Archive for October, 2015
CVSL announced the acquisition of another large established direct sales company in the UK overnight. Betterware generated approximately $38 million in revenue over the last twelve months, has over 5,000 sales reps and offers products and services that should be very complimentary with the Kleeneze business acquired earlier this year. While the terms have yet to be disclosed, we expect that the valuation metrics for the purchase price will fall within the company’s stated target range and that this will add significantly to CVSL’s growth and ultimately, its profitability.
Wanted to point out another interesting development with CVSL that we thought the Groove community might want to consider. SEC filings from earlier in the week indicate a large movement of CVSL shares owned by insiders and it appears that 125K+ shares owned by Chairman John Rochon were gifted to children’s trusts recently. There is a tax attorney in our group who was previously an estate tax specialist, his take was that this is a very bullish sign. The amount of value that an individual can transfer in any single year without being subject to a very high gift tax has an annual limit and when you exceed that limit, you start to use your lifetime exemption amount. Without going too deep into estate tax nomenclature and strategy, these kinds of transfers are designed to take place at the time when the assets can be valued as low as possible. With a listed stock, the value for gift tax purposes is almost always going to be the trading price on the day the gift is made. Thus, from the stand point of paying the lowest taxes, the best time to transfer a stock is when it is at its lowest point. We think it is safe to say that the stock transfer gifts made recently occurred after significant thought and planning and were made because Mr. Rochon believed that the stock had reached the lowest point it will be trading.
Pie Five Pizza IPO or Blaze Pizza IPO
A good article was published by one of our own earlier this week that makes the case for a spin out of Pie Five Pizza into its own stock to allow investors to buy into a pure play on the fast casual pizza space. The valuations achieved both in the offering and after IPO trading for other fast casual restaurant stocks suggest that PIE Five as a stand alone might be worth several times RAVE’s current market cap. Additionally, it makes the point that even if Pie Five is not the first IPO in the space, RAVE will still likely benefit as Blaze Pizza or one of the other big players files to go public. The high-profile nature (especially after Lebron’s dumping Mcdonalds last week to focus on Blaze) of a Blaze IPO and the valuation it would achieve would surely lead to investors to reassess the value of the Pie Five operations given the almost identical model and similarity in size. A $300 million IPO valuation for Blaze leads to a $20+ RAVE valuation and those numbers will likely prove to be conservative for both RAVE and Blaze twelve months out. While it appears that short sellers are still having a big impact on RAVE’s day-to-day trading, we believe they will begin to unwind those positions over the next couple of months if not sooner. This additional buying pressure should continue to push RAVE shares higher and we expect to see it back over $10 again soon.
We have received several queries from Groove community members following the last few trading sessions and we wanted to provide a community-wide update.
RAVE shares have been falling since the company reported Q4 and full year earnings for the year ended June 28, 2014. It appears that investors / traders may be growing impatient and/or were simply underwhelmed by the company’s top line, we believe that view is short-sighted. Rave’s move into the Chicago and Atlanta markets will be big drivers of revenue growth going forward and the majority of the new restaurants in those markets were opened after June 28. Thus, the substantial increase in revenues will not begin to show in the financial statements until Q3. RAVE’s store count has more than doubled since the beginning of the year (from 31 stores Dec. 28, 2014 to 70 stores open now) and the growth is only accelerating for the remainder of the year with 20+ restaurant openings slated for the last three months of the year. More importantly for those hyper focused on RAVE’s top line, the corporate owned restaurant additions were heavily weighted towards the July – December period this year, so there should be significantly higher revenue growth in the back half of calendar year 2015. The bottom line is that this market has grown far too focused on the extreme near term and those who miss the big picture may miss another opportunity to buy RAVE in the single digits. RAVE is a screaming buy in the current $8.30-$8.60 range.
CVSL has given up nearly all of September’s gains and has traded back to the $1.50-$1.60 range, which we feel is both ridiculous and fortuitous. The company and its subsidiaries appears to be hitting on all cylinders and everypiece of anecdotal evidence we can track down suggests a good finish to Q3 across all divisions. This continuation of the growth evidenced towards the end of Q2 should be the focus of investors and we are very surprised that we have the opportunity to buy shares in this range again. We hope that Groove community members and CVSL company sales reps will take this opportunity to buy a piece of CVSL below $2, as it will not be around for long. CVSL below $1.80 is dirt cheap and we see the current trading range as one of those “back up the truck” opportunities.