Yahoo Finance
Filing
Sept. 08, 2020
2020 Q2 Data
Price: $8.5 Shares:5.2m, Cap: $44m
1.Business
(1) History
The company has a very long history. It was called Lynch Corporation which originally was a glass manufacturer. Since 1985, the famous value investor Mario Gabelli gained control over in this company. Later, it did some acquisitions and spin-offs.
Filing
Sept. 08, 2020
2020 Q2 Data
Price: $8.5 Shares:5.2m, Cap: $44m
1.Business
(1) History
The company has a very long history. It was called Lynch Corporation which originally was a glass manufacturer. Since 1985, the famous value investor Mario Gabelli gained control over in this company. Later, it did some acquisitions and spin-offs.
By the year 2004, Mario's son Marc Gabelli replaced him and became the new chair of the company. The company wasn't doing very well until 2014, it hired Michael Ferrantino who was retired at that time, as the new CEO. The company started to regain revenues and profitability. By 2019, it generated over $3m in net income.
At Jan. 2020, Ferrantino retired again, and now Ivan Arteaga replaced him as the new CEO.
In 2017, the company issued 2m shares for around $10m, and again in Q1 2020, it issued 300k shares for around $3.5m. As a result, it now has $22m in cash including $5.5m in the mutual fund which is managed by Marc Gabelli.
In 2019, the company invested around $3.3m into a sponsor corp which formed a SPAC company called LGL Systems Acquisition Corp(DFNS). It was IPOed in 2019 and is aimed to make an acquisition by Nov. 2021. If not, the money will be returned to the shareholders. LGL holds around 43.5% of the sponsor corp while the sponsor corp holds 5.2m warrants of DFNS at $11.50 per share and 4.3m of class B share of DFNS. In effect, LGL holds 1.87m of DFNS class B shares and 2.3m warrants. In the event of acquisition is made by DFNS, the class B shares will be converted to the class A shares on a one to one basis. The class A share is currently traded at $10/share. In the case of no acquisition is made, LGL will loss all the invested $3.3m.
(2) Major business
Crystal oscillator: A electronic component widely used in many electronic products from satellites to personal computers. The company's main focus is on the aerospace and defense market which generally requires higher quality and faces less competition.
Domestic revenue is around 75% of the total revenue. The rest is from Malaysia and some Asia regions.
The company have 3 production facilities in the U.S. and one production facilities in India.
(3) Debt and cash
At the end of Q2 2020, it has around $16m in cash, $5.5m in mutual fund, and $3.2m in DFNS investment.
(4) Industry
The crystal oscillator market is a very niche market and highly commoditized. There is not much growth potential here. However, in the aerospace and defense industry, it seems to have less competition and a higher profit.
2. Management
Michael Ferrantino: He did a great job turning the company around. Mainly by exit the less profitable business in the Telecom sector. Before 2014, it counts close to 30% of its total revenue. Currently, it counts for less than 10%.
At the end of Q2 2020, it has around $16m in cash, $5.5m in mutual fund, and $3.2m in DFNS investment.
(4) Industry
The crystal oscillator market is a very niche market and highly commoditized. There is not much growth potential here. However, in the aerospace and defense industry, it seems to have less competition and a higher profit.
2. Management
Michael Ferrantino: He did a great job turning the company around. Mainly by exit the less profitable business in the Telecom sector. Before 2014, it counts close to 30% of its total revenue. Currently, it counts for less than 10%.
Ivan Arteaga: He is from Mario's fund and was a money manager.
3. Financial data
4. Valuation and comments
(1) Currently, around half of its $44 market cap is cash, and its operational part generates over $3m per year. The share price is quite cheap.
(2) If the DFNS acquisition gets done by Nov. 2021, It should add around $20m in book value to LGL immediately. I think it is very possible as the management is highly incentivized to make that happens.
(3) Its cash and mutual fund holding could generate 400k to 500k in return each year.
5. Risk
(1) The company was doing poorly for many years in the past. It only generated over 3m in 2019. It might not be able to continue the good trend.
(1) The company was doing poorly for many years in the past. It only generated over 3m in 2019. It might not be able to continue the good trend.
(2) The new management might not be able to continue the good work for the past 6 years.
(3) Its product is very commoditized.
(4) The DFNS acquisition might not get done.
6. Conclusion
Overall, the company had made a good turned around and has some growth potential. The DFNS holding has a very good hidden value. The current price is very acceptable.
7.Links
6. Conclusion
Overall, the company had made a good turned around and has some growth potential. The DFNS holding has a very good hidden value. The current price is very acceptable.
7.Links
