AKM Investment ThesisI'm a fairly recent shareholder of AKM. I just posted this over at QIS Capital's website. If I've made any errors or left something out, please feel free to post corrections/additions.
Regards,
i22
t's getting harder to find profitable and growing small companies that are reasonably priced. This one isn't cheap, but I do think it represents decent value and it could be a multi-bagger if the company's plans work out. They seem to be on the right track. It certainly looks GARPy to me.
Students coming from abroad to study in western colleges and universities are a big business these days. ACT360 is mainly involved in recruiting overseas students for western educational facilities, but also derives revenue from online testing/test preparation software and other services. It was profitable and had positive cash flow in 2013 (year end is September 30th). Although the company won't be taxable for a while, it's a good idea to include something for tax in any analysis you do. Here are a few metrics by year, then by quarter:
2010: $377k revenue and -$175k net income
2011: $543k revenue and -$55k net income
2012: $716k revenue and $24k net income
2013: $1,154k revenue and $78k net income
2013 Q1: $226k revenue and $15k net income
2013 Q2: $286k revenue and -$6k net income
2013 Q3: $287k revenue and $35k net income
2013 Q4: $355k revenue and $34k net income
As I've mentioned on another thread, education-related companies generally get higher P/Es. Based on the last traded price of $0.13 and assuming all options/warrants are exercised and further assuming full taxablility, to garner a cash adjusted P/E of 15, the company would have to achieve pre-tax net income of about $57k per quarter, which is higher than the average of the last two quarters. So, you might consider the stock a little pricey, but I don't think so, given the following:
Beginning in Q1 2013, the company invested in improvements to its student recruiting platform to enhance the quality of student inquiries delivered to its higher education customers. As student application and enrollment rates increased, higher education clients allocated a larger share of their recruiting budgets towards company's Student Marketing Services. During 2013, the Company also signed its first UK higher education clients as part of its effort to diversify its course offerings outside of North America.
During 2013, the company formed a strategic partnership with a US-based education agency with more than 40 universities and language schools under contract and invested in a global call center and associated customer relationship management software tools to guide students through the university application process.
In January 2014, the company acquired a 3 year exclusive licence to operate and monetize the LearnHub & JumboTests websites for which the company will pay a royalty to Savvica Inc, a subsidiary of Educomp Solutions Ltd., India's largest education company. ACT360 will use the websites and associated social learning technology to scale its international student recruiting business. Via this agreement, ACT360 will gain access to 2.5 million registered users; a social learning network with integrated college search, test preparation, financial planning and career planning tools; a college directory database listing 5,873 institutions in the United States, Canada, United Kingdom and India; and a social media marketing and advertising platform that enhances ACT360's service offering to its higher education clients. This is the first part of the company's strategy to achieve order of magnitude revenue growth while minimizing share dilution during the company's revenue realization stage.
Also in January 2014, AKM entered into a student recruiting agreement with Sprott Shaw College which has over 100 programs in 13 British Columbia campuses. They started doing this on a trial basis in 2013. Compensation will be based on the number of initial inquiries, qualified prospects & enrolments achieved each month.
I think there's much more to come here and, as such, this is intended to be a long term hold for me.
I'm not aware of any lawsuits outstanding. Two insiders recently sold off some shares. One director sold a chunk of his sizeable holdings. The CEO has sold some of the shares he recently acquired via warrants (that were about to expire) from a 2012 financing in which he participated. Over the years, he as been a regular acquirer of shares via the public market. It seems to me that insiders collectively own between 25% and 30% of the outstanding shares.
When a company is barely profitable on such little revenue - like AKM - it's easy for them to slip back into losses with relatively modest additional spending. Alternatively, they can achieve giant eps growth if they can increase revenue significantly. It'll be interesting to see if Act360 can pull off the latter.