10-K 2016– 7,50 USD– NYSE:CDI
After my thirteen months follow-up on CDI I have sold my position. After brokerage fees and currency effects the return amounted to 67,4 %. From a qualitative standpoint I still like the case, mainly due to the recent activist activity in the company (more about that below), but due to a high NCAV-burn rate and an increased share price development the company is no longer a net-net, i.e. I’m forced to sell.
CDI Corp. provides engineering, information technology and staffing solutions. The Company operates in three segments: Global Engineering and Technology Solutions (GETS), Professional Staffing Services (PSS) and Management Recruiters International (MRI). It provides staffing services through its MRINetwork of franchisees. The GETS segment provides engineering and information technology solutions that involve the production of deliverable work products or services performed at its facility or at a customer’s facility. The PSS segment provides technical and professional personnel for discrete periods of time to augment the customer’s workforce in times of project, seasonal, peak period or business cycle needs. The MRI segment is a global franchisor that does business as MRINetwork and provides the use of its trademarks, business systems and training and support services to its franchisees. It serves the oil, gas and chemicals, aerospace and industrial equipment, and hi-tech industries. – Google Finance.
1. The company is currently a net-net with an adequate margin of safety:
- P/NCAV < 1x
- 1,5x X
- MoS = N/A
Assessment of NCAV margin of safety:
CDI is today selling for a premium to NCAV. The reason behinds development since I initiated my position at 0,57x NCAV is a combination of positive share price development of 62 % and a NCAV burn rate of -40 %. Since CDI is no longer a net-net I will therefore sell my position. However, for an investor that are not following strict rules when investing, CDI might still be an interesting case. This is mainly due to the fact that there is an ongoing activist activity within the company with the aim to sell or merger with the highest bidder. Also, the quality of the company is in fact quite good (checks all boxes below and they had a net buyback yield of 5 % for the TTM).
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 %
- 0 % ✓
- Z-score ≥ 3
- 4,8 ✓
2.2 The company’s business model has historically been profitable (criterion a) or b) must be met):
- Positive retained earnings:
- 179 M$ ✓
- Positive aggregate operating income for the last ten years:
- 155 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 = 5 %
- = 5 % ✓
Disclosure: The author doesn’t own any shares of NYSE:CDI when this analysis is published.