Volt (VISI) is a staffing company that was historically mismanaged, including being out of date with its filings for several years.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For the past several quarters the company has been exiting money-losing businesses, reducing headcount and upgrading outdated IT systems.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.

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The above post has been excerpted from a letter of Dane Capital Management.

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