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Description:

Springhouse Capital is a hedge fund focused on undervalued small cap stocks. It is led by manager Brian Gaines, a protégé of legendary value investor Joel Greenblatt. Springhouse Capital has generated an average net return of 29.6% per year since its launch, versus a 13.9% annual for the S&P 500, according to Value Investor Insight.

Value Investor Insight interviewed Gaines about his investment in online survey company, Greenfield Online (SRVY) which is up almost 100% now from its lows this year. In the interview, we get a glimpse into how Gaines values positions:

“We also look here at valuing the parts of the business â€" the U.S. survey business, the European survey business and a comparison- shopping business in Europe, called Ciao, which they acquired when they expanded in Europe.
The North American survey business did $2.6 million of EBITDA minus capex in the first quarter of this year. The business isn’t particularly seasonal, so we think they can do $10 million for the full year. Given that the returns on invested capital are fantastic, there’s little reinvestment needed, they are the market leader in a business unlikely to see further entrants and pricing has gotten sane, we think this business deserves at least a 10x multiple. That makes it worth $100 million, or $4 per share.
The European business earned $1.5 million in the first quarter, so we believe $6 million for the full year is very achievable. The competitive dynamics are similar, so we think it’s also worth a 10x multiple, which comes to $2.40 per share.
The comparison shopping business, Ciao, is a hidden gem. It did $1.5 million in EBITDA less maintenance capex in the first quarter. Revenue grew 80% in 2005, margins are 40-50% and they have the #1 position in Germany. If you straight-line the first quarter and say they earn $6 million for the year and then apply an appropriate 15x multiple to it, that’s worth $3.60 per share. We think Ciao will earn $8-9 million in 2007, so that valuation is conservative."


As of 12/31/06

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