Wright Investors’ Service Holdings (IWSH) – Net-Net – 43% Upside

Current Price: $0.21

Target Price: $0.30

Upside: 43%

Expiration Date: TBD

This idea was shared by Quint.

 

IWSH is a cash shell with $6m in cash and $25m in NOLs carryforwards. For almost 3 years the company has been silently burning cash, while "considering strategic uses for its funds to develop or acquire interests in one or more operating businesses". Currently, IWSH trades at 29% discount to its cash (no debt). Prominent outside investor and CEO have increased their stakes in the company recently.

Despite relatively high cash burn and no updates on the strategic review process, recent events give hope something is still in the works:

  • In 2019, a prominent investor William Miller - ex-chair and chief investment officer of Legg Mason, one of the early investors in Amazon took a position in IWSH at 2x the current share price ($0.43/share). Miller also is the founder of Miller Value Partners, which manages $4bn AUM, however, he bought IWSH via his personal trust rather than through MVP. Later on he bought shares two more times (see timeline below) - in Aug'19 at $0.42/share and in Dec'20 at $0.20/share. At the moment, Miller owns 17.4% of IWSH. It is not exactly clear, why is he buying shares, however, his presence significantly increases the chance of favorable development for Wright Investors'.  Although this is a speck-sized position for Miller, it is hard to imagine that Miller is just randomly throwing a couple of million at IWSH expecting them to be burned to zero.
  • The CEO Harvey Eisen owns 30.7%. His performance at IWSH since 2012 is not exactly applaudable and even now he continues to milk the company paying himself $300k a year salary. However, interestingly, CEO has also acquired material amount of shares recently - around 442k at $0.42/share in Aug'19 and 582k at $0.20/share in Dec'20. The total sum he paid for these two purchases is around $300k. It is also difficult to believe that he would spend all of its annual salary on stock, which is worthless.
  • The cash burn is substantial - $1m in 2020. However, it is gradually decreasing. As of March'21 there's $6.1m of cash on the balance sheet, so at the current rate the company has almost 7 years until the cash ends or about 1.5+ years until it drops down to the current market cap value. The margin of safety seems sufficient.
  • IWSH has $25m of federal and state NOLs with long expiration dates (2031-2037, and some do not expire at all). These NOLs could be worth c. $5m undiscounted if the company manages to find a suitable cash-cow business to acquire.

More than anything else, this is a bet on W. Miller to do something positive with IWSH until the cash runs out.

The biggest risk is that nothing happens and the company continues to burn cash.

 

Cash burn

The company has two employees. According to the latest proxy, the CEO salary is $300k/year, while the "CFO" gets $150k+. Office rent is $3.8k/month ($46k/year), the rest is professional services and other expenses - potentially part of this goes towards due diligence on various acquisition targets.

In 2020 the company received a $53k PPP loan, which has been forgiven and accounted as income in Q1'21. Elevated interest and other income in Q3'20 is mostly from the sale of the previous company's ticker (WISH) for $250k.

According to the 3 most recent quarters further run-rate cash burn should stand at around $900k/year.

 

Timeline

  • July 2018 - IWSH sold its advisory business for $6m cash and became cash shell.
  • March 2019 - an activist Cove Street reported 9% ownership at average price of $0.47/share and started a campaign against the CEO:

The Reporting Persons believe that the Company has been grossly mismanaged by the Chief Executive Officer and Chairman Harvey Eisen (“Chairman Eisen”) since 2012, when the Issuer acquired The Winthrop Corporation, producing a significant loss of stockholder value. Since June 2018, Robin and Bronchick have had numerous conversations with the Board and Chairman Eisen via the telephone, email, in person and via formal letter to the Board in regard to attempts by CSC to assist in planning a new strategic vision for the Company after years of disappointing results and a lack of future plans articulated by the Company.

  • June 2019 - Cove Street announced intentions to put its slate of nominees in the upcoming elections.
  • July 2019 - W. Miller filed a 13D after he acquired 7% of IWSH at $0.43/share (near $600k total).
  • July 2019 - Cove Street increased its stake to 10.54%
  • August 2019 - IWSH set the meeting for October 2019.
  • July 2019 - Cove Street increased its stake to 13.4%.
  • August 2019 - just a month after buying IWSH shares, Cove Street decided to back down and privately sold all of its stake to Eisen, Miller, Moglia and some other shareholders at $0.42/share.
  • December 2020 - one of the major shareholders Joseph Moglia, who also bought shares from Cove Street a year ago, now sold all of his shares to Eisen (582k) and Miller (1.37m) at $0.20/share.

6 COMMENTS

  1. Intrader

    Why did Cove back down and accept a 10% loss?

    Presumably, management communicated something to them that a 10% loss was better than the alternative (i.e., They plan to milk this thing to $0)

    3
  2. ryanwalex

    What is the business case here? They have no business and no plans to return shareholder capital. I get this is a net net, but there doesn’t seem to be anything here. Seems like these 3 employees are getting paid to do nothing.

    1
    1. Ilja

      You are correct, there is no business case here and the idea itself is quite speculative. This is a net net company with an ongoing strategic review. The bet is that with the presence of W. Miller, who together with the CEO has already spent millions on acquiring shares, IWSH will manage to put that cash pile and NOLs to use (e.g. find an attractive deal) and extract value from these NOLs to all shareholders. Also the bet is that this will happen before the current cash pile evaporates. Time (margin of safety) seems sufficient for something positive to happen here. However, the scenario where IWSH just continues to burn cash by paying out management salaries is also quite likely.

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      1. ijw

        If it is quite likely they burn up the cash, isn’t this fairly valued, or close to fairly valued? Seems like a sizable discount is warranted then.

  3. jwestern

    Maybe Eisen bought those shares recently to get a larger voting position, as a defense of his salary for the years to come?

  4. Ilja

    Discount to cash has narrowed down and the remaining discount is likely much closer to farily reflecting the continuing cash burn risk. Hence, we are closing this idea and marking +17% in one month at current price.

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