Cheap stock(s) within a cheap stock

Nanocap asset management business trading at 40% of NCAV with a potential activist angle.

Winmill & Co. - OTC:WNMLA

Winmill & Company is a family-run investment management firm based in upstate New York. It operates two mutual funds: Midas Discovery (MIDSX) and Midas Special Opportunities (MISEX), and one closed-end fund (FXBY). Together, these vehicles oversee about $60 million in total.

Winco’s objective, according to its annual report, is “to increase book value per share over time for the benefit of its stockholders.”

Winco’s fund management business is sub-scale and consistently loses money. Operating losses have hovered around $100,000 to $200,000 per year on about $700,000 of annual fee revenue. The majority of operating expenses have gone towards employee compensation and benefits.

Despite its consistent operating losses, WNMLA has perhaps the cleanest balance sheet I’ve seen for a $5-6 million public company:

Cross Holdings

Since its founding, the Winmill family has spun a complex web of cross shareholdings between affiliated companies that acts as a poison pill.

The boards and executive officers of Winmill affiliate companies are nearly identical.

Look at the websites: Winmill & Co., Bexil Corporation, Foxby Corporation, Bexil Investment Trust, Global Self Storage, and Tuxis Corporation.

WNMLA owns five publicly-listed stakes within the Winmill universe of companies™️:

I believe WNMLA’s cross holdings are worth about $11.5 million today (assuming no sales since 12/31). The company also held $1.6 million of cash and only $394,283 of total liabilities last quarter. So NCAV is about $12.7 million, or $8.95 per share compared with recent trades around $4.

Even more intriguing is the babushka doll-like structure surrounding the FXBY and BXSY stakes—both are closed-end funds that trade at ~40% discounts to NAV.

As I understand it, the FXBY and BXSY stakes are reported at market prices in Winco’s annual report, whereas the actual value of their underlying holdings is much higher.

Suppose an investor that specializes in closed-end fund activism pressures Foxby Corp and Bexil Investment Trust to repurchase shares or liquidate the funds. If successful, this could increase Winmill’s liquidation value another +/- $2 per share.

Foxby is a Maryland corporation - considered one of the most management-friendly jurisdictions in the US. A proxy contest in Maryland might be tough, but an engagement campaign in the court of public opinion could be successful.

BXSY also limits anyone from owning more than 4.99% of its outstanding shares without the Trustees’ approval.

Wrapping it up

If you own a basket of net-nets like with embedded upside like WNMLA, I think you should do well in the fullness of time.

I could get excited if there’s a change in WNMLA’s capital allocation strategy, a change of control, or if a CEF activist gets involved. Until then, I believe WNMLA will remain a value trap.

That’s all for today. Have a great weekend.

Disclosure: No position

P.S. Norbert Lou wrote up Winmill & Co. on Value Investors Club back in 2001, a few weeks after his now infamous NVR write up.

I encourage readers to check out some of his lesser known ideas. My personal favorite is Quilmes Industrial.