A little over 3 months ago I wrote about FAX. Since then they have reported Q4 2020, Q1 2021 and held a (virtual) AGM.
Since the initial mention of FXC, shares have returned 12-13%. This compares to the TSX 60 return of about 8%, bitcoin is about flat, lumber is up 59%, and dogecoin is up about 400%. So I give my 1 quarter performance a B-.
We now have 6 quarters to compare the book value of FXC and measure the capital that has been deployed.
Of course, this is just a snaphot at the end of the quarter.
They have done quite well with the capital that has been deployed so far. The growth in book value given the drag of having a large % in cash has been impressive. Of course, there is no guarantee that this will continue.
There is still a fair bit of cash to be deployed, so I would expect to see continued deployment over the next quarters.
At the AGM the amended voluntary measures by-law resolution was approved. This allows FAX the ability to have more than 25% of assets in a position, which is up from the previous two portfolio investments be maximum 25% of assets (each). They state that the added flexibility will broaden the investible universe.
From the MIC
By removing the Investment Concentration Restriction, the Company will have access to a larger universe
of potential investments and the Company will be able to make larger investments in current Portfolio
Companies, if determined to be in the best interests of the Company. While no specific investment
opportunities have been identified by the Company that would necessitate an investment in an amount
greater than what is currently permitted under the Investment Concentration restriction, the Company
believes that the removal of the Investment Concentration Restriction will provide management of the
Company with increased flexibility to execute on the Company’s business objective and investment
strategies should one or more investment opportunities be identified and be determined to be in the best
interests of the Company.
Given the track record, I’m not concerned about concentration. I also have other positions in my portfolio, so really if FXC becomes concentrated the effect on my overall portfolio is muted.
They also provided quite a bit of detail on the first private company transaction. I don’t think I appreciated the market position of Carson, Dunlop and Associates. It would be nice to see a few more of these in their portfolio.
Based on what has been disclosed in the filings, I have book value of $5.30. This doesn’t take into account any trading fees or frictional costs that may have occurred post Q1. The site is free, so I wouldn’t be surprised if I missed something. At the last quoted price ($4.22) the P/B is 0.80. This seems reasonable to me.
For some extra leverage to the upside in the near term, you could take a position in the Founder Warrants. They expire Nov 21, 2021 and strike at $4.50. The shares are close to that now and you have 180 days until they expire. The last quoted price for the warrants was $0.15 so the shares would have to be higher than the strike price to make some money on the warrants.
Be careful as these could expire worthless and are extremely illiquid. Although the could be a multi-bagger in half a year and you could be the most popular person at your kid’s friends birthday parties. Potentially even more popular than a crypto investor. Ok, maybe I’m getting a little carried away.
I still like this idea and continue to hold my shares. The investment team and management seem very conservative deploying capital and are not going to speculate on anything short term. They have executed very well and do not seem to be slowing down. A gradual deployment of capital, continued growth in book value, and buyback program could close the discount to book value.
Anyone else in $FXC.to?
*the author is long $FXC.to and (an extremely small amount of) $FXC/WT.to