Catch Deep Value If You Can

research report

Hello,

Welcome to another Mikro Kap research report.

Although the bull market over the last few months has definitely made it harder to find cheap ideas—especially compared to the environment in micro-caps this spring or last fall (even UK and Singapore micro-caps are now running)—I did come across one of the cheapest names I’ve seen in a long time.

This OTCID-listed stock is trading at just 2.5× forward EV/EBIT, based on annualizing Q4 numbers. And that fourth quarter is likely on the conservative side, considering what’s coming in the current fiscal year. The company’s backlog is concentrated in its highest-margin segment, which now accounts for about 75% of total profits. And if that backlog fully converts into results over the next 2–3 quarters, we could be looking at forward EV/EBIT of below 2×.

This EBIT is also a clean number—there’s no debt, so no “I” to pay, and the company has enough accumulated losses to avoid paying “T” for a while. On the downside, there’s also a strong margin of safety: the stock trades at 0.9× tangible book, mostly made up of cash and current assets. And when adjusting for off-balance-sheet NOLs that should come onto the balance sheet over the next two years, the stock is effectively trading at 0.6× adjusted P/TBV.

Bonus point: the company bought back more than 10% of its outstanding shares earlier this year. At prices below net cash.

I haven’t seen any meaningful discussion about it on Twitter, Substack, or the MCC, so I figured it’s something worth profiling for Mikro Kap deep-value readers who like inflecting stories. The one person who did flag it to me—and deserves credit for finding it—is Kip Johann-Berkel. Kip is someone I regularly discuss stocks with and one of the investors I admire most. Make sure to check out his Twitter profile here.

As always, there’s more to the story here than just the multiples—so let’s dig in.