Buy Price
Holding Type
Investment Theme
Trade Date
November 17, 2016

This stock was bought at $5.50 per share. This is an RLEC offering phone, TV, and internet to residential and business customers in rural areas. The main phone business is in decline. Revenue has been declining at 4.5% per year since 2013.

Despite the revenue declines the business is incredibly cheap. With 3.3m shares outstanding ($18m market cap) and $85m in net debt, the enterprise value is $103m. Trailing EBITDA and free cash flow were $27.5m and $12.5m, respectively. This means the stock trades at 3.75x EBITDA and 1.5x FCF. Management has done a decent job of maintaining cash flow and paying down debt. Free cash has held steady at $12m+ for 4 years running.

Seeing the market refuse to ascribe any real value to the business, management has announced it is exploring strategic alternatives including a sale of the entire company. I believe this is a reasonably likely outcome. At 4.5x a lesser EBITDA figure of $25m would mean a price of $8.30 for 50% upside.

UPDATE: I sold this on 3/20/17 at an average price of $6.55/share for a ~20% gain. The company reported yearend 2016 results which were fine: revenue declined 3% for the year and free cash flow was $11.8m (53% yield). Debt repayment was $10m for the year (3.1x net leverage). This is still makes for a fine setup. I simply wanted to use the proceeds for better ideas and to raise cash.