Follow-up: ADDvantage Technologies Group, Inc.

10-K 2016– 1,82 USD– NASDAQ:AEY

After yesterdays thirteen months follow-up on AEY I have sold my position. After brokerage fees and positive currency effects the return amounted to 10 %. From a qualitative standpoint I still like the case but due to the NCAV-burn rate for most recent quarters the company is no longer a net-net.

See original checklist analysis of AYE here (in Swedish).

1kr50öreADDvantage Technologies Group, Inc., through its subsidiaries, distributes and services a range of electronics and hardware for the cable television (Cable TV) and telecommunications (Telco) industries. The Company provides equipment repair services to cable operators. The Company has two segments: Cable Television (Cable TV) and Telecommunications (Telco). The Company’s Cable TV segment sells new, surplus and refurbished cable television equipment to cable television operators or multiple system operators (MSOs) or other resellers that sell to these customers throughout North America, Central America, South America and to other international regions. The Company’s Telco segment offers its customers a range of used telecommunication equipment across various manufacturers consisting of component parts to expand capacity, provides spares or replaces non-working components. The Telco segment’s switching equipment products originate, terminate and route voice traffic. – Google Times.

1. The company is currently a net-net with an adequate margin of safety: 

a)

  • P/NCAV < 1x
    • 1,1x X
    • MoS = N/A

Assessment of why I think the margin of safety is adequate in relation to NCAV:

The company is today selling for a premium to NCAV. In other words, there exist no margin of safety in relation to NCAV. Unfortunately, the reason why the company today is selling for a premium to NCAV is not because the share price has risen a lot over the last thirteen months. Its because of a high negative burn rate due to increased liabilities (mainly debt), YOY = -33% and QoQ = -24%. To summarize and conclude, AEY is no longer a net-net and therefor I will sell my position.

2. The risk of permanent loss is low:

2.1 The risk of bankruptcy is low (criterion a) or b) must be met):

a)

  • Debt/Equity < 25 %
    • 19 % 

b)

  • Z-score ≥ 3
    • 3,3 

2.2 The company’s business model has historically been profitable (criterion a) or b) must be met):

a)

  • Positive retained earnings:
    • 47,7 M$ 

b)

  • Positive aggregate operating income for the last ten years:
    •   49,1 M$ 

3. The company does not have a shareholder unfriendly capital allocation (i.e. not diluting shareholders):

  • Shareholder yield TTM ≥ -2 %
    • Dividend yield TTM = 0 %
    • Net buyback yield TTM = -0,6 %
      • =  -0,6 % 

MoS

Disclosure: The author doesn’t own any shares of NASDAQ:AEY when this analysis is published.

2 thoughts on “Follow-up: ADDvantage Technologies Group, Inc.

  1. I guess this case now depends heavily on the success of the acquisition Triton Miami. I think that the first quarter in which Triton was consolidated looked fine. It will be interesting to follow the development of the new company!

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    1. I think you are right. However, since there is no longer a NCAV-MoS I will stay on the sideline and watch the case develop. Hopefully there will be an opportunity for me to buy back the position in the future 😉

      Like

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