| Small & micro cap project / Activism insight

180 Degree Capital – notable CEO letter

by | May 12, 2020

180 Degree Capital Corp. is a publicly-traded registered closed-end management investment company.

The company’s CEO letter to the shareholders caught our attention.

Some background-

  • Kevin Rendino, CEO: For over twenty years, Mr. Rendino worked on one fund, Basic Value Fund, with a consistent Graham and Dodd focus, at, BlackRock/Merrill Lynch. He was the Value team leader, overseeing 11 funds and $13B in assets and a member of Blackrock’s Leadership Committee.

One of the reasons I left BlackRock in 2012 was that I found it harder and harder to add alpha by investing in the largest market capitalization companies that existed in the United States. I wanted to invest in a part of the market where good stock picking could take advantage of market inefficiencies. That is why we have been focused on the microcap universe of companies, where the market is so much more inefficient due to factors including less indexing, limited analyst coverage, and low liquidity.

  • Change in strategy: Three years back, the company changed its strategy to a closed-end fund, investing in small capitalization public companies with a constructive activist approach. Over the three years since it made this change, NAV increased significantly from $2.34 to $3.06 per share, despite despite only being able to access, on average, 37% of its balance sheet.
  • Excerpts from the letter:

Quantum Corporation (NASDAQ:QMCO) completed the restatement of its financial statements and is now up to date with all of its filings with the SEC. This milestone allowed the company to publicly discuss everything the new management team has been working on over the past two years to clean up the organization and set it up for future growth. It also enabled QMCO’s management to communicate an important message: tape is not a melting ice cube. In fact, tape is experiencing a resurgence due to the desire for hyperscale cloud computing providers to incorporate low-use, ultra-low-cost data storage options into their product offerings. Tape also has the advantage that data stored on it is impervious to hacking while not in use. The company announced expected EBITDA for its fiscal year 2020 of $50-55 million, or a 55-70% increase from the prior year. Immediately following this announcement, the stock rallied from $3.69 to $5.00 and ended Q3 2019 at $5.70. The stock continued to move higher in Q4 2019 and closed at $7.42 at year end as more and more investors are taking notice of QMCO’s phoenix-like rise from the ashes.

CEO letter: Kindly refer Page 2 – 7 CEO letter

 

 

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