Cheap Stocks, 12/6/2013 Update
MRVC, BLIN, DAEG and CBEY can still be bought.
Last week we went 7 stocks up, 6 down and 1 even. Since inception we are now 64 stocks up and 18 down for a 78% winning percentage (80% is our target win %).
Since our beginning, we have closed out the following positions:
2006-ONXS +11% (Buyout offer)
2006-CAW +21% (Buyout offer)
2007-IYXI.ob +44% (Buyout offer)
2007-MOBI +47% (Buyout offer)
2007-INFT +11% (Buyout offer)
2007-DTLK +25% (2 weeks)
2007-PDLI + 3%
2007-LINN.ob -57% (mortgage business bust didn't help here)
2007-TISA -39% (take some tax loss for 2007 due to disappointing results.
2008-OPTO.ob +40% (Buy-out offer)
2008-PDLI +9% (company split, and special dividend)
2008-BDAY -39% (long overdue takeover offer-or "take-under")
2008-DTLK +40% (third trip on this one)
2008-ILOG +26% (Buy-out offer from IBM)
2009-DTLK +33% (fourth trip on this)
2009-HSTM +67% (continued good earnings)
2009-CLZR -32% (a loser even on a buy-out)
2009-DTLK +28% (our 5th profitable trip on this one)
2010-CHRD +37% Buyout (2 weeks after we recommended it)
2010-HPOL +27% (third trip)
2010-CAW EVEN (excluding 2.5 years of dividends)
2011-PRM +56% Buyout (1 week after we recommended it)
2012-LTUS -98% No more Chinese stocks for us
2012-AEZS -63% a bad speculation.
2012-RIMG -46% (including dividends)
2012-HPOL +34% (4th trip)
2012-MEDW +133% (Buyout 1 week AFTER we sold this)
2012-MOTR -29% (lost biggest customer contract)
2013-INUV -83% Held this since 2007. Failed business model.
The model portfolio assumes $10,000 invested in each stock (unless we double-up--then it is $20,000), less $10 commission each way (TD Ameritrade rate).
Valuation $27.88 (Was $27.89, $28.27)
Closed down $1.39 at $15.69
Earnings announced on November 26, 2013. Revenues increased from $61.7 million to $65.7 million and they made $.13 a share compared to $.12 last year. Out valuation dropped $.01 to $27.88. Net cash fell to $3.10 per share.
UP 33% HOLD
Valuation $31.50 ( Was $24.25)
Closed down $1.15 at $6.11
Earnings announced on November 5, 2013. Oiy. Just trying to figure out how they did with all the purchase accounting and pro-forma adjustments is a nightmare. Revenues were $567 million on a pro-forma basis and EBITDA was $220 million. Using our 3.5X EBITDA less net debt gives us a valuation of $31.50. As far as we can see they are still on track with their 12/6/2012 pre-merger projections, other than digital sales did not grow as predicted. They forecast $2.33 billion in revenue, $2.681 billion in net debt and $865 million of adjusted EBITDA for 2013. For the 9 months ended September they did $1.686 billion in revenue, net debt was $2.617 and they reported $674 million in adjusted EBITDA. If they repeat the current quarter they will miss revenues by $100 million but still meet their EBITDA and net debt goals.. Obviously no one else sees it this way as the stock cratered. We will continue to hold as we have seen other value plays like Pitney Bowes ($11 to $24) and Lexmark ($21 to $35) come back from panic situations.
We will not double up here as there really is a lot of debt and this will need a couple of more quarters of performance before it is proven they can handle the debt and survive for the long term.
Paulson & Co, filed a Form 13D on 5/10/2013 disclosing a 10.9% stake. They have held this stake since before the bankruptcy and merger. Then on May 14th, they filed a 13D/A disclosing another 350,000 share buy at prices up to $17.07 bringing their stake to 13%.
Down 60% HOLD
Valuation $6.71 ( Was $6.16, $6.79, $6.50)
Closed up $.09 at $2.50
Earnings announced on November 7, 2013. About the same. Revenue was $14.1 million compared to $15 million last year and they made a profit of $82,000 versus a loss of $221,000 last year. From their press release:
"Fiscal 2014 will be a year of significant transition for the Company as we begin the migration of our legacy customers to the XRS mobile solution. As we transition from our legacy hardware-based solutions to our no upfront cost mobile solutions, we expect soft overall revenue. We expect accelerating mobile revenue growth with consistent margins and will continue to invest in the further development of the XRS mobile solution with key integrations to strategic third-party providers thereby creating a whole product that will position us to capitalize on this expanding market."
Our valuation increased to $6.71 per share.
UP 67%, HOLD
NEW Valuation $3.19 (Was $3.42, $4.64, $4.86, $4.00)
Closed up $.03 at .93.
Earnings were reported on 12/3/2013. On the surface not so good. Sales fell to $7.7 million from $10.3 million and adjusted EBITDA fell to $755,000 from $2.1 million last year. Net debt increased a bit to $11.6 million from $11 million last quarter, but is down about $3 million from last year. We read the earnings transcript and actually thought this looks like a good bet. That and the Pessin filing, and the 1.2 million shares that traded on Friday. Maybe Jensen sold? Our valuation continued down to $3.19 per share-still a lot higher than the current trading price. We will probably buy more of this personally next week.
Norm Pessin filed a 13D on November 27, 2013 disclosing a 6.2% stake. Good news that someone else sees the value here.
Kurt Jensen a 10% owner continues to sell stock at almost any price, putting a lid on DAEG. He still has 1.6 million shares, so this could take a while.
Looks like BlueLine Partners (a “strategic opportunities fund”) have shaken up Daegis management in January with the ouster or the CEO and CFO. The interim CEO and Chairman of the Board is a BlueLine founder. Its feeling like they are not happy with the current stock price for sure.
Down 14%, HOLD
Valuation $1.61 (Was $2.19, $2.35, $2.56, $2.24)
Closed up $.01 at $1.11
Company announced in November 2013 that revenues were $6.7 million for the quarter and that adjusted EBITDA was positive and that they will announce full earnings in early December. First quarter in a while that revenues didn’t decline due to the run-off of their legacy products. Core products revenue was up 30%, while legacy business was down 61% to $1.4 million. Our valuation will go up, but we will wait for the full financials to calculate exactly how much.
BLIN raised $2 million in October 2013 by selling 10% secured convertible notes. The conversion price is $1.30. Let’s hope they convert soon.
Earnings announced in August.
Not great (again). Revenues fell to $5.6 million from $6.4 million last year as they lost $1 million of their legacy business and they lost $.09 a share on a Non-GAAP basis versus breakeven last year. iAPPS revenue was 78% of sales up 4% from last year, recurring revenue was up 10% to $1.2 million. They also lowered their guidance for 2013 to revenue of $24.5 million from $25-$26 million. Our valuation fell to $1.61 per share. Based on their 2013 guidance our valuation would be about $1.92 a share. They made a small acquisition with about $2 million in revenue, most of which is recurring. While their iAPPS revenue continues to grow, it appears more slowly. We are changing this to a HOLD.
Down 11%, Hold
Valuation $6.81 (Was $6.28, $4.89, $6.02, $6.72, $5.49)
Closed down $.15 at $2.16
Earnings announced on October 30th. Not bad. Revenue rose from $93 million to $96 million and they reported breakeven net income versus $.07 last year and “adjusted net income of $.05 per share versus $.12 last year. Gross margin was 37.3% versus 31.5% last year. Our valuation rose to $6.81 a share. Net debt declined to about $92 million, down $3 million from last quarter and down $19 million from a year ago.
Carlo Cannell, an activist investor filled a 13D in September 2012 pointing out how undervalued TSYS is and urged them to put themselves on the block. He points to a valuation done on the company as of August 29th 2013 of $7.40 to $11.81 a share. Even the low point here is higher than our valuation.
UP 58%, HOLD
Valuation $3.79 (Was $8.60, $9.31, $10.28. $9.03, $9.37, $8.85, $8.31)
Closed down $.26 at $2.27
AVNW announced earnings on October 30th. Ugly. They did not even make the low end of the revenue guidance they announced a couple of weeks ago. Revenues came in at $93.4 million down from $115 million a year ago and they lost $7.8 million on a Non-GAAP basis versus a $2.8 million profit last year. Gross margin plunged to 25% and net cash fell to $1.20 a share. Our valuation also plunged to $3.79 a share as all the key metrics dropped.
Their book-to-bill ratio was a bit over 1 this past quarter leading them to give next quarter guidance of $100 to $107 million in revenues and Non-GAAP income of $.03 to $.08 per share. Not good. This is definitely not a BUY anymore.
Penn Capital Mgmt. filed a 13G in late February 2013 disclosing a 6.05% stake.
Dimension Fund filed a Form 13G in February 2013 disclosing a 5.3% stake, Vanguard disclosed a 5.67% stake and Blue Mountain has been buying more and is now up to a 5.90% stake.
Down 13%, HOLD
Valuation $26.12 (Was $27.58, $28.24, $28.33, $29.04, $29.59, $29.58, $29.21)
Closed up $1.15 at $6.70
Earnings announced on November 6th. Not great. Sales fell to $113.7 from $121.5 last year, and they lost $3.3 million (excluding a $2 million write-off. Our valuation fell a bit to $26.12. The big news to us was that they announced they are looking at “strategic alternatives” which includes the sale of the company. This could result in a number of things happening, including nothing, but it is a good sign that they understand that they get no respect in the market. They said they would slightly miss their full year 2013 sales guidance from $464-$471 million and come in at the middle of their previous EBITDA guidance of $76-$80 million.
Penn Capital Mgmt. filed a 13G in late February 2013 disclosing a 5.55% stake.
$78 million of EBITDA, $.25 a share in net cash and a $185 market cap. Cheap.
Down 7%, BUY
Buy Price October 7, 2011- $8.50 ($25.40 before special dividends)
Closed at $11.10 down $.50
Earnings announced on 11/12/2013.
Revenues were up 11% to $38.4 million and their loss declined to $146,000 from $1,320,000 last year. Net cash per share was $3.54 and our valuation jumped to $28.98 a share. They say they are continuing to invest in the business and that these should become apparent in 2014. Patience.
Lloyd Miller disclosed a 6.9% stake in February 2012.
Raging Capital bought another 1.6 million shares in the first week of December 2012 at $10.80 bringing their holdings to 20.1% of the company.
Still trading at less than ½ our valuation.
UP 29% BUY
Valuation $12.30 (Was $11.86, $8.24, $13.05, $10.67, $8.41 $12.10, $13.40, $16.02)
Closed down $.28 at $5.33
Earnings announced on September 4th. They continue to do what they say they are going to do. Revenues were $53.8 million, net cash rose to $88.9 million or $2.61 per share and our valuation rose a bit to $12.30.
Raging Capital filed a 13D/A in July 2013 showing sales of about 500,000 shares at prices from $4.96 to $5.68 lowering their stake to 6.6%.
Guidance from their press release:
"Moving into the third quarter of fiscal 2014, we believe revenue will be in the range of $54.0 to $58.0 million," Mr. Tran continued. "We expect to see revenue increases in most of our target markets along with a steady non-GAAP gross margin between a range of 52% to 54% in the quarter. In addition, we expect our non-GAAP operating expenses in the third quarter of fiscal 2014 to trend lower than the second quarter of fiscal 2014,"
We will be watching this one very closely and may sell at any time.
Down 37%, HOLD
Valuation $14.55 (was $14.77, $16.26, $16.20, $15.37, $13.53, $15.85, $14.13, $11.38, $14.04, $18.54, $15.99)
Closed up $.05 at $8.08 (including dividends)
Pays $.48 annual dividend.
Earnings announced on October 29th. Nice. Revenue was up 14% to $17.2 million and they made $.08 a share. Cash per share was a healthy $2.82. Gross margins fell a bit so our valuation of $14.55 was down $.22 from last quarter, but up $1.02 from last year.
We have collected $.48 in dividends so far (excluding the $.50 special dividend which reduced our basis).
UP 76%, HOLD
Valuation $3.18-(Was $3.06, $3.02, $4.14, $3.65, $3.41, $5.52, $5.00, $5.39, $5.33, $5.61, $5.73, $4.38, $4.44, $5.15)
Closed at $1.02 up $.08
Earnings announced on November 29th for the quarter ended September 30, 2013. Revenues were $12.1 million versus $14 million last year and $11.4 million last quarter and they lost $1.7 million. Net cash rose to $46.7 from $45.2 million or $1.69 per share. Our valuation rose a tad to $3.18 per share.
Lots of product introduction updates in their press release, but not much has been translating to the financials. Looks like they lost their licensee in China and are looking for a new one and they canceled the Korean version of Ragnarok 2, although the English version is still available. Revenues were up a bit as was cash, but unless the company decides to distribute some of that excess cash (like $1.00 a share) this is going to be a long wait.
It would be a shame to have to sell this below their cash value, but this may make a good tax loss candidate for 2013.
Down 30%, BUY
Valuation $6.71 (was $6.41, $6.14, $5.97, $6.21, $6.13, $5.82, $5.81, $5.72, $5.65, $5.39, $4.86, $5.60, $5.73, $5.54, $5.74, $5.96, $4.72, $5.19, $5.66, $5.63, $5.61, $5.71, $5.49, $5.34, $5.03, $5.28, $5.28, $5.21)
Closed at $3.40, up $.10
ARI lists on the real NASDAQ on Monday.
ARI announced another acquisition in November 2013. No details, but a good sign that they are really trying to accelerate their growth.
Earnings announced on October 29th. It would be nice if they actually put their quarterly P+L in the press release, amazing. Revenues were up 44% to $8.5 million and they lost a couple hundred thousand on a GAAP basis. It looks like gross margins might have gotten to 80% and recurring revenue was 94% of sales for Q4. Our valuation rose to $6.71 per share. Impossible to tell from their press release if they were profitable on a Non-GAAP basis in Q4. We will have to wait for the 10K to see what else is discernible from their numbers.
Wynnefield partners bought another 100,000 shares at $2.90 in the first week of July 2013 raising their stake to over 10%.
If ARI can grow continue to grow their revenue and profits over the next couple of quarters, we think the stock price could approach our valuation.
Wynnefield Partners filed a 13D/A in April disclosing purchasing another 50,000 shares at $2.50, and now have a 9.95% stake (1.2 million shares) in ARI.
UP 111%, HOLD, Still a Huge valuation gap here.
Valuation $1.02 (Was $1.05, $1.07, $1.14, $1.17, $1.34, $1.34, $1.37, $1.36, $1.23, $.91, $1.21, $.71, $.83, $.88 $.96, $.93, $.75, $.85, $1.57, $1.40, $1.29, $1.38, $1.31, $1.38, $1.29, $1.42, $1.28 $1.13, $1.05, $.82)
Ask price $.27 closed at $.245
10Q filed on 11/14/2013. Not even a press release. Still trying to steal this under the cover of darkness. Revenues were $3.6 million, down from $3.9 million last year. They lost $394,000 compared to net income of $34,000 last year. Our valuation fell to $1.02 a share still more than triple the management buyout price. Cash per share fell to a measly $.02.
Not a peep on the management buyout, although the 10Q still says they have special committee looking at it.
CTIG announced in June 2013 that they had hired Duff and Phelps as their independent financial advisor. Guess the Board decided they need to get a fairness opinion to keep down the damages on the lawsuit.
Birbeck and Fairford Holdings made a non-binding offer to buy CTIG in March 2013 for $.29 a share. The company formed a special committee to evaluate the offer. Hopefully they will find somebody else who will pay fair value—or at least close to it.