Announcing CompleteBankData: The ultimate growth tool for bankers

One of the most important things in business is identifying your customer, determining their needs, and evaluating whether your product fits their needs.  In most industries this is a well defined process.
If you are hired to sell software to accountants what do you do?  You pull a list of all accounting firms in your territory and begin to market and prospect to that set of potential customers.

But what do you do if you’re a bank? Who are your customers?  Is it everyone who might need money?  Does a bank that is interested in growing simply load every resident in their given footprint into their CRM and march through it?

The traditional way a bank conquered this problem was by trying to cross sell to depositors.  A bank’s depositors are their current customers, the ones who have money, enough money that they need a place to store it.  The problem is a bank’s customer is someone who needs money, not someone who already has it.  Because of this there’s a mismatch between who they are marketing to and who their ultimate customer is.

To solve this problem lending officers have relied on “centers of influence.”  A center of influence is a person in a related industry, an accountant, a lawyer, a consultant, who has industry connections and can refer prospects that need money to a banker who has money.

The problem is relying on centers of influence is reactive, a bank is waiting for demand to appear before they can react and provide prospective financing details.  The second issue is that banks end up marketing to centers of influence instead of directly to potential customers.  It becomes the job of the center of influence to pitch the positives of a bank verse the bank itself.  And lastly the relationships are between individual lenders and these centers, not the bank itself.  When a lender leaves to work for a competitor, they take those relationships with them along with subsequent referrals and their book of loans.

CompleteBankData has taken a different approach.  We believe that banks should be able to identify their ideal customers, market, prospect and own that relationship themselves.

We do this by taking data from a number of different sources including deed filings, mortgage originations, assessor data, real estate listings, commercial financing transactions, and demographic data and then creating links and relationships between these entities.

By having this large connected store of information, we can proactively define a bank’s ideal customer, and then put customized details about all prospective customers in front of them in real time.  But that isn’t all, we can predictively unearth leads based on the profile of a bank’s ideal customer that a bank might not know about.

For example, if a bank specializes in owner occupied commercial real estate to businesses with more than $1m in revenue we can alert them when a business that fits their profile purchases a new property for cash.

Another example of actionable and targeted information is the ability to show a bank loans in their market that fit their ideal customer profile that are set to mature or balloon within a given time period.

Let’s take another example, a banker who specializes in financing landlords and their property profiles.  It’s very difficult to discover non-corporate landlords, but in many cases these “hidden” landlords own substantial portfolios.  In Allegheny County, Pennsylvania there are over 1,000 individuals who own 12 properties or more, with one individual owning more than 600 properties.  The majority of these landlords have no website and no information outside of a few “For Rent” signs on their properties.

What our system can do is alert a banker when one of these landlords purchases a house for cash in an area they desire to lend into.  The banker can then discuss with the landlord the potential for providing liquidity by financing the most recent purchase, or potentially refinance their entire portfolio.  The icing on the cake is that a lender can use CompleteBankData to evaluate the real estate property profile of a prospective landlord all without ever having to speak to them.  Through the system they can see what properties they own, the property on a map and details on the liens associated with the properties.

Of course, these are just two examples of many possibilities.

The real key is that we enable a bank to discover, contact and interact with their prospects directly instead of having to rely on a center of influence relationship to sell for them.

What this means for a bank is they can control their own destiny.  A bank can decide to chart its own course, build a prospective sales pipeline and then follow those leads through the pipeline from discovery to loan origination while measuring and reporting on their progress the entire time.  These relationships we help banks discover are their own, not owned by the centers of influence, or a star banker, they are the bank’s.

By enabling banks to proactively discover their customers we also help banks reduce risk.  Typically, when a bank enters a market, or attempts to grow aggressively they end up taking somewhat marginal business because all of the good customers are already financed.  With CompleteBankData customers can “shop” for new relationships by looking at customer lists, loan terms and contact details for competitor banks.  The risk is that competitors with good underwriting might find their clients walking out the door, whereas for our customers they can grow their portfolio with quality loans without taking undue risks.

Let’s consider what this means for branch expansion.  In the current world a bank will hire a set of loan officers, build a building (or purchase one) and hang their sign on the roof.  They now have a shiney new branch, and little to no business at that new branch.  The bank spends an outsized amount of their marketing dollars attempting to attract retail deposits at their new branch.  In turn the bank then markets to their depositors hoping to drum up new loans.  At the same time their commercial bankers are hitting the business networking circuit attempting to build new relationships around this branch outpost.

What we offer is a more efficient approach.  CompleteBankData can be used to pre-emptively evaluate the lending market even before opening a branch.  A bank can evaluate the number of borrowers, size of existing loans, and look at who they are competing against.  After they’ve settled on a soft spot in the market then they can establish a physical branch.  But what’s different is instead of opening with a few relationships on day one the bank can proactively work to build excitement even before the branch opens.  They can do this by building marketing lists of prospects from CompleteBankData and marketing to them digitally and traditionally via the mail months before the branch opens in their location.  Commercial loan officers can be proactively working on building relationships ahead of the launch with target customers.  With marketing and direct relationships ahead of a branch launch a bank can ensure that when the doors open they will have a sizable customer presence ready to bank with them.

Is this for you?

If you are a banker, primarily in a community bank sized $1b-$50b in assets we want to speak with you.  You can schedule a demo here, or give us a call at 1-866-591-8315.  We are familiar with the challenges you face and believe that we an tip the scales in your favor.  Email Nate Now

If you are an investor in banks and have an investment in a bank that might be able to use this.  Would you be able to introduce us to the CEO or CLO (Chief Lending Officer)?

We are always looking for introductions and connections with others in the industry.  If you know someone who might be worth talking to please drop me an email at: Email Nate

Recent Press

We were recently profiled in the Pittsburgh Business Times about what we're doing.

New to banking? Check out The Bank Investors Handbook

And of course if you're new to banking or would like to understand how banks work better I'd suggest you check out my book, The Bank Investors Handbook.  The book is available on Amazon in both paperback and Kindle format.

Oddball Stocks Newsletter: Boston Sand and Gravel Co. (BSND)

Here is another sample piece from the Oddball Stocks Newsletter. This is another excerpt from Issue 21, published last August, about Boston Sand and Gravel (BSND).

Last summer BSND was trading in the mid $400s. It is up pretty substantially since then, to $546 bid and $573 offer. The 2018 annual report is not out yet, but we'll be writing an update in the Newsletter when it is. Last year, BSND's annual meeting was held in Boston on July 26th.

You can subscribe here to the Oddball Stocks Newsletter, and we also have some a la carte samples of back issues available.

Also, be sure to watch Bob Vila take a tour of the Boston Sand and Gravel Plant!

Oddball Stocks Newsletter: Conrad Industries Inc. (CNRD)

Here is another sample piece from the Oddball Stocks Newsletter. This one is from Issue 22, published in November 2018. This one is about Conrad Industries, which has been posted on the Oddball Stocks blog multiple times in the past (like here and here back in 2012).

In addition to a pretty good track record of interesting ideas that worked well, the Newsletter has also sounded some cautionary notes about names, which have turned out to be prescient. For example, back in August we wrote some cautionary thoughts about Conrad when its shares were trading in the high teens. The shares collapsed down to $13 at the end of the year and have only now recovered to $15.

Conrad is a rare Oddball with friendly management, but their business is really challenged by the lack of oil and gas activity in the Gulf of Mexico. We will continue to monitor and report on developments in the Newsletter. (You can subscribe here to the Newsletter, and we also have some a la carte samples of back issues available.)

Tender Offer for Goodheart-Willcox Company (GWOX)

Textbook publisher Goodheart-Willcox is an Oddball that was written up on Oddball Stocks way back in October 2012 when shares were trading for about $72.
I ran across Goodheart-Willcox in the Walkers Manual, the numbers in the manual intrigued me, from 1998-2001 the company had earned anywhere between a 24% and 32% return on equity, and EPS had grown at 25% annually. I was even more impressed with the ROE when I noticed the company was debt free. I was curious about how they were doing now, so I picked up some shares and contacted the company for an annual report. I received a few years worth of reports and liked what I saw. In the years between 2001 and 2011 the company had continued to throw off excess cash, but with reinvestment opportunities limited cash just piled up on the balance sheet. The company had become what value investors affectionately call a "cash box". A cash heavy company with a business bolted on.

So what is the business of G-W you ask? They're a textbook publisher. Most readers will see the last line and think "no wonder they're a cash box, dying business, dying industry, and relies on government funding." That's the bear case in a nutshell, a bit more information might change some perceptions, but my guess is for 99% of my readers this stock is untouchable because of some preconceived negative bias. I understand that, I've wrote about this stock to a number of investor friends, and all of them came back with some variation of my above sentence. I've heard it said that courage of conviction, and patience are two skills investors need to succeed. Both of these traits are required in double doses for G-W.
The Oddball Stocks Newsletter also did an update on Goodheart-Willcox in November 2014 when it was trading for $81, which was right around book value at the time.

Along the way from 2012 until now, GWOX paid some healthy dividends - a total of $23 per share since the post back in October 2012. The last trade of the stock was in December 2018 for $107 per share. That made for an IRR of 10%... until today.

We received a notice today that the GWOX Employees' Profit Sharing and Stock Ownership Plan and Trust is offering $150 per share for up to 124,000 shares (which is 27.8% of the outstanding stock). That boosts the IRR to 15%... but it happened in "One Day".

At $150, the market capitalization of the company (with 445,725 shares outstanding) is $66.9 million.

The P&L for GWOX is "cyclical" because of the school book adoption cycle. To some, the business looked like it was in secular decline. If you look at the financials from back in 2012, it earned $5.6 million in 2006 (on $31 million of sales) but only $563,000 in 2012 (on $17 million of sales). Even from 2013 through 2017 it never earned more than $1.6 million, with two of those years being below $1 million. But then for the year ended April 30, 2018, it earned $8.3 million!

Is the tender offer worth taking? There's some juicy nuggets that bear on that in the tender offer document - we will be discussing in the upcoming Issue of Oddball Stocks Newsletter in June. Stay tuned!

On outsourcing and vertical integration

There is an interesting pattern happening in the business world at the moment.  It's the outsourcing of everything.  And it's interesting because there are leaders, followers, and my conclusion from watching what's happening is that this outsourcing shift is more than an outsourcing movement, it's actually a shift in intellectual capital from one sector to another.

I'm not sure when this started, but in my mind the current batch of outsourcing picked up steam in the 1990s with IT outsourcing.  As technology was a newer thing to companies they thought it might be easier to hire experts rather than develop their own in-house capabilities.

Of course outsourcing isn't new, companies have always relied on vendors to help them in their business.  Not every company that delivers parts owns a trucking or rail fleet.  Completely vertical integration isn't possible, and isn't necessary, but that's not what I want to talk about.

What's happening is a technical outsourcing on steroids.  Because companies were comfortable outsourcing initial IT support, or systems there has always been a comfort level to other types of technical outsourcing.

Executives have an idea that it's much easier to outsource an accounting system, rather than host their own customized accounting system.  Or to outsource sales verses building an in-house staff.  The rallying cry is "we don't want to be involved in things that aren't our core competency."

Of course that makes sense.  If a business is the best in the world at manufacturing widgets why would they want to get bogged down in the logistics of distributing those widgets to the world?  Or why would they want to waste time hiring people to manage facilities, or run a phone system?  Instead they should focus all of their energy on manufacturing widgets and let others do the rest.

The problem is most companies don't really have a core competency.  If you take a deep dive into a businesses' operations you'll find there really isn't much of a secret sauce.  It's just a group of people working together in a unique way to provide a solution.  And if you begin to abstract the pieces away like lego blocks you start to realize there isn't anything at the center that can't be replicated elsewhere.  The exception to a generalization like this would be companies that own infrastructure, or prized real estate that is truly one of a kind.

What's happened is these outsourced vendors begin to understand their client's business better than themselves.  And the vendor starts to think "why don't we just bolt on a few front office features too?"  Then suddenly the back office vendor becomes a vertically integrated company that is competing with their clients and doing it better than they could do it themselves.

In effect many companies have leadership teams that have bought into this outsourcing mentality so deeply that they're slowly disassembling their own companies and transferring their knowledge and skills to their vendors.  And those vendors are realizing that with their knowledge and expertise that they can replicate what their clients are doing better.

It's fascinating that the competitive advantage Carnegie had with his steel was that he fully integrated operations.  He owned coal mines, owned the path to the coaling and coking plants and eventually steel.  The great innovation was the fully assembly line from coal to steel was physically located in close proximity eliminating the distributed logistics gap that existed at the time.  It was an enormous factory made up of many smaller operations all lining the same river.

The end result of this outsourcing transformation is this "new economy" that we're experiencing.  Old main-line companies are willingly disassembling their businesses and re-incarnating as portions of multiple tech companies.

The implications of this are far ranging and wide, and I'm not sure this process can be stopped.  It's the pattern of the Innovators Dilemma on a much larger macro scale.


What's going on in the Oddball world?

I wanted to put together a quick update post of what's been going on for me (Nate) in the Oddball Stocks world.

As you've noticed my posting frequency has slowed to a crawl.  This has coincided with the acceleration of my software business, CompleteBankData.  As that's taken off I just haven't had as much time to write and muse on investment topics.

Our company was accepted early in 2019 into the AlphaLab start-up accelerator here in Pittsburgh and that's taken up even more time.  But I'm not lamenting the loss of time, the benefits far outweigh how crammed things are.  Here's an article about the current cohort of companies, ours included.

While being a part of an accelerator I've had the opportunity to greatly widen my network and meet a ton of entrepreneurs and successful executives.  As readers know I'm a value investor through and through.  Which is sort of a paradox in that I'm running a growth company, and the maxim of our company is that we help banks grow.  So how is it that I'm a value and growth person?  I think it all breaks down to the level of involvement.

A lot of investors and activists struggle to push a stagnant company to grow.  That's because growth isn't in their DNA, and for a lot of people growth means change, and it's hard to change.  When someone else is buying the dollar for $.30 and liquidating it I'm happy to take a ride.  But I'm not sure I'd want to be doing that liquidating myself.

On the other hand I really enjoy running a company.  I love talking to clients, love networking with prospects, and getting involved in client operations and helping them accelerate their growth.  But you can't do this if a company doesn't want to grow.

In the meantime my partner in crime at the Oddball Stocks Newsletter (and you really should subscribe if you haven't already) will be starting to post from time on this blog.

The posts I author have my name attached at the bottom, whereas the posts Colin authors have "Oddball Stocks Newsletter" attached.

I want to take a quick turn and talk about the newsletter for a minute.  Over the past year I brought Colin on board and he's taken the letter to a place that I didn't have the ability to take it.  We've dramatically increased our coverage universe of oddball stocks, while at the same time expanding the depth of coverage on each name.  If you're in the oddball investment space I'd highly recommend you take a look and consider a subscription.  There is a lot of content we put together that is simply not available anywhere else.

A parting word.  Lest you think I've lost the value gene, I'm still out hunting for bargains, although not always stocks.  I've been out in the real world finding bargains on hard goods and reselling them on eBay.  It helps me scratch the itch until the market is littered with similar bargains.


The first post ever on Oddball Stocks...

...was PC Connection back in September 2010 when it was trading at $6.85 a share.

The thesis was pretty simple. There was $6.70 per share in working capital (current assets - all liabilities).

Assuming a 10x multiple for the business at a $0.45 earnings level for the year would have valued the business at $4.50, so that ($4.50+$6.70) suggested a valuation of $11.20. Or, being more conservative and placing a 10x multiple on the then-current earnings (and assuming no growth for the year) resulted in a $2.70 value for the business and thus $9.40 for everything. So, back then the "conservative" estimate was a 40% upside from the trading price.

So what happened along the way? Well, note that in 2016, the company changed its name to "Connection" and the ticker symbol to CNXN. Names are trendy and subject to fads, so one thing that we find is that doing a retrospective can be more complicated than just typing in the ticker symbol.

But here is the stunner: the share price is now $36!

Starting in November 2011, the company paid a dividend of $0.40 and then has paid an annual end of year dividend of similar amounts since then, for a total of $2.98 of dividends. The dividends plus the share price appreciation have resulted in an IRR of 24% compounded for eight and a half years!

Let's look at what happened here. Revenue grew from $1.9 billion for the year ending at the time of the blog post to $2.7 billion for the year 2018. Gross margin grew from 11.6% to 15.2%. The result is that gross profit almost doubled (+88%). Meanwhile, SG&A only grew 70%, so operating income more than doubled.

The result is that earnings per share have grown and in 2018 they were $2.41 a share. (They were 85 cents a share for the full year of 2010.)

So, coming out of the recession you could buy this business for 15 cents a share because current assets covered almost the entire purchase price - and it ended up being a growth stock that had nice operating leverage.

We've been talking about this lately... price rules. Whenever a business sells for a really low price (e.g. for no price once you subtract current assets minus all liabilities, or for zero or negative enterprise value), the market is already acknowledging the problems people are worried about: a recession, a business that seems to be highly competitive and lacking a moat; or in other cases, bad management, bad capital allocation, unfriendly insiders.

Sometimes bad factors win out and a company goes to zero. Or a stock purchase can do really poorly even if they company survives when too high a price is paid. But when companies don't have much debt (and that's what a low or negative enterprise value is telling you), there is a lot more runway to try to improve things. So much more runway, in fact, that most shortsellers are not very interested in situations where there are not financial debts or other fixed liabilities to act as catalysts.