Brandon Beylo
My Thoughts on The Marhelm Fiasco

Hey everyone — thought I should provide an update on my effort to save Marhelm.

But before I do that, I want to publicly say that Calvin has been nothing but kind and honest to me during our relationship. I have learned a lot from him, and I consider him a friend.

Yes, we disagree on A LOT. And yes, we have very different views on things. But he has never done wrong to me, and I sincerely wish him the best in his future endeavors.

Alright, let's dive in.

Yesterday (Friday), Calvin announced via his Discord that he was "burning Marhelm to the ground" over KYC complications. It wasn't just the KYC, this was the straw that broke the camel's back.

This confused and upset many Marhelm subscribers and employees, and rightfully so.

Soon after he announced his intentions, I told him and the entire community that I would offer to buy out Marhelm to save the company/product/community.

Calvin agreed and set a deadline of eight (8) hours from his original announcement.

Together with capital partners, we worked non-stop/overnight to structure a deal that we thought was fair to Calvin and us while saving the business and maintaining the service his subscribers love.

That afternoon, we presented Calvin with an offer at a price that he deemed was fair.

Unfortunately, we couldn't agree to some things in the term sheet and he declined the offer.

I believe we provided Calvin with an extremely fair offer, given:

1) The status of the quick turnaround demanded

2) The alternative to burning everything down (not ideal for employees and customers)

3) The myriad risks of a small team operation (notably: key man)

4) The annual cash flows generated from the business

Calvin will obviously disagree, and that is fine. You can't win 'em all.

We tried as hard as possible to get something together to save this product.

However, Calvin has made it clear that he would rather live his life as a martyr/pirate than find a way to save the company and provide value to existing subscribers.

And it's very hard/impossible to negotiate with pirates.

Again, I have no ill will towards Calvin. He is entitled to his own opinion and lives by a strict moral code.

I wish him peace, happiness, and solitude wherever he finds it.

Although we couldn't structure a deal that worked for both parties, I sincerely hope he finds his internal peace and rest in his decision.

Why would I nuke a nearly 7 figure annual income and turn down a $1.5M offer for a business? https://t.co/rAob93nKu1 - 🏴‍☠️
tweet

Clark Square Capital
RT @ClarkSquareCap: Michael Platt on what he looks for when he hires a trader https://t.co/UAas8VHcnM
tweet

 Q-Cap 
Finally the truth comes out from Lebron https://t.co/cSagxkSQMm
tweet

Dimitry Nakhla | Babylon Capital®
3 months ago I shared my analysis on $RMD suggesting it was undervalued & a good consideration at $174💵

Since that post, $RMD is now trading ~25% higher

As I stated in my analysis:

“As you can see, we’d have to assume at least 25x earnings for $RMD to have attractive CAGR potential

This is well below $RMD 10-Year average multiple of 28.96x

Yet, I believe the 10-Year multiple is elevated and we shouldn’t rely on it

Given its quality & historical growth rates, I believe it’s reasonable for $RMD to trade somewhere in between 25x - 27x, making it a fair purchase today at $174💵”

#stocks #investing
___

Not every business that could be undervalued will react this way shortly after its share price trades at an attractive range

And if you’re a long-term investor — what happens over the course of 3 weeks, 3 months, or even 3 years shouldn’t really matter 🧘🏽‍♂️

Looking back at these short-term increases, HOWEVER, reinforces & strengthens the conviction an investor can have when relying on fundamental analysis 💯
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲."

A sober valuation analysis on $RMD 🧘🏽‍♂️

•NTM P/E Ratio: 23.57x
•10-Year Mean: 28.96x

•NTM FCF Yield: 4.29%
•10-Year Mean: 3.46%

As you can see, $RMD appears to be trading below fair value

Going forward, investors can expect to receive ~23% MORE in earnings per share & ~24% MORE in FCF per share🧠***

Before we get into valuation, let’s take a look at why $RMD is a quality business

BALANCE SHEET✅
•Cash & Equivalents: $220.92M
•Total Debt: $1.35B

$RMD has a good balance sheet & 16x FFO Interest Coverage Ratio

RETURN ON CAPITAL✅
•2018: 23.8%
•2019: 19.0%
•2020: 21.2%
•2021: 24.9%
•2022: 23.4%
•2033: 19.9%

RETURN ON EQUITY✅
•2018: 15.7%
•2019: 19.6%
•2020: 27.2%
•2021: 17.6%
•2022: 25.0%
•2023: 24.9%

$RMD has excellent return metrics, highlighting the financial efficiency of the business

REVENUES✅
•2013: $1.51B
•2023: $4.22B
•CAGR: 10.82%

FREE CASH FLOW✅* (LTM $814.27M)
•2013: $339.24M
•2023: $573.63M
•CAGR: 5.39%

NORMALIZED EPS✅
•2013: $2.27
•2023: $6.44
•CAGR: 10.99%

SHARE BUYBACKS❌
•2013 Shares Outstanding: 146.42M
•LTM Shares Outstanding: 147.54M

MARGINS✅
•LTM Gross Margins: 56.0%
•LTM Operating Margins: 26.6%
•LTM Net Income Margins: 20.7%

***NOW TO VALUATION 🧠

As stated above, investors can expect to receive ~23% MORE in EPS & ~24% MORE in FCF per share

Using Benjamin Graham’s 2G rule of thumb, $RMD has to grow earnings at a! 11.79% CAGR over the next several years to justify its valuation

Today, analysts anticipate 2024 - 2026 EPS growth over the next few years to be slightly less than the (11.79%) required growth rate:

2024E: $7.21 (12.0% YoY) *FY Jun
2025E: $7.94 (10.1% YoY)
2026E: $8.70 (9.7% YoY)

$RMD has a solid track record of meeting analyst estimates ~2 years out, so let’s assume $RMD ends 2026 with $8.70 in EPS & see its CAGR potential assuming different multiples

27x P/E: $234.90💵 … ~14.3% CAGR

25[...]

x P/E: $217.50💵 … ~10.7% CAGR

23x P/E: $200.10💵 … ~7.0% CAGR

As you can see, we’d have to assume at least 25x earnings for $RMD to have attractive CAGR potential

This is well below $RMD 10-Year average multiple of 28.96x

Yet, I believe the 10-Year multiple is elevated and we shouldn’t rely on it

Given its quality & historical growth rates, I believe it’s reasonable for $RMD to trade somewhere in between 25x - 27x, making it a fair purchase today at $174💵

However, if you want a greater margin of safety, $RMD is an even better consideration at $148💵 or for 20x NTM earnings

#stocks #investing
___

𝐃𝐈𝐒𝐂𝐋𝐎𝐒𝐔𝐑𝐄‼️: 𝐓𝐡𝐢𝐬 𝐢𝐬 𝐍𝐎𝐓 𝐈𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐀𝐝𝐯𝐢𝐜𝐞. 𝐁𝐚𝐛𝐲𝐥𝐨𝐧 𝐂𝐚𝐩𝐢𝐭𝐚𝐥® 𝐚𝐧𝐝 𝐢𝐭𝐬 𝐫𝐞𝐩𝐫𝐞𝐬𝐞𝐧𝐭𝐚𝐭𝐢𝐯𝐞𝐬 𝐦𝐚𝐲 𝐡𝐚𝐯𝐞 𝐩𝐨𝐬𝐢𝐭𝐢𝐨𝐧𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐬𝐞𝐜𝐮𝐫𝐢𝐭𝐢𝐞𝐬 𝐝𝐢𝐬𝐜𝐮𝐬𝐬𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭.

𝐓𝐡𝐞 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐢𝐬 𝐢𝐧𝐭𝐞𝐧𝐝𝐞𝐝 𝐟𝐨𝐫 𝐢𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧𝐚𝐥 𝐩𝐮𝐫𝐩𝐨𝐬𝐞𝐬 𝐨𝐧𝐥𝐲 𝐚𝐧𝐝 𝐬𝐡𝐨𝐮𝐥𝐝 𝐧𝐨𝐭 𝐛𝐞 𝐜𝐨𝐧𝐬𝐭𝐫𝐮𝐞𝐝 𝐚𝐬 𝐢𝐧𝐯𝐞𝐬𝐭𝐦𝐞𝐧𝐭 𝐚𝐝𝐯𝐢𝐜𝐞 𝐭𝐨 𝐦𝐞𝐞𝐭 𝐭𝐡𝐞 𝐬𝐩𝐞𝐜𝐢𝐟𝐢𝐜 𝐧𝐞𝐞𝐝𝐬 𝐨𝐟 𝐚𝐧𝐲 𝐢𝐧𝐝𝐢𝐯𝐢𝐝𝐮𝐚𝐥 𝐨𝐫 𝐬𝐢𝐭𝐮𝐚𝐭𝐢𝐨𝐧. 𝐏𝐚𝐬𝐭 𝐩𝐞𝐫𝐟𝐨𝐫𝐦𝐚𝐧𝐜𝐞 𝐢𝐬 𝐧𝐨 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞 𝐨𝐟 𝐟𝐮𝐭𝐮𝐫𝐞 𝐫𝐞𝐬𝐮𝐥𝐭𝐬.

𝐈𝐧𝐟𝐨𝐫𝐦𝐚𝐭𝐢𝐨𝐧 𝐜𝐨𝐧𝐭𝐚𝐢𝐧𝐞𝐝 𝐢𝐧 𝐭𝐡𝐢𝐬 𝐭𝐰𝐞𝐞𝐭 𝐡𝐚𝐬 𝐛𝐞𝐞𝐧 𝐨𝐛𝐭𝐚𝐢𝐧𝐞𝐝 𝐟𝐫𝐨𝐦 𝐬𝐨𝐮𝐫𝐜𝐞𝐬 𝐛𝐞𝐥𝐢𝐞𝐯𝐞𝐝 𝐭𝐨 𝐛𝐞 𝐫𝐞𝐥𝐢𝐚𝐛𝐥𝐞, 𝐛𝐮𝐭 𝐢𝐬 𝐧𝐨𝐭 𝐠𝐮𝐚𝐫𝐚𝐧𝐭𝐞𝐞𝐝 𝐚𝐬 𝐭𝐨 𝐜𝐨𝐦𝐩𝐥𝐞𝐭𝐞𝐧𝐞𝐬𝐬 𝐨𝐫 𝐚𝐜𝐜𝐮𝐫𝐚𝐜𝐲. "- Dimitry Nakhla | Babylon Capital®
tweet

iinvested
1Q'24 SouternSun Small Cap on $DY, $BOOT, $MBUU, $MGPI

https://t.co/1EagqE8koj

More fund letters here:
https://t.co/HhAAZQRRKy https://t.co/r9xKKxzwOf
tweet