Is BTN going to double in 6-12 months?
Updated: Apr 15
I like to invest in asymmetric bets with tons of upside and very little downside.
While the market is talking about big ticket investments like Coinbase, Facebook, Amazon, and Bitcoin, I like to scavenge around in microcap land, far beneath the public eye.
To be honest, I don't have any special analytical abilities. I make mistakes pretty often and don't even try to invest in big megacap stocks that are covered on CNBC. There are way too many smart people out there who know way more than I do for me to have any form of edge.
However, where I can maybe, possibly, hopefully, have an edge, is in minuscule, misunderstood companies no one is talking about. If I can find a company with a solid balance sheet, some hidden investments, a great management, in an "okay-ish" industry, with a near-term catalyst, I might be on to something.
Ballantyne Strong ($BTN) is such a company.
BTN is in the business of manufacturing screens for movie theaters and amusement parks. Manufacturing is based out of Montreal, but they distribute all across America and some other countries.
As you can imagine, Covid decimated their business. Since no one was going to movie theaters, movie theaters weren't paying for new screens and repairs.
This spelled trouble for BTN.
But, the movie theater screen manufacturing and repair business is only a portion of why the stock is going to double. So, let's shelve that for a minute.
Let's talk about a guy named Kyle.
Kyle Cerminara is a master capital allocator and CEO of Fundamental Global. Over the past few years Kyle has built up a massive stake in BTN and has since become Chairman of the Board. His company owns 50% of the shares outstanding.
As part of Kyle's strategy, BTN has since diversified its reach outside of the movie screen business and into other obscure investments connected to Kyle's company.
So, what are these investments?
A publicly traded investment firm specializing in SPAC (Special Purpose Acquisition Corporations) investments
A collection of lumber mills
A Google-backed media start up called Fire Fly
What a wild slew of investments!
Let's dive in.
The first investment is in a company called FGF. FGF sponsors SPACS. A SPAC is a cash shell raised by institutional and retail investors with the goal of merging with a private company. In doing so, the SPAC then becomes the private company and voila, the private company is now public.
SPACs have been all the rave these days. Unfortunately though, retail investors jumping into SPACs have been getting burned left and right. There has been so much excitement that many investors have started to bid up the price of SPACs so far beyond its fair value that even if a merger is announced, the SPAC falls in value.
I'd love to go into SPACs in more detail, but I'll leave that for another time.
So, where does that leave FGF and BTN. Well, FGF sponsors SPACs. If the SPAC (check out FGNA) merges with a company, FGF will get a large portion of the shares of the newly merged company. The beauty of this transaction is that FGF puts in barely any money in return for a sizable stake in a public company.
It is important to note, however, that if FGF doesn't find a deal for its SPAC, whatever money they put in vanishes - so there is certainly risk involved.
Great - so BTN owns 20% of FGF.
Next investment is a company called GreenFirst. GreenFirst used to be a fund called Itasca. When Itasca was just a cash shell of $10MM, BTN bought into it. The goal was to either return cash to shareholders or do something smart with the money.
They ended up doing something smart.
Just 8 months ago, Itasca purchased a lumber mill in Kenora, Ontario and they renamed the company GreenFirst Forest Products. The stock ICLTF began to charge forward on the good news.
Just last week, ICLTF traded for about $2.55. BTN bought the stock at $0.35. Kudos to Kyle, because that is one hell of a return.
So, where is ICLTF now?
Well, something incredible was announced this week. ICLTF is under contract to purchase 6 additional mills throughout Canada for a total of appx. $200MM. The capital structure is a little convoluted, but bottom line the deal is absolutely incredible for ICLTF shareholders.
The stock is halted right now pending some documentation regarding the deal, but I anticipate ICLTF will likely trade in the $6-$8 range (in Canadian $) immediately. That's potentially 300% - 400% more than its $2.55 closing price.
For more detail check out these links:
So, what does this mean for BTN?
Well, BTN owns 7MM shares of GreenFirst. At $8 CAD that would mean a $45MM USD investment for BTN on the first day of trading.
Not bad for a $70MM market cap company.
The last investment is in a company called Fire Fly. This is an illiquid investment in the media and taxi/uber industry backed by Google Ventures. BTN's position is valued at about $13MM. Let's just leave it at that for now.
So let's add up all the pieces.
BTN owns 20% of FGF. FGF is trading at $32MM, so that's $6MM of value for BTN
ICLTF will probably trade at $8 CAD, so BTN's stake should get valued at $45MM.
Fire Fly is worth $13MM.
BTN owns the movie screen manufacturing building in Montreal - let's call that $3MM of value.
BTN has a net cash position of $23MM.
So what does that equal?
$6 + $45 + $13 + $3 + $23 = $90MM
So BTN should theoretically trade at a $90MM market cap - or $4.92/share using the 18.3MM shares outstanding.
Right now, at $4/share, despite the massive 60% run-up after the GreenFirst deal was announced a few days ago, I believe the stock is still undervalued.
I think if ICLTF begins trading again at the $8 CAD range, BTN should move closer to the $4.50 - $5.
This could quite possibly happen within a few days.
Oh by the way, I'm not even including the core movie theater screen business. If that business stabilizes to pre-Covid levels, I think the stock should re-rate to $8.
And there is your double in 6 - 12 months.
Disclaimer: I own shares of BTN
Disclaimer #2: This is definitely not investment advice