First, a general point. It seems that there are a lot of retail investors out there who equate underlying value to market price so, if the price hasn't gone up for a year, they clamor to post on the boards that the company hasn't added any value. Sometimes indeed a company hasn't added any value, but I think those frustrated posters are missing something important if they just look at price and don't analyze the underlying fundamentals.
Let's take UZZ's specifics as a case in point. If you start at 2005 and go forward to 2008, you can see that the company's revenue was increasing nicely, and pre-tax net income (adjusted to remove one-time items) was quite variable and overall did improve, but not by much. Depending on the results du jour, one could have been optimistic about the future, and the company was definitely worth something but, since the earnings fluctuated so much, that value estimate was probably all over the map. It might have been worth a lot more if the proposed large acquisition had worked out, but alas it did not. During this period, the price ranged between about 3.5 cents and 43 cents.
Moving forward into 2009, 2010 and the first quarter of 2011, the company was affected by the recession and afterwards didn't seem to recover as far as the bottom line was concerned. The top line was still growing, but this wasn't translating into any sustainable net income. Also, as I recall, the company was in breach of the bank's loan covenant(s) during this period. In terms of value, IMHO the company was at risk of going under and was pretty well virtually worthless. The price of the stock ranged from about 23 cents down to about 5 cents. If one were so inclined, this would have been the time to leave the party, i.e., sell your shares and move on.
Things have changed since that first quarter of 2011 when Fredy came on board. Revenue growth resumed, then accelerated. Expense reduction led to a progression from variable quarterly losses to quarterly pre-tax profits (once again, net of one-time expenses) of $200-400k. Accounts receivable financing was secured, then increased. Now the company is definitely worth something again. Anyone can calculate their own version of underlying earnings per share and put a p/e of their choosing on it but, for me, the company is probably worth somewhere around 9 cents. As everyone knows, the price has declined from about 6 cents to about 3.5 cents since the results from the first quarter of 2011 came out. In my books, this is a disconnect and the stuff of which opportunities are made.
In terms of the future, the company has announced a bunch of stuff that's not in the financials yet, including the Ontario burglar alarm company acquisition which is reported to come with an annual net income of $200k and could create even more because of synergies, 4 new security contracts in Alberta, one mobile response contract in Alberta, one MOU with Servicair to screen cargo bound for the US from Edmonton, two more alarm etc. contracts in Alberta, one Hamilton Port Authority contract and a change order to a contract near Dawson Creek. There has been an attempt by negative posters to nit pick at some of these contracts, but taken as a whole they should amount to something substantial. They could add 3-4 cents a share in value if things work out. In my opinion, this has created even more of a disconnect between the stock price and underlying value, and only adds to the investment opportunity that UZZ now presents.
In my opinion, the time for all the extreme naysayers to have come out of the woodwork should have been sometime during 2010 or early 2011, before the company turned itself around and started adding value again. This recent onslaught strikes me as at the very least misguided.
Am I totally happy with everything Fredy has done since he's taken over? Nope. I wasn't pleased with the 8M shares as compensation for guaranteeing the financials, but I have to admit that doing so might just have saved the company from either stagnation or bankruptcy. I wasn't happy to see the former Chair get that consulting contract but, on the other hand, if it had anything to do with the latest Alberta contracts, extension or MOU, then I'm a little less inclined to be critical. I just don't know on that one, although I am very skeptical.
So, my bottom line is this. Back a couple of years ago, the company was worth a lot less than its market price and perhaps nothing at all. Now it's worth much more that the market price. As for the future, it has the potential to be worth much much more than the current market price. Has it got baggage? Yup. Will the baggage mean anything if the company starts adding significantly to the bottom line? Nope.
Regards and happy investing.
i22