ENDI Corp. (ENDI) stock intrinsic value fair value estimate & owner earnings analysis

ENDI Corp. is a small holding company whose main business is CrossingBridge Advisors (CBA), an investment manager for a family of bond mutual funds and an ETF: ultra-short duration, low duration high yield, strategic income and responsible investing funds. CBA generated $8.7M of the company's $9.6M of 2023 revenue, from fees on about $1.84B of client assets (up from $1.28B a year earlier). Smaller pieces are Willow Oak (services to other fund managers), Sitestar.net (a small internet-access business in the United States and Canada), and about $19M of cash and investments. The company completed its combination with Enterprise Diversified in August 2022 and filed to stop SEC reporting in January 2024, so the December 2023 annual report is the latest audited information available. Everything below rests on that report. How we measured earnings. We started from operating cash flow and deducted working-capital swings, stock compensation and a small maintenance share of capital spending. That gives about $2.8M of owner earnings for 2023 (about $0.51 per share) and $1.3M for 2022 (2022 is only partly comparable because the merger closed in August of that year). About $1.1M of the 2023 figure was interest, dividends and gains on the company's own cash and securities, so we removed it from the business and counted the cash and securities separately at their reported value, to avoid counting them twice. We also removed $0.29M of non-cash tax benefit from old tax losses and valued those losses separately. Only 2023 reflects the combined company for a full year, so our earnings base is that single year, about $1.6M (about $0.29 per share) from the operating businesses after corporate costs. We did not use guidance or non-filing sources. Amortisation of the fund-contract intangibles ($0.38M in 2023) is added back as a non-cash sunk cost, and the fade assumed in the years after the first ten reflects that fund contracts are not permanent. Growth. We credited no growth in any case. The 44% jump in client assets in 2023 came from fund inflows, market gains and the purchase of the RiverPark Strategic Income Fund advisory contract, and fund flows can reverse: in the fourth quarter of 2022 the Low Duration High Yield Fund alone saw about $172M leave in one quarter, and sub-advised fund revenue fell 24% in 2023 even as advised fund revenue rose 42%. The base case therefore holds earnings flat for ten years and then fades them to zero over the following ten, because what the evidence supports is a fund business with 13 to 14-year records that persists but has no contract locking clients in. We left out expected further asset growth, new products such as the Irish UCITS fund launched in October 2023, and expected savings from no longer being an SEC reporter. Cases. The base case values the operating businesses at about $15.2M. The bear case has fund outflows like late 2022 and the loss of the key portfolio manager or the Cohanzick services agreement (terminable on 120 days' notice): earnings drop to about a third of base for five years and then fade, worth about $3.2M. The bull case has a full year of the RiverPark Strategic Income Fund (owned for only about seven and a half months of 2023) plus lower public-company costs, lifting earnings to about $2.2M a year, worth about $21.1M. What the company owes and owns. In March 2024, after year end, CBA agreed to buy the advisory contracts of an affiliated manager, Cohanzick, for a $10M promissory note maturing March 8, 2031, and took over the RiverPark Short Term High Yield Fund sub-advisory (more than $780M of client assets). The note is solely CBA's obligation and not ENDI's. The filing does not say what these contracts will earn or what the note costs in interest, so we could not model their earnings. In the base and bull cases we treat the contracts as worth what was paid, cancelling the note; interest is assumed at about 6%. In the bear case the contracts are worth nothing and, because the note cannot be pursued beyond CBA, we assume CBA's equity is wiped out but not more. The company also owes $1.43M of earn-out payments to the sellers of the RiverPark Strategic Income Fund contract (about half of that fund's fees for three years) and $0.46M on warrants and redeemable Class B stock. Against this it holds $9.0M of cash (we treat about $7.0M as excess), $7.7M of securities at fair value, $2.1M of private company stakes and warrants at cost, a $0.35M limited partnership interest and a $1.15M deferred tax asset. Resulting values per share (about 5.47M diluted shares): base about $5.74 (business $15.2M plus $16.1M of net cash, investments and tax assets, less $1.9M of earn-out and warrant claims); bull about $6.86; bear about $2.49, which is essentially the parent company's cash and securities with the fund business and Cohanzick contracts worth nothing to shareholders. The gap between cases is narrow at the top and wide at the bottom because nearly half of the value in every case is cash and securities, while the fund business depends on client flows. What could make this wrong. Client redemptions or the departure of portfolio manager David Sherman would hit CBA quickly. The earnings of the March 2024 acquisitions cannot be reconciled from the filings. With SEC reporting ended, we have no financial information after 2023 and cannot see how 2024 to 2026 turned out. Our valuation is a snapshot as of the last audited year. Related-party dealings with Cohanzick are extensive and we could not verify the terms independently.