Fitlife Brands – the multiple is not right!

My position in Fitlife Brands is still my highest conviction pick and by far the largest position in my stock portfolio. I believe that it deserves a much higher multiple. It is (1) well managed, (2) growing substantially and (3) has a rock-solid balance sheet. The uncertainty regarding their largest customer GNC has subsided.

Dayton Judd (the CEO) now has a track record of close to 3 years at Fitlife Brands. He navigated the company successfully through a restructuring, the first phase of the pandemic, a bankruptcy process of their largest customer GNC and returned the company to growth – while reducing the cost base significantly. It’s not easy to find such well managed companies on the OTC markets – and if you do chances are big that you need to pay a premium for it.

As of the latest quarter – the company has c. $4m in net cash. Given the illiquidity share repurchases can’t be achieved in size. The company is currently looking at acquisition opportunities. While it is basic language for companies to indicate that they want to grow through prudent acquisitions – in the case of Fitlife Brands – looking at all the decisions of Dayton over the last couple of years – I believe that prudent will really mean prudent. I don’t worry about dilutive financing, or sizeable acquisitions that will lever up the balance sheet dramatically.

Dayton Judd, the Company’s Chairman and CEO, commented “The third quarter was one of the strongest in the Company’s history. I am proud of our team and the results they generated in a difficult retail environment. While the fourth quarter is traditionally our slowest, we continue to see increasing demand for our products online and in GNC franchise locations. And in addition to growing organically, we continue to look for opportunities to grow through prudent, accretive acquisitions.

Excluding the bankruptcy related write-off of part of the accounts receivable position with GNC, FTLF is on track to do c. $3.00-3.50 in earnings per fully diluted share in FY20. Compared to c. $2.3 in FY19 and $0.4 in FY18. With continued expected organic growth as well as growth via acquisitions – earnings of $4 per share seems achievable for FY21.

What earnings multiple should we attach to that? I believe that 10 is too low – which would already result in a 100% increase in share price from here.

15 or even 20 seems more in line with the market – translating to a share price of $60-80. A lot of upside potential.


> 25% return in less than a month?

I acquired shares in Input Capital the last few weeks, after reading a post about a potential liquidation and the company subsequently launching a significant tender offer.

Input Capital – Liquidation Finally Makes it Interesting?

When I started acquiring shares I was convinced that the tender offer wouldn’t get filled and that I would therefore be able to tender my shares at the maximum of the range. In case I was wrong, I would have to be more patient and see how the liquidation scenario would play out. The shares trade at a significant discount to book value and the tender offer would amplify this.

The tender offer is priced at $0.60-$0.70. With the current turmoil I am not fully convinced anymore that the tender offer won’t get filled.

The business and the impact of Corona

The Company offers financing solutions to Canola farmers in Canada. The key products are as follows:

  • Mortgage streams: a mortgage whereby the farmers can pay interest in Canola
  • Capital streams:  provision of upfront capital with the right to buy future Canola production at a discount to expected market prices

Both solutions are exposed to Canola prices. The Company explains that there gross margin remains positive, even if Canola prices would drop to the marginal costs of production of farmers.

I believe the impact of Corona on the business to be limited:

  • While lockdowns and travel bans are in place for people, most trade continues
  • Canola is primarily used in food products, food demand is not impacted by Corona

I contacted management and they confirmed that there is no impact on the business so far and that they don’t expect a significant impact.

Scenario 1. The tender offer won’t get filled

ROI (at $0.55 acquisition price): 0.70 / 0.55 = > 25% in less than a month.

There are c. 62m shares outstanding (excl. out the money options) of which management owns c. 18m (skin in the game). Management indicated that they will not participate in the offer. So there are c. 44m that might get tendered.

In July the company bought back c. 16m shares in a Dutch tender auction at the maximum of the price range of $82ct per share for a total of c. $13m. Management did not participate in the offer. The offer was not fully subscribed as the company intended to buy back shares for a total amount of $15m. This tells us that July last year, there were no shareholders left who wanted to liquidate their position at a value of $82ct per share.

Under normal circumstances, the likelihood of the current tender offer getting filled in full would be really low. Why would you not particpate at $82ct in July 2019 and do participate at $70ct less than a year later? The business didn’t experience anything really noteworthy in the meantime. Book value per share increased from $1.15 to $1.24.

Scenario 2. The tender offer get’s fully subscribed at the low end of the range

Assuming that management doesn’t particpate you will be pro-rated and get a c. 30% fill in a “worst case” scenario, where all other shareholders tender.

ROI 30% of position (at $0.55 acquisition price): 0.60 / 0.55 = c. 9% in less than a month.

As a result book value per share will increase from $1.24 to $1.40. So you will basically own $1.40 of book value for $0.55.

  • Book value mainly consists of monetizable items.
  • Based on the fairly recent tender offer of $15m, management (with skin in the game) believes that the fair value is at least significantly above $0.82. Why risking $15m instead of distributing it as a dividend?

Not too bad to own shares in a company likely to get liquidated at such a discount. It might take a couple of years, but you get paid a $0.04 dividend in the meantime and likely also get the option to participate in future tender offers (in case you would like to exit).



Daily Canola Prices

Input Capital – Liquidation Finally Makes it Interesting?


Further upside for Fitlife Brands in 2020

I started to build a position in Fitlife Brands during August 2018 based on initial signals of a succesful turnaround and significant insider buying by their new (at the time interim) CEO Dayton Judd. At the time shares were trading at c. $3-4 (stock split adjusted) per share.

I continued to purchase shares at prices up to $5 per share based on continued aggressive insider buying by the CEO during the remainder of 2018.

FTLF Investment Longlist_insider buying

Early 2019 I applied to with this idea and in May 2019 I wrote an article on SeekingAlpha.

Today, the shares hit a fresh 52-week high of $14.00 per share. Despite the significant increase in share price, it is still one of my best ideas for 2020. I still hold all my shares and believe that the shares can easily reach prices above $20 (in the absence of an overall economic downturn).

The Company earned c. $1.90 per share in the last 9 months (vs. c. $0.60 per share in the first 9 months of FY18). Q4 is generally weak, but $2 per share in FY19 seems possible. On top of that the Company is likely to continue their growth. A PE of 7 for a growing asset light company is too cheap in my opinion.

I want to keep the post short, so will focus at why I believe that sales (and subsequently earnings) are likely to continue to growth during 2020.

The Company owns a portfolio of nutritional supplement brands which are sold via retailers (mostly GNC franchisees) and online (only started recently as part of turnaround). Below the growth drivers for both the offline and online channel.


  • First 9 month sales increased from $13.1m to $14.0m, despite a lower store count and same store sales at their largest customer (GNC franchisees, responsible for c. 77% of revenue) – Fitlife Brands increased in store market share
  • It is not clear what exactly led to this growth (the Company reduced marketing budgets), however it is likely that the rebranding of one of their product lines (PMD) had a positive impact
  • During the current quarter the Company rebranded another important product line (NDS) and another product line (Sirenlabs) will be rebranded during 2020.
  • These rebranding activities and continuation of other activities that resulted in sales growth during 2019 could result in further sales growth in 2020 or at least keep sales stable despite weakness at GNC
  • During the current quarter the Company launched a product at 3700 Walmart stores. If succesful this could increase sales significantly and open the door for other Fitlife Brands products.
  • I am not very bullish about the offline channel, but believe that Fitlife Brands is in a good position to at least match 2019 results


  • The Company sells most of their products online via their own website and Amazon
  • Sales increased from $0.5m in the first 9 months of FY18 to $1.8m in the first 9 months of FY19
  • Most revenue is generated from the Energize and iSatori brands. These brands are not sold exclusively to GNC.
  • Other brands which are sold “exclusively” to GNC, are also sold via Amazon and the Company’s website, however Fitlife Brands does not have the freedom to price these below 100% retail prices (which makes it difficult to generate good volume, as these prices are much higher than online products of competitors)
  • In the first 9 months of FY19 the Company launched one new online exclusive product
  • In the current quarter the Company launched two more online exclusive products, with more to come in 2020
  • The three new products launched this year, all rank in the top 4 of Fitlife products on Amazon (1 iSatori product and 2 CoreActive products). As only one of these products was included in Q3-19, it is likely that online sales get a good boost from these new products.
  • FTLF Investment Longlist_new online products
  • In November 2019 the Company hired a E-Commerce manager to further growth this channel
  • In the Q3-’19 10-Q the following is stated: “Although no assurances can be given, management believes that online revenue will continue to increase in subsequent periods relative to prior comparable periods given management’s focus on higher margin online sales.”
  • The Company is increasing their online presence aggressively (only very recently) by growing a team of Fitlife athletes that market the products on Instagram, Facebook etc. and receive a commission on sales they generate.
  • Based on the above I believe that the Company will be able to increase higher margin online sales significantly during FY20.
  • This will not only increase earnings, but also lower the dependency on GNC.

Kubera Cross-Border Fund, liquidation at a more than 50% discount

I posted about this liquidation on August 20 2017. At that time, the Kubera Cross-Border Fund was already in liquidation mode. It was about to close a sale of their largest asset, a stake in Planet Cast Media Services, valued at $23m. The deal finally closed on June 14 2019 (more than 2 years after the announcement of the sale!) at a value of $20m (a small discount to the initial agreement + FX effects). The company made a distribution on July 19 of 0.18 USD per share.

The remaining net asset value of the company is 0.116 USD per share while shares are available at ~0.050 USD per share. This represents a discount of more than 50%. The shares are very illiquid, but from time to time larger blocks are sold. With a bit of patience, you should be able to acquire a sizeable retail position.



Net asset value

The assets consists of a stake in Synergies Castings Limited (manufactures alloy and chrome plated wheels for OEMs), a tax fund to be received from the Indian tax authorities and positive net working capital.

The fund has annual costs of approximately 600k USD per year (administratitive and liquidation costs). Management of the fund explained me that they are currently assessing options to reduce these costs significantly, potentially including a delisting of shares. They expect to provide more details soon.

I expect a long liquidation process (Indian authorities have showed to move slowly) and therefore estimate cash burn and liquidation costs for a period of 2 years adjusted for some savings. If we further take the book value for granted, total distributions add up to 0.108 USD per share (116% upside).

If we discount the stake in Synergies Castings Limited and the tax refund by 50% and take 2 years of current annual expenses we still break-even. Downside seems well protected.

For the tax refund I believe that it is unlikely that it will be lowered as it is based on simple tax rules, however I have no experience with similar situations in India. The actual refund should amount to $4.85m, it is valued at $4m on the balance sheet to take into account the time value of money and uncertainty with regard to timing. So there could be further upside.

Synergies Castings Limited

The fund agreed to sell its complete stake in the company for $14-16m in four tranches ($2m discount if consumated within 18 months) in August 2017 to a buyer (I believe to be the founder of Syergies Castings Limited) who at the time still had to find buyers. A strange situation. I believe that the founder basically guaranteed to buy the stake at this price and believed that he could find buyers for a higher price.

Payments for the first two tranches were received soon after the agreement. However, the 18 months have passend and the 3rd and 4th tranche are still open. The fund also received an advance of $1m (liability on the balance sheet) which is a penalty which the fund can keep in the case the 3rd and 4th tranches don’t close. The fund values the remaining stake based on the lower range of $14m out of caution. The fund is in discussions with the buyer/founder and confident that they will eventually close the sale, although with further delays (based on conservation with the funds manager the Indian and US market conditions are not as favourable as a couple of years ago, however they see this as a temporary issue).

The company is still growing revenues and profits and makes investments for the long term (

This indicates that there are no real issues in my opinion. The business itself is not wonderful. EBITDA margins are in the 11-15% range historically, I have no view on capex but for a manufacturer with a high degree of automation this is likely substantial.

Below an overview of historic performance. The fund explains that revenues, EBITDA and net income increased in both FY18 and FY19.

Synergies castings


TRIA tokens – value in the cryptobubble? – Part 1

Hit by the FOMO virus I decided to take a closer look at the cryptomarket. That didn’t change much to my view on the crypto-market. The valuation of the coins make no sense to me at all. I was even more surprised by the lack of valuation attempts by people who write about the coins. A typical (or maybe even above average) valuation is often as follows:

Typical valuation

  • Coin will increase 50% in value because of patch x3.7
  • Coin will increase 300% because of the launch of a beta product 
  • Coin will increase 200% because [some random crypto words]

A combined 800% increase in value! Buy them today! We don’t have to talk about competition, that does not apply to crypto!

The worst part, the valuations often come true at this stage of the bubble. This makes the writers more confident about their valuation skills, resulting in even more comical work. It is also possible that I haven’t found the right sources yet. If so, please let me know.

On the one hand, it is quite funny to observe this all. On the other hand it is quite difficult to manage your emotions as a value investor who performs actual research to make a decent profit in the stock market. I have the feeling that my valuation skills impede my chance of success in the crypto-market and that it is therefore better to stay away from it. However, during my research I stumbled upon an interesting token which has the potential to be worth multiples of the current price (BASED ON VALUATION PRINCIPLES). This gave my FOMO infected brain the last push resulting in my first crypto investment.

Before going into the valuation: I believe in the blockchain technology and can’t imagine the crypto-market to go away anytime soon.

This blog post is a short introduction to the TRIA token. More posts will follow with my own estimates of key variables and research on other important topics such as competition and the company behind the token. At this moment I don’t apply the same margin of safety as I do with stocks (FOMO alert) because we have the random crypto bubble factor thrown into the mix that often results in excellent results, even if the underlying asset does not perform. A result of this lower margin is safety, is that my investment in the TRIA token is only a small part of my portfolio.

Why the TRIA token has the potential to be worth multiples of the current price?

Summary: The TRIA tokens are entitled to 50% of the trading profit of all coins created by Triaconta. A company in the Netherlands focussed at creating types of indextrackers for the crypto market. They currently have one coin (CombiCoin, tracking the top 30 crypto-currencies) which will be listed on an exchange at the end of this month. They clearly have a first mover advantage, as there are limited comparable products yet. Using the popularity of indextrackers in the stock market as a proxy for interest in comparable products in the crypto market I see the potential for the CombiCoin to attract serious trading volumes. If it does, the TRIA token is a home-run. The total market cap of the TRIA token is only $10m and the Company has a viable model to profit from CombiCoin trading volume.

How Triaconta generates trading profit and why it is important for the CombiCoin

When someone is looking to buy the CombiCoin it is important that the price of the coin is not much higher than the value of the underlying assets. Otherwise you are paying a premium compared to buying the underlying assets yourself. It is also important for CombiCoin holders that the price of the CombiCoin is not significantly lower than the price of the underlying assets. Otherwise you are selling your CombiCoins at a discount to the value of the underlying assets.

Triaconta’s trading software will keep the value of the CombiCoin close to the value of the underlying assets and hereby generate a profit. The picture below from the whitepaper clearly explains how this works:


With the profit generating mechanism explained, we can move to the valuation fundamentals.

The value of the TRIA tokens should be based on the future income of Triaconta’s trading software to manage the CombiCoin’s price and also that of future coins issued by Triaconta.

There are a total of 276,001 TRIA tokens outstanding. These were released as bounty during the ICO of CombiCoin and are fixed. At the current price of $35 per TRIA token this results in a market cap of $9.7m. It’s the market’s estimate of the discounted value of all future TRIA dividends.

The TRIA dividends are paid monthly. The total dividend can be calculated as follow:

[A] Total trading volume (in $) of CombiCoin x [B] % of total trading volume executed by Triaconta’s trading software x [C] average profit % generated by trading software  50%.

TRIA dividend = A x B x C x 50%

In the  ICO whitepaper Triaconta makes the following estimates:

  • [B] % of total trading volume executed by Triaconta’s trading software = 35% (average)
  • [C] average profit % generated by trading software = 5%

I think that the average profit % will lower significantly over time. Today it may be possible as the market is extremely inefficient.

Using Triaconta’s estimates and some estimates for the total trading volume gives some feeling about a bull scenario:

[A] = $50m per month (volume rank 246 on Coinmarketcap)

Annual dividend = $50m x 12 (months) x 35% x 5% x 50% = $5.25m

[A] = $100m per month (volume rank 191 on Coinmarketcap)

Annual dividend = $100m x 12 (months) x 35% x 5% x 50% = $10.5m

[A] = $200m per month (volume rank 143 on Coinmarketcap)

Annual dividend = $200m x 12 (months) x 35% x 5% x 50% = $21m

In follow up posts (at the earliest next weekend) I will dive deeper into:

  • Estimates of the variables determining the dividend ([A], [B] and [C])
  • CombiCoin properties compared to competitor’s (e.g. no management fee)
  • The company Triaconta and it’s management team
  • New entrants and effect on valuation

Orbit International’s operating leverage part 2

An update on my previous post where I explained the significant operating leverage of Orbit International and why I believed that it was more likely than not that Orbit would be able to take advantage of it by growing revenue.

orbt power

I now believe that it is very likely that Orbit will be able to take advantage of it. A 100% subsidiary, Behlman Electronics Inc, was awarded a 22m USD indefinite-delivery/indefinite-quantity contract last week, of which 12m USD already has been obligated. This award has not been communicated via a press release yet.

Behlman Electronics Inc.,* Hauppauge, New York, is being awarded a $21,709,300 firm-fixed-price, indefinite-delivery/indefinite-quantity contract for the production and delivery of up to 180 Common Aircraft Armament Test Sets (CAATS) and 100 Pure Air Generator System Adapter Sets (PAGS PAS) for the Navy and the governments Spain, Italy, Finland, and Kuwait.  These CAATS and PAGS PAS will be used to test various Navy and Marine Corps bomb racks, missile launchers, pylons and rocket launchers at the intermediate maintenance level.  Work will be performed in Hauppauge, New York (53 percent); and Indianapolis, Indiana (47 percent), and is expected to be completed in September 2020.  Fiscal 2016 and 2017 aircraft procurement (Navy) funds in the amount of $11,648,070 will be obligated at time of award, none of which will expire at the end of the current fiscal year.  This contract was competitively procured via an electronic request for proposals as a 100 percent small-business set-aside; three offers were received.  This contract combines purchase for the Navy ($18,452,905; 85 percent); and the governments of Spain ($868,372; 4 percent); Italy ($868,372; 4 percent); Finland ($868,372; 4 percent); and Kuwait ($651,279; 3 percent) under the Foreign Military Sales Program.  The Naval Air Warfare Center Aircraft Division, Lakehurst, New Jersey is the contracting activity (N68335-17-D-0039).

Apart from this contract award, the company also repurchased a tremendous amount of stock, showing their confidence in the future. They repurchased 348,541 shares in the current quarter and 562,473 YTD (13.4% of shares outstanding).

These recent developments, combined with the strong balance sheet make it a very good investment opportunity in my opinion.