Seaboard Corp V.SEB

SEB Pros and Cons

[100BaggerHunter]

Pros

 

 

1. Benefits division is a rapid growth and scalable SaaS business with high gross margins and has grown from 1.5 million to 13 million revenue in a couple years.  Fixed costs are mostly covered so a large part of additional revenue will fall to the bottom line.  The exponential growth is not visible on the surface due to a technology division that is slower growing.
2. New strategic investment partner is a large company (insurance?) that would like to use SEB’s software on commercial terms.  This is likely to accelerate SEB’s growth.  20 million convertible debenture at $0.25 will strengthen the balance sheet and provide the working capital for SEB’s many growth initiatives.
3. AON is another large strategic partner and SEB provides benefits administration for 48 globally recognized client in Canada with intentions to expand this relationship internationally.
4. Currently have over 300,000 benefit plan members.  Revenue per plan member per month (“RPPPM”) which ranges currently between $3-$9 could grow to $20-$42 RPPPM once additional modules are leveraged.  Management expects 50% growth in the next 12 to 18 months in RPPPM.  Their benefits software “touches” over 1.5 million plan members.
5. Over a dozen white label channel partner opportunities for the benefits division with agreements and discussions at an advanced stage.  This is a large opportunity and turns a cost centre into a profit centre for partners.
6. Technology division has over 300 million in backlog, has been profitable historically,  and large growth opportunity with RFP’s out for Government of Canada and corporations.
7. Extremely undervalued at a price to sales ratio below 0.5, allowing for a large multiple expansion as SEB turns cash flow positive and continues to grow rapidly.
8. High insider ownership at over 60%.
9. Management with a long term focus.  They invested in benefits solutions which penalized EBITDA over the past several years.
10. Technical chart setup is ideal with a decline, long base, and strong accumulation over several years with on balance volume trending higher.  Insiders have a history of buying in the open market at the low end of the base.
11. Management is open to speaking with investors and hold quarterly conference calls.
12. Reasonable management compensation.
13. Most the the warrants for prior financings have expired.
14. Recession proof business with benefits growing even in recessions.
15. SEB has the leading benefits software according to customers.
16. Investment in developing the benefits technology is complete.
17. Benefits software is in the cloud using Microsoft Azure.  
18. Customers save money by using more of SEB’s benefit modules.  SEB is the only provider of an end to end solution.

 

 

 

Cons

 

1. Bloated capital structure with high share count and a pending convertible debenture deal with a strategic investment partner.  The debenture is for $20 Million and convertible at $0.25 which would bring the total share count to 245 Million.
2. Management has overpromised and underdelivered in the past.
3. SEB has not been profitable historically although they are at an inflection point now.
4. Technology division is slower growing with lower margins.
5. It is difficult to penetrate this insurance vertical and has taken several years to gain traction.
6. Many competitors in this space, however technology is old and fragmented.