4 Uncovered Micro-Cap Gems

AMRK data by YCharts

Recent price $15, 12-month target $22.50

A-Mark Precious Metals (AMRK) is a full service precious metals trading company offering a wide array of products and services. Products include gold, silver, platinum and palladium for storage and delivery in the form of coins, bars, wafers and grain. Services include financing, leasing, consignment, hedging and a variety of customized financial programs.the company recently closed on the acquisition of Goldline, LLC a direct retailer of precious metals. This matches up Amark’s proprietary full services and product line with a large base of potential buyers’ under one roof. Management expects the integration of Goldline to complete in Q2 FY2018.

Management expects Goldline to contribute $75 million to $85 million in annual revenues in the first two years, with potential revenues of $100 million in year three. Goldline brings more than 150,000 active clients, along with a list of 1.2 million potential clients who have requested information but have not yet purchased products. Management expects Goldline to earn at least 10%-15% EBITDA margins (possibly higher), and is expected to contribute $0.50 to $0.60 in EPS in years one and two.

The long-term story remains intact for AMRK, as it plans to expand the minting operations, a high margin business and the expanded suite of ancillary services at the Las Vegas Logistics facility. The possible Federal rate hike(s) in FY2018 would be advantageous to the company. We are comparing A-Mark to a peer group that includes CME Group (CME), Intercontinental Exchange (ICE), Interactive Brokers (NASDAQ:IBKR) and INTL FC Stone (INTL). The peer median P/E ratio for the group is 26.2x (on a calendar 2017 basis). We have applying a 10% discount to that multiple, implying a multiple of 23.6x, and applying that to our calendar 2017 estimate of $0.96 we arrive at a price target of $22.66, which we round down to $22.50. Since most of the peers are December year-ends, we are using our TTM EPS estimate for December 2017, which is in the middle of FY2018. Thus we are maintaining our target price at $22.50, and maintaining our BUY recommendation

JMP data by YCharts

JMP Group, Inc. (JMP)

Recent price: $5.60, 12 mo PT $7.50

JMP Group is a diversified financial services company. The company’s main lines of business consist of a broker-dealer and investment bank focused on the middle market, and asset management subsidiaries focused on alternative investment strategies and a corporate credit manager.

While we expected JMP Securities to have a good quarter in Q3 2017, it came in significantly better than expected, and was the best third quarter in company history. We expect this momentum to continue into Q4, which is already off to a good start with the closing of the previously mentioned Forestar transaction, on which JMP was an M&A advisor for the seller. Workspace Property Trust filed IPO paperwork recently, with plans to close the transaction in the coming weeks. This will drive significant revenue and Operating Net Income in several ways.

It should be noted that our current estimates are based on the IPO coming in at the bottom end of the current range, which means that if the IPO does not happen, our estimates will be much too high, and if the IPO happens in the middle or top of the range our estimates are much too low. We are fairly confident the IPO will occur, and will update our numbers as we get more clarity.Asset management and investment income continue to be about break-even, but the company has made progress on investing some of their excess capital, and has started accumulating assets for CLO V, an investment in bank loan pools that should increase JMP’s return on assets, which will stabilize these lines of business.

With a healthier environment and greater market share for JMP Securities, we believe that FY2018 will be the best year for the company as a whole in several years. As there is much going on in different segments of the business, we are going to hold off on making any FY2018 estimates until closer to the end of FY2017. However, we do believe that as we see how things play out through the end of FY2017 and into FY2018, we will see a stronger company in terms of financial performance and a move up in the share price towards our $7.50 price target which is just under a 40% gain from current levels.

LAND data by YCharts

Gladstone Land Corporation (LAND) recent price $13.50 12 mo PT : $14.50

While LAND has gotten off to a very strong start since our $10.93 initiation call back in May, we expect attractive long term total return potential. LAND is a REIT (real estate investment trust) that owns high quality farmland in the United States, and earns rental income by leasing that land to producers. Consistent with the REIT structure, the company pays out a high percentage of its income in the form of distributions to shareholders, and the current yield is 4.72%. As of Dec. 31, 2017, the company owned 59 farms with a total of 54,340 acres, and valued at just over $450 million. The company has added additional acquisition since that time. It should also be noted that the occupancy rate at their properties is 100%.

Our thesis for the company is based on the fact that the scarcity value of the specialty farm land they focus on sets up this niche asset class for increasing values for both the land, and the produce that it is used to grow going forward. Increased profitability of the company’s tenants should lead to increased rental income for LAND. Even in this environment of increasing land values and rents, the ability to keep land ownership with a third party such as LAND allows growers to operate with significantly smaller balance sheets, and as family owned farms sell, it should allow for a steady supply of new acquisition opportunities going forward.

LAND continued its steady growth, with revenue beating our estimates and AFFO coming in slightly below due to an increased share count. We expect AFFO per share to increase materially in Q4 2017 as new acquisitions using funds from the additional shares contribute to revenue and earnings. We maintain our BUY rating and maintain our price target of $14.50.

SALM data by YCharts

Salem Communications Corp. (SALM) recent price $4.80 12 mo. Tgt: $9.00

Salem Communications is a multi-media company operating radio, print and internet properties and publications which target Christian and conservative-minded audiences. Salem operates 102 radio stations along with many internet properties targeting this demographic. Year-over-year reductions in political ad spending during a non-election year were the principal cause of revenue and EPS declines. We anticipate rising EPS and a strengthening share price next year and reiterate our $9 target price.

This was a challenging quarter for SALM and for the broadcast industry as a whole. Key challenges faced by the Company during Q3 2017 included lack of political spending in a non-election year, a reduced book release schedule, the elimination of four loss-producing magazines, continued softness at SALM’s Dallas broadcast station and the impact of Hurricane Harvey in Houston and Hurricane Irma in Miami, Tampa and Orlando. Excluding the impact of lower political ad spending, softness at the Dallas station and the hurricanes, SALM estimates Broadcast revenues would have been down roughly 1.9% versus an actual reported decline of 5.1%.Current trading around stated book value around $5.50, with easier comparisons and an election year looming in 2018. SALM represents good value, supported by an attractive dividend yield of over 5 % provides investors with a quality retail name that is positioned for attractive total return over the next 12 months.

Disclosure: I am/we are long AMRK, SALM, JMP.

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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