Update on Some Smaller Positions
I wrote a summary of some of the smaller positions in the portfolio in the recent Q3 2025 letter but thought I’d expand on some of them in a bit more detail here.
Citizens Bancshares Corp. (CZBS)
I originally wrote this up at the beginning of the year and it’s slightly down since that time period. Just to refresh, it has an $84 million market cap currently. For that price you get 1) $93 million in cash at the bank holding company:
and 2) a bank subsidiary that should spit out $10 - $15 million in earnings this year. It is one of the most overcapitalized banks in the US banking system, in my opinion, with all capital ratios in excess of 10%. Just a couple of key items from their annual report and Q1 earnings release:
In 2024 they repurchased $459,000 worth of shares compared to $7 million the prior year.
Their preferred dividends increased significantly, although off an extremely low base, to $1.27 million. Without this dividend they would have cleared EPS of $7, which puts the stock at around 7x adjusted trailing earnings. Instead they did EPS $6.5 in EPS in 2024.
BVPS is $36/share when you factor in the ECIP preferred. But if you value this preferred at where other banks have valued it in mergers at 28% of par value, adjusted BVPS comes in at $85/share vs a $47 stock price.
The company still has a large deposit cost advantage over many banks with the increase in rates the past couple of years. As recently as Q1 their deposit cost was 0.94% vs the average rate for smaller banks at1.81%. And many of the key banking ratios suggest that Citizens is an above average bank: Pre-tax return on assets greater than 2%, efficiency ratio of 57% and ROE, when eliminating preferred dividends and marking the preferred at market, of 13%.
They just announced a $4m share buyback (5% of shares) this year and increased their dividend by 10% to $1.10/share. Management is doing all the right things from a capital allocation perspective since they got the ECIP money 3 years ago. The problem with the stock is the extremely low liquidity in the shares that makes it nearly impossible to do a large buyback unless they do a tender offer. I still believe they’ll eventually do an acquisition but the management team needs to find the right deal which could take time.
I’m more than happy to continue owning this as it trades for about 7x earnings, a significant discount to adjusted book value and private market value (would most likely go for greater than 1x book value if sold) and a huge cash pile at the holding entity.
Tetragon Financial Group (TFG.AS, TFG.LN)
Not a huge update as the thesis remains the same but Tetragon has been hitting all time highs recently on the announcement of further Ripple buybacks and as the market somewhat awakens to Tetragon’s ownership in the company.
Ripple’s latest buy back is taking place at a $40 billion dollar valuation which means $250/share. In the private market place it’s marked at $137/share and Tetragon right now is marking their stake at $94/share. It’s currently their second largest holding.
As the price of Ripple has gone up and become a larger percentage of NAV, the stock price has had to follow it to maintain the roughly 50% - 55% historical discount to NAV. The new NAV is just over $40/share and TFG is at $19/share. If (hopefully when) Ripple IPO’s at a large valuation, Tetragon’s share price should follow it upwards. I continue to think the management team has a huge opportunity to buy in greatly discounted stock to increase the NAV that would accrue to themselves before that happens.
In the mean time the CEO of TFG Asset Management, Stephen Prince, has picked up over $5m in shares this summer. It’s a pretty large buy from an insider and I don’t need to remind everyone that insiders sell for many reasons but they usually buy for one.
Leons (LNF.TO)
Leon’s announced a great Q2 but still hasn’t given a specific timeline for their real estate IPO. A few Q2 highlights:
Adjusted earnings per share, when netting out the $7.6 million USD forward contract loss, was $0.57 for the quarter. This is a 30% YoY increase which was contributed by two main items: overall sales were up 4% to $644 million and gross margins expanded nearly 100 basis points from 43.9% to 44.82%.
The company continues to return profits to shareholders in the form of dividends and share buybacks. Their quarterly dividend was raised 20% from $0.2/share to $0.24/share and they’re in the process of buying back 5% of the company on the open market from March 2025 to March 2026. The buybacks so far have been negligible as they’ve only bought back 12,800 shares out of a possible 3,403,405 shares.
They still have a really strong balance sheet with net cash of $50 million after netting out debt and customer deposits as well as real estate marked at cost of $681 million on balance sheet vs ~$1.5 billion market value.
The key to the stock increasing from here, in my opinion, is a timeline of the IPO and then obviously the actual IPO. The TSX IPO market has been nonexistent these past few years. It’s had one IPO this year that was a New York luxury apartment REIT called GO Residential. The deal was oversubscribed and raised US$410 million and I’m hoping this opens up a path for Leon’s to consider taking their REIT to market.
Until there is more clarity on the IPO the stock may be range bound for a bit. One thing I am watching is for when they submit their Secondary Plan with the City of Toronto which is required to change the land use of their corporate headquarters and actually redevelop it. You can check at this link if they submitted and unless I missed it I still don’t see it there yet. The submission was to be done by 2H 2025 so we are a bit past that timeline now.
EDU Holdings Limited (EDU.AX)
I’ve never written EDU up but it had/has a lot of the hallmarks of a special situation I look for when I took a position:
Corporate change via a management buyout. Management wanted to buyout shareholders and delist the company because of burdensome listing fees, regulatory uncertainty and low liquidity.
Large insider purchases and buybacks leading up to the buyout
Earnings inflecting in their underlying business
At the time of the MBO offer in May, they also announced a 50% buyback of the shares (75m of 150m). The buyout was announced at $0.165/share or a $24m market cap and was subsequently dropped as shareholders pushed back on the timing and price of the buyout as you’ll see below.
EDU is an Australian for-profit education provider that provides it’s students certificates, diplomas and degrees and operates two divisions. They’ve suffered some losses the past few years due to COVID but earned record revenues and profits in 2024. Revenues were up nearly 100% to $42 million, operating income turned positive to $4.2 million and net income inflected positively as well to just under $3 million.
In 2022, Australia’s Skilled Priority List had 1) early childhood teachers, 2) child carers and 3) age and disability carers as 3 of the top 10 professions in critical shortage. At the same time, EDU decided to start a product development plan with course offerings going from 22 to 29 course offerings in 2024 targeting these professions.
It’s IKON division provides Higher Education (like Bachelor and Masters of Early Childhood Education amongst others) to both domestic students and international students. The increase in the international students in this division has been what’s driving the inflection as you can see from their 2024 annual report.
While domestic students has remained somewhat steady, the international student enrolments have gone gangbusters and has the majority of Ikon’s overall $28 million in revenue in 2024 as seen below. Ikon delivers longer student durations (2-4 years) due to the type of program offered and at higher tuition costs of approx. $19,000 - $48,000 making it more durable and predictable vs a certificate course lasting less than a year compared to EDU’s ALG division.
It’s ALG segment offers diplomas and certificates to international students in Mental Health, Counselling and other Vocational Education and while it grew revenues 43% from 23’ to 24’ ($9.3 million to $14.2 million), it finally flipped to profitably as of the June 30, 2025 1H results of $0.5 million. While it seems that this division will now add to profitability going forward, it’s a smaller part of the overall business.
The nature of EDU’s business has large operating leverage as it rents rooms in some of Australia’s major cities (or via online) and must pay the teachers no matter how many students are enrolled. If you have one student in the entire program, you still have to pay the fixed costs of the campus, student administrative costs and the business will operate at a loss. But if you have many students, the costs of the business stay relatively the same for each new incremental student that enrols and falls right to the bottom line. This leads to huge incremental margins as you’ll see below.
Since the attempted $0.16/share MBO was dropped the stock’s been on a tear up to just under $0.76/share as the CEO and other insiders have made large purchases, EDU has repurchased over 6 million shares (on top of the 9% of the shares repurchased in 2024) and enrolments and the underlying business have continued their torrid pace of growth.
In June they released that Ikon’s T2 25’ enrolments were up 118% to 3,725 students and YTD 2025 enrolments were up 132% to 6,967 student enrolments vs YTD 2024 2,996 enrolments.
And their first half results highlighted why management wanted to take it private. 1H 2025 revenues jumped over 100% to $36 million while the company netted a total $6.3 million with incremental EBITDA margins of 45%. The company completely transformed their balance sheet, adding $16 million in cash from both operations just in the first half of this year. Right now they are sitting on net cash of $21.2 million.
Based on just the first half results, insiders wanted to buy the company for 1x annualized EBITDA or 2x earnings. It was clearly worth a lot more and the stock has reacted as such when the bid was dropped, going up over 4 times the bid price.
Coming up with a valuation for a company where earnings have inflected and is growing very rapidly can be a bit of a challenge, not to mention the regulatory risk (see below) that is always lurking. But there is some comfort in the large net cash balance sheet and current business model where students in IKON are signed up for 3-4 year degrees allowing revenue to be more predictable.
With a share price of $0.78 and shares outstanding of 152.5 million (accounting for the share repurchases to date) puts the market cap at $119 million. Netting the $21.2 million in cash brings the enterprise value to $97.8 million. Management has stated that the 2nd half of 2025 will look like the first half so just annualizing this and adding $6 million in 2H net income to cash at year end would bring the enterprise value down to $91.8 million.
Meaning this would put EDU at 4x 2025 EV/EBITDA and 7x 2025 earnings. Because IKON makes up a larger part of the overall business and their degrees are 3 - 4 years long, their current run rate for 2026, without taking into account newly enrolled students, should be roughly the same as 2025. Based off of 2026 numbers and cash build up during the year would put EDU at 6x earnings and 4x EV/EBITDA. If you add in an expected growth rate of between 10% - 20% for new enrolments, it’s trading at 5x 2026 earnings and 3x 2026 EV/EBITDA. Clearly way too cheap for a company that just grew more than 100%, will have sustainable earnings going forward, a net cash balance sheet that is only growing and a company in the open market buying back stock aggressively.
This investment and business is not without its risks. There has been a push to bring down migration into Australia as the number of international students in Australia has gone from 474,493 in 2022 to more than 800,000 as of the end of 2024. The theory is that all of these international students have caused a housing affordability crisis with rents and house pricing in Australia ranked as the one of the most unaffordable place to live currently. By making it harder for students to obtain entry, the theory is it would free up homes and bring rents and pricing down to help abate the situation.
One way that’s been implemented is by increasing the nonrefundable VISA application fees from $710 to $2,000 and tightening entry conditions. Another way the Australian government proposed in 2024 was by capping the number of international student commencements at universities (essentially onshore student visa holders) with each school only getting certain allocations of the total cap.
This student capping legislation was scrapped but there’s still some uncertainty around the international student space and what the government will ultimately do. One of the reasons it was most likely scrapped is that not only does Australia have the second highest share of International students globally, but it contributed $51.5 billion to the economy last year, meaning it’s Australia’s 4th largest industry and the “biggest export we don’t dig out of the ground” according to Education Minister Jason Clare. Blowing this industry up would likely cause an Australian recession.
There is currently a target for 2025 of 270,000 commencements and it was raised to 295,000 for 2026 with the 2025 numbers looking like they’ll just be met. The Department of Education in Australia puts out monthly data on enrolments and commencements that allow you to track how each educational sector (VET, HE, etc.) is performing at this link. This regulatory risk is the biggest risk to the stock but the government seems to have turned the dial down on severe restrictions for now.
I came across this idea from Jeremy Raper (@puppyeh on twitter) and credit goes to him for being one of the first ones on the name.
Western Capital Resources Inc. (WRCS)
Not much has really changed since I wrote WRCS this summer (see here). It is highly illiquid and trades on the expert market so the vast majority of investors don’t have access to a broker to buy it or can’t look at something with such a low float. It trades at $14.50/share right now, a slight discount to where the company tendered in April at $15/share.
So far in 2025 WRCS has bought two arenas for a total of $10.3m with little cash down and a large percentage of the purchase price using favourable seller financing so their debt is up a bit but they still have $15m in net cash as of 2Q 2025. These purchases were disclosed in their annual report occurring after the December 31, 2024 financial period and their 1Q 2025 and 2Q 2025 don’t disclose if anything else was purchased, it’s just a set of financial statements.
I believe both purchases were from Black Bear Sports Group, which if you recall is owned by Murry Gunty, who is WRCS largest shareholder through a maze of LLCs. There seems to be a grey line between Black Bear and WRCS as not only is WCRS purchasing the arenas from Black Bear but Black Bear, at least for the April 1, 2025 purchase of the Chelsea, Michigan rink, even announced a press release on their own site in August about a sponsorship name change when they no longer owned the arena:
I’m not sure exactly what the ultimate outcome here is as the company keeps doing tender offers AND buying businesses within the holding company. One outcome could be more tenders until there is a potential merger squeeze out of minority shareholders. Another outcome could be to merge the two companies (WRCS and Black Bear). While another scenario could just be to continue as is: trade on the expert market, repurchase LLC interests over time and add ice rinks and other businesses to the holding corp. structure.
With a stock price of $14.5 and adjusted shares outstanding at 5.3m, the market cap is $77m. Subtracting net cash of $15.5m and adding NCI of $1.7m gives an enterprise value of $63 million. While I am not exactly sure how the losses and turnaround of their purchase of Northern Brewer is going currently, just annualizing their YTD numbers puts the business at 5x - 6x EV/EBIT. If there are still some losses at Northern Brewer, that could be weighing earnings down a bit as it lost $2.2 million in 2024. Raising that to zero or even to the point of profitability would eliminate the drag on earnings and value the overall business at between 3x - 4x EV/EBIT. I’ll have to wait for full year 2025 numbers to be sure and in the mean time I’ll be watching for further tender offers or nuggets of information I can find.