![]() This was expensive leftover space from Martha Stewart, and not necessary. Sequential was paying around $6m per year for their corporate HQ, which they bought out of in October.Annualizing (still slightly depressed) Q2/Q3 gets them up to $53.6m, or annualizing Q3 get them to $61.2m. Their Covid quarter was almost breakeven.This is misleading for the following reasons: TTM EBITDA for SQBG looks like $38.5m on a screener. Translation? They have offers in hand that substantiate the value they carry on their books. They knew their write-downs were subject to increased scrutiny and didn't take any after Q3. This actually makes me more confident they have substantiated the $77m shareholders equity on the latest 10-Q, since they have been disclosing they were being investigated for this since FY19. The maximum combined civil penalties are about $2m under the two respective charges. At each expiration date they have extended for another month (or a few weeks). Essentially, if their lenders wanted to force them to file, they could have by now. Sequential has received waivers on their debt, currently running through their expected reporting date of March 10th.The SEC announced charges related to failure to timely impair Goodwill."Going Concern" warning popped up in 10-Q after Covid (Sequential tripped their leverage covenant due to Covid: 7.25 to 1).The story seems to be "It's a highly levered equity stub, with their best days in the past, with questionable book value and fairly valued against peers. Looking at them (and peer Iconix Brands ( ICON)) on the last 5 years, you see they've both gotten much cheaper on an EV/EBITDA basis: SQBG is highly levered on its $450m debt with Bank of America ( BAC) and KKR ( KKR). The EV of Sequential has only been cut in half, so a recovery in shares doesn't change the EV the way it usually would for a business. ![]() (Source: Seeking Alpha, but not how I would calculate an EV) The market viewed this as a sign their remaining brands might not be enough to cover the debt, and they traded down to stub status, where they've languished for a couple years.ĭespite the spectacular tank, there's a second piece to the puzzle: ![]() The real scare in FY19 came when they divested the Martha Stewart and Emeril brands for less than their book value, taking a large one-off write-down on the sale. Sequential Brands ( SQBG) has crashed in the last 5 years:Īfter a lot of hype years ago over Martha Stewart and Jessica Simpson collaborations, results didn't materialize quite as expected and the selloff began. Or things happen, and the prices don't change. Things happen in the market and securities get mispriced. I probably don't have to try too hard to convince you markets aren't rational, since GameStop ( GME) has been both $3 and $400 in the past 12 months (hope you bought at $4, and didn't sell at $20 like me). Unless you were reading their SEC filings and following the story, you didn't see it either. Why? It was a $250m market cap stock which is 92% family controlled. The market just missed it, plain and simple. I wrote a piece last year on Valhi ( VHI) which had canceled their preferred equity, increasing shareholder equity by $667m, and the stock hadn't budged, but has since doubled. They generally function pretty well, but sometimes they miss big. I don't believe markets are rational or efficient. The result? I took my portfolio negative, getting some extra credit (ended up around -200%). ![]() Well, I levered myself up on oil futures contracts and bought into FreeSeas ( OTC:FREEF), which one SA poster once pointed out was potentially the best value-destroying stock ever. I even once participated in a stock picking contest where the professor offered extra credit to the best and worst performers, as he said losing money was just as hard as making it. I spent my time in college years ago being told markets were rational and efficient.
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