mbrock77 Posted August 20, 2014 Share Posted August 20, 2014 I know there are a few of you following LICT. Q2 earnings are out and, rather than continue to post about it on other boards, I thought it would be a good idea to move the conversation here. link to earnings: http://www.lictcorp.com/press/14_09.pdf Anyway, earnings were pretty solid: • Overall revenues up slightly Q/Q to $25m, with a slight drop in regulated revenue made up by a larger increase in non-regulated • EBITDA down Q/Q to $9.2m from $10.5m in Q1, which looks to be the result of higher CapEx (they note that their capital budget is under review). YoY EBITDA was up 10% •Share count down slightly to 22,237 They are still guiding for 2014 revenue of $100m and EBITDA of $41m. Depending on when the DFT transaction closes, you’ll need to back out a portion of the DFT annual contribution of $15m in revenue and $3m in EBITDA. Assuming DFT closes at the beginning of the fourth quarter, 2014 revenue and EBITDA should be around $96m and $40m, with net debt at year end of around $41.5m The big question mark, and I guess why this stock may stay cheap, is the changing FCC rules regarding subsidies to rural carriers to build out their networks and compensation for completing calls from other carriers. Anyone have any good insight into how this may effect LICT? Most of what I’ve found online is incomprehensible. Link to comment Share on other sites More sharing options...
mbrock77 Posted August 28, 2014 Author Share Posted August 28, 2014 LICT Announces Receipt Of Preliminary, Non-Binding Acquisition Proposal https://finance.yahoo.com/news/lict-announces-receipt-preliminary-non-151000886.html Link to comment Share on other sites More sharing options...
wknecht Posted August 28, 2014 Share Posted August 28, 2014 Quite curious about the price. Link to comment Share on other sites More sharing options...
mbrock77 Posted August 28, 2014 Author Share Posted August 28, 2014 That would be nice! "a significant premium to LICT's recent trading price" is a big range Link to comment Share on other sites More sharing options...
JAllen Posted August 28, 2014 Share Posted August 28, 2014 It's only trading at ~4.5X EV/EBITDA at $4,900 (post DFT sale). I can't imagine they'll sell it for less than 5.5X or so which is still a third above today's closing price - $6,500 or so. We're hoping for 6X EV/EBITDA and potentially a year-making 6.5X. Still massively long! If anyone knows of other small stocks like LICT with truly recession-proof businesses, strong management and a super cheap price, please let me know!! Link to comment Share on other sites More sharing options...
JAllen Posted August 28, 2014 Share Posted August 28, 2014 The fact that the regulated segment's revenues are actually growing in this regulatory environment is remarkable. That totally changes the multiple an acquirer should pay. All of the comps trade at 6X+ - even those with revenue declining as opposed to LICT's growth! And yes, I only like using relative valuations when the only thing different about two stocks is when one is structurally undesirable - tiny, unregistered, no dividend and high stock price - exactly the situation LICT is in. Also, the valuation disparities were just too huge and obvious, even after today. Link to comment Share on other sites More sharing options...
JAllen Posted August 28, 2014 Share Posted August 28, 2014 But after looking at my comparables spreadsheet above, I don't know how they won't get 6.5-7 for the company. What do others think? DFT was a low margin subsidiary. One last thing: the EBITDA margins are high in that spreadsheet above, but they're still the second highest and don't really change any conclusions reached. Link to comment Share on other sites More sharing options...
mbrock77 Posted August 28, 2014 Author Share Posted August 28, 2014 Just curious as I think my numbers are wrong somewhere, how do you get to "4.5X EV/EBITDA at $4,900 (post DFT sale)"? If they are on target for $38m in EBITDA (exDFT) for 2014 and should end the year with net debt of around $41m, wouldn't that get you to $5,800 share at 4.5x? Link to comment Share on other sites More sharing options...
JAllen Posted August 29, 2014 Share Posted August 29, 2014 Using the updated share count and the pro-forma EBITDA numbers it's actually 4.18X EV/EBITDA, so the stock is still quite cheap considering today's news and the comparable multiples I posted above. Put this in google for the current multiple: ((22327*4900)+(41000000))/36000000 6x EV/EBITDA results in a stock price of $7,800 with no cash build and no additional share repuchases (((6*36)-(41.5))/.022327 ) Why is LICT not worth 6X EV/EBITDA? Link to comment Share on other sites More sharing options...
JAllen Posted August 29, 2014 Share Posted August 29, 2014 Also one can value the segments individually. If we use 4X for regulated and 8X for non-regulated, we get a $6,900 price. ((4*23)+(8*13)-41.5)/.022327=$6919 40% higher Link to comment Share on other sites More sharing options...
Tim Eriksen Posted August 29, 2014 Share Posted August 29, 2014 It's only trading at ~4.5X EV/EBITDA at $4,900 (post DFT sale). I can't imagine they'll sell it for less than 5.5X or so which is still a third above today's closing price - $6,500 or so. We're hoping for 6X EV/EBITDA and potentially a year-making 6.5X. Still massively long! If anyone knows of other small stocks like LICT with truly recession-proof businesses, strong management and a super cheap price, please let me know!! CIBL has a weaker business (its controlling stake in ICTC) but a much better balance sheet than LICT. Basically same ownership. Link to comment Share on other sites More sharing options...
oddballstocks Posted August 29, 2014 Share Posted August 29, 2014 It's only trading at ~4.5X EV/EBITDA at $4,900 (post DFT sale). I can't imagine they'll sell it for less than 5.5X or so which is still a third above today's closing price - $6,500 or so. We're hoping for 6X EV/EBITDA and potentially a year-making 6.5X. Still massively long! If anyone knows of other small stocks like LICT with truly recession-proof businesses, strong management and a super cheap price, please let me know!! CIBL has a weaker business (its controlling stake in ICTC) but a much better balance sheet than LICT. Basically same ownership. I own CIBL, I agree with the sentiments. I kick myself when I see LICT, so many people had told me to purchase it over the past three years, but that's life. The annual report for CIBL was interesting in that they explicitly mentioned they might liquidate the company. I believe shares are currently trading for a slight discount to what that liquidation value would be. I get the sense management just doesn't know what to do with the cash. They've done buybacks and tenders and don't want to do a dividend. So they can either buy more ICTC or just return everything to shareholders. This is a study in itself, but if I remember there are some advantages to being a rural telecom. Certain subsidies that bigger players don't get. I believe that was Gabelli's angle on this stuff. Link to comment Share on other sites More sharing options...
Packer16 Posted August 29, 2014 Share Posted August 29, 2014 I own some but should have bought more. I liked the fact that these guys were not falling off a cliff revenue-wise like other RLECs. The only other two telcos like this are GNCMA and HCOM. GNCMA sells for a higher multiple and is a better business and HCOM is at slight premium in terms of multiple and has business quality between the two. It will be interesting to see what the final multiple is. A few years ago these things were being purchased for 6x to 9x EBITDA. I think 6x is closer to the value today in the right hands. Packer Link to comment Share on other sites More sharing options...
JAllen Posted August 29, 2014 Share Posted August 29, 2014 There's little competition rurally. They had legacy voicelines and thus employees, property and equipment rurally, so it cost relatively less to build out modern services - DSL broadband and VOIP. Proof for this is in LICT's highest penetration ratio I've seen - now 71%. I think 6X is a fair multiple for LICT right now. Hopefully Gabelli can get 6.5 though. LICT has ~30,000 broadband subs (yes, they're DSL/slower speeds but they have little competition). These are the most valuable part of LICT. If you do some math with recent EV/sub transactions you get about the current EV of LICT alone. I passed on CIBL early last year because it had limited upside I thought. The discount was a one time thing whereas I thought LICT was worth $6,000+ and it was trading for $2,200. Link to comment Share on other sites More sharing options...
JAllen Posted August 29, 2014 Share Posted August 29, 2014 I'm glad to see our resident telecom expert, Packer, also thinks it's worth 6X EV/EBITDA. By the way: this is the 7X EV/FCF company I was asking others about company in the thread I posted last week. I'm glad I'm not the only one that thinks it's worth buying. Link to comment Share on other sites More sharing options...
wknecht Posted October 8, 2014 Share Posted October 8, 2014 Maybe some folks know the deal isn't happening? Strongly considering adding to my position. Link to comment Share on other sites More sharing options...
JAllen Posted October 8, 2014 Share Posted October 8, 2014 They announced the termination of previous talks earlier in the spring, so I believe they will do the same this time. http://www.lictcorp.com/press/14_02.pdf It would be a big deal to sell this company: it's super old; the management has been involved for decades and there are ~14 subsidiaries to deal with. Lots of regulatory stuff too. Perhaps the fact that they're still talking means that the price is indeed agreeable and they're now negotiating the terms. Link to comment Share on other sites More sharing options...
JAllen Posted October 13, 2014 Share Posted October 13, 2014 Just one thought: They actually didn't report the cessation of total company acquisition talks in the spring; they announced they had ceased having the MBO talks. I realized this when I was researching our writeup that we recently published which you can read at this link: jallencapitalmanagement.com/posts/lict-corp-cheapest.html I think our thesis is quite compelling: LICT is trading at 4X EV/EBITDA when comparable, fully public, companies trade at 7X and are lower-quality, as you'll see in our writeup. If LICT sells for or trades at an EV/EBITDA multiple of just 5.75X the stock would increase 75% to ~$7,800 Link to comment Share on other sites More sharing options...
mbrock77 Posted October 14, 2014 Author Share Posted October 14, 2014 Great write-up. Thanks. Did your research lead to any conclusions about the possible impacts of changing FCC regulations on LICTs regulated revenue? Seems like that is a big question mark. Link to comment Share on other sites More sharing options...
JAllen Posted October 14, 2014 Share Posted October 14, 2014 It stopped declining this year. It's currently increasing. I assume it will continue declining modestly over time, despite the fact it is currently increasing. That seems conservative to me. Link to comment Share on other sites More sharing options...
JAllen Posted October 14, 2014 Share Posted October 14, 2014 Another way to look at it is: if you believe the non-regulated segment is worth 8X EV/EBITDA or $104 million, you're paying less than 2X EV/EBITDA for the regulated segment. So subsidies could get way worse lots faster than they currently are and we'd be ok. If you think the non-regulated segment is worth 10X EV/EBITDA like I actually do, you're getting the regulated segment for .5X EV/EBITDA. Link to comment Share on other sites More sharing options...
wknecht Posted October 17, 2014 Share Posted October 17, 2014 Deal's definitely not probable. Gabelli just extended a loan for a spectrum auction. I added though...hah one more share. Link to comment Share on other sites More sharing options...
mbrock77 Posted October 28, 2014 Author Share Posted October 28, 2014 Q3 numbers are out for those interested: http://finance.yahoo.com/news/lict-corporation-reports-third-quarter-192200961.html Seem to be hitting their guidance spot on Link to comment Share on other sites More sharing options...
JAllen Posted October 31, 2014 Share Posted October 31, 2014 We're very pleasantly surprised at the continued strength of the regulated segment. It's truly great news that revenues there are growing. LICT is still super cheap excluding the value of its unconsolidated assets. It will be very interesting to see how it develops over the next couple of years. A fellow investor contacted me after we published our write-up and said that he thinks the company is worth more than $10,000 per share. Link to comment Share on other sites More sharing options...
mbrock77 Posted October 31, 2014 Author Share Posted October 31, 2014 I guess they can't buyback shares if the deal negotiation is ongoing? Also, any idea what Lynch 3G will do with that spectrum if they win the upcoming auction? Doesn't seem like that subsidiary has any actual operations anymore and they were sellers of spectrum in 2012 Link to comment Share on other sites More sharing options...
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