Cannae Holdings Inc.
Cannae Holdings Inc. (NYSE: CNNE) is engaged in managing a group of investments in companies and executing majority and minority equity investments in businesses to maximize the value of these assets. The company’s primary investments include the minority ownerships in Dun & Bradstreet Holdings, Inc.; Ceridian HCM Holding, Inc.; Paysafe Limited; Optimal Blue Holdco, LLC; Amerilife Group, LLC; QOMPLX, Inc.; and majority ownership in O'Charley's Holdings, LLC; and 99 Restaurants Holdings, LLC and various other equity and debt investments. As of May 10th, 2021, the company’s market capitalization stood at USD 3.38 billion.
USD 500 million investment in Paysafe with Foley Trasimene: On March 30th, 2021, the company announced the completion of a USD 500 million investment in Paysafe Group Holdings Limited’s business combination with Foley Trasimene Acquisition Corp. II, a special purpose acquisition company. The combined entity now operates as Paysafe Limited (NYSE: PSFE). The company got 54,294,395 common shares and 8,134,067 warrants of Paysafe at the cost per share of USD 9.11.
Share Repurchase Program: On March 1st, 2021, the company announced its three-year stock repurchase program, under which it may repurchase up to 10 million shares of its common stock, effective from February 26th, 2021. The company’s chairman, William P. Foley, II, stated that key investors believe that the company’s stock is undervalued and is trading below the book value despite their recent terrific investments in the business.
CNNE Intrinsic Share Value Components (Company Estimates, Source: FY20 annual report)
Q1FY21 Results: The company reported a slight decline of 0.63% in total operating revenue to USD 171.90 million in Q1FY21 (ending March 31, 2021) as compared to USD 173 million in Q1FY20 (ending March 31, 2020). Total restaurant revenue contributed 97.32% of the total operating revenues in Q1FY21. The company reported negative earnings of USD 233.80 million in Q1FY21. Its cash flow from operations stood at USD 6.00 million in Q1FY21 as compared to a cash outflow of USD 34.30 million in Q1FY20.
Key Risks: The Covid-19 pandemic disrupted the restaurant and hospitality industry. Commensurately, the company had to close its restaurants, modify its working hours, and implement cost-saving measures throughout its restaurant group operations. The Covid-19 pandemic has negatively impacted the financial situation of the company, and any prolonging of the same is likely to dent the financials further.
Valuation Methodology: EV/Sales Multiple Based Relative Valuation
(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company’s FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
CNNE Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: CNNE has already declined by 9.41% in the past three months and is currently leaning towards the mid-point of the 52-week range of USD 29.88 to USD 46.57. The stock is currently trading below the 200 DMA level. We have valued the stock using the EV/Sales based relative valuation methodology and arrived at a target price of USD 41.47. Considering the decline in the stock price in the past three months, the company’s share repurchase program, its recent robust investments, and associated risks, we recommend a "Buy" rating on the stock at the closing price of USD 36.94, down by 2.99% as of May 10th, 2021.
CURO Group Holdings Corp.
CURO Group Holdings Corp. (NYSE: CURO) is a consumer finance company dealing with non-prime and prime consumers in the US and Canada. The company deals in consumer finance products such as unsecured installment loans, secured installment loans, open-end loans, and single-pay loans. As of March 31st, 2021, the company operates in 209 retail locations in the US with an online presence in 36 states, and 201 stores in Canada with an online presence in five provinces. The company is engaged in two segments, namely, 1) the US Direct lending segment, which provides Revolving Letter of Credit (LOC) and installment loans to U.S.-based customers. 2) Canada Direct Lending segment, which provides Revolving LOC and installment loans to customers in Canada. As of May 10th, 2021, the company’s market capitalization stood at USD 657.38 million.
Acquisition of Flexiti: On March 10th, 2021, the company announced the completion of the purchase of Flexiti Financial, Inc., which provides a buy-now-pay-later credit facility to Canada-based customers. Consideration included $86 million cash and contingent payments of up to $36 million over the next couple of years. The acquisition provides CURO enhanced access to Canada’s credit card and point-of-sale (POS) financing markets, thus helping in long-term growth.
Q1FY21 Results: The company reported a 29.98% decline in total revenue to USD 196.60 million in Q1FY21 (ending March 31st, 2021) compared to USD 280.80 million in Q1FY20 (ending March 31st, 2020). The decline in total revenue was due to a 38.45% decline in the US revenues to USD 136.50 million in Q1FY21 compared to USD 221.80 million in Q1FY20. The credit performance of CURO’s customers continued to be impacted by the pandemic. However, the company reported an increase in gross profit to USD 101.90 million in Q1FY21 compared to USD 99.70 million in Q1FY20. Its provision for losses decreased by 68.10% to USD 36.20 million in Q1FY21 compared to USD 113.50 million in Q1FY20.
CURO Financial Performance (Source: Company Presentation, May 03rd, 2021)
Key Risks: Revenues coming from Texas and California (US), and Ontario (Canada) contributed 22.60%, 13.60%, and 16.60% of the company’s total revenue in FY20 and 24.60%, 18.40, and 13.60% in FY19, respectively. This exposes the company to geographical concentration risk. Any unfavorable economic or operational event in these territories could hurt the financial position of the company.
Valuation Methodology: Price/Earnings Multiple Based Relative Valuation
(Data Source: Refinitiv, Thomson Reuters, Analysis by Kalkine Group)
* % Premium/(Discount) is based on our assessment of the company’s estimated FY21E trading multiple after considering its key growth drivers, economic moat, stock's historical trading multiples versus peer average/median, and investment risks.
CURO Daily Technical Chart (Source: Refinitiv, Thomson Reuters)
Stock Recommendation: CURO has declined by 6.32% in the past three months and is currently trading in the higher band of the 52-week range of USD 5.36 to USD 20.81. We have valued the stock using the Price/Earnings-based relative valuation methodology and arrived at a target price of USD 17.57. Considering the slight adjustment in the stock price in the past three months, acquisitions of new businesses, and expected improvement in performance post-pandemic, we recommend a “Buy” rating on the stock at the closing price of USD 15.69, down by 0.63% as of May 10th, 2021.