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27 Sep

Swing Tip For Live Inc. LIVE


Good afternoon.

Live Ventures Incorporated is a diversified holding company with several wholly-owned subsidiaries and provides, among other businesses, marketing solutions that boost customer awareness and merchant visibility on the Internet. They operate a deal engine LiveDeal.com, which is a service that connects merchants and consumers via an innovative platform that uses geo-location, enabling businesses to communicate real-time and instant offers to nearby consumers. In addition, they maintain, through their subsidiary, ModernEveryday, an online consumer products retailer and, through their subsidiary, Marquis Industries, a specialty, high-performance yarns manufacturer, hard-surfaces re-seller, which is a top-10 high-end residential carpet manufacturer in the United States.

The rational: What to do if you found a hidden gem? This play is based on the fact that LIVE will report their first yearly results in December after their successful business transformation. These figures will more than good!

The background of the play:

1/ Past earnings: As of fiscal year 2015, they began a transformation that brought them also in the manufacturing business besides their online market place LiveDeal.com. From the past earnings filings (http://bit.ly/2d4dGs8), one can see that the yearly gross profit for 2016 will probably approximately be doubled to 22.7m$ or +103% compared to 2015, even in the pessimistic assumption that the gross profit of the last quarter Q4’16 will be zero, which is very unlikely.

Looking at the price chart, you can spot very easily the dates of the different earnings calls in 2016 as they all triggered a huge price spikes of more than 50%! There is a high likelihood that this will repeat when they release their Q4 results mid December.

In February after the yearly earnings report, SeeThruEquity, initiated a coverage with a price target above 8$ http://yhoo.it/20Zh76Z. They will surely review or confirm their price target after the yearly report in February the latest.

2/ Shareholders: The CEO, Jon Isaac, purchased stock in April this year at 1.58$/share. Not only has it been 2 years that some insider trading occurred but there is also a recurring monthly compensation for a director Richard Butler (http://yhoo.it/2dlPvaN). For his services, instead of being paid in cash, he is granted for a total of 2.500$ shares every month (footnote 1 in http://bit.ly/2dlTgZl). Why would the CEO and a director take the risk that the price could go down? Clever as they are, they launched in the beginning of this year a stock repurchase program of 10 million $ in total (http://yhoo.it/2cFcj2f). In April they announced they bought 53K shares under this program around an average price of 1.5$/share. On August 15th, the total was 180K. As only 25% of the 10M$ is used, this program will continue to provide price support in the coming months.

3/ Short selling issue: Mid 2015, they became concerned that there was some naked short selling activity on their shares. In an attempt to clear this out they initiated a petition in April 2016 against some leading brokers (http://bit.ly/2dvWA7u). Currently, 2.7% of float is reported as short. However if any suspicious actions are identified as a result of this petition, a restriction in short selling could be put in place by the brokers. In an extreme, existing short positions could be requested to be covered driving the price higher.

4/ Increase Shareholder value: On June 21st, they set-up a sale and lease construction with their subsidiary Marquis Industries. With this construction 10M$ cash is transferred from Live towards Marquis in return for cash flow of 960K$ per year for 15 years (http://bit.ly/2dcUpBj). That’s an annual return of investment of 2.46%. The CEO mentioned that “Approximately 70 percent of the proceeds of the transaction will be used by the Company to pay down debt. The transaction will also enable Live Ventures, the parent company, to freely utilize cash flows generated from Marquis, including to pay dividends to Live Ventures

The play:

We anticipate a price spike of +25% the latest in December triggered by the very good financial results. As the price is currently supported by a share repurchase program in the range 1.5 -1.7, the time is ideal to start building up a position.

Trade green!

Jason Bond

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