Volt (VISI) is a staffing company that was historically mismanaged, including being out of date with its filings for several years. It is in the midst of a turnaround under new leadership and a highly upgraded Board, no longer filled with former management’s cronies.
For the past several quarters the company has been exiting money-losing businesses, reducing headcount and upgrading outdated IT systems. The company has also tripled its liquidity as of 4Q (reported in January) versus 2Q (when the company put its repurchase plan on hold).
When the company reported 4Q, CEO Michael Dean reiterated his optimism that the company could achieve a 2-4% operating margin over time – at the low end this implies EPS of $1.25 (with comps trading at high-teens multiples this implies a stock price approaching $20 versus Friday’s close of $7.91). However, the hoped for sale-leaseback of the company’s Orange County headquarters was not announced on the call, although Dean reiterated it would happen soon, as would the sale of MainTech, an unrelated, profitable computing business (that we think will garner $20-$30 million). Following results, six insiders made open market share purchases, yet in the month that followed the stock dropped 20% (the stock has since recovered and is down 3% year-to-date).
On March 1st the company issued an 8-K (with no press release) of the long awaited sale-leaseback of Orange County, resulting in $28 million of net proceeds to Volt, further improving the company’s liquidity position.
We expect further good news ahead. Specifically, when the company reports 1Q results on Wednesday, March 9th we expect Dean to reiterate his optimism about the company’s ability to achieve operating targets, suggest that revenue levels are stabilizing, and state that the MainTech sale remains on target – likely in late 2Q or early 3Q (only 2-3 months from now). We suspect management will be clear that as soon as MainTech is sold the company will reinstate its buyback, which would be exceptionally accretive at current levels, if operating goals prove realistic. In addition, the company should be months away from receiving an anticipated $17 million tax refund. In aggregate, within a few months the company could have $60- $70 million in excess capital, above the $40-$50 million it requires to run its business – versus a $165 million market cap.
This was a stock that traded at almost $13 in the past 52 weeks. With rapidly improving liquidity, business that appears to be heading in the right direction, the exit of money losing and distracting businesses (i.e. Uruguayan yellow-page directories), a looming sizable buyback, and almost 20 days short interest, we think this stock has the potential to be sharply higher in a matter of months. With an activist on the Board and a turnaround CEO in place, we think the ultimate endgame will be a company sale. If the company executes, we think that happens at a triple-digit percentage premium to the current price.
The above post has been excerpted from a letter of Dane Capital Management.
Disclaimers: Net of expenses for a Series A Investor invested in Dane Capital Management Fund LLC This document is prepared solely for informational purposes. This report is intended exclusively for the person to whom it has been delivered, and is not to be reproduced or redistributed to any other person without the prior written consent of Dane Capital Management LLC. Net Performance results are presented on a net-of-fees basis of a Series A and reflect the deduction of, among other things: management fees, brokerage commissions, administrative expenses, and accrued performance allocation, if any. A Series A investor incurs a 1.25% per annum management fee and a 15% performance allocation on net profits, if any. All dividends, interest and capital gains are reinvested. Individual investor net returns may vary from the net performance stated herein due to timing of specific investments. All information contained herein is estimated and unaudited. This document is not to be construed, by any means, to be an offering, solicitation, advertisement or marketing material to purchase securities or interests in the Funds. Such an offer will only be made by means of a final Confidential Offering Memorandum. You should review carefully the offering memorandum, including the description of the risks, fees, expenses, liquidity restrictions and other terms of investing in the Fund before making a decision to invest. All investments involve risk including the loss of principal. This document is not intended to be used by any investor, prospective investor or third party, and should not be relied upon in any way, to make or influence a decision with respect to an investment in the Funds. Past performance is not indicative of future performance.