simple thesis with a clear path to value realization: Management is searching to acquire a highly fcf-generative company in order to unlock the NOL value. Based on our discussions with the management, PCOA hasn't acquired a company yet due to price sensitivity. Since the vast majority of the NOLs don't expire until 2032, the Company has been patient in finding the optimal acquisition candidate. While you wait for management to consummate a transaction, value per share is increasing due to the Company's willingness to "arbitrage the discount" by repurchasing shares at a discount to liquidation value. CEO Lee Mikles is paid mostly in stock ($7.5k in salary), which reduces the cash burn and incentivizes sound long-term capital allocation. Finally, I believe that the presence of telecom entrepreneur Craig McCaw (chairman of the BoD and 22% shareholder) gives further comfort that the company will manage shareholders' capital prudently.
Another way to frame the investment is that PCOA is effectively a SPAC trading at a 20% discount to net cash with $2.5bn in NOLs, no sponsor fees, and a capital allocator that is rewarded when the stock price goes up rather than when an acquisition is executed.
1) Continued share repurchases
2) Acquiring a company
3) Re-listing and re-registering shares