YB new stock pitches (Mon, Dec 23)

Research Solutions, Inc. (RSSS) is executing well under new leadership, with recent resolution of a 2 million share overhang from founding family members and one-off legal and acquisition-related charges. The company is now running at approximately $6 million annual free cash flow, implying a 4% yield on its $142 million fully-diluted market cap ($3.84 share price, 37 million fully-diluted shares). About two-thirds of gross profit comes from growing SaaS sales. Management's ambitious goal is $12 million EBITDA in a few years, with potential for $10-13 million FCF. Assuming a conservative 5% FCF yield, this could lead to a fair value of $5.40-7.00 per share. Management incentives fully vest at a $6 30-day volume weighted average share price (VWAP).

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Daily Journal Corporation (DJCO), trading at ~$550, is significantly overvalued with a fair value of ~$260/share. The company consists of a shrinking newspaper business, a subscale court software segment, and a stock portfolio worth ~$255 million post-tax (~$185/share). The market is valuing its two challenged operating businesses at ~$490 million, or ~100x EBITDA. DJCO's newspaper business earns ~$15 million in revenue and <$1 million in EBIT annually, valued at ~$20 million. The software business, Journal Technologies, generates ~$55 million in revenue and ~$3 million in EBIT yearly, valued at $75 million. The company's stock portfolio, primarily consisting of bank stocks, faces challenges as Warren Buffett has been selling similar holdings. DJCO lacks the diversification and leadership of Berkshire Hathaway, with Charlie Munger no longer at the helm and new management showing weak alignment with shareholders. Catalysts for the short thesis include the closing of the knowledge gap and continued selling in the marketable securities portfolio.

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Redeye initiates coverage of Safello, a Swedish cryptocurrency brokerage founded in 2013, with a fair value range of SEK2.9-15.4 and a base case of SEK7.6. Safello aims to become a full-fledged crypto neobank and is well-positioned to benefit from the upcoming MiCA regulation due to its 'regulatory-first' approach. The company trades at a discount to peers despite lower risk, with a 2025e EV/S of 0.2x. Safello expects 12% transaction volume CAGR for 2024e-2027e, driven by new product launches and reactivation of latent users. Key catalysts include transaction volume growth and potential market share gains as MiCA implementation may challenge competitors. Risks include long-term execution uncertainties and managing banking relationships. The bull case of SEK15.4 assumes higher growth and margins, while the bear case of SEK2.9 factors in lower growth and steeper mean reversion in transaction values. Safello's valuation is sensitive to cryptocurrency price movements, with the company holding BTC and ETH worth 15% of its market cap.

Read the full article here. Read time: 25 min