..., da er mich für BM's gesperrt hat... ;-)
Nothing Special About Special Purpose Acquisition Company WMIH
Jan. 4, 2017 11:42 AM ET|
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About: WMIH Corp. (WMIH)
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Summary
In Q3 2016, WMIH posted a revenue of $1.28 million, a 13.71% decline compared to the same quarter last year.
Due to a change in fair value of an embedded derivative, WMIHs net loss amounted to $21.1 million last quarter.
Over the last 12-month period, WMIH failed to complete any significant M&A.
WMIHs financial performance has lagged behind its peers, and its stock price is trading at price/book multiple of only 0.57, significantly lower compared to the peer group.
WMIH has an implied price of around $1.07 per share, which offers investors an opportunity go gain over 32% if they short the stock at current market price.
Despite high hopes, over the past one year, WMIH Corp (NASDAQ: WMIH) has failed to accomplish its primary objective of being a Special Purpose Acquisition Company and have not made any special acquisitions.
WMIH Corp's existing operations have lagged behind its peer group, and the expected $3.6 per share price target set by one of our fellow analysts at Seeking Alpha has failed to materialize.
Given the inability of the management to secure any major M&A over the last 12-month period, WMIH Corp's stock price has gradually come down in the last few months and is currently trading at $1.55. We believe the stock price will continue to decline in 2017 and soon reach near its original valuation of $1.05 per share or lower. In such scenario, secondary investors can gain as much as 32.26% by shorting the stock at current market price.
Takeaway from Recent Financial Performance
Since completing the up-list to the NASDAQ in September 2015, WMIH Corp has come far regarding maintaining its revenue base. On November 4, 2016, WMIH Corp released its Q3 quarterly earnings, which showed that the company made around a total revenue of $1.28 million revenue, which is 13.71% lower compared to around $1.49 million revenue in the same quarter last year.
However, since the company had a lot of extraordinary general and administrative expenses last year, this year, WMIH Corp made only a $0.4 million net operating loss.
But despite a decrease in their general and administrative expenses of $11.8 million, WMIH Corp posted a net loss of $21.1 million last quarter, mainly because of the result of the change in fair value of an embedded derivative, which declined by around $16.2 million. As a result, WMIH Corp's Q3 2016 net profit came out way worse than its Q3 2015 quarterly net loss of only $8.42 million.
Yesterday, on January 2, 2017, CapitalCube released an analysis of WMIH Corp comparing its recent financial performance with a number of peers, including Ambac Financial Group, Inc (NASDAQ:AMBC), Fidelity National Financial Inc - FNF Group (NYSE:FNFV), United Insurance Holdings Corp (NASDAQ:UIHC), and Horace Mann Educators Corporation (NYSE:HMN).
They concluded that considering peers, WMIH Corp relatively underperformed over the last one year that suggests they have a "lagging position" in the industry.
As a Special Purpose Acquisition Company (SPAC), WMIH Corp is cash rich. However, this makes them capital inefficient, and it burdens their high-profit margins. It is one of the reasons why WMIH Corp's stock price is trading at a lower price/book multiple of only 0.57, while the peer group has a median price/book multiple of 1.19.
The CapitalCube analysis concluded WMIH Corp's stock price is "overvalued" relative to the peer group they analyzed.
Figure 1: WMIH Corp Stock Price Gained 14.81% Since December 28, 2016
Over the last week, WMIH Corp's stock price suddenly jumped to around $1.6 per share, representing a 14.81% increase since December 28, 2016. Although equities.com confirmed the spike in price with increased volume, we believe the bullish momentum was an effect of profit-taking - a retracement - at the end of the year instead of the start of a bullish trend.
Conclusion
When Troy Racki presented his argument for a 12-month price target for WMIH Corp at $3.60 per share, he justified two major price floors for the stock at $1.75 per share and $2.25 per share, as these two figures represented - according to him - the "absolute worst case" and "maximum conversion price," respectively.
"It would be imprudent for an investor not to consider the worst case. For WMIH, there are two built-in floor prices for the company, $2.25 and $1.75. $2.25 represents the maximum conversion price for the Series B preferred, a major support level for stock, and a price tested in the past months and held," he said.
However, his optimism was based on an expectation that WMIH Corp will be able to make some good acquisitions over the past year. So far, that scenario has not played out. As of today, WMIH Corp's website states "we are actively seeking acquisition opportunities across a broad array of industries."
While being cash rich is not a bad thing, the failure to complete any significant acquisition in a year does not reflect well on the management of WMIH Corp. Hence, we are rather pessimistic about the recent bullish momentum and believe that their actual implied price is much lower.
While no analyst is covering the stock, according to CapitalCube, WMIH Corp's implied price is only $1.07 per share, which is close to the $1.05 per share valuation offered by the bankruptcy court, at just $210 million on 200 million outstanding shares.
Hence, we strongly recommend that secondary investors consider reducing their exposure to WMIH Corp as there is a significant possibility that the stock price will soon reach its original valuation price within a short time.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.
I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it. I have no business relationship with any company whose stock is mentioned in this article.
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