Project Description

Sell ECN Capital (ECNCF) and Concentrix (CNXC)

January 14, 2022

Summary

I’m recommending selling ECN Capital (ECNCF) and Concentrix (CNXC) in order to make room for new ideas. I personally won’t be selling ECN until January 31, 2022 solely for tax reasons (more details below) but I wouldn’t buy shares today. Hence, I think it makes sense to close the recommendation. Concentrix is a fine company trading at a reasonable valuation. I just don’t think it’s compelling or asymmetric. Thus, I’m closing the idea to make room for additional ideas (I have another idea that I hope to publish shortly).

More Details

ECN Capital (ECN)

My investment case for ECN Capital worked out exactly as I thought it would (doesn’t always happen!).

I recommended the stock on November 29, 2021 at 10.57 CAD. We received a dividend of 7.50 CAD and the RemainCo is trading at 5.66 CAD.

This works out to a 24.5% pre-tax return and a very high IRR.

I won’t be selling my ECN shares until January 31, 2022. Why?

To receive favorable tax treatment, I need to hold my ECN shares for a total of at least 61 days.

After 61 days, I can sell my ECN shares and recognize a short term tax loss to improve my after tax return.

However, ECN is currently listed as an “open recommendation” even though I wouldn’t buy it today. As such, I think it makes sense to close out the recommendation.

Just a reminder that I’m not a tax advisor (or investment advisor for that matter) and everyone’s tax situation is different.

Concentrix (CNXC)

I’m also closing my Concentrix (CNXC) recommendation. I recommended buying the stock at $99.94 on December 2, 2020. Today, I’m closing the recommendation at $169.05 for a total return of 69.2%.

In some ways, I’m tempted to hang on to Concentrix (CNXC).

The company recently announced the acquisition of PK, a fast growing CX design company.

The deal will be financed with debt and because debt is so cheap, it will be accretive to earnings next year.

By my estimate, the stock is trading at ~15x pro forma earnings.

In a lot of ways, the stock is still cheap. 15x earnings is very reasonable in the current market environment.

On a relative basis, CNXC is trading at 11.8x vs. 17.9x for its closest peer, Teleperformance at 17.9x.

Further, “they” say “don’t sell your winners”.

While this is usually true (and I wouldn’t blame you for hanging on to Concentrix), I don’t think Concentrix will go up 100% over the next couple of years. I think it should generate a solid return, but it doesn’t strike me as an asymmetric opportunity.

Plus, I have another idea that I’m working on that has (I believe) more immediate upside.

Stay tuned.

Disclaimer/Disclosure

Rich Howe, owner of Stock Spin-off Investing (“SSOI”), owns shares of ECNCF and CNXC but plans to sell them. All expressions of opinion are subject to change without notice. This article is provided for informational purposes. Please do your own due diligence and consult with an investment adviser before buying or selling any stock mentioned on www.stockspinoffinvesting.com.