Early Access to CN #144

Multibagger Factors: Recurring Revenue - SOTP Discount - Incentivized Sale - Strategic Buyer

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Cliff Notes are short write-ups written when a stock is added to the MSMqi. Cliff Note #144 is ready and will be added to our Microcap Quality Index.

Cliff Note #144 is a vertical SaaS group selling document workflow and compliance software to regulated professionals such as accountants and tax preparers. Almost 100% of its revenue is recurring, and because subscriptions are billed a year in advance, working capital is a source of cash rather than a drain. The company IPOd around 10 years ago and has not raised equity since, growing in an essentially cash-neutral way.

The group’s near-breakeven result is deliberate: one segment is run for cash, while the other segment is run at thin margins to maximise growth ahead of a potential sale.

The “crown jewel” is the second segment, which is worth more than the company’s entire EV. There are two incentive plans paying management to sell this segment and distribute the cash in the next few years, and a controlling family buying stock above today’s price.