I have a day off from work today, so I figured why not set a personal record for the fastest reaction article to some stock news! Today’s article will briefly go through my key takeaways from the shareholder letter ALPP just dropped. You can read it here.
Let’s get into it!
Financials
ALPP basically gave us the same general sentiment of the market by saying that the supply chain issues are still ever present in the business. They appeared to be especially in place as we rounded out Q4 as the company said there were still significant backlogs, with demand outpacing supply.
As a sign of hope, they expect these to alleviate in early 2022 and are hoping for a cash flow positive quarter by Q2 2022.
What does this mean though reading between the lines…Well, it looks like Q4 will almost certainly show losses on the income statement and will certainly be operating cash flow negative on the cash flow statement. This is me reading between the lines as they didn’t specifically say it, but it seems pretty clear to me. I hope I’m wrong!
Acquisitions
Quick one here, but ALPP appears to be slowing some on acquisitions. There are currently two planned acquisitions versus five in 2022. These new acquisitions are described as “complimentary in nature”, so don’t expect ALPP to enter some new groundbreaking industry in 2022 (as things stand now).
However, I personally never thought that was the plan. I always figured they would be focusing on their current suite of companies and focusing on their driver companies, specifically around batteries and drones.
Financing
As I suspected in some prior posts, the company is still exploring both debt and equity financing for these acquisitions. Not a surprise at all, so don’t get worried about some potential dilution if they end up issuing shares for those two acquisitions above.
Commitment to the Strategy
This is more of a general point, but it makes me feel better knowing that the company is sticking with their DSF model. They go on and talk about how they have optimized past acquisitions like QCA and are currently in the process of optimizing RCA in a much quicker manner.
But we also see the continued commitment to their driver businesses, basically drones and batteries like I mentioned above. I love hearing about the synergies between the businesses that arise with DSF and how it’s helping push along their drivers. I still think drones are their biggest future product line, and the company would likely agree, so hearing progress on the drone business is awesome.
Conglomerate Discount
Just a funny tidbit, but ALPP basically re-affirmed the entire article I wrote about the conglomerate discount and ALPP. They said that they think the sum of the potential market caps of their portfolio companies is less than the market cap of ALPP. There is zero chance they read my stuff, but still kind of fun to see the company echo an article I wrote 😊.
By the way, you can read that article here if it sounds interesting.
Future Spin Offs?
ALPP also reaffirmed a very common tactic of conglomerates which is spinning off pieces of the business. The general concept is purchase a business, fix it up and/or grow it, and then sell it or spin it off at a hefty gain to shareholders.
Remember, spinoff is where ALPP shareholders get shares in the new company, sale is where ALPP gets cash for the business. ALPP used the word “spinoff”, so expect these business that get spun off to be separately traded public companies which ALPP shareholders will get shares in.
Wrap Up
This shareholder letter could be summed up as follows: The market is still rocky right now and there will be negative profits and cash flow likely until Q2, 2022. However, there is still plenty of hope on the horizon and the DSF model is in full swing, and they think it’s working. Expect two more acquisitions in 2022, but that could always change.
For current investors, I don’t think any of this is a cause for concern. If anything, it reaffirms what we were already thinking. The business is facing the same systemic issues as everyone else right now, but there is plenty of reason to believe the company can reach its growth potential long-term. The market hasn’t liked the letter so far, but I personally am not worried.
Anyways, hope you found this helpful and thanks for reading!
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DISCLAIMER – AT THE TIME OF WRITING THIS ARTICLE I HAVE A LONG POSITION IN $ALPP. THIS ARTICLE IS NOT FINANCIAL ADVICE AND IS INTENDED ONLY FOR EDUCATIONAL PURPOSES. I AM NOT A FINANCIAL ADVISOR. AT THE TIME OF WRITING THIS ARTICLE, PERSONS AFFILIATED WITH THE COMPANY ANALYZED ABOVE MAY BE PROVIDING MONETARY COMPENSATION AS MONTHLY PATRONS THROUGH MY PATREON. THIS COMPENSATION IS NOT PROVIDED IN RETURN FOR ANY SERVICE, WRITING ABOUT A PARTICULAR TOPIC, AND/OR FAVORABLE OR UNFAVORABLE OPINIONS. MY PATREON SUPPORTERS HAVE NO INFLUENCE ON THE CONTENT OF MY ARTICLES.
