Pinetree Capital Ltd

Investing alongside the Leonard family, blindfolded

Note: I use dollar signs throughout but all figures herein are Canadian funny money, eh.

Pinetree Capital Ltd (TSX: PNP) is an investment firm headed by Damien Leonard, son of the iconoclastic Mark Leonard of Constellation Software. Now, I know what you’re thinking — and it’s true that “relative of X successful investor” is unlikely to be a sound reason to invest in anything — but read on!

Prior to Leonard & company taking over, the business invested primarily in the natural resources exploration industry and came to a tumultuous conclusion a few years ago. Leonard joined as COO in 2016 and in more recent years served as CEO, president and a director. Today, Pinetree describes itself as “a value-oriented investment and merchant banking firm focused on the technology sector” investing in both public and private equity, debt, & convertibles. Insiders own approximately 45% of the company, with roughly ~33% of shares owned L6 Holdings Inc, a holding company once owned by Mark Leonard now managed by his adult children. Damien Leonard takes no compensation - the only salaried employee is the CFO, who earns $65,000. Board members receive compensation in the four-figure range. To make the situation more intriguing, Shezad Okhai joined the company as an investment manager and 4% owner in April 2021. Prior to joining Pinetree, Okhai was a ten year veteran and Vice President at Volaris Group, an operating group within Constellation Software.

Something I find particularly interesting: the company is sitting on approximately $350 million in capital loss carryforwards:

These could come in handy down the line should their investments generate capital gains. And what are those investments, anyhow? Great question! Unfortunately, information is sparse. As of last year’s annual report there were a total of 36 holdings - 23 are legacy investments from Pinetree’s past life, of which 17 have a fair value of zero. Restrictions on liquidating the legacy holdings were lifted in 2021 and management is seeking to divest accordingly. Of the new investments there are five holdings that made up 41% of the FMV of Pinetree’s assets as of December 31, 2020. Unsurprisingly, these five are all technology companies. The only clue into the company’s holdings I could find is circumstantial at best: Shezad Okhai follows a company called Brainbox.AI on Linkedin, a company at which François Bouffard is an advisor. The potential link here is Pinetree’s CFO, John Bouffard. It could all be coincidence but given it’s a tiny Canadian vertical market software company, it’s plausible.

With about 9 million in shares outstanding, ~$13 million in cash, minimal debt, and investments with a FMV of ~$25 million as of September 2021, Pinetree might be attractive on the basis of metrics like Price/Book. Obviously metrics and multiples provide only a rudimentary —if not arbitrary — suggestion of what a business is worth, and something as complex as valuation becomes even more so when we have no clue which businesses Pinetree is investing in.

I think Pinetree Capital is an interesting situation given the people involved & their incentives, the potential use of the loss carryforwards, and the solid balance sheet. That said, the lack of history makes it difficult to estimate where the company may be headed, and the recondite investments mean you’re betting on the jockeys (and to a lesser extent the pedigree of the main jockey) & not knowing what you own could be unnerving. Poke around the SEDAR filings (and possibly poke your eyes out in the process due to the interface), review the financials on Tikr, then draw your own conclusions.