Triple-S Management Corp(NYSE:GTS)

Web Site
Investor Relation
Google Finance
SEC Filing

Oct 18, 2013
2014 Q2 Data
Check list:
1.Major Business.
Health insurance in Puerto Rico. 2.2m members. 28% of market share, the biggest in Puerto Rico. It has 3 main sub categories:
1. Commercial health insurance and Medicare:
    Commercial: 650k customers
    Medicare has around 110k customers, this is for elderly people. High premium PMPM(per member per month).
    Meddium profit, the premium is high but can't be retained for long time. Thus investment income is lower.

2. Medicaid: for low income family. ASO(Administrative Service Only), the company charge the goverment around $5.5 PMPM for admin service only.

3. Life  insurance: This is actually the bright spot of the company. Since acquired GA Life at 2006. It has been grown very well with 70% increase in premium and almost doubled investment income. Mainly because life insurance claims are paid way later than other insurance.

4. Property and other insurance:


2.Balance sheet.
As Oct. 18, 2013: Recent Price: $18, Tangible book value around $26.18, Share outstanding:27.5M, Market Cap: $490M. Current asset:$1.36B, Current liability, Debt: $130M, Inventory, Cash.

3.Credit facility.

4.Financial data by years.

5.Insider holding, options, Insider trading info, share buy back.


6.Management compensation.


7.Employee numbers. Revenue/Employee. Compensation/Employee.


8.Industry comparison.



9.Auditor


10.Major events.
(1) Oct. 2010, ASES(The Health Insurance Administration) launched miSalud project which is manage only style. Triple-S didn't participate in.
(2) Oct. 2011, Signed 20 month contract from Nov. 2011 to June 2013 with ASES and provide  the miSalud for 5 of 8 region.
(3) June 2013, Signed new 12 month contract with ASES to provide miSalud for all 8 regions. However, the price is cut by $2 PMPM which makes it hardly be profitable.

11.Comments.
The main reason the company is cheap now is that Puerto Rico population is keep going down. Unemployment rate is over 13%. Crime rate gets higher. People leaving for U.S. at a rate around 20k/year with a total population of 3.7m. Thus affect the industry as a whole while seems lower the profit marin.

When checking the company's revenue, its more meaningful to the check after claim + ASO number. Income side, its insurance only generate 1/3 of the income, while investment income counts about 2/3 which is quite reasonable given its a insurance company.

The Puerto Rico goverment recently imposed tax hike to reduce deficit would drag down the company's margin in the near term. Current highest tax rate revert from 30% to 39%. This might cause extra $5m to $7m in tax.

There is also a new insurance premium tax which will apply to its business insurance premium only(not on Medicare and Medicaid). It seems occurred $2m/quarter extra expense. Not sure whether it can pass the expense to customers.

Previously its ASO with the government is quite profitable. However, since July,01. 2013, its price has been cut by around $2 PMPM. Let's assume the revenue can just cover the cost. It is not a good business for the company, don't know why the company accept such a low price. Maybe just to make the goverment happy or to just create a bigger foot print or something else.

The average pre-tax income from insurance business is around $25m

When checking investment income, the bond gain is not sustainable and should be removed. The stock gain is lower than it should be simply because of -$41m loss it suffered in 2008. If added it back, it should generate average 5.4% annual return.

I estimate around 4% interest income for bond. and 8% for stock (2% dividend + 6% gain). Based on this, it should be able to generate around $40m+$20m pre-tax income on current investment balance.

Interest expense is around $10m/year now. It should go down as debt goes down.

Added together, pre tax income is around $25+$60-$10=$75m/year. Using 25% tax rate, it comes around $56m after tax income. Compare to recently $500m market cap, it is quite cheaply priced.


Updated: Apr. 1, 2014
After Q4 release of a surprise small lose. Stock price go down to $15. Currently is around $16.30. The major contribution to the lose is $4.7m in U.S Virgin Island(USVI) , $1.6m in flu and dengue, $1.7m in preventive medication( vaccine, flu shot etc.)

The $4.7m USVI lose includes $3m non cash tax allowance charge. In my view, most of the lose are temporary which is quite normal for a insurance company. Also USVI is just $8m business which is quite small portion of its revenue. However, when checking its Q3 conference, the management obviousily overlooked the USVI issue which is already there at Q3. Also the preventive medication problem they foresee but failed to take action in advance.

On Feb 2014 the government decided to reverse the Medicaid back to at risk model begin July. 2014. Currently it is on the bidding process and will be known by end of April. I think the company will get some of the 8 regions but not all of them. In my view it is might be better than the ASO model because this might increase the cash in investment.

Oct. 27. 2014
Recent Price $21.15.
The company release that they got 2 of the 8 region Medicaid contract which will increase its revenue for about $700m/year starting Apr 01. 2015. The user base is about 430k which is about 1/3 of the total 1.4m. It is a good news for the company. However, I estimate it would contribute less to the premium income while it might increase quite some of the investment income depending how long they can keep the premium before pay out the claim.


Jan. 19, 2017
Recent price: $19.4
After some buyback, current shares outstanding is 24.5m, Market cap $475m. Its actually less than 2013 when I first write about it. Tangible book value is around $32.
The insurance business itself can hardly make any profit now.  Claim ratio go beyond 86% which is too high. While expense ratio down a little bit from over 17% to around 16%. Added together, it should be 3% loss. On a historic view, it must reduce expense to 15% and claim to below 85% to make it income neutral.

Strayer Education Inc (NASDAQ:STRA)

Web Site
Google Finance
SEC Filing

Aug 16, 2013
2013 Q2 Data
Check list:
1.Major Business.
For profit education. Currently around 46,000 students. 100 campus in 24 states in US.
50% is for bachelor degree. 36% is for master degree. 13% is for associates degree.
Associate degree: 20 courses. average 2.5 years to complete. Currently $13,600/year.
Bachelor degree: 40 courses. However most students transferred 20 credits from community college. So the same as associate degree. Price the same as well.
Master degree: 12 courses. 1.5 years to complete. Currently $18,600/year.

2.Balance sheet.
Recent Price: $41.60, Tangible book value:$3.23, Share outstanding: 10.5m, Market Cap: $450m.
Current asset:$90m, Current liability: $43m, Debt: $123m,  Cash: $68m.

3.Credit facility.
$125m Term loan: $123m outstanding, 3%, matures at Dec. 31, 2016.
$100m revolving: $0 outstanding.

4.Financial data by years.

	2014	2013	2012	2011	2010	2009	2008	2007	2006	2005	2004	2003
Revenue	446	503	562	627	637	512	396	318	264	221	183	147
OP Income	81.7	32.7	114	179	216	172	127	97.5	79.5	75	65.5	53
DA	20.6	35.5	24	22	17	14	11	8.5	7.0	6.5	5.5	4.5
EBITDA	106	68.3	138	201	233	186	138	106	86.5	81.5	71	57.5
CapX*	6.9	8.7	16	19	19	12	10	8	6	8	7	3
EBIT	99.1	59.6	122	182	214	174	128	98	80.5	73.5	64	54.5
EBIT%	22%	12%	22%	29%	34%	34%	32%	31%	30%	33%	35%	37%
Real Income**	59.4	35.8	73	109	128	104.5	77	59	48	44	38.5	33
Report Income	46.4	16.4	66	106	131	105	81	65	52	48	41	34
Cash	162.2	94.8	48	57	76			171	130	120	123	108
Debt	119	122	122	90	0	0	0	0	0	0	0	0

* Maintenance Capx
** Real Income= EBIT*0.6 (using 40% as tax rate)        
Real income previous to 2010 is less than reported income mainly because interest and other income. After 2010 real income is higher because for depreciation charge is bigger than maintenance capx and interest expense.

5.Insider holding, options, Insider trading info, share buy back.
Robert S. Silberman: (Chairman): 220k  2%, including 200k grants which will vest at 2019.
Karl McDonnell (CEO): 57km, including 46k grants which seems he returned to the company after vested at Feb. 2013. The reason might be it is impossible for him to meet the performance criteria.

6.Management compensation.
top five for 2010 to 2012:  $5.6m, $2.7m, $9.6m.

7.Employee numbers. Revenue/Employee. Compensation/Employee.
around 2000 employees. 20 per campus.

8.Industry comparison.
Kaplan, (belongs to Washington Post Company)
DeVry Inc
Bridgepoint
University of Phoenix, (Apollo Group)
ITT Educational Services, Inc
Corinthian 
Career Education Corp.
Education Management Corp
Capella Education Company

Investigation Report:
http://www.harkin.senate.gov/help/forprofitcolleges.cfm

9.Auditor
PricewaterhouseCoopers LLP

10.Major events.
(1) At 2009, it paid $40m(183k shares) worth of stock awards to CEO Robert. This was widely criticized. However, it is for a 10 year period and currently it is only worth $8m.
(2) Dec. 2011, Acquired a EMBA JackWelch Institute. Currently have around 500 students.
(3) May 2013, CEO Robert transfer his position to Karl. However, he is still actively evolved. Kind of like a co-CEO.
(4) May 2013, The company rolled out a Graduation Fund program which will give one free course at the last year for every 3 course completed in previous years. It is like a 25% deduction in tuition. Mainly to reduce the drop out rate.

(5) The company had been aggressively buying back shares in the past several years. Currently there is still $70m available for buy back this year. This could reduce more than $1m shares.

11.Comments.
(1) In 15 of the public for profit education company. Strayer is in 10th place by students number. The whole industry is in trouble lately. Many of them are not doing business in a respectful way and need some major reform. However, in my opinion, Strayer is the best of them in quality wise. From many aspect, it is close to a not for profit. There are extensive writing and material that can be found about Strayer.  Unless the whole sector will be wiped out, this company will likely survive .

(2) I can't agree more with the company leader's idea of running this business: Great university makes great company. Its focuses on academic success will eventually leads to its financial success. When a company put profit at second place, there will be rewards in the future. BTW, it is really enjoyable to read the annual letters written by Robert Silberman for past 12 years.

(3) Because the company is less focused on enrollment numbers, the revenue and enrollment numbers in kind of free fall in recently 2 years. And the Graduation Fund makes it even looks worse in the future. However, those are the right things to do in my opinion.

(4) The graduation fund will have a major affect both of its revenue and income starting Q3 2013. Given its graduates is less than 20% of total enrollment and only 2/3 of them are undergraduates.  By maximum it would drag down revenue and profit by 20%*(2/3) = 13%. Given it also retires its $1000/term scholarship which will offset some the the decrease. I estimate that profit margin would decrease by 10% by maximum. If it indeed increase future enrollment, that is another story.

(5) Past financial data is not very useful for valuation in this case. We will end up with a high value if using it. I am pretty sure the profit margin no way will go back to previous level once the industry reformed.

(6) As mentioned in its report, a 2% drop in revenue would cause 1% drop in profit. This has been well observed in the past. I assume the revenue in 2014 will fall 10% from 2013 level, which would come close to $450m.
   (a) If EBIT margin decline to 15%, then it would be $450*15%*60%=$40.5m in real income. Which will give a $60 in fair price.
   (b) If EBIT margin decline to 10%, then it would be $27 in real income and a $40 in fair price. However, both revenue and margin would go even worse. Also since current depreciation will be $10m more than capx and another $5m in interest expense.  Reported income might be $15*0.6=$9m less than real income.
   (c) In a long run, if revenue restart to grow again and EBIT margin back to 20%, the upward will be big.

(7) It is hard to assign a quality score to it. The model I am using obviously has problems. Temporarily I just give a 8 for it.

(8) Overall, I think the company well worth the current price level. However, in the next 1 to 2 years, its financial might get even worse which might drag the price even more down. Should use a good buying strategy.

Update: Oct. 30, 2014.
After one year the stock is back to $73. It seems not cheap anymore. Currently the company's annual EBIT% is still below 20% but is getting higher. Obviously the it is better than I estimated. Both 2014 and 2015 revenue would be around $450m.  On 2016 it might return to $500m again.

If using 20% EBIT% and $500m as normal revenue, real earning would be just $60m/year. Which is support $84 fair value if using P/E of 15. However, that would be in 2016. So the current price over $70 might be good to exit.


Update: Feb. 06, 2015
After Q4 2014 release today, it price fell from $70 to $63 now.
In my view, the business is well in track. The price is quite good but not as attractive as before. $84 fair price is quite reasonable. Wish it could be lower than $60.

Sept. 14, 2020

Current Price $89, Shares 24m, Cap $2.2B.

It has been over 3 years since I last hold STRA. There are some updates.

1. The company was doing quite well in 2016 and 2017. Both its revenue and net income had recovered very well. Rev back to 450m and net income back to around 55m/year.

2. In 2018, it merged with Capella University, another for-profit that is a little smaller than Stayer with close to 40,000 students. STRA issued close to 10m shares which brought total shares to 22m. 

3. In 2019, the integration of Capella went very well. Revenue grew to $1B including Capella. The real cash it generated is around $150m. 

Since earlier this year, the stock has fallen from over $160 since earlier this year. There are some of the reasons:

1. The pandemic will decrease Strayer's enrollment significantly. As in Q2's conference, in Q3, Strayer's new enrollment will decrease by 27%, which will decrease revenue by 1%. 

2. It will acquire Laureate’s Australia and New Zealand operation for $640m. Laureate(LAUR) is another high leveraged for-profit public company that is seeking to divest its holdings. The units STRA is acquiring generates around $190m in revenue. The price that STRA paid seems quite generous. 

3. To fund the acquisition, STRA could use its $500m cash and with some debt. However, it went to offer 1.9m shares at $105/share. That increased the total shares to 24m. 

Comments:

1. The overpay of the Laureate acquisition and the low price offering are more than offset by the falling of its share price. Overall, I believe the acquisition will be beneficial to the company.  

2. The 27% decrease in the new enrollment of Strayer is indeed bad news. However, it only happens in Strayer which won't be that bad in Capella. Also, it is the new enrollment while not the overall enrollment. That is why it will only reduce the revenue by 1%. However, if the trend continues for 2 years, it could reduce overall revenue by 10% to 20%. 

3. Currently, the stock is trading around 13 times its 2019 earnings. It is quite a cheap price. Currently, it is hard to estimate how long and how bad its new enrollment will be affected. I assume by 2022, it might go back to normal with $1.3B in combined revenue and $200 in net income. That should support a 4B market valuation. 

Update: Mar. 22, 2022

Recent Price: $66. Shares 25m. Cap $1.64B

I was really wrong in the previous writing.

1. I have foreseen the possible outcoming of the reduction of Strayer's student enrollment but chose to ignore it. Revenue in 2021 was just $1.13B. Also, I failed to realize the operating leverage of the business which had reduced the net income to just $116m in 2021. 

2. On the positive side, Strayer started to see the new student enrollment increase again. However, it will take another 18 months to 2 years for the total enrollment to increase again.

3. The chairman Mr. Silberman bought some shares at a price of around $60 lately.

4. Offset by the growth of other parts of the business, I estimate 2022 just a flat year vs 2021 while by end of 2023 it might go back to a $150 to $170m annual income level. Might support a $3B valuation by then.

PINETREE CAPITAL LTD 8 PCT DEBS (PNP-DB.TO)

July 29, 2013

http://finance.yahoo.com/q?s=PNP-DB.TO

http://pinetreecapital.com/

http://www.sedar.com/DisplayProfile.do?lang=EN&issuerType=03&issuerNo=00004131

http://seekingalpha.com/article/1554152-pinetree-capitals-debt-in-free-fall-now-cheap


Check list:
1.Major Business.
The company is quite similar to URB.A. A close-end fund which is running as a company. However, It mainly focus on junior resource sector. Most of it is holdings are from Toronto Venture Exchange. Most of them are very risky stocks which make this stock risky.

The company reports its major holdings whatever is over $1m in value every quarter. It reports its NAV in middle of each month for previous month end.

As in the seeking-alpha link above, this is about the $60.9m unsecured debt the company had. The most important part of the unsecured debt is that there is a covenant: the company's debt/asset ratio must be less than 33% at any reporting time. As July 15, 2013, the ratio is about 36%. The company has to fix this problem before Sept 13th or it will trigger a default.

2.Unsecured Debt .
Original amount: $75m. Current balance $60.9m.
Mature date: May 31th 2016.
Interest: 8% per year. Paid twice each year at May 31th and Nov. 30th.
Current price:  $71 for $100 par value.

3.Unsecured Debt Repurchase.
(1) Jan.01, 2013 -- Mar. 31, 2013: Purchased $0.8m at $78.5 per $100 par value. Balance $74.2m
(2) Apr.01, 2013 -- May 16, 2013: Purchased total $6.64m. Price around $80. Balance $67.56m.
(3) May 17, 2013- June 25, 2013: Purchased $6.696m. Price around $79. Balance $60.864m.
The next 10% repurchase is not doable before May 17, 2014.

4.NAV and estimates.

	Sept	Aug	July	June	May	Apr	Mar	Feb	Jan	Dec	Nov	Oct
NAV	0.85	0.91	0.79	0.76	0.95	1.00	1.20	1.28	1.47	1.55	1.56	1.71
Sept 12										162	162	168
Dec 12							132	139	161	173	164	180
Mar 13			92.5	88	105	111	130	132	152
June 13	74.0	83.7	74.3	68.3

 I created some portfolios in Google finance based on its disclosed position each quarter. Each portfolio only works best for the following 3 months after the report time. It gives a rough direction the NAV goes. Based on Mar. 31, 2013 disclose, the portfolio ends at July 31 with 92.5. I estimate that that the NAV should be around $0.80 at July 31. (update: it turns out to be 0.79)

5.Insider holding, options, Insider trading info, share buy back.
The CEO holds around $1.75m in the unsecured debt. and 6.1m shares(4.3%)

6.Management compensation.
A reasonable management compensation. Compare dividend with compensation.

7.Employee numbers. Revenue/Employee. Compensation/Employee.
n/a

8.Industry comparison.
n/a

9.Auditor
Ernst & Young

10.Major events.
Business acquisition, law suit etc.

11.Comments.
(1) If the debt ends with full payout with interest at 2016. Based on current price, it equals 20%/year return.

(2) At Sept 13, 2013, there would several possibility with the debt.
A) Asset value appreciated so the covenant is fixed. To do that, the NAV should be over $0.87
B) Obtain a temporary wavier from debt owner and start a tender offer for part of the debt.
C) Only obtain a temporary wavier and wait the asset value to arise.
D) Let the debt default.

I think A) and B) is most likely to happen. While C) is less likely and D) is very unlikely.

(3) Currently  for a par $15,000 order, BMO charges $50, iTrade will charge $25 and Questrade might only charge $11 for it. Don't know why such a difference.

(4) As some comments in the seekingalpha post point out, the debt has two contradict clauses 2.4(g) and 4.10 which are about the repayment of debt by issuing common share. In 2.4(g), it says the company can repay up to 1/3 of the debt by issuing new common shares, while in 4.10, it says the company can repay all debt using new shares. I have read it and got confused as well. Unless this matter is clear, the debt can't be touched.

Updated: Aug 15, 2013
(1) July 31st NAV is $0.79, close to my estimation. However, the June 30 portfolio haven't been released.

Updated: Aug 19, 2013
Recent price: $76 for $100 par value.
Today the company announced plan to seek for amendment from the 33% to 50%. In exchange,
(1) Every notes holder who vote for the amendment will receive $60 per $1000 par value as fee, or 180 common share which is effectively $0.30/share.
(2) The interest goes up from 8% to 10% effective Nov 30.
(3) Also the company promises to tender offer another $20m and rise another $5m in equity.

Currently around 44% notes holder already agreed. Need 2/3 of total votes to be effective. Pretty interesting situation.

Updated: Jan 30, 2015
Recent price: $75 for $100 par value. Share price $0.07

(1) The company settle the debt in Sept. 2013 with rate increased to 10% and one time 6% payment for who vote for it. The debt/asset ratio temporarily lifted to 50% for 9 month until June 12, 2014.

(2) At Nov. 2014, the debt/asset ratio is above 33% again. NAV at Sept. Oct. Nov are 0.63, 0.47, 0.46. Debt/Asset ratio at Oct. 31 is 38.8%. Current balance of debt is $54.8m

(3) At Dec. 12. It announce that it had cured of the covenant. However, it seems soon in default again.

(4) At Jan 26, 2015, proposed settlement with debt holder will be: a) CEO and other 2 directors resign. 3 new board members nominated by debt holder will be elected. b)Grant some equity to debt holder  c)By July 31. Reduce debt by 20m. d) Rise debt/asset ratio to 50% until Sept. 30. 2015 e) Remove restriction on debt redemption. The deal deadline set at Jan. 30, 2015, later extended to Feb. 06.

Comment:
(1) Based on my estimation, it currently still has over $70m in liquid assets. It is down around $40m compare to Sept. 30th Which converted to $20c/share. However, the portfolio I created on Google finance based on Sept. 30, 2014 position seems not consistent with the company's data. I estimate its current NAV is around 30c to 40c. It probably still have $100m to $120m in asset which  is still above 2x of the debt.

(2) It seems scary but I view the debt is still quite safe as it secured by the asset. In one year and four month it will receive $115 compare to invest $75. Around 50% return if it goes fine. Plus it might get a little additional stuff in the settlement.

(3) As for the stock, current price is pretty cheap as well. Major risk is that the new management continue its old reckless investment practice. Minor risk is the market continue down on resource stock. In my view it is really beat down and less likely to down another 50%.

(4) Another risk for stock is that when debt holder is on board, it won't care about share holders value and more likely to liquidate asset and keep it safe. That might be bad for the stock holder.


Update Feb. 17
Current debt price still around $75. Share price: $0.085.

(1) The forbearance agreement has been reached. No much different than the proposal except there is no equity issued for debt holder. It created a new  investment oversight committee which is controlled by the debt board member.

(2) One large holding ($9m) of it is a tech stock called Sphere 3D Corp seems performed very well recently.

(3) The companies record $46.8m liability for the $54.8m debt at par ($85/$100). This is a short of $8m which could also decrease NAV at 4c.

(4) At Q3 2014, it has around $110m in liquid asset, $45m in illiquid asset. $13m in tax asset and $48.5 in debt liability. Currently it is liquid asset is around $73m. Assume $30m in illiquid asset, it may has a NAV of ($73+$30+$13-$46.8)/200 = $69.2/200= $0.345. If removes the tax asset and use par value for debt liability, the real NAV is ($73+$30-$54.8)/200=$0.245.

(5) Assume by July 31, it liquids stock to buy back the $20m debt at $85/$100. All other stay the same. Then it will has  $73-$17=$56m in liquid asset, $30m in illiquid asset, $34.8m debt at par.

(6) At Q3, 2014, it has $15m in non-capital loss(expires at 2033) and $206m capital loss (do not expire). Valued at $53m(24% of principle) but recorded less than $13m.  This might be quite valuable if it been acquired by others.

(7) Over all, the debt is still very safe in my view. While the stock is not that attractive. By July 31, it might only has ($56m-$34.8m)=$21m in liquid NAV which is just $0.10/share.

Update Feb. 20, 2015
Have read the forbearance agreement.

(1) The company can redeem any amount of principle by paying 1/3 in new stock (95% of average market price 20 days preceding the 5th day before redemption date). At mature date, it can pay down debt the same way.

(2) Assume by July 31, it buys back $5.7m debt at $85/$100, and redeems the rest $14.3m by paying
$9.5m in cash and rest in stock. Then it would pay $5.7*.0,85+9.5=$14.3m. Issue 60m new shares at $0.08. By that time it would have $73-$14.3= $58.7m in liquid asset, $30m in liliquid asset, $34.8m debt at par, 260m shares outstanding.

(3) Assume at mature date, it repay debt by 2/3 in cash and 1/3 in stock. It would have to issue another $34.8/3/0.08=145m shares if the market price stay the same as today. Make the NAV even lower compare to current price.

(4) For debt holder, it is still pretty safe at this price even 1/3 of debt will be redeemed in stock. For equity holder, the potential dilution make it not attractive.

Update Mar. 27, 2015
Current price $84 for $100. Stock $0.15.

(1) The company released news yesterday that it will redeem $10m debt at Apr.30 at par + unpaid interest. Pretty a surprise that it doesn't want to pay 1/3 in stock and it doesn't use tender offer. It either because the stock price is way below NAV or the debt board member forced it. This is a very good news in my view. Effectively reduced effective price close to $80 which could still yield a 32% return if hold to May. 31 2016.

Assume we put $8500 today, we will receive around $1800 at Apr. 30th, $410 interest at Nov. 30, 2015, At May. 31, 2016, would receive$410(interest) + $5460(2/3 in cash)+ $2740(1/3 in stock) or maybe all in cash which is $8200+$410.

(2) If by July 30, 2015 the company use the same way to redeem another $10m at par. Then the return on fund deployed could be boast by another 8% which could make it a return at 40% to mature.

(3) Currently its liquid assets is around $79m which make the debt pretty safe still. The debt price is still very good.

Update Mar. 30, 2015
Current price $85 for $100, Stock is $0.14.

(1) The company released 2014 year end NAV at $0.25/share. A lot less than $0.63 at Q3 2014. However, it removed $13m capital loss tax asset and record debt liability at par value which reduced the NAV by $0.10. The actual NAV is very close to my Feb. 13 estimation of $0.245/share. At Dec. 31, it has $85(liquid)+$20m(illiquid) in assets which is a little higher than my estimation.

(2) At May, 21 2014,  the company starts a new 10% debt repurchase expires May, 20, 2015, at that time the debt outstanding is $60.864m. At Dec. 31, the debt outstanding is $54.8m. So the repurchase is likely done. From May 1st to July 31th, it has to reduce the debt by another $10m. Based on the trading volume, it is little that the company can buy back from May 21th to July 31th. So it can only be done by redeem at par or tender offer. Based on the 2014 MD&A document, it is very likely to be another redeem at par.

(3) Currently the NAV is probably the same as Dec. 31, 2014. If the company do another redeem at par before July 31th, the company will have around $65m(liquid)+$20(illiquid) in asset with $35m in debt after that. It still needs to buy back $10m debt to bring the debt/asset ratio back to 1/3. Most likely it will have another 10% buy back.

(4) At Mar. 30, the company has $14m in cash which will be used for the debt redeem. Based on current redemption plan, I estimate it need to pay interest around $6m from Jan. 01, 2014 until debt mature date.


Update July. 14, 2015
Current price $95 for $100, Stock is $0.08.

(1) Since April, the company had made 3x $10m redeem at par. Now the debt outstanding is at most $24.8m.  It is likely now it fulfill the 3 times asset/debt ratio. NAV value of the stock is around $0.18 at May 31th.

(2) The company disclosed public holding at Mar. 31 only contains 7 stocks with a market value around $30m which is much lower than in the Q1 report($55m).  Currently market value of these holdings is around $25m.

(3) My investment at $77 per $100 par have returned around $53 in redeem plus some interest.  The leftovers are cost about $24 with a par value around $47.

Update July. 30, 2015
Current price $96.5 for $100, Stock is $0.135.
(1) The company released Q2 2015 data. Around $31m in stocks. Total investment $60m. Cash $15m. Debt $35m. That make a NAV around $0.20/share

(2) The third $10m redeem is done July. It will make another $10 redeem at Aug. After that, the debt will be only $15m. Asset should be around $55. That will fulfill the 33% debt/asset ratio requirement if nothing changed. Around the $55m asset, should only have $25m in cash+stock, $5m in loan.  Rest $25m is in warrants+private investment. After paying remaining $15m debt. The equity holder could have $10m in cash+public public stock, $5m in loan, $25m in warrants+private. That is $5c + $2.5c + $12.5c respectively. In my opinion the current stock market price $13.5c is not worth it. However, there might be some hidden value in its operation lose tax asset which is not counted.

(3) The fourth redemption in Aug. is $10m of $25m in pro rata. Which should around 40%.  There is still 10 months until May 31th. 2016 which should have 8% interest left. At current price of $96.5 per $100, it would generate another 6% after redemption, totally will generate 14% in 10 months. Not too bad.

Update Oct. 16, 2015
Current price $100 for $100, Stock is $0.07.
(1) The company released at Sept. 30th the NAV is around $0.13/share.

(2) The fifth redeem of $5m will be done at Oct. 30, after that, there will be only $10m left. With the current price at par, there is only the interest left, which is around 6% return for 7 months then the debt is mature.

I sold all my debt holding. After the fifth redeem. The company will have around $36m in asset and $10m in debt. It seems safe but it seems all the liquid asset is almost gone($30m is in loan and private). It is not really worth to take the risk to hold to mature. For the stock holder, unless someone can utilize its capital loss tax credit, it is probably not even worth the $0.07.

Update Nov. 13, 2015
Current stock price $0.065.
(1) Oct. 31 NAV is $0.13/share.
(2) Q3 date released. At Sept. 30, there is $14m in liquid equity. $20m in private equity. $5m in private bond. After Oct. 30 redemption, should only have $9m in liquid equity and $10m in debt. All the NAV now is private equity and bond ($20m+$5m).

Update Dec. 03, 2015
Stock price: $0.05
(1)After several redemption, the company satisfied the debt covenant, so the four directors from the debt holder resigned.
(2)Again the company redeem $3m of the $10m debt. However, this time it chose to redeem $1m by issuing new stock. I guess it is related to the directors resign. Lucky all previous redeem not using this options.

Glentel Inc.(TSE:GLN)

Web Site
Google Finance
SEDAR Filing

July 17, 2013
2012 Data
Check list:
1.Major Business.
Cell phone and service retailer. Open stores in mall or club stores.
Canada: (Sell both Bell and Rogers)
  Wireless Wave: 140 stores
  T-Booth: 107 stores
  Wireless etc: 84 stores, inside Costco.
US: (sell Verizon only)
  Diamond Wireless: 204 stores
  Wireless Zone: 419 stores
Australia:
  All Phones: 199 stores

2.Balance sheet.
Recent Price:$17.0, Tangible book value: 0 shares: 22.3m Market Caps: $370m. Current asset:$222m, Current liability: $231m, Debt: $162m, Inventory:$62m, Cash:$46m.


3.Credit facility.
Term loan $108m+$20m mature at Oct. 2017. Prime+0.75% to 1.75%. Quarterly principle payment around $5.5m.
$15m line of credit. $8m outstanding.
$6.5m line of credit from Australia acquisition. $4.5m outstanding.


4.Financial data by years.

	Q4-13	Q3-13	Q2-13	Q1-13	2012	2011	2010	2009	2008
Revenue	401	339	321	305	785	584	412
Income	8.3	(12.3)	5.6	3.3	27.5	28.7	22.5
EBITDA	17.8	12.7	11.9	14	49.6	53.3	44
Depreciation	7.7	6.4	6.1	6.4	12.7	10	8.6
CAPX	4.2	3.2	2.9	2.1	12.6	9.1	9.4
Interest Expense	1.7	2.2	1.8	1.7	1.9	1.2	0.4
Real Earning	8.3	5.1	5.0	7.1	24.6	30.1	23.9
Cash	37.9	41.9	45.3	46.2	55.2	30.1	24.3
Debt	135	139	151.1	161.6	149.7	29.6	36.1

Current dividend is $0.125 per quarter.

EBIT Magin data

	Q3-13	Q2-13	Q1-13(1)	2012	2011	2010	2009	2008	2007	2006	2005	2004	2003
Canada	10%	7%	9%	11%	13%	14.3%	14.2%	13.1%	13.4%	9.8%	11.6%	15%	17.2%
DW(US)	4%	8%	4.2%	6.1%	8%	8.9%(2)
WZ(US)	4%	4,2%	4.9%	4%(3)
Australia	(5%)	0%	1.8%	2.4%(4)

(1) Generally Q1 is the weakest quarter, thus its margin should be lower than full year.
(2) Only last quarter of the year. Generally it is higher than full year.
(3) Only last one month of the year.
(4) Only last two month of the year.
When it acquires T-Booth at 2005, its margin was done quite a lot. But it is able to get it back. However, it is very clear that the margin is going down along the years.
Q1 2013, Wireless Zone seems doing quite well with margin increased. While Australia seems still not profitable. Need more time to see whether it can improve profitability after acquisition.
(Aug. 08, 2013)
Q2 2013: Canada has some extra cost on set new booths for Target store, so margin is down. US both doing OK. While Australia is still under water.

5.Insider holding, options, Insider trading info, share buy back.
THOMAS E. SKIDMORE: CEO, Co-Founder, 4.67m,  21%
ALLAN SKIDMORE: Co-Founder, 3.68m, 16.5%
Insiders own 41% of total shares.

6.Management compensation.
Top5: 2012: $5m 2011:  $4.5m ,  2010: $3.1m

7.Employee numbers. Revenue/Employee. Compensation/Employee.
3800 at Dec 2012

8.Industry comparison.
Major competitors in the same industry. Whether the business is competitive?

9.Auditor
DELOITTE LLP

10.Major events.
1997: Created WirelessWave stores.
June. 28 2005: Acquired CabTel (T-Booth), Created Wireless etc... for Costco.
Oct. 1, 2010: 81.5% of Diamond wireless in US for $51m.
Nov. 11, 2012 : 83% of AMT (All phones) in Australia, $66m. Later increased to 88%
Dec. 1, 2012: ATI Inc (Wireless Zone), in US, $84m. It operates in 28 states mainly on east US which compliments Diamond wireless operation area.

11.Comments.
(1) Currently the two new acquisitions are fully incorporated. It almost doubled the store numbers the company owns. This gives good boost of the revenue. However, as margin goes down, the profit won't up proportionately.

(2) It operates in a very competitive environment and seems no barrier to entry. Moreover, Bell, Rogers seems also like to operate their own retail chains. However, its well training system does offer some advantages that others don't have,  thus why it is much successful than other similar stores like the sources, Bestbuy, etc. in wireless product. It is why it was chosen by Target Canada to operate similar booth store as in Costco. With currently only 3% net profit margin, others might think twice before jump in.  While for GLN, it is still doable.

(3) The current debt is a little bit high and a little bit concerned. Need to see how it is cash flow goes in the following two quarters. Generally I think it will and be able to pay down the debt.

(4)The business is expended quite well, however, profit won't go up that much. I give it a Quality Score of 8.

(5) It is hard to calculate the base price. This year it should be marginally higher than last year. Revenue should be $1.3B to $1.5B. However, I can't estimate profit numbers. Just assume the new income from acquisition would cover the extra interest cost which is around $6m/year. I use FCF-WC for last 3 years which comes $27.4m/year. Comes a base price of $18.4 on a conservative basis. Currently price seems still a little high. $15 would be more attractive.

(6) The major concern for this company is whether it can improve its profit margin of the new acquisitions and being profitable from them. Also the company is significantly bigger than most of the companies I studied, a little bit hard for me. 

(7) Other analysis links:
http://www.valueinvestorsclub.com/value2/Idea/ViewIdea/80586


Update Dec. 13, 2013
Current price $12.50

(1)US store seems OK. The Australia acquisition went bad. However, I think it won't kill it. The main risk with the business is the high debt/equity. After some reading, I have some confidence that it could generate enough cash to cover the repayment. Also given the high insider ownership, I feel comfortable to increase position a little bit.


Update Apr. 24, 2014
Current price $11.80

(1) Canadian division usually is its most profitable division. In second half of 2013 it has been affected quite a lot by the telecom company switch from 3 year contract to 2 year contract. Don't know whether it will be permanent. However, starting from Q3 2015, it might get some extra lift because at that time both some of the 3 years contract and 2 years contract customers will need to renew at the same time. 

(2) The U. S division actually did quite well which offset the decline in Canada. Australia still not good. Better just close them all. The acquisition turned out is pretty bad mainly because two telecom companies end their relationship with the chain after GLN acquired it.

(3) The main concern is still the $135m debt. It lowered the debt repayment from $25m/year to around $15m/year early this year. If its business can remain current level of cash generation of $40m before CapX and dividend, then it can just fulfill the cash it needs ( CapX $12m+ Dividend $13m + Debt repayment $15m). In case there is not enough cash, I believe the company have several options to fulfill the debt obligation. First it still has $38m in cash. Also it can sell its business division. Or stop paying dividend( of course it would be bad). Overall I am comfortable that the company won't go bankrupt in near future. 

Update May. 12, 2014 
Q1 2014 Data
Current price $11.14

(1) Debt now is $130.5m. cash now is $39m.

(2) CF-WC is about $8.4m. However, the use of cash is less as well. CapX-Sale of equipment is $1m. Dividend $3.5m, Pay down debt $4.5m. Given the working capital change, cash increased by $1m.

(3)Canada division seems turning better despite the bad weather in Q1. Australia division will lost contract to manage Virgin stores. Will have a goodwill impairment at Q2.

(4)It is troublesome with Australia business. It might just better shutdown all of them. Overall it seems OK with current situation. However, I do feel should have been more patient instead of bought too much at higher price.

Update Nov. 06, 2014 
Q3 2014 Data
Current price $10.90 which increased from $10 after good Q3 result.

(1) Debt now is $122m. cash now is $62m.

(2) For the first 3Q of 2014. CF-WC is about $31m. Cap-X $8m. Sale of equipment is $3.7m. Dividend is around $10m. Pay down debt around $12m.

(3) Canada division did very well this quarter. US is good too. Australia is still bad.

(4) Overall the company is doing very well this quarter with much lower risk of debt default. The share price is cheap.

R.G. Barry Corp.(NASDAQ:DFZ)

Web Site
Google Finance
SEC Filing

June 26, 2013
Year end: June 30th
Check list:
1.Major Business.
Slippers, sandals: 70%, Handbag, footcare, travel accessories: 30%.
Brand Names:
Footwear: Dearfoam,
Footcare: Foot Pedals.
Handbag: Baggallini( for older age),  Mosey(for younger age).
Travel accessories: KIVA.

Jan-June: 30% of revenue, Junly-Dec: 70% of revenue.

Walmart: 30% of revenue.

2.Balance sheet.
Recent Price: $15.70, Tangible book value:$4.4, Share outstanding: 11.3m, Market Cap:$176m.
Current asset: $80.6m, Current liability: $15.3, Debt: $21.4m, Inventory:$17.3m, Cash: $44.7m.

3.Credit facility.
(1) Line of credit, $5m, could upto $10m from July to December. LIBOR+1.75%. At Mar. 31, 2013, no outstanding.
(2)Term loan: $30m, mature at Mar.1, 2016, $4.3m/year repayment. LIBOR+1.85%.   $21.4m outstanding.

4.Financial data by years.

	3Q13	2012	2011	2010	2009	2008	2007	2006*	2005	2004
Revenue	122	156	130	124	114	109	105	33	105	104
OP Income	20.8	23.4	11.7	14.7	10.5	14.9	12.1	(4.1)	8.6	(19.2)
Net Income	14.6	14.6	7.5	9.4	7.0	9.8	25	(4.2)	8.0	(19.9)
CF-WC	19.2	16.8	10.3	12.9	11.3	15.2	12.2	(4.0)	8.6	(11.7)
CAPX	0.8	1.8	0.7	1.2	1.4	1.6	0.7	0.3	0.5	0.1
Cash	44.7	41.7	24.7	44.9	39.2	26.1	18.2	1.0	3.5	1.0
Debt	21.4	26.4	30.3	1.9	1.9	2.2	2.5	3.0	3.5	7.1
Dividend	2.8	3.3	3.1	1.6	2.7	0	0	0	0	0

*2006 contains only Jan. to June result. Before that, fiscal year ends at Dec.31.


5.Insider holding, options, Insider trading info, share buy back.
Gordon Zacks: Former CEO for many many years, 306k, 2.7%
Greg Tunney: less than 1%
6.Management compensation.
Greg Tunney CEO around 1.5m
Top five around $3.5m/year.

7.Employee numbers. Revenue/Employee. Compensation/Employee.
138 employees. Previously it had over 3000 employees at early 2000 years.

8.Industry comparison.
The company claim to be 30% of US market for comfort slippers.
ISOTonner slippers:　half of the DFZ's sales.

9.Auditor
KPMG

10.Major events.
(1) 2004, Gordon Zacks stepped down because of terrible operation result for several years.
(2) Jan. 2011, Acquired Foot Pedals for $14m cash.
(4) Mar. 2011, Acquired Baggallini for $34.6m cash.
(4) Mar. 2013, Acquired Mosey for $1.2m cash.
(5) Jan. 2013, Acquired KIVA for $0.5m cash.

11.Comments.
(1)Since Greg Tunney join the company at 2006. It has been doing very good. Including the 2 acquisitions in 2011 turns out pretty good. He seems quite talented on integrate and acquiring business. The past 6 years is the most profitable years for DFZ's history. He indicated that he is stilling looking to acquire an $20-$30m business with patient. He is target to make a $200-$250m sales in next 2 to 3 years.

(2) For the past 5 years, average FCF-WC is about $12m.  That gives a base price $12/11.3*15=$15.93.

(3) Quality wise, since both revenue and income is growing pretty well. Would give it a 9 in quality score.

(4) Although Greg Tunney as the CEO is very satisfying. He also auto sell his stock after exercise options. That is kind of disappointing. Don't know why.

(5) The current price still a little high as not provided enough margin.


Update:
May 2014
The company was acquired by Mill Road at $19/share.

Zagg Inc(NASDAQ:ZAGG)

Web Site
Google Finance
SEC Filing

May 24, 2013
2013 Q1 Data
Check list:
1.Major Business.
(1) InvisibleShield brand: Screen protector. 40% and percentage is down. High margin.
(2) ZAGG Brand: tablet Keyboard, cover, speakers, around 25%. Lower margin.
(3) iFrogz Brand: Cases,  headphones, speakers, game controls. 25%-30%. Lower margin.

Major customers: Bestbuy :30%  Walmart: 12%.

2.Balance sheet.
Recent Price: $5.09, Tangible book value: $2.05, Share outstanding: 31m, (31.7m diluted) Market Cap:$160m.
Current asset:$115m, Current liability:$33m, Debt:$42m, Inventory:$41m, Cash:$23m.

3.Credit facility.
At Dec 2012:
24m Term loan.  24m outstanding. LIBOR+1.25%
60m Line of credit.  17.7m outstanding. LIBOR+1.25%

4.Financial data by years. (in million$)

	2012	2011	2010	2009	2008	2007	2006	2005	2004	2003
Revenue	264	179	76	38	19	5.1	2.8	0.7
OP Income	33.5	28.1	16.8	5.7	2.4	(1.2)	(0.2)	0.2
Income/s	0.46	0.63	0.44	0.15	0.11	(0.05)	(0.01	0.02
CF-WC	40	21.9	9.5	4.1	3.1	0.2
CAPX	2.8	53*	2.9	0.5	0.4	0.1
Cash	20.2	26.4	2.4	5.0	1.1	2.1
Debt	46.2	68.3	0	0	0	0

* include $47.5m purchase of iFrogz. $4.3m investment in HZO.
No dividend so far.

5.Cost structure
Leasing obligations. Flexible cost structure or fixed cost structure? Cost controls.

6.Insider holding, options, Insider trading info, share buy back.
Robert Pedersen: Former CEO: 2.3m  7.6%
Brandon T. O’Brien: CFO: 634k 2.1%
Derek M. Smith: VP. 443k  1.4%

7.Management compensation.
Top 4 over $6m for 2012, including $1m for former CEO. $3m for 2011.
Options outstanding : 1.1m

8.Employee numbers. Revenue/Employee. Compensation/Employee.
237 employees at end of 2012

9.Industry comparison.
Major competitors in the same industry. Whether the business is competitive?

10.Auditor
KPMG

11.Major events.
Acquired iFrogz at 2011 for $50m + 4.4m shares of ZAGG

At Aug. 2012, its CEO and founder Robert Pedersen resigned because of a sell of the company's stock due to a margin call.  Almost all directors since changed. Had been quite a bit of story. Even before that at December 2011 this already happened once.

From June 2009 to Sept. 2011, Lorence Harmer, one of its director, engaged in a product called ZAGGbox with his own company. Totally the ZAGG paid the company about $4.1m and basically it is a fraud. Later he quit the director. The company just got $1.2m back.

The company had spent over $4 million$in HzO inc. Which is an water proof technology. It seems not doing very well.

12.Comments.
(1) The CEO change is actually not bad for the company given that the new CEO is more capable to run a bigger business based on his past experience.

(2) Both revenue and income of Q1 2013 is down compare to last year. Due to reorganize of sales channels and lack of new apple device release. I view this as temporary. However, the grows will slow down or even flat. Still I believe it is at least a  flat business with good growing potential.

(3) It is grows margin will keep go down as invisible shield protector will account less for its business.

(4) The company got some ugly stories in the past including its former CEO and director. That is the major reason the stock is cheap now. However, there is quite a change with a new CEO and all new 5 independent directors except the old CFO still in position.

(5) There are many writing from different analysts in the past questioned about the company. The major concern is about the whether the company's financial report is true.
   (a) Doubt about the management. Those were true or partially true. But some are not related. With the CEO and directors change. This shouldn't remain as a concern.
   http://www.scribd.com/doc/45466615/ZAGG-Presentation-12-14-10-Final-2
   http://www.thefinancialinvestigator.com/?p=402
   http://www.thefinancialinvestigator.com/?p=390
 
   (a) At 2011, people think the company's revenue was overstated with fake inventory number. However, as two years past, and the new KPMG audit for two years. There seems less doubt.

   (b) There was a doubt about the company's cash flow and cash balance, later it turned out not true. Especially in 2012 the company paid down $20m debt, in Q1 2013, paid down $4m debt and repurchased $6m stocks.

   (c) There is concern about the rising inventory level. The inventory number might be made up and actually worth much less. However, Currently it is about less than one quarter revenue which is not that bad. Also it is inline with revenue grows. Overall, this indeed remains as a concern and should be closely monitored.

   (d) There is a doubt about its return policy with Best Buy. Basically it is the same concern about inventory.
   http://www.citronresearch.com/zagg-what-a-mess-under-those-covers/

(6) It is hard to give a quality score for this company. Based on the past, it should be 9 which both revenue and income is growing. Based on current, it might just 7 because the grows seems stopped. Overall, I give it a 7.5. Might adjust it once it is more clear in the future.

(7) It is hard to give a base price as well. The book value is low, the average  income is not good since there are quite a lot write offs included. So I use average FCF-WC for the past 3 years which is around $20m/year.  This number also includes stock based compensation which is $5.7m, $3.3m, $1m for the 2012 to 2010 year. Removing those compensation it comes $17m/year. The base price is 17/31.7*15=$8.04/share

(8) Although there were many questioning about the company in the past. I view them as good since there are no fraud found so far and seems less possible in future. The company actually is more stable than before. Of course there are some concerns. Mainly whether it could remain innovative and remain current cash flow.

Updated Aug. 08, 2013
Q2 2013 Data
Current Price $4.85

(1) Revenue is still down in Q2 from $61m to $51m.

(2) Pay down debt, now balance is $26.6m. Cash $13.6m

(3) FCF-WC for first two quarters is $5.2m and $7.4m. Remove the $2.4m stock based compensation, it still comes $10.2m for the two quarters. It is better than the $17/year average.

(4) In my opinion, the company is actually doing pretty OK.

Updated Nov. 06, 2013
Q3 2013 Data
Current Price $4.10

(1)Revenue down from $60m last year to $50.

(2) Debt balance is now $20m.

(3) FCF-WC for Q3 is $6m. stock based compensation for 3 quarters is $3.1m

(4) Tangible book value close to $2.4.

(5) It is not getting much worse but the stock price did.


Updated Nov. 12, 2014
Q3 2014 Data
Price drop from $6.7 to under $5 after release. Current Price $5.80

(1)Revenue back to $60m.

(2)Write down inventory by $9.6m

(3) FCF-WC for 3Q 2014 is $14m including the $9.6m in inventory write down.

(4) Tangible book value close to $2.9.

(5) It is hard to analysis the inventory write down. No previous experience.

Highway Holdings Limited(NASDAQ:HIHO)

Web Site
Google Finance
SEC Filing

Year end:　Mar. 31
APR 22, 2013
2013 Q3 Data
Check list:
1.Major Business.
Start 1990 as metal stamping OEM business(around 60%). It also do plastic molding just like DSWL, and assemble electronic parts(around 40%). Major customer is from German(50%) and Japan(30%) and US(20%).
Annual sale is around $20m to $30m. Up and down quite a bit. Gross margin around 20%.

2.Balance sheet.
Recent Price$1.67, Tangible book value $3.10, Share outstanding: 3.78m, Market Cap: 6.3m.
Debt: no, Inventory:$2.6m, Cash: $6m.


3.Credit facility.
Principles, interest rate, covenant, outstanding, payment schedule,

4.Financial data by years.

	2012	2011	2010	2009	2008	2007	2006	2005	2004	2003
Revenue	25.4	31.1	21.7	33.7	33.2	31.5	25.8	27.7	25.4	20.4
OP Income	0.2	1.7	0.3	0.9	(2.3)	0.4	0.6	(0.3)	1.0	0.2
Income/s	0.05	0.44	0.11	0.20	(0.50)	0.16	0.01	(0.05)	0.30	0.17
CF-WC
CAPX
Cash
Dividend/s	0.20	0.24	0.03	0	0.035	0.36	0.40	0.10	0.08	0

Current dividend:　0.03/quarter

5.Cost structure
Leasing obligations. Flexible cost structure or fixed cost structure? Cost controls.

6.Insider holding, options, Insider trading info, share buy back.
Roland W. Kohl(CEO): 610k, 16%
Tiko Aharonov: 250k, 6.7%
Satoru Saito: 360k, 9.5%

7.Management compensation.
2012:　Top 10 officers $800k

8.Employee numbers. Revenue/Employee. Compensation/Employee.
As Mar. 31, 2012, it has 319 employees.

9.Industry comparison.
Major competitors in the same industry. Whether the business is competitive?

10.Auditor
Better be among the big four.

11.Major events.
Business acquisition, law suit etc.

12.Comments.
(1) The company is quite similar to DSWL, both are OEM and has quite a lot cash and pays attractive dividend.  However, it is different in the following:
a) it doesn't own and manufacture space while DSWL owns most space, this make the book value is less attractive.
b) Products are more diversified than DSWL which make it a better chance to recovery or even grows in revenue in the future.

(2) The dividend is not very stable. But the company generally likes to pay out money.

(3) Overall, I give it 6 quality score vs 5.5 for DSWL. However, the current price discount is less attractive  than DSWL. Good to have it as an alternative of DSWL.


Update 
May. 24 2013

Yesterday after a news that the company signed a multi-year contract, the stock shoot to $3.15 at some point, then closed at $2.25. Very lucky that I sold mine at $3.09 which made 80% return just in about one month. Some thoughts:

(1) The contract is less than 0.5 million in revenue/year. It won't change the company that much which clearly demonstrate the market was overreacting to the news.

(2) Yesterday about 1.6m shares changed hand which is about 60% of the public floating share. It is a crazy high number for this kind of company.

(3) My guess for yesterday's price and volume move is there was a short squeeze or someone might be interested to takeover the company.

Update
May 31, 2013

Yesterday there is another round up and down with a high of $2.25 and close at $1.86. The volume is about 400k.

(1) I checked the short interest so it is clear that both May 23 and yesterday short squeeze is not possible.

(2) Both the big volume and price jump happened on Thursday.

(3) Adding the 1.6m share in May 23, it seems someone had grabbed as much as 2m shares. Cost is around 1.6*2.5+2*0.4 = 5m. Adding the 1.2m share hold by insider, only leave around 500k share still floating.

(4) It might be a insider want to take the company private or third party want to take over it. With only 500k floating, I was wondering is there possible another round of big volume?

WSI Industries, Inc.(NASDAQ:WSCI)

Web Site
Google Finance
SEC Filing

Jan, 22, 2013
2012 Data
Year end: Aug 31
Check list:
1.Major Business.
The company was fund at 1950 and make precision contract machining for aerospace. In 1960s, the company started to produce Fluid Power device for agriculture industry. In 1989, it stopped Fluid Power division. In 1990s, it closed two plants and started to refocus on precision machining.
1991 to 1993 sale down from $45m to $30m. Lost quite a lot money. The CEO quit at 1993.
1994 to 1995 revenue stable at $30m and start be profitable.
1996-2000 again revenue decline sharply to $20m and steady. Then temporarily raise to $32m at 2000.
2001-2008 revenue drop to $10m low at 2002 then steady back to $26m at 2008.
2009-2012 revenue drop to $19m then go back to $32m at 2012.
At Jan. 2012, CEO retired, hired new CEO.

2/3 of  sales is to RV(Recreational Vehicle) industry.  1/4 sales to energy industry.
Major customer:
Polaris Industries: 60% of sales. RV maker.
FMC Technologies: 16% of sales. Energy sector
National Oilwell Varco: 15% of sales. Energy sector

2.Balance sheet.
Recent Price: $6.33, Tangible book value:$3.30, Share outstanding:2.9m, Market Cap: $18.4m.
Current asset:$10.6, Current liability:$4.58, Debt:$6.99, Inventory:$3.57, Cash:$2.47.
Current ratio >= 2.

3.Credit facility.
Principles, interest rate, covenant, outstanding, payment schedule,

4.Financial data by years.
Revenue, Earning, FCF, FCF-WC, Dividend.
Optional: CF-WC, CAPX,  SG&A, R&D.
Revenue/Price ratio.
Dividend policy

	2012	2011	2010	2009	2008	2007	2006	2005	2004	2003
Revenue	32.5	25	18.8	18.8
OP Income	2.3	1.41	1.0	(0.25)
Income	1.47	0.9	0.64	(0.16)
CF-WC
CAPX
Cash
Debt

5.Cost structure
Leasing obligations. Flexible cost structure or fixed cost structure? Cost controls.

6.Insider holding, options, Insider trading info, share buy back.
Insider holding over 15% is preferred.

7.Management compensation.
A reasonable management compensation. Compare dividend with compensation.

8.Employee numbers. Revenue/Employee. Compensation/Employee.
Whether employees are unionized, etc.

9.Industry comparison.

Precision industry seems very fragmented with a lots of small companies. The reason might be that its basically an addon service to its customer.  If the customer's products requires too much precision work, it might just buy its own machine and do it themselves.
This is the local organizational that WSCI in: http://www.mpma.com/index.html
This is the national organization: http://www.pmpa.org/home, however, WSCI is not one of them

PMPA Business Trends Index: This is pretty useful to get the market condition of the whole industry. However, now way to find historic data.

It seems the MIC(made-in-china) doesn't affect this industry too much. Might because it more like a service than just manufacturing.


10.Auditor
Better be among the big four.

11.Major events.
Business acquisition, law suit etc.

12.Comments.
(1)Some of its revenue includes a pretty big part of cost which is pass through to customer. So the revenue reported is less useful.

(2) The current CEO is young(about 40). He is pretty success in his previous business and it was acquired by others. He acquired quite a lot shares of WSCI after he became CEO.

(3) The company's communication with share holder is pretty poor and hard to get useful information likes the real revenue picture, etc.

(4) Its debt includes several million in capital leasing which make it hard to understand the real CAPX and cash flow numbers.

(5) In current several years, including the recession, the company did pretty well, especially from cash flow point. However, Its revenue up and down a lot which is pretty common in precision manufacturing  industry I guess. It really hard to tell how the company will preform in the future. Which make it attempting only on current basis. It seems the whole precision industry and the company itself  are not stable. The business is hard to understand from this aspect.

TSR, Inc.(NASDAQ:TSRI)

Web Site
Google Finance
SEC Filing

Jan 10, 2013 
Q2 2013 Data
Year end May, 31
1.Major Business.
It is IT agent. Mainly hire IT contractor for big financial companies. At 2012 it has 260 contractor(including maybe 100 from India).

2.Balance sheet.
Recent Price: 3.17, Tangible book value: $4.68m, Share outstanding: 1.98m, Market Cap: $6.3m.
Current asset: 13.7m, Total liability: 4.5m, Debt:0,  Cash: $4.5m(*).

*Cash is after 3m special dividend payout.

3.Credit facility.
not important

4.Financial data by years.

	2012	2011	2010	2009	2008	2007	2006	2005	2004	2003
Revenue	45.2	39.3	37.0	42.8	51.7	49.7	48.1	51.4	51.7	52.4
Margin%	16.5	18.3	17.7	18.0	18.2	18.4	19.4	21.7	22.2	21.8
OP Income	2k	480k	317k	1	1.97	1.92	1.71	3.6	3.7	4.0
Income/s	(0.03)	0.10	0.08	0.30	0.56	0.60	0.54	0.94	0.94	1.06
CF-WC	0	260k	210k	690k	1.27	1.39	1.21	2.14	2.12	2.36
Cash	8.3	7.7	8.7	8.6	8.0	8.3	8.0	10.5	8.7	18.0
Dividend	0	0	0	0.20	0.64	0.64	0.64	1.20	5.2	0

5.Cost structure
n/a

6.Insider holding, options, Insider trading info, share buy back.
Joseph F. Hughes(CEO): 900k, 46%.
Dimensional Fund: 100k, 5%.

7.Management compensation.
Top 3: Over $1m per year.

8.Employee numbers. Revenue/Employee. Compensation/Employee.
Whether employees are unionised, etc.

9.Industry comparison.
Major competitors in the same industry. Whether the business is competitive?

10.Auditor
Better be among the big four.

11.Major events.
(1) at 2006, it has been discovered there is a a scam of TSRI related to a employee of New York City Department of Education ("DOE"). TSRI provide contractors to DOE which is administrated by the employ.  TSRI then subcontract the contract to a private company which is also opened by the same employee. As a result DOE terminate contract with TSRI and also TSRI paid $900k to DOE as settlement.

12.Comments.
(1) Gross margin decrease significantly since 2006 while cost not changed. It seems bottomed at current 16.5%.

(2) It currently has 20 recruiter to recruit developers, which is historically high compare to only 14 at 2006 and 10 at 2004.

(3) The management took home $1m/year for many years despite whether it is profitable or not.

(4) Its cost mainly on employee's compensation which is quite flexible. Now it is quite high since it seems want to hire more sales and recruiter to raise revenue.  However, if revenue doesn't catch up, the company actually can control cost pretty easily by eliminate employees. I view its cost structure is pretty flexible.

(5) The CEO is founder and he is 81 years old now.

(6) On downside, I guess it is pretty hard for it to return margin to previous level since the competition is pretty tough now. On positive side, it might be able to pick up revenue since  it has 26% of customer is from financial services which I think could possible be recovered in future.

(7) Overall, it is just a fair business, since its book value is much higher than currently price and the cost is controllable, I think the current price are pretty ok to hold.