Newsletter Volume 2, Issue 2



Investment Performance Jan – Feb



VOLUME 2, ISSUE 2: Jan – Feb 2019

Dear Friends!
For the month ending January 31st, 2019, Mach 100 LP was Up 5.31% gross and Up 3.92% Net. This compares to the S&P 500 that was up 7.87% for the month, the NASDAQ Composite which was up 9.74% and the Russell Microcap index which was up 10.49%. For the month ending February 28, 2019, Mach 100 LP was down 1.71% gross and 1.36% Net. This compares to the S&P 500 that was up 7.87% for the month, the NASDAQ Composite which was up 9.74% and the Russell Microcap index which was up 10.49%. As we are a non-correlated fund, we do not expect our performance to parallel index performance; at least we hope not.

MACH 100 LP INVESTMENT PERFORMANCE SUMMARY

Mach 100 LP Investment Performance Results are presented gross and net. Net results are for an investor since inception, net of 1% management fee and 25% performance allocation with a “high watermark” threshold. Individual investor’s performance may vary based on time of investment and class of investment. Since inception returns are from fund inception 4/2018.
See Important Performance Disclosures.

MACH 100 LP INVESTMENT PERFORMANCE COMPARISON

Mach 100 LP Investment Performance Results are presented net. Net results are for an investor since inception, net of 1% management fee and
25% performance allocation with a “high watermark” threshold. Individual investor’s performance may vary based on time of investment and class
of investment. Since inception returns are from fund inception 4/2018.
See Important Performance Disclosures.

EQUITY MARKET OBSERVATIONS

January U.S. equity markets’ performance were blistering. All major market indices were up significantly. Mega market capitalization companies, mid cap companies, small cap and micro cap all did well in January; with small caps outperforming large. U.S. domestic equities had their best January in more than 30 years; after closing out 2018 with their worst performance since 1931. Emerging market equities outperformed developed markets. Cyclical stocks outperformed defensive names (we have discussed previously that we believe rallies in defensive equities will be short lived until clear evidence demonstrates that the economy is slowing (meaningfully)). The REIT sector benefitted from still historically low interest rates.

February equity markets were similarly strong as January. Highlights: Q4 GDP was up 2.6% vs. expected 2.2%. Q3’s GDP is expected to be 3.4%, a strong increase over Q2. Obviously the economy is still quite strong. No material change in unemployment claims so labor market is tight and jobs plentiful. However, several companies have reduced their guidance: Hewlett Packard missed on revenues. Square, Fitbit and Box all reduced 2019 earnings projections. In contrast, others have displayed strong earnings and revenue growth, i.e. Monster Beverage, JD.com, etc.

EARNING SEASON

Earnings season for Q4 2018 operating results, which began in January, has been very good, certainly far better than December equity performance was telegraphing. According to Factset, Q4 2018 earnings results, showed that 70% of S&P 500 companies have reported a positive EPS surprise and 62% have reported a positive revenue surprise (exceeding estimates). Interestingly enough, in terms of earnings guidance for Q1 2019, as of February 15, 2019, 59 S&P 500 companies have issued negative EPS guidance and 19 S&P 500 companies have issued positive EPS guidance. Also according to Factset, as of March 15, 2019, there were 11,021 ratings on stocks in the S&P 500. Of these 11,021 ratings, 53.6% are Buy ratings, 40.3% are Hold ratings, and 6.0% are Sell ratings. Is this the beginning of a corporate earnings growth slow down for large cap companies? We think so. We think now marks the beginning of a large cap earnings growth deceleration; and the beginning of a bull market for high quality microcap names.

LONG/SHORT PORTFOLIO EXPOSURE

Currently, (approximately as of this writing) the Fund’s long/short portfolio exposure (which is always subject to change without notice or obligation), is 85% Long, 5% short and 10% in cash. Therefore 80% Net Long.

SECTOR ALLOCATIONS

Currently (approximately as of this writing) the Fund has positions (which are always subject to change without notice or obligation), long and short, in the following industry sectors and subsectors: agriculture; artificial intelligence, automotive; beverage; electronics manufacturing (additive 3D Printing); fintech (financial technology); leisure (transaction processing for sports betting); media (digital advertising and content distribution); medical device(fertility); software(mobile gaming and social apps and cloud based SasS and logistics apps);

PORTFOLIO COMPOSITION – CONVICTION POSITION

One of our core, long, conviction, positions is a leisure gaming technology company named Newgioco Group Inc. (OTCQB: NWGI). Newgioco has both land-based and online gaming in sports betting and casino games. Investment Highlights: Proven operations in Italy and now expanding globally; track record of strong operating results with 3 year CAGR (compounded annual growth rate) of 92% and profitable on a non-GAAP basis; Recent U.S. Supreme Court decision (May 2018) legalizing sports betting in the United States creating a secular 15 year U.S. growth opportunity; Company is capturing increasing market share across 3 continents of this expanding global market opportunity.

The most compelling aspect of the Company is that it possesses a robust, highly scalable, sports betting engine (think operating system for wagering) with dynamic risk control. With this technology, betters can cast a very wide range of sports bets, from Formula 1 to tennis and everything in between, in real time, while protecting the casino with dynamic and powerful risk controls. This system is not only used for Newgioco’s own sports betting operations and is now being offered to other casinos as a SaaS (software-as-a-service) model. This highly disruptive technology allows casinos to capture higher margin business, at 12-15% gross margins vs. their normal 3-4% margins for casino and poker games. This is a huge improvement to casinos’ margin profile. This also translates to significantly higher margins for Newgioco.

The Company began its operations in Italy and levering its success in Italy, expanded into Mexico, Central America, South America, a few countries in Africa and Turkey, via its recent acquisition. Last week it began expanding into the U.S. with it’s publicly announced distribution deal with a distributor in Montana.

We acquired our position via participation in the Company’s convertible debenture offering. It was a compelling offering for us. The debenture yields a 10% annual dividend. It can be converted to equity at any time. The debenture also includes 20.8% stock coverage (for every unit of debenture). It also includes 108.25% warrant coverage. Additionally we possess creditor protection by holding the debenture until we convert.

From a summary valuation perspective, based upon our own internal calculations and our projections for the Company’s 2019 EV (enterprise value) and EBITDA (earnings before interest, taxes, depreciation, amortization), the
Company’s equity is currently trading at approximately 0.6X 2019 EV/Sales, with the average comparable companies in the gaming sector, trading at 2.4X 2019 EV/Sales. In terms of EV/EBITDA, our internal projections reflect that the equity is trading at 2.2X 2019 EV/EBITDA with the comparables trading at 8.6X 2019 EV/EBITDA. By all measures, the Company is worth at least 4X its current equity price and eventually much more. This is one of the most compelling companies we have identified and invested in since we started the Fund almost 12 months ago. From a return risk profile perspective, we believe we have $0.15 of downside and $3.00 of upside; an exceedingly compelling return risk profile.

FUND DESCRIPTION

Mach 100 LP is a non-correlated, small and micro-capitalization, equity focused hedge fund possessing concentrated positions and capitalizing on discovery premium and information arbitrage (disparities from publicly available information). The Fund’s investment objective is to generate absolute returns that are largely alpha. The Fund utilizes fundamental quantitative and qualitative analysis, technical analysis,assessment of securities and broad market behavior, trading psychology and return risk profiling to determine portfolio exposure and select investments across asset classes, instrument types, industry sectors and geographies. Managed by industry veterans, the Fund is designed to generate consistent, positive investment returns with low net portfolio exposure and lower correlations than typical equity market benchmarks. The Fund may employ a diverse combination of equity, equity arbitrage, equity linked derivatives, debt, spot metals and other investment and hedging instruments (including cash) in order to achieve its objectives. The Fund’s long portfolio focuses upon emerging growth companies across the small and micro-capitalization tiers (~$50 million to $2 billion). Its short portfolio focuses upon fundamentally flawed companies and management teams. Our strategy presents both the opportunity to achieve higher gains, as well as creating unique challenges that require significant skill, as well as deep and broad experiences within these volatile capitalization tiers; and of paramount importance, the right trading psychology. Mach 100 LP believes it has the right team, strategy and tactics to successfully capitalize on these opportunities to produce superior investment returns.

DISCLAIMER


Mercadyne Funds, LP (“Mercadyne”) is not currently registered in any capacity in the financial services industry, and the information that
accompanies this disclosure, as well as any other information provided by Mercadyne, should not to be construed as financial advice, investment
advice or a solicitation to buy, sell or hold any particular security. Mercadyne makes no warranty, expressed or implied, as to the accuracy or
completeness or fitness for a purpose (investment or otherwise), of the information provided in its publications, including its websites and social
media posts, including video, audio or text. The published information has been sourced from publicly available sources, but Mercadyne does
not guarantee the accuracy, timeliness, completeness or correct sequencing of the information, and does not warrant any results from use of the
information. Readers are encouraged to consult their personal financial adviser before making any decisions to buy, sell or hold any securities
mentioned in any materials from Mercadyne. Investing in securities of emerging growth companies or emerging growth economies is highly
speculative and carries an extremely high degree of risk. It is possible that all of an investor’s invested capital may be lost or impaired due to the
speculative nature of the companies profiled. In addition, Mercadyne’s personnel and/or investment vehicles may have or take long or short
investment positions in the companies discussed in the accompanying information (the existence of any such positions will be disclosed when
applicable). Mercadyne encourages readers to invest carefully and to read the investor information available at the websites of the Securities and
Exchange Commission (“SEC”) at www.sec.gov and/or the Financial Industry Regulatory Authority, Inc. (“FINRA”) at www.finra.org/investors.
Mercadyne is not responsible for any error, mistake or shortcoming that may be occasioned at the time of publishing of the information in this
publication, any other Mercadyne publication, or its web site(s) and is not obligated to, and undertakes no duty to, update and/or correct any
information. No liability is accepted by Mercadyne for any direct, indirect or consequential loss arising from the use of the information that
accompanies this disclosure. Mercadyne expressly disclaims any fiduciary responsibility or liability for any consequences, financial or otherwise
arising from any reliance placed on the information provided. The information that accompanies this disclosure is subject to change without
notice. While the accompanying information may include details relating to Mach 100, LP (the “Fund”), a private investment fund managed by
Mercadyne that relies to SEC Rule 506(c) to maintain a “private placement” of its securities, an offer of such securities may be made only by the
delivery of the Fund’s Confidential Private Placement Memorandum specifically addressed (either on the cover page or in an electronic mail
message) to the intended recipient.

By |2019-06-19T15:23:19+00:00June 7th, 2019|Unaccredited Newsletters, Uncategorized|0 Comments