In this post we quickly examine the most recent earnings report from CCUR Holdings (ticker CCUR), issued on November 1st (yes, we are very late, apologies!). For reference, please see (A) the company's Q1 FY 2020 earnings press release here and Form 10-Q filing here for a much more in-depth review and (B) a chart showing the recent performance of the company's shares immediately below:
CCUR reported positive net income of $3.4 million in the quarter, which might not sound like too much in the abstract, however this amount is close to 10% of the company's current market cap. Not bad for 90 days' work. In addition, CCUR's book value now stands at $6.40/share, meaning that there is still 58% appreciation potential in the stock just to "get back to even", as it were. While one shouldn't necessarily expect this level of net income quarterly going forward (especially since the most recent quarter included slightly over $1 million in realized gains, which are dependent to some degree on overall stock market movements), it does seem that CCUR is moving steadily towards sustainable profitability. Should a sustainably profitable diversified alternative finance company really trade at less than 2/3 of book value when interest rates are at rock bottom levels? We don't think so. At our longer term target of 1.25X book value, CCUR would trade at $8, about double the recent price.
In effect, the past year at CCUR has been an ongoing process of standing-up a brand new business model (MCA funding, real estate investment and a portfolio of equity and bond investments managed by significant shareholder Julian Singer [please see our prior blogs and research write-ups on the company on this website]). So it's not a surprise that the financials have bounced around significantly on a quarterly basis. In the most recent quarter, all aspects of the business contributed positively to results.
Investors seem to be missing the forest for the trees here (in our humble opinion). Rather than looking at how the company performed 2 or 3 quarters ago, shouldn't the rational investor try to project forward the trend in the company's results? Here is what the trend looks like currently (CCUR quarterly net income in $000s):
[Source: Barron's, company filings.]
And if we zoom out a bit in time and take another look at the long-term stock chart, this is what we think is going on with CCUR:
Our takeaway from all of this?
Rome wasn't built in a day. CCUR's stock won't return to double digits in a week or a month either. Investors (perhaps wisely) discount the "green shoots" of any new business model and wait to see if it's truly sustainable before bidding up shares. Yet, as Warren Buffett has said, "If you wait for robins, Spring will be over." And if you wait until a turnaround has fully turned around, you will miss out on most of the share gains. Thus, we plan to hold CCUR indefinitely as a core part of our portfolio, despite the obvious risks involved in turnarounds generally (as Buffett also famously remarked, "Most turnarounds don't"!).
DISCLOSURE: Long CCUR.