Inspira Financial (LND.V): Liquidation of Business Provides Low Risk Opportunity
*I own shares in this company, and it is a very illiquid stock
Inspira Financial trades under the ticker LND.V on the TSX Venture exchange in Canada, and trades OTC under the ticker LNDZF in the US. While the stock has more volume in Canada, LNDZF is very illiquid. For most of my purchases of LNDZF, my trades accounted for the entire trading volume that day of the stock.
Inspira Financial is selling for about $4.8 million USD, or $6.4 million CAD. The company reports in Canadian dollars, so for simplicity the rest of the information I write will be in CAD. This is a small business that used to lend money to medical offices. They also operate a small billing subsidiary. Management decided to get out of the lending business, so they are collecting on their loans and liquidating that business. They also put their billing subsidiary up for sale as well. This is a weird situation since the stock is basically in liquidation. I think the stock will either be bought out, or the company will use all the cash generated from the liquidation to acquire a new business.
The company is selling below the value of its cash in the bank minus all liabilities. The whole company is selling for $6.4 million, which is 30% below their $9.2 million in cash. Their total liabilities are $1.7 million, which is mostly made up of a provision for legal matters related to a billing competitor. Their other assets, not counting cash, come to $4 million. So let’s assume either their other assets can only be liquidated for less than half of their book value, or that the legal matter is understated, and they cancel each other out. That would still leave us with a company selling 30% below the level of cash in the bank. These other assets of $4 million are made up of $3.7 million of receivables and deposits, while the remainder is equipment. I think it would be conservative to assume the other assets offset the company’s total liabilities.
Inspira also has a billing subsidiary called Inspira Saas Billing Services that they are looking to sell. I am skeptical about this billing business, as I get the feeling they use Saas as a trendy buzzword. This business generated sales of $1.8 million in 2017, and has been growing slightly over the past year. If you extrapolate their latest quarter, the business would have $2.3 million of annualized sales. Last quarter, they reported that they only have two customers within this business, and that one customer makes up over 90% of sales. This quarter, they added 3 new customers bringing the total to 5. However, the main customer still makes up over 90% of sales. Total billing revenues did increase 5% in the quarter, but this is still a tiny business. I’m not sure what this business is worth, but if they could sell it for half of its level of sales, that would be $1.15 million. Add that to the current cash pile, and now the stock is trading at a 38% discount to these assumptions.
The $1.15 million value for the billing segment seems reasonable given that a buyout offer was made at the end of 2017. The offer was proposed for $1.5 million in cash and up to $10 million total if certain milestones were achieved. These milestones were not disclosed publicly. At the time, management decided not to sell, and to instead try to grow the business, but then flip-flopped in 2018 and now are looking to sell the business again.
I think there are two ways this could go. Either there will be a buyout of Inspira Financial at a premium to the current price, or they completely liquidate and use the cash to buy a new business. The buyout option would be preferred, but we could still make some money if they acquire a new business. If we are able to buy the stock at a 38% discount to its future cash level, and they buy a new business with this cash, then we are basically buying that new business at a 38% discount ourselves. I don’t have control over what business they buy, but this seems like a low risk situation with potential for decent upside.