Friday, October 2, 2015

QDLC at 1x earnings*

Let's say there was a company with the following stats:

What would you pay for this company?  Maybe 10x EPS = $1.60 per share?  If the growth stretched over a longer period of time then maybe 15x EPS = $2.40?  Higher?

What if I told you the company was trading at $0.20 for a PE multiple of 1.25?  P/S = 0.13.  Cheap.

Well Quadlogic Controls (QDLC) is doing just that.  The catch is they are dark.  They don't file with the SEC and those year1/year2 numbers above are 2011/2012 from the 2012 annual report posted on their website in Sept 2012.  Prior to that there was an annual report in 2000...nothing else.

In 2000 they filed a 10SB12G with the SEC.  I don't know why they filed this since they deregistered 4 years later with nothing filed in between.  The 10SB12G contains everything from an annual report.  The financial data doesn't mean much anymore but there is some interesting information in there.  The company was founded in 1982 and the two co-founders are still running the show as CEO and President.  The CEO owned 21.2% of the common while the president had 12.8%.  All directors and officers as a group owned 47%.  The CEO is now about 58 years old and the President 67.  8.2M shares of common were outstanding.  There was some preferred stock which has since been bought back.  85% of sales were in the U.S.

Perhaps my favorite thing about the 2000 report is the price vs value from then and now.  Exercisable stock options had an exercise price of $0.20.   Share price when this was filed in March 2000 was $1.75.  So from this 2000 report to the 2012 report revenue has grown from $3.4M to $17.3M while EPS grew from -$0.34 to $0.16 yet the stock price dropped from $1.75 to $0.20.

Below is an explanation from this 2000 report on registering and deregistering with the SEC.
The Company had its initial public offering in 1987 and filed periodic reports required by the Securities and Exchange Commission (the "SEC") for publicly traded companies. However, by 1991 the number of shareholders of the Company fell below the requirements for filing these periodic reports under the Securities Exchange Act of 1934, as amended (the "34 Act"). In 1991 the Company filed a Form 15 or "Deregistration" with the SEC notifying the SEC of its intent to cease filing periodic reports under the 34 Act. Accordingly, Quadlogic has not reported any financial or other data since 1991 until the date of this report.
Now back to the 2012 annual report.  A company description:
The Company is engaged in the business of electricity metering, monitoring and control. All Quadlogic metering products feature the company’s proprietary robust power line communications technology. The business consists of three segments. First is the design, manufacture and sale of the Transmeter® “smart” metering system, a line of digital, microprocessor-controlled meters that, in communication with the Quadlogic Transponder, measures and remotely monitors the time and amount of electricity consumption and other diagnostics. The second segment supports the first and consists of technical services including meter reading, customer billing, and system repair and maintenance. The third segment, the Energy Guard TM system of concentrated metering, is sold primarily to utilities in countries where electricity theft is common. It consists of pole- mounted sealed panels of meters, remote data concentrators and sub-station based data collectors capable of remote metering, theft and tamper detection and remote power disconnect and reconnect.
The majority of their sales are international with Canada + Jamaica accounting for 50-60% in 2011 and 2012.  There's also customer concentration risk with one customer accounting for 38% and 24% in 2012 & 2011, respectively.  They are active in R&D with new products coming out.  They completely redid their website a couple months ago.

Knowing all that, what would you pay?  There should be a discount for a dark company, but is a PE multiple of 1 justified?

I emailed with management a little bit and they are not very forthcoming with information.  Shocking, I know.  Some questions were answered with others not.  The main takeaway is I was told they would be posting a report for 2013 and 2014 "when completed" then posting annually from there on out.  I don't know when.  I couldn't get them to tell me why they are reporting now.

There are a few questions for me:
  1. How will the 2013 & 2014 numbers look?    If the 2011 to 2012 growth has continued then it'll be even cheaper.  If the growth has not then it's probably still pretty cheap
  2. Will they really keep posting a report annually?  This would help close the gap between price and value.  How long will it take for investors to take them seriously?  
  3. Why did they post a report for 2012 and why are they working on a 2014 report?  Why would they go so long without reporting anything then start up again?  They filed an annual report in 2000 then 2012 and now say they'll file annually.  This is the main question I have.  They have to pay an auditor and put the whole thing together; it's not free nor easy.  Seems like something must've triggered this.  Are they ready to sell and retire?  Does it mean nothing?
So there you have it.  Dark company selling for super cheap as of 2012 numbers.  Management says they're going to start publishing annual reports again.  Worth a shot


Disclosure: Long QDLC

*2012 earnings

No comments:

Post a Comment