Hi Folks,

With the once-in-a-century pandemic restricting travel for the last 15 months, the weather Gods here in Pacific Northwest said enough is enough and came up with their own once-in-a-millenium plan to give us a flavour of some of the things that we seek when we travel. Like the heat. Appreciate the kind gesture, but 40 degrees (104 Fahrenheit)??!! C’mon now Gods…Ye forgot that we don’t have ACs here in the Pacific Northwest! And so folks, if this letter smells of sweat today, you know who to blame. 

We may be sweating, but it’s gorgeous actually. I woke up early and went for a long paddle board this morning. The water is so calm in the morning, it is magical and meditational. SUP is one of my favorite activities to do in the summertime. And at the risk of jinxing myself, I can share that I have a pretty good balance and in the few years of having done it, I have rarely fallen in the water, except for this one time which was epic.

I went paddleboarding with a friend one time and the water was a bit choppy that day. We were paddling at a steady pace when suddenly, my paddle fell in the water. My impulse was to kneel down on the board and grab it. Except the paddle had already floated several feet away. I tried to paddle with my hands to get to the actual paddle but the sucker kept on drifting. My competitive friend was ahead of me and hence, oblivious to the crusade I was fighting behind him. And I was so focused on catching the paddle, that I went from kneeling to laying on the board and soon enough the board turned upside down and boom, I was in the water.

I emerged back up like a springboard, and frantically tried to get back up on the board without realizing that I had emerged right next to a group of baby seals. I was absolutely terrified but before I could actually absorb what was happening, thankfully, my friend had turned back to check on me and was paddling back furiously to my rescue. He helped me get back on the board and grabbed my paddle. And I think the father seal realized that I was not a threat to his babies. And with calm finally restored, we continued on our awesome paddle boarding expedition! (albeit, soaking wet).

And that my friends is my legen-wait-for-it-dary SUP story! (Yes, I have finally started watching How I Met Your Mother and I’m hooked.)

SPAC merger vote trade also had an almost legendary run this week, especially on the warrants side. All six deals were approved, and all traded higher except for $AACQ. On the warrants side, 4 out of the 5 names posted double digit returns. My boy Payoneer seems to have paid off. And Beachbody…sure, it’s beach body summer after all!

The same strength didn’t seem to carry on the deal announcement front. There were 7 deals announced this week, and all 7 traded below par. However, there seems to be an uptick in the number of deals being announced, so I’ll take that as a positive indicator.

On the next week’s merger vote agenda, we have 8 deals knocking for approval.

I am interested in $NSTB merger with Apex, which is a clearinghouse for other brokerages and many fintech companies including SoFi, Webull & E-toro. It describes itself as “fintech for fintechs”. Apex collects fees from various activities from their customers, like account openings, trading and interest from cash balances. The more customers that open accounts with Apex’s brokerage customers, the more potential revenue Apex can collect! So their growth is predicated on increasing the number of brokerage customers and increasing the number of people that open brokerage accounts.

From a competitive standpoint, while there may be competitors being incubated right now, Apex doesn’t have any direct competitors so to speak. Their only competition currently is if their brokerage customer decides to build its own clearing platform in-house, which is what Robinhood did. They used to use Apex before they built their own in-house clearing. However, while someone at the scale of Robinhood can justify building an in-house clearing platform, it doesn’t make sense for many others. So, it will be a while before someone successfully attempts to erode their competitive moat. Not to forget, that the company is already profitable.

And while there were boos around the company growing at an ‘only’ 21% CAGR over the next few years, they have already demonstrated a ‘beat and raise’ model. The company provided preliminary guidance last week and expects to have achieved more than 86% of its previously forecasted $105.6 million Adj EBITDA for FY 2021 in only six months. They are expected to revise their full-year guidance materially higher in August 2021. The SPAC Sponsor team is accretive too (from a quantitative perspective), as Joanna Coles, Chairwoman and CEO of $NSTB will be joining Apex’s board. She brings a plethora of experience in consumer branding, and also serves as a Director on the Snapchat’s board.

The biggest contention point is the rich valuation. $NSTB is merging with Apex at a valuation of $4.7B, which is ~11x 2023 sales. Given that a lot of growth is built into these numbers already, there is not a lot of margin of safety. But let’s not forget our $10 entry point. If we use the management’s conservative guidance as a base case, then assuming an average growth of 19% beyond 2023, projecting out 10 years into the future the revenue could be ~$1.4B by 2030. Assuming a profit margin of 30%, the expected profit could be ~$424M. Assuming no further dilution, EPS may be ~$0.74. At a P/E of 30 that would result in a stock price of ~$22. That’s ~220% total return from a starting stock price of $10 (or ~14% annualized).

And that’s just the base case. If you compare it to Shopify, Coupa, and Adyen as infrastructure plays for e-commerce, spend management and payments respectively, the valuation actually doesn’t seem that insane. However, it remains to be seen if DIY investing remains a secular trend as people return to work as it could impact this entire basket of stocks from E-toro to Coinbase to Apex. So we shall see.

On a separate note, there seems to be a returning bid for the EV, Space, Renewable SPACs. I suspect that with Jeff Bezos taking the Blue Origin Space flight on July 20th, that should provide some positive momentum to these names. Of course, we will see what happens if/when Jeff makes it back, as currently the petition to make Jeff stay in space forever has already garnered over 120,000 signatures!

What crazy times!! If any of you folks want to go SUP with me here on Earth, hit me up! 🙂

Enjoy the sunshine ☀️

-Nikita