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.
ADDvantage 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:
- 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):
- Debt/Equity < 25 %
- 19 % ✓
- Z-score ≥ 3
- 3,3 ✓
2.2 The company’s business model has historically been profitable (criterion a) or b) must be met):
- Positive retained earnings:
- 47,7 M$ ✓
- 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 % ✓
Disclosure: The author doesn’t own any shares of NASDAQ:AEY when this analysis is published.