Thursday, April 26, 2018

CNGA Comes Back to the Light

Conair Corp (CNGA) de-registered from the SEC in 1995 and completely disappeared.  They did not file reports anywhere.  The stock sank to the bottom while shareholders wondered if the company was even alive.  CNGA stayed in the darkness for 22 years until filing quarterlies and an annual in Sept 2017.  Since then they have kept up with reporting and even put out press releases!  This is a major change of heart and where there's change there is opportunity, so let's investigate.

First a chart.  I can't find one going back to 1995 but you get the idea.  It dropped to a low of $0.005 in 2011 and if you're lucky enough to have bought there then you've seen a 119x gain.  I don't know what changed in 2012 but the stock rose back up to sit around $0.40 for a couple years.  It was $0.50 when they came back to the light in Sept 2017.


I found the company when they filed again in Sept 2017 and I bought right away.  The numbers showed the stock to be slightly cheap but not crazy, and definitely not expensive.  Share count is low and it's illiquid.  The main reason I bought was change.  Here we have a company that had been dark for 22 years and they're filing again.  Why would they do that?  When they filed the stock didn't budge so I had to buy.  There must be something going on.   Even now it sits only slightly higher than it was when no one knew the numbers.

The Company:
Conair has been doing residential and commercial HVAC in New York since 1963.  I don't know much more than that.

The Numbers:
Here's what we know:

The company has near zero long term debt.  Share count is low and the structure is clean with only common.  Margins are improving but I don't think we have enough data to really say much on that front.  Seems they are hovering just above profitability.  They have federal NOLs of $380k which leads me to believe they have been sitting near profitability, or slightly below, the past 20 years.  

Since coming back the company has put out 10 press releases on otcmarkets which is very active to me.  I hope it continues.  Strange thing is a number of them are only one sentence so I don't know what's up with that.  They have announced $1.4M worth of contracts plus another 3 year extension of unknown value.  They announced a potential acquisition which then fell apart.  They even announced accepting of bitcoin as payment.  

The CEO, Barry Stransky, owns 49% of the common.  Mark Stransky owns 34%.  Free float is only 17% = 1M shares.  I don't know when the Stranskys got their shares because the last proxy filed in 1995 does not list them.  The CEO's LinkedIn profile says he's been with the company since 1993.  I think the CEO is in his late 50s.  

Current share price is $0.60 giving a market cap of $3.5M. I'd put value over a dollar based on these numbers.  

Why File Again:
This is where it gets interesting.  I emailed the CEO but have not heard back so I have no confirmation.  The company is moving into the franchise business.  I think the CEO wants to give out some options and wants them to be valuable.  I think he wants to attract franchisees so he needs a good stock price and audited numbers to give out.  

In Aug 2017 the company CEO posted on LinkedIn looking for people for his new Conair Franchise Development Corporation.  A key quote telling me he now suddenly cares about the stock price is "Various compensation options for a public corporation."

In Nov 2017 the company announced the Conair Franchise Development Corporation in a press release.  Key quote here is "We anticipate that CFDC will be acretive to both earnings and sales by the 4th quarter of 2018."

In Dec 2017 they started a new website conairhvacfranchise.com which looks very nice.  The funniest quote here is "...Conair became a publicly-owned corporation and achieved shareholder value..." I wouldn't consider cutting off communication for two decades while watching the market cap drop to $29k to be "achieving shareholder value" but to each his own.  

In Apr 2018 they started the franchise registration process in New York and Rhode Island. The press release notes they are also targeting New Jersey, Connecticut, Pennsylvania, Massachusettes, and Florida for their initial release but those states don't require registration.

The Future:
We have a company undergoing big change.  The price is cheap versus the current business and we get the new franchising side for free.  CNGA thinks the franchising will improve revenue and earnings already this year.  I have no idea what will happen.

The new franchising website looks really good.  Very professional with a lot of information.  Seems they will train you and provide all the guidance needed to start up your own business.  CNGA has been doing HVAC for decades so they must know what they're doing.  They are staying within their circle of competence.

I don't know what the CEO intends to do with the company but at a minimum he cares about the stock (for now).

Risk:
Maybe the franchising doesn't work.  The company stops filing again and the stock drops to nothing.


--Dan
disclosure: long CNGA

10 comments:

  1. Seems incredible cheap earnings and cash flow multiples around 3-5 and they have substantially increased equity. Assets as well 30% without dilution.

    Where do you see the NOLs of $380k? I see $127k of deferred tax asset.
    Do you know what the settlement of $400k was?

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    1. The question on value is what will normalized earnings and revenue be. It’s super cheap if they keep earning $0.12 per share. 2017 was much better than 2015 so which will it be next year?

      That NOL number was from the 2016 annual I think. I forget what the settlement was, but the main point there is it’s not recurring.

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  2. The formerly big notes payable were a loan from the two major shareholders at 1.95%. That's quite fair, they could easily have charged more.
    I also like their good cash flows.
    Could 2015 be an outlier?

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    1. I did email the CEO a while back to ask why they started filing again but he never responded. I was just thinking I should try again to ask what he thinks the franchising opportunity is

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  4. Back in the 90's Conair made drying equipment for the injection molding business. I do not know if this is the same company but kinda fits. They were not doing well when U left the industry in the early '00's. Franchising I assume would lead them into retirement.

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  5. Take a look at AIFS. Software company with a lot of operating leverage and some really promising products. Trading at less than 1x recurring revenue, with close to 100% retention. with lots of cash on balance sheet and growing. Liquidity is a bitch though!

    They are in growth mode now, but I think they can easily cut $200-300k in costs and keep revenue steady.

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    1. Thanks and you’re not kidding with the liquidity. I own some and would like to own more.

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  6. CNGA's latest press releases showed a new website: http://theconairgroup.com

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