TURN Q2 update – remains buy, NAV discount continues to be unjustified

TURN reported Q2 earnings Monday and did the call yesterday morning – story remains exciting as NAV is at a 6.5 year high and grew 80 bps from last quarter and is now at $10.68 per share (stock as of close yesterday was $7.57, so a 29% discount to NAV).

As a quick refresher on this story, 180 Degree Capital is a closed end fund with a mix of public (ex. Potbelly, Armstrong Flooring) and private (ex. AgBiome) securities. The market has basically written off the private securities to zero. I have some thoughts you can read on why I think that’s BS here. That said, the company is aware of the knocks against it and makes efforts every quarter to tell you how it is moving its entire portfolio to be all public securities and cash:

“I will never be satisfied until the private part of that pie chart is zero.”
– CEO Kevin Rendino

I think in the short term CEO Kevin Rendino will continue to lower the exposure of the private portfolio and long-term I think he can pick stocks better than me. Said another way, the stock has upside just on the NAV discount alone and Rendino I think is a source of alpha. Some notes from the quarter:

– I give the company a lot of credit for telling shareholders where it has swung and missed. Sonim (SONM), a mobile phone network company that has tried to sell and failed to the likes of AT&T, didn’t work out for them and they lost $0.14 per share as Rendino and co. sold out the position and resigned as board observers. 
– The private portfolio decreased about 5% in value and AgBiome actually took a valuation hit on its new financing (about 8%)

– There was a question on the markdown for AgBiome on the call – Wolfe and Rendino say the business is making progress and they can’t say much more because of restrictions around information sharing, but they did seem to suggest it wasn’t really a down round and just a result of some “capital stack” changes

– Adam Waldo pursued this a little further but they can’t say anything more due to SEC regulations it looks like
– In the opening remarks, Daniel Wolfe (co-PM with Rendino) spends some time talking about their public positions (SNCR – new, PFSW – materially added). I don’t know enough about the thesis on these to write about it here but I’d say you could totally invest in their ideas yourself. They take the time to educate you on why they’re doing the things they’re doing
– Armstrong Flooring (AFI) and Quantum Corp (QMCO) they say are both double digit stocks (they trade at about 4 and 5 bucks each right now). Note both are in the midst of massive, NCMI like drawdowns (30%+ each). See, I’m not the only one who likes stocks that have taken a beating 🙂

Overall, I like listening to Rendino and Wolfe and am really comfortable with them managing my money. There’s margin of safety in the NAV discount. There’s alpha in these guys just being great PMs and finding inefficiencies in the market. And you learn something about investing when you hear the earnings calls. This is a good one to own and I continue to opportunistically buy.