ALJ Regional Holdings Makes Progress - ALJJ
Back in August I wrote about ALJ Regional Holdings, a leveraged equity situation with high return potential. Shortly after I wrote the post, ALJ released its June 30 quarterly report which once again showed the company turning a healthy profit and reducing its debt load.
For the quarter ended June 30, 2012, ALJ made $2.52 million in net income and produced EBITDA of $4.07 million. Operating cash flow for the quarter was $6.74 million, driven by strong operating results and decreased net working capital.
ALJ used this cash flow to make further reductions to its subordinated debt, cutting it by 17.8% from last quarter. The result is a continued strengthening of the company's balance sheet and a reduction in net debt to trailing EBITDA.
![q2 2012 changes](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F9ee1622f-e6c8-4ebb-bfc4-557d65828772_633x381.jpeg)
Total interest-bearing liabilities were reduced by 13.33% from a quarter ago. At 2.38 times trailing EBITDA, the company's net debt load is the lowest it has been since beginning operations in 2006.
Despite this progress, the market has not rewarded ALJJ. Since my post, shares are down 12.1%.
![q2 2012 valuation changes](https://substackcdn.com/image/fetch/w_1456,c_limit,f_auto,q_auto:good,fl_progressive:steep/https%3A%2F%2Fbucketeer-e05bbc84-baa3-437e-9518-adb32be77984.s3.amazonaws.com%2Fpublic%2Fimages%2F418fffd0-7fac-4f2c-a416-47ca7264255d_557x288.jpeg)
ALJ Regional Holdings now has an enterprise value of 3.69 times trailing EBITDA, compared to 4.16 times when I originally wrote about the company. If the company continues to operate profitably and work off its debt, sooner or later the market will wake up and give the company some credit for the path it's on.
For now, I view the dip in the share price as an opportunity to get in on a rapidly transforming company at an even higher expected return than when I first wrote about it.
Disclosure: No position.