| ANNUALIZED SINCE INCEPTION | QUARTERLY | YTD |
|---|---|---|
| - | 6.9% | 1.6% |
| 2023 |
|---|
| 1.6% |
Artko Capital returned 6.9% in Q4 2023 and 1.6% for the full year, underperforming broader indices as small-cap markets remained in stagnant pools despite Federal Reserve liquidity releases. The manager maintains a concentrated portfolio of seven companies representing 98% of assets, with median market cap of $182mm and strong balance sheets averaging 13% net cash. Key performers included Potbelly doubling and Currency Exchange International up 11%, while Polished.com warrants cost 400 basis points. The manager has taken activist positions in three companies representing 60% of the portfolio - CURN, RSSS, and ACFN - working to unlock value through capital allocation improvements and strategic initiatives. With inflation likely to remain above 2% targets and rates elevated until mid-2025, the manager expects continued challenging conditions for small-caps. The strategy combines patience with selective activism, avoiding momentum chasing while focusing on fundamentally strong companies trading below intrinsic value. Portfolio statistics show attractive valuations with median 6x EV/EBITDA and 40% expected EBITDA growth.
Small and micro-cap companies remain fundamentally undervalued despite solid operational performance, with concentrated activist approach needed to unlock value in current market environment where traditional liquidity flows bypass smaller companies.
Manager expects stable economic and interest rate environment to remain elusive for at least another year, with boats continuing to swirl in stagnant waters. Anticipates inflation will be difficult to bring down to 2% target without denting economy. Plans to assess strategic direction by mid-2025 partnership anniversary.
| Date | Letter | Tickers | Keywords | Pitches | Quick Takes |
|---|---|---|---|---|---|
| Feb 29 2024 | 2023 Q4 | ACFN, CURN, HQI, MLP, PBPB, RSSS, SHYF | activism, Concentration, fundamentals, Microcap, small caps, value | - | Concentrated micro-cap value fund returned 1.6% in 2023 versus 16.9% for Russell 2000 as small-caps remained disconnected from broader market liquidity flows. Manager pursues activist approach with three core holdings representing 60% of portfolio, working to unlock value through improved capital allocation. Expects challenging environment to persist until mid-2025 but maintains conviction in fundamentally strong, statistically cheap portfolio. |
| Feb 16 2023 | 2022 Q4 | ACFN, CURN, GAIA, HQI, NTIC, PBPB, POL, RSSS, SHYF | - | - |
| QUARTER | THEMES | TAGS |
|---|---|---|
| 2023 Q4 |
Small CapsManager focuses exclusively on small and micro-cap companies with median market cap of $182mm. Portfolio represents commitment to securities unable to be included in indices due to size or liquidity constraints. Discusses challenges of small-cap performance in current market environment. |
Microcap Liquidity Concentration Valuation Fundamentals |
ValuePortfolio remains statistically cheap on many metrics despite solid fundamental performance. Manager emphasizes finding undervalued companies trading below intrinsic value, with specific focus on companies with strong balance sheets and insider ownership. |
Undervalued Fundamentals Balance Sheet Intrinsic Value Metrics | |
StaffingHireQuest represents 11% of portfolio as consolidator in staffing industry. Company acquires owned locations, converts to franchises, and collects franchise fees. Model provides entrepreneurial incentives to branch managers in tight labor market. |
Franchise Labor Market Consolidation Entrepreneurial Revenue |
| Date | Pitch Type | Author | Ticker | Company | Industry | Sub Industry | Bull / Bear | Exchange | Keywords | Action |
|---|---|---|---|---|---|---|---|---|---|---|
| No Elevator Pitches found | ||||||||||
| TICKER | COMMENTARY |
|---|---|
| CURN | CURN was a good performer for us in 2023, up almost 11.0%, though down about 12.0% from its winter 2023 highs. Operationally, the year was a mixed but mostly positive bag. The company continued to grow its revenues, up 21.0%, on the back of strong 23.0% Banknote segment revenue growth, as the company continued to substantially expand its physical footprint. Additionally, the strategically important Banknote Wholesale subsegment grew 31.0% in the United States, representing over 35.0% of overall revenues, reaching almost $30mm. The Payments segment revenue grew a slightly disappointing 15.0%, but the bigger thing to note on the year was the 30.0% growth in operating expenses, leading to a flat $19mm Earnings Before Interest and Taxes (EBIT) year. |
| RSSS | Our investment in Research Solutions, originally at sub $1.00 in 2017, though with substantial additions over the years our cost basis has drifted higher, was down 22.0% in 2022, up 41.0% in 2023 and up over 25.0% so far this year. This was an interesting and a bit tumultuous year for the company and the stock but the end outcome, fundamental growth and the future outlook all look excellent from this point. The provider of information services for the scientific industry, not unlike Bloomberg is for finance and Lexus Nexus is for law, grew its 2023 revenues 15.0%, up from 8.0% last year, and what we believe to be the more important metric, its gross profit, over 21.0%. |
| ACFN | Acorn's price performance, down 45% in 2022 and up 13% in 2023, has been frustrating, but not out of the realm of normality of the nanocap world, given the company's average daily volume is less than $9,000. It is closer to a private equity investment than a public one. 2023 was a decent year fundamentally for the $15mm market capitalization company, whose main business is providing monitoring services for backup electrical generators in the United States. This is a nice, very high-margin, recurring revenue business with a typically low churn $4.5mm monitoring revenue base at close to 90% gross margins. |
| PBPB | After remaining flat in 2022, Potbelly was our big winner in 2023, up almost 100%, and another 30% so far this year. As a reminder, our investment in PBPB was originally a post-Covid recovery special situation with a substantial opportunity to change its business model from managing 400 specialty sandwich shop locations to managing 2000+ franchises as the company hired former Wendy's COO, Robert Wright, to execute on the strategy. |
| HQI | HireQuest, the company, had a bit of a mixed bag fundamental year with mostly positive results. HireQuest, the stock, had a flat 2023. However, with an up/down 80.0% round trip, it remains substantially above our original purchase prices. A combination of cyclical labor market fears and challenges in absorbing a large acquisition resulted in a disappointing year for this investment. |
| SHYF | Much like our investment in HireQuest, 2023 was the year our long-term holding, Shyft Group, faced cyclical headwind fears and realities, declining over 50.0% in 2023 on top of a 50.0% drawdown in 2022. What a continuous gut punch from a company whose business model we've admired since our initial investment in 2017. |
| MLP | We added an initial 6.0% position at below $15.00 a share in the 4th quarter of 2023 as a replacement for our sales of Northern Technologies and Gaia investments. This investment has seen a 35.0% return, mostly in 2024. MLP is a Master Planned Community developer (MPC) that owns tens of thousands of some of the most spectacular acres on the Hawaiian island of Maui, majority-owned by former AOL CEO Steve Case. |
| Ticker | Put/Call | Amount Bought | Shares Bought | % Change | Weight % |
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