XS Financial Stock: ‘Acquihire’ Value Alone Worth North Of Current Price (OTCMKTS:XSHLF)

wildpixel The following segment was excerpted from this fund letter. XS Financial (OTCQB:XSHLF, CSE:XSF) XS Financial’s business, we believe, has performed well. A simplified overview: XS provides a form of financing to cannabis operators centered around equipment leasing. If MSO A needs to expand in State Y, it can find sale leaseback financing to fund the facility buildout, but often needs additional money to fund the purchases of equipment necessary to make the facility actually run – extraction units, packaging machines, lights, etc. XS provides financing for the latter type of capex spending, usually loaning some portion of the purchase price to MSO A in a fully amortizing lease that is paid off in under five years. XS’ current portfolio yield on its leases is around 14.6%. Critically, the past year has shown something we thought to be true about the business when we invested: it is very safe relative to most cannabis lending. Thus far there have been zero defaults in XS’ portfolio even as a few of its borrowers have gone through receivership (e.g., Parallel and Skymint) – a credit to its team and forethought in structuring its arrangements. A lender like XS depends on a few different things to generate returns. One of those is increasing how much money it lends in order to better spread the costs of its internal underwriting/due diligence/sales teams. On this score the last year has not been as good since lending was understandably pulled back from the space. Despite this, we believe the long run future of XS’ niche is bright – we believe this is a form of financing that will continue to be utilized as additional states come online (e.g. New York, Georgia, Alabama, Ohio, etc.) and that opportunities exist for XS team to utilize their skill base to make similar loans outside of cannabis at still favorable risk adjusted rates. They have proven to be a very adept lending team – indeed, a catalyst for our original investment was our confidence in the leadership team. That said, the equity markets have been particularly unkind to XS, leaving them in a position of being modestly subscale despite their disciplined and successful loan book. XS has a convertible debt maturity looming in June 2024 and we have confidence that the team will manage this well. We are confident that at least some investors, such as Bengal, will also be interested in ways of continuing to remain capital providers to the company – either by finding an arrangement to extend their portion of the convertible debt or other avenues. The equity is thinly traded at best so price discovery cannot be taken for granted. As of this writing, the last quoted price on the CSE was CAD$0.045 per share, implying a value for the equity of less than CAD$5mm. We are not sure what the value of it ultimately is but we are confident that it is north of that. We believe that the “acquihire” value of a team which has done the work that XS has done in such a challenging industry is alone worth north of the current price, even leaving aside any value of its still default-less residual portfolio of loans. We expect to update you soon as XS addresses the upcoming debt maturity. Disclaimer The information contained in this letter is provided for informational purposes only, is not complete, and does not contain certain material information about our Fund, including important disclosures relating to the risks, fees, expenses, liquidity restrictions and other terms of investing, and is subject to change without notice. This letter is not a recommendation to buy or sell any securities. The information contained herein does not take into account the particular investment objective or financial or other circumstances of any individual investor. An investment in our fund is suitable only for qualified investors that fully understand the risks of such an investment after reviewing the relevant private placement memorandum (“PPM”).​​ Bengal Impact Partners, LLC (“Bengal Capital” or “we”) is not acting as an investment adviser or otherwise making any recommendation as to an investor’s decision to invest in our funds. Perhaps most importantly, Bengal Capital has no obligation to update any information provided here in the future, including if any positions discussed are sold or purchased, or if different positions are purchased. This document does not constitute an offer of investment advisory services by Bengal Capital, nor an offering of limited partnership interests of our Fund; any such offering will be made solely pursuant to the Fund’s PPM. An investment in our Fund will be subject to a variety of risks (which are described in the Fund’s definitive PPM), and there can be no assurance that the Fund’s investment objective will be met or that the fund will achieve results comparable to those described in this letter, or that the fund will make any profit or will be able to avoid incurring losses. As with any investment vehicle, past performance cannot assure any level of future results. We make no representations or guarantees with respect to the accuracy or completeness of third-party data used or mentioned in this letter. We provide services, such as strategic consulting services, to certain entities mentioned in this letter and may in the future provide such services to more in the future, or to companies not mentioned in this letter. While we may sometimes advise on issues regarding corporate communications, we do not believe any of the services which we provide are “stock promotion” – we have not been and will not be compensated for the mention or discussion of any of the companies discussed herein. We disclose such arrangements to investors in the Fund and will continue to do so. Click to enlarge Editor’s Note: The summary bullets for this article were chosen by Seeking Alpha editors. Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.

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