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The following segment was excerpted from this fund letter.
ENDI Corp. (CrossingBridge Advisors, OTCQB:ENDI)
Over the past nine months we have been able to build up a decent size position in ENDI Corp at around $4 per share, or two times earnings net of cash. It has since climbed to above $6.50 per share.
ENDI Corp, formerly known as Enterprise Diversified and prior to that Sitestar, has been quite a ride for long-term shareholders. Eight years ago, the company was taken over by private investor Jeff Moore and Steven Kiel of Arquitos Capital. The company invested into Alluvial Fund, managed by Dave Waters. Then the wheels came off. An investment into an Arizona HVAC company failed miserably. The real estate investment, Mt. Melrose, grew too quickly and spent capital buying more homes than they could rehab and market in a reasonable amount of time, and was eventually sold. Then the Alluvial investment, the only major part of the business performing well, grew too big and triggered Investment Co. Act of 1940 regulatory issues. Management decided to fully redeem the investment and by late 2021 ENDI was left with a pile of cash, a small yet profitable internet dial up business, Sitestar, and Willow Oak Asset Management which had small revenue shares from a few small hedge funds along with offering administrative and compliance services to a handful of funds.
In late December 2021 they announced a merger with CrossingBridge Advisors and Cohanzick Management, an investment advisory firm led by David Sherman that focused on mutual funds with shorter term debt instruments. Prior to starting Cohanzick and CrossingBridge, Mr. Sherman was a senior executive and Treasurer of insurance operations at Leucadia. The deal closed in August 2022. The end result was a “new company” and new management albeit with the same ticker – ENDI (note: older SEC filings are under Sitestar while newer ones are under ENDI Corp.). As part of the deal, CrossingBridge contributed some of its advisory agreements in exchange for shares valued at $8 per share, leaving the new entity with a large amount of cash and a profitable asset management business.
The costs of closing the deal hurt results in 2022 yet they still reported $0.66 in EPS. In 2023 ENDI reported EPS of $0.46 per share. The share price was languishing around $4 per share. You might think things were trending in the wrong direction. Not at all! In fact, a number of positive events occurred in 2023 and even more in early 2024.
On May 12, 2023, the company closed on agreement to acquire RiverPark Strategic Income Fund, which was sub-advised by David Sherman and Cohanzick. Essentially ENDI would own the full revenue stream from the advisory fees and pay RiverPark up to 50% of the revenue for the next three years and then 20% of revenue in years four and five.
On October 23, 2023, ENDI launched a UCITS fund, the CrossingBridge Low Duration High Income Fund. The fund is similar to its US Low Duration High Income Fund but is intended for investors outside North America. The fund had reached $59 million in assets under management (‘AUM’) by December 31, 2023, and over $80 million by March 31, 2024. According to the April 19, 2024, conference call this was accomplished without a seeder, and they are yet to target large family offices.
On January 12, 2024, the company filed Form 15 to deregister with the SEC. This should reduce professional fees.
On March 9, 2024, Crossing Bridge replaced Cohanzick as sub advisor to the RiverPark Short Term High Yield Fund as part of a deal for ENDI to acquire all remaining assets of Cohanzick for a $10 million note yielding 8%. This increased AUM by roughly $800 million.
ENDI has 5.47 million shares outstanding. A current price of roughly $6.50 per share, for a $36 million market cap. Insiders own about 53%. What we felt the market was missing was that the company was no longer what it was, and more importantly it significantly increased earnings power based on the recent growth in AUM. Assets under management are currently $2.9 billion versus $1.8 billion at the end of 2023 and $1.5 billion at the end of 2022. Due to the March acquisition, true earnings power will not be reflected until the June quarter, but we estimate 2024 earnings at $0.86 per share.
What made ENDI even more attractive was that they had cash and investments of $16.7 million, or $3.06 per share, as of the end of 2023. The most recent deal added $10 million of debt so net cash has subsequently decreased to $1.25 per share, but cash should build faster than earnings due to ENDI not being a full tax payer. We estimate March 2024 cash and investments at nearly $1.50 per share. At $6.50 per share ENDI is trading at just six times earnings net of cash.
We think shares of ENDI are worth eight to ten times current earnings plus net cash, or $8.35 to $10 per share today with that value growing $0.25 per share every quarter. Thus, by the end of the year we see fair value being $9.75 to $11.50 per share based on slightly higher earnings run rate and an estimated cash balance of $2.30 per share. Unfortunately, due to ENDI’s small size, it will be a smaller position for the fund, but big enough to be meaningful. We should note the stock has not had much liquidity the last month or so.
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DISCLAIMERS Fund Performance The financial performance figures for 2024 presented in this report are un-audited estimates based on the best information available at the time of the letter and are subject to subsequent revision by the Fund’s auditors. Past performance may not be indicative of future results and no representation is made that an investor will or is likely to achieve results similar to those shown. All investments involve risk including the loss of principal. Net Return reflects the experience of an investor who came into the Fund on inception and did not add to or withdraw from the Fund through the end of the most recently reported period. The reported net return figures will therefore include the impact of high water marks in the cumulative return. Individual investor returns will vary depending upon the timing of their investment, the effects of additions and withdrawals from their capital account, and each individual’s high water mark figure, if any. Index Returns The S&P500 Index returns are reported using the S&P500 Depository Receipt Trust (SPDR) which trades under the ticker symbol SPY. Reinvested dividends are included in these figures. A spreadsheet showing the SPY performance versus the fund since inception is available upon request. Nasdaq performance excludes dividends, which historically have been immaterial to the total return of that index. In recent years more technology stocks have begun paying dividends thus the inclusion of dividends would increase the reported figures. Russell 2000 performance is from data reported on Russell’s website, and includes reinvested dividends. DJIA returns are reported using the SPDR Dow Jones Industrial Average which trades under the ticker symbol DIA. Reinvested dividends are included in these figures. A spreadsheet showing the DIA performance versus the fund since inception is available upon request. While reported returns for SPY and DIA will likely be a few tenths of a percentage lower than the representative index annually, we believe they are a better reflection of what a non-institutional investor would earn following a passive investment approach. Index returns are provided as a convenience to the reader only. The Fund’s returns are likely to differ substantially from that of any index, and there can be no assurance that the Fund will achieve results that are superior to such indices. Share Prices Share price figures for listed stocks are from Yahoo! Finance and unless specified otherwise are the closing price as of the previous month end. Share price figures for unlisted stocks are closing bid prices as reported on Official site of OTCQX, OTCQB and Pink Markets | OTC Markets, except for unlisted stocks classified as expert market, which do not have public availability of quotes, and are marked to last sale. Forward Looking Statements This letter and the accompanying discussion include forward-looking statements. All statements that are not historical facts are forward-looking statements, including any statements that relate to future market conditions, results, operations, strategies or other future conditions or developments and any statements regarding objectives, opportunities, positioning or prospects. Forward-looking statements are necessarily based upon speculation, expectations, estimates and assumptions that are inherently unreliable and subject to significant business, economic and competitive uncertainties and contingencies. Forward-looking statements are not a promise or guaranty about future events. |
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Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.
