EVOL RESEARCH REPORT
Here is the EVOL research report in PDF format for those who missed it yesterday: http://www.t11capital.com/wp-content/uploads/2013/04/EVOL-Research.pdf This will be the format for all future research that is presented. Questions or comments, feel free to chime...
MAKING THE CASE FOR INVESTING IN REGIONAL BANKS: STARRING HMPR & SBCF
AN OVERVIEW We begin this exploration of the opportunities prevalent in today's investment environment by exploring trends in the real estate market, with a focus on how those trends are influencing the balance sheets of small, regional bank names. It goes without saying that small regional banks were the hardest hit among the names from the recent debt/housing crisis. In fact, there remain nearly 800 banks on the problem bank list published on the Calculated Risk Blog monthly. Both of the names presented in this report today are on the troubled bank list. I have expressed my disdain of "green light" investing in my postings on many occasions. Green light investing is the act of waiting for the market to give you a thumbs up, shiatsu massage and steak dinner to make your decision to invest a comfortable, cozy and pleasant experience. The greatest opportunities in the marketplace are those born from the inability of market participants to surmise the risks involved correctly. To be cozy and comfortable in an investment is a sign that the marketplace for that particular idea has matured to the point of a positive consensus opinion. It is in that positive consensus opinion that the seeds of dramatic and sudden losses are born. To invest in small, regional bank names here is certainly not the uncertain proposition it was in 2010 and 2011, when a majority of the names in the sector were seeking relief from government, hedge fund and private equity sources. There is, however, a large degree of uncertainty that remains due to the sustained losses of a period of years, the resulting dilution that occurred as a result of the numerous rescue packages thrown together to aide these companies and the inability to gauge accurately whether the recovery in real estate is sustainable over the long term. As exhibited by the two charts below, we are in the early period of a recovery perhaps reaching normalized levels into 2015: click chart to enlarge (all charts courtesy of Calculated Risk) Perhaps more importantly with respect to regional banking investments, according to the Mortgage Bankers Association, the 4 week moving average of mortgage applications just made a 4 year high as demonstrated by the chart below: With what is an obvious environment geared towards firming, with the potential of a ramping up taking place over the next few years, let's look at two regional bank names that stand to benefit. Hampton Roads Bankshares (HMPR) Hampton Roads Bankshares, Inc. operates as the bank holding company for Bank of Hampton Roads (BOHR) and Shore Bank that provides community and commercial banking services primarily to individuals...
CINEDIGM: ENTERTAINMENT WITH CATALYSTS GALORE
Position taken in the 1.40 range during the weeks of April 15th and April 22nd What Does CIDM Do? Cinedigm Digital Cinema Corp. operates as a digital cinema services, software, and content marketing and distributing company primarily in the United States. The company offers technology solutions, financial advice and guidance, and software services to content owners and distributors, and movie exhibitors. It engages in the ownership and licensing of digital systems to theatrical exhibitors; and provides monitoring, billing, collection, verification, and other management services to the companys Phase I Deployment and Phase II Deployment, as well as to exhibitors, who purchase their own equipment. The company also develops and licenses software to the theatrical distribution and exhibition industries; and provides applications service provider service, and software enhancements and consulting services. In addition, it acquires, distributes, and provides marketing for the programs of alternative content and feature films to movie exhibitors. The company was formerly known as Access Integrated Technologies, Inc. and changed its name to Cinedigm Digital Cinema Corp. in October 2009. Cinedigm Digital Cinema Corp. was founded in 2000 and is based in Los Angeles, California. The Conclusion Deserves To Be Mentioned First In CIDM an opportunity exists to invest in a company that has multiple fee-based, recurring revenue streams at a price that should have a ribbon around it, with purple wrapping paper and a pretty card. The kicker here is the fact that management has been proactive in restructuring the company in two separate ways that I will elaborate on later in this report: 1. CIDM has gone from a cinema services company utilizing a dilapidated business model with a steadily decreasing level of relevance to a full on digital distribution and cinema software services company 2. The balance sheet has been streamlined to the point that any risk posed from debt has been all but eliminated All the meanwhile, as is so often the case in small-cap land, the markets are treating CIDM as if it is the same company that it was in 2009. In fact, if you are to listen to the voice of the markets, it would seem that the old CIDM was a better company than the new CIDM. The high in 2009 was 1.72. The high for the stock in 2010 was 3.24. The high for the stock in 2011 was 2.60. In 2012 the high for the stock was 2.20. CIDM currently trades in the 1.40 range despite the fact that the company is vastly improved and radically different than it was in 2009, 2010, 2011 and even 2012. Let's take a look at what has changed. Management During...
JMBA: THE JUICE IS LOOSE
Position taken in the $2.90 range during the week of March 11th, 2013 An Industry Prepped For Growth There is nothing that confirms an emerging trend like a market leader taking a position in a niche marketplace. I begin this report with the significance of Starbucks purchasing juice company Evolution Fresh in November of 2011. It can certainly be argued that Starbucks is at the forefront of understanding the tastes of consumers as it relates to their beverage preferences. The acquisition of Evolution further legitimizes the emerging trend of an increasingly health conscious consumer searching for options that sustain wellness. A cultural shift towards seeking out products of a higher quality to enhance health. It is not just Starbucks noticing the upside potential in this trend towards health conscious consumers demanding healthy beverages, Campbell Soup purchased Bolthouse Farms, a seller of produce and premium juices in 2012 for $1.55 billion. Market leaders in the food and beverage industry are essentially telegraphing what their research tells of consumer habits going forward. This is a dynamic among consumers that has been gaining momentum over the past 10-15 years. Witness the growth of Whole Foods (aptly referred to as Whole Paychecks for the premium they charge for "healthy"), a company that has revolutionized grocery offerings and presentation. The share price has increased 650% since 2000. Even more traditional grocers are taking notice, having entire sections dedicated to "organic" and "fresh" offerings. The consumer has an increasing appetite for health conscious choices that marks a significant change in consumption habits. This from American Express Market Briefing from 2012: http://www.technomic.com/_files/Newsletters/Marketbrief/marketbrief_6-12.pdf Juice—once seen as just a specialty or breakfast beverage—has emerged as one of the biggest menu trends in the restaurant industry. The interest in fresh fruit juices and juice blends is in line with the new health consciousness, in particular the emphasis on “5 a Day” consumption of vitamin-packed fruits and vegetables. But we’re also seeing consumer boredom with soft drinks; consumption, while quite high, has been more or less flat for some time. Consumers are increasingly turning to noncarbonated alternatives, from flavored waters to iced teas to juices. Bottom Line: With the drives toward both healthful eating and novel beverages, consumption of fresh juices in restaurants is up significantly—and has plenty of room to grow further, fueled by the potentially vast variety of juices, blends and additions that can be offered. The quality and variety signaled by juice offerings make them an attractive point of differentiation for concepts of many types. This continuing trend towards collective consciousness of the products consumers choose to ingest on a daily basis will only grow as individuals become better informed of the options available to them. A...
IWSY: A TRANSITIONED BUSINESS MODEL THAT SHOULD BE EMBRACED BY INVESTORS
*IWSY position taken the week of February 25th in the .93-.95 range The Background On May 8th of 2012, a research report was posted to Zenpenny detailing the opportunity in a biometric security company that specialized in the mobile space. The report was titled, "AUTH Presents A Substantial Opportunity In The Wireless Sector." When the report was posted to the site AUTH was trading in the $3 range. A little more than two months later AAPL bought AUTH in the $8 range, making AUTH one of the big portfolio winners from last year. I was drawn to AUTH as an investment for two reasons: 1. It was flying completely under the radar, while dramatically improving fundamental aspects of the company that had caused the stock to fall from a post- IPO (spinoff from Harris) high of near $20 per share. 2. They were making great strides in an area of mobile security that is going to become standard in the wireless space over the next several years - biometric user identification. AAPL, seeing the light, decided to seize the opportunity while it was still undervalued, gobbling the company up at bargain prices. AUTH deserved a valuation in the teens. AAPL got it cheap. This article citing data from Goode Intelligence, a British market research firm, describes the opportunity in the biometric market: http://www.securityweek.com/analyst-biometrics-will-become-must-have-all-mobile-devices A British market research firm, Goode Intelligence, says that biometrics for mobile devices will be an essential feature before the decade is out. Their claims come from previous forecasts that point to a market growth of nearly 39 million users by 2015. Smart Mobile Devices (SMDs) are now the personal device of choice, Goode notes, with sales outpacing PCs. The BYOD trend is accelerating the need for enhanced security as SMDs are being used more often for consumer and business-sensitive activities. “Last year, we forecasted that the mobile biometric security market would grow to 39 million users by 2015” said Alan Goode, founder and Managing Director of Goode Intelligence. “This was based on the expectation that initial growth would come from two biometric modalities; embedded fingerprint sensors and voice biometrics. The news that Apple is buying fingerprint sensor specialist AuthenTec further supports the evidence for this exciting trend.” Apple did make a move to acquire the biometric security company last week, and will pay roughly $356 million for the firm which creates embedded fingerprint scanners and other IDM software. Moreover, AuthenTec also creates DRM software. The fact that IDM and DRM are both coming form the company makes them a decent buy for Apple. While the speculation is that iDevices (iPhones, iPads, etc.) will get biometrics,...
THE TOUCHING STORY OF A LONELY CANADIAN TELECOM COMPANY IN THE CRUEL NASDAQ WILDERNESS
5-24-13 - MITL sold for a 6% loss since inception MITL position taken at average of 3.60 on January 11 & 14, 2013 A research report detailing MITEL NETWORKS CORPORATION (Symbol: MITL) An Introduction - Canadian company founded in 1972 - MITEL stands for MIke and TErrys Lawnmowers. The company hasn't been in the lawnmower business since shortly after their founding. - Company has been focused on Voice Over IP (VOIP) products since 2001. - MITL originally wanted to IPO in 2006. However, due to the purchase of InterTel , they withdrew their IPO registration. - MITL did go public in April 2010 at $14 per share. By October 2011 MITL was trading at $2. - Current market price = $3.64 for a market cap of $195 million A Look Into The Ghosts Of Mitel's Past Through the benefits of hindsight it is apparent that MITL should never have attempted their IPO given the structure of the company at the time it came public. The expected range for the IPO was in the 18-20 dollar range. It never made it close to that offering price. It was priced at $14 on the day of its offering, closing the day in the $12 range, nearly 40% below the target range. A disaster by any stretch. It is obvious why the market not only frowned on MITL as an investment worthy entity but participated in pummeling the company. At the offering price, MITL was sporting a P/E above 50. That is in an industry where the average P/E was in the 20 range at the time of its IPO. VOIP has not been considered a high growth technology segment for years now. It can even be argued that networking companies like MITL and their competitors Cisco and Alcatel-Lucent are "old technology" companies that deserve conservative multiples given their growth characteristics. It is obvious now that a premium multiple for MITL simply wasn't acceptable given the profile of its technology offerings. The problems didn't stop there, however. MITL had three major problems as it came to market: 1. Revenues were down low double digit percentage year over year. Somehow the underwriters in tandem with company management thought the market would be willing to pay growth stock prices for a company that wasn't growing in the least bit. 2. Market share was slipping away from them at a fairly consistent pace. 3. Debt was extraordinarily high. They came to market with nearly $500 million in debt incurred mostly as a result of their merger with InterTel. Cash flow, at the time of the IPO, was only $30 million versus that extraordinary debt load. Additionally,...
PRXI: A SIMPLE SITUATION EQUALING A SIMPLE OPPORTUNITY
PRXI position taken between 2.56-2.60 on 11/19/12 - 11/20/12 This is as extraordinarily simple a research report as can be. There are no complicated tax situations, post bankruptcy, creating a potential value proposition a la WMIH. There are no worries about whether a particular technology will be accepted in the marketplace a la PXLW. There are no industry advancements that create a window of opportunity for the company a la SPNS. And there surely are no complicated patent issues that need to be decided in a court of law in various states before value can be created a la UPIP. PRXI is about as old economy a company as you can get. Literally. Here is a description of their business: Premier Exhibitions, Inc. presents museum quality touring exhibitions worldwide. The company develops, deploys, operates, and presents exhibition products in exhibition centers, museums, and non-traditional venues. It operates and manages exhibitions, including Titanic: The Artifact Exhibition, which features the artifacts recovered from the wreck site; Bodies...The Exhibition and Bodies Revealed that displays multiple human anatomy sets, which contains a collection of whole human body specimens, single human organs, and body parts; and Dialog in the Dark that provides insight and experience to the paradox of learning to see without the use of sight. The company also sells exclusively sourced merchandise, such as apparel, posters, gifts, and Titanic-related jewelry; publishes exhibition catalogs; and provides ancillary services, including audio tours and visitor exhibition themed photographs through its exhibition gift shops. In addition, it sells Titanic themed and show related merchandise at thetitanicstore.com. Further, the company has the rights to present four exhibitions, including Tutankhamun and the Golden Age of the Pharaohs that consists of possessions unearthed from Tutankhamun's tomb, such as King Tut's golden canopic coffinette and the crown found on his head when the tomb was discovered; Cleopatra: The Exhibition, which offers artifacts and multi-media atmospheres from Cleopatras world; Real Pirates that features authentic items recovered from the Whydah real treasure last touched by real pirates; and America I AM: The African American Imprint. Premier Exhibitions, Inc. was founded in 1987 and is based in Atlanta, Georgia. That's right. Internet, metals, oil and banking be damned. I prefer a company that runs museum exhibits. Not because there will be a sudden onslaught of young men abandoning Call of Duty so that they can see an exhibit about the Pharaohs. Kids aren't about to start bugging their parents to take them to an exhibit about the Titanic either. Completely vanilla industry, with little in the way of growth prospects. I know. I'm not buying this because I like the museum business....
RESEARCH REPORT – UPIP: A PATENT PORTFOLIO PROVIDING TREMENDOUS RISK/REWARD TO INVESTORS
Position taken on September 21st & 24th, 2012 at 1.91 - 1.98 UPIP (Unwired Planet) represents my favorite type of investment opportunity. That opportunity comes in the form of assets that are difficult, if not impossible, for the market to value correctly. In the case of UPIP, those assets are in the form of 200 patents and 75 pending patent applications. UPIP was formerly known as OpenWave, trading under the symbol OPWV. Most technology investors who have been around for sometime should be familiar with OPWV. OpenWave was a highly liquid, "story" stock during the early part of 2000 due to their innovative wireless technology. They were, in fact, THE preeminent force in wireless back in the days when Apple was coming up with the concept of the IPod and Google was solely a search engine. OPWV is an almost 20 year old company. In those 20 years, they pioneered many of the technologies that are instrumental to what has become our daily routine of text messaging, accessing unlimited information from our phones, while remaining connected 24/7. They were, in fact, the first company to deliver mobile internet browsing through a partnership with AT&T in 1996. Needless to say, being a pioneer in an industry that was to become the platform for future connectivity made OPWV into a technology behemoth. At the Nasdaq bubble peak, in March of 2000, OPWV sported a split adjusted stock price of over $600, with a market cap in the many billions of dollars. By mid-2001 97% of internet ready phones in the US and approximately 75% of internet ready phones overseas used OPWV technology for accessing the mobile internet. The company got caught in the typical early 2000 cycle of acquisition, leverage and the fantasy of infinite prosperity. We all know how that fantasy ended now. OPWV got decimated over a period of years. Their businesses were devoured whole by a wireless industry that was experiencing such rapid expansion and innovation that it left any company that couldn't keep pace in permanent purgatory. The company has recently taken steps to restructure, in what I see as a brilliant move to capitalize on the newest technology industry: The enforcement, protection and licensing of valuable patents that have been ignored by what has become a monopolized industry dominated by Apple and Google. Earlier this year, UPIP shed its business units through a sale to a private equity firm, leaving the company with 20 employees, 200 patents, 75 pending patents and a team of lawyers. UPIP has become a patent troll. The company has zero debt, $80 million in cash with a market cap of $180...
RESEARCH REPORT – BWC: AN OPPORTUNITY BY WAY OF INOPPORTUNE DISASTER
*Position taken on August 22nd in the mid-25 range. *Position exited on September 21st at an average price of 26.10 BWC - The Babcock & Wilcox Co. represents my favorite type of opportunity in that the share price has been victimized by inopportune events. As such, I took a small position in this mid-cap company in the mid-25 range during today's trading session. Let me explain what I mean by inopportune events: First, the company is a spin-off from MDR (McDermott). Spin-offs aren't given much room for error as they are greeted in either one of two ways: 1. By current investors in the parent company who receive shares of the spin-off immediately selling the newly issued shares creating months of selling pressure OR 2. By current investors in the parent company taking a wait and see approach. This is typically followed by flinching at the first sign of bad news. Either way, spin-offs are typically ignored by a majority of retail and institutional investors while selling pressure remains consistent for the first part of their existence. A good recent example of this would be AOL, which saw nearly two years of negativity before turning around and becoming one of the best performing tech companies of 2012. BWC was fortunate in the fact that it was spun off from MDR right before QE2 was announced and it responded well. It hardly suffered, beginning a steady regimen of upward movement from a low of 21 in October of 2010 to a high of 36 in March of 2011. The inopportune event came with the arrival of the Japanese tsunami and the destruction of the Fukushima nuclear power plant. Now is a good time to tell you what BWC does: The Babcock & Wilcox Company provides clean energy technology and services for the nuclear, fossil, and renewable power markets worldwide. Nuclear or Nukular depending on the color of your state. BWC is, in fact, one of the largest manufacturers of nuclear power plants in the world. If you will remember following the Fukushima disaster, the nuclear energy sector was forecast to be eliminated over the next decade, as countries could no longer tolerate the risk of having such a potential environmental and humanitarian disaster on their hands. This is typical panic following any disaster in that wide-reaching negative assumptions are made regarding the future of those who are to blame. The elimination of entire industries is always greatly exaggerated. BWC proceeded to fall from a high of roughly 36 when the Japanese tsunami hit to a low of 18 in mid-September of 2011. The inopportune natural disaster paired with market dislocation caused...
RESEARCH REPORT-PXLW: OVERLOOKED, UNDER-APPRECIATED AND PERFECTLY POSITIONED FOR TECHNOLOGY SPENDING GOING FORWARD
Note: Insiders have been purchasing additional shares of PXLW as I have been writing this report. The insider buys are listed here http://finance.yahoo.com/q/it?s=pxlw Pixelworks is a Silicon Valley based manufacturer of video and pixel processing semiconductors and software. As we all have found out over the past few years, video is increasingly becoming the killer application over the internet. Video demand is fueling a movement towards increasing quality of the images we view. Take for example the IPad Retina Display that delivers an extremely high quality image, increasing the viewing experience for the consumer. This type of increasing attention to portable video quality is just beginning to grab the attention of hardware manufacturers. PXLW is positioned perfectly to take advantage of this movement. The company has been around since 1997 and once upon a time traded as high as $100 per share during the glory days of technology in the early part of 2000. Here is the official explanation of what PXLW does: Pixelworks, Inc designs and develops system-on-a-chip semiconductors and software for broadband communications. It is a semiconductor company that designs, develops and markets innovative video and pixel processing chips and software for high-end display applications, including digital projection, large screen LCD flat panels and digital signage. Their solutions leverage proprietary core technologies that enable digital display and projection device manufacturers to differentiate their products with a consistently high level of video quality, regardless of the content's source or format. Pixelworks was founded in 1997 by Allen H. Alley and is headquartered in San Jose, CA. Notes from their recent earnings report seem to confirm the fact that they are perfectly positioned going forward and present a compelling valuation proposition. The most exciting tidbit was the following: Also in Q2, we achieved another key milestone as we won a significant co-development project with a major customer to develop a highly integrated next generation chip that will result in significant revenue impact in 2014 and beyond. This engagement is a significant positive for Pixelworks and reinforces Pixelworks’ market leadership position in video. In both of these engagements, Pixelworks was selected because of our industry leading display technology, recognized leadership in video quality, and world class execution capability. "Significant revenue impact in 2014 and beyond." This in a company that is already trading at a heavy discount to present sales, let alone the discount that increased future sales provides. More positive tidbits from the conference call: Overall TV/Panel products came in at 28% of revenues and were up 166% year over year and 6% sequentially, driven by volume production of our PA Series products, and by the recognition of the...