RE:RE:Verticalscope?Hi guys,
as Media said, in my post from last June
https://www.stockhouse.com/companies/bullboard/t.ts.b/torstar-corporation?postid=26404061
I tried to show up the possibilities of unlocking value at Torstar and calculate the true value of Torstar. I think this valuation is still in the right ballpark even if some factors changed somewhat:
- Eyereturn having some difficulties and probably generating slightly negative Ebitda
->worth somewhat less than 20 milliont
- Blue Ant merged with Racat, developing very nicely (Torstar's stake still 16%)
->possibly worth somewhat more than 40 million
- Pension liabilities' NPV eventually wiped out through legislative action; interest rates going up
->major positive, could theoretically be worth about 100 million
- Newspaper business under pressure as expected, but still worth something, because of the Toronto Star brand and a free cash flow positive Metroland Media
->no massive change to the valuation
- Verticalscope still Torstar's biggest asset:
Chris Goodridge (former Chief Digital Officer at Torstar) was announced as Chief Investment Officer of Verticalscope last June. Since then VS massively stepped up acquisition pace ( they spent only usd 15 million in 2016 and I expect more than usd 50 million in 2017 - more than the free cash flow of nearly Usd 30 million, as a consequence driving up debt). The big question is if these acquisitions will still be as value generating as in the past or did Mr. Goodridge only dilute their acquisition criterions to ramp up the pace? I hope not. Only time will tell! To finance these acquisitions VS got a 5 year syndicated loan last November (usd 200 million, 70 million of that delayed ). So I expect them to spend more than only the free cash flow on acquisitions in the foreseeable future. As long as they don't make stupid acquisitions more leverage is a positive, but it increases Verticalscope's risk profile. The Varagesale acquisition last November is interesting, because it increases the software development capabilities of VS. With respect to app development I don't know their exact strategy, but Varagesale has (based on linkedin data) about 25 employees and nearly zero revenues, so expect this to be a bit of a drag for Verticalscope's Ebitda at least in the short term. In the last few months VS also acquired big forums like Overclock.net (Alexa rank 7200; I estimate 3-4 million monthly unique visitors) and Skyscrapercity.com (Alexa rank 3140; I estimate over 5 million monthly unique visitors). Just Google these forums to get more information. Overall I think the business model of VS with its niche in enthusiast forums is interesting. The fact that KKR still tries heavily to expand its Internet Brands subsidiary (e.g., WeBMD acqusition last year for 2.8 billion or 14 times Ev/Ebitda) shows that it is an interesting business with gross margins over 50%. Even conservatively only using 12 times Ev/Ebitda, Torstar's Verticalscope stake alone is worth more than 3 dollars per share. As long as Verticalscope's development remains positive you can expect a big windfall to Torstar when the value of VS is unlocked through IPO, sale etc. Yes, it is sad that we as shareholders don't get much more detailed info on Verticalscope. Imo the reason is that Rob Laidlow wants VS to fly under the radar as long as possible, so that competitors remain in the dark about acquisition valuations etc.
Fyi, I expect Torstar's Verticalscope stake to contribute about 7 million of adjusted Ebitda in the fourth quarter. Somewhat less than last year's 7.5 million, because of a very high comparable gross margin last year and higher costs associated with the Varagesale acquisition in early November.
I hope 2018 brings some positive developments and surprises. I remain very optimistic in the long run, because at this insanely low stock valuation the margin of safety is very high. And in the backround somebody called "The Warren Buffet of Canada" is lurking....
There is a high chance that patience will be rewarded. Stay strong!
Best regards,
Don