Sunday, September 11

Hudson Global (HSON): An Opportunity Near 5 Year Low





Hudson Global (HSON)provides permanent recruitment, contract consulting, recruitment outsourcing, interim management, and professional contact staffing services. Offices are in 20 countries throughout Europe, Asia-Pacific and the Americas. Hudson Global founded in 2003 is based in New York City.


After reviewing 33 staffing companies I’m encouraged that HSON (Hudson Global) is positioned to outperform its industry peers over next 1 to 3-year period. Another potential mean reverting industry peer is Volt Information Sciences (VISI). One reason for ignoring VISI on this post is perceived operational risks. Volt still offers significant turnaround opportunity trading near its 52 week and 5 year price low.

Now back to HSON, the opportunity exists to buy cheap shares based on favorable historical and industry relative valuation. Further, the most recent reported results show a turnaround emerging. 


The second quarter (June 30, 2016) revenue reported 113M is at the upper end of guidance. Strong dollar impacted revenue negatively by 5M, sale of two businesses 9M. Revenue is up 4% YOY on a retained and constant currency basis, 1% increase for gross profits.SGA is down 8% from last year in constant currency excluding the 2.5M arbitration settlement. Further, excluding arbitration costs financial results are above breakeven. Last, 582,000 of Hudson shares purchased during the second quarter at a cost of 1.4 million. The stock buyback program started in August 2015 through July 27 purchasing 1.70M shares at a cost of 4.2 million.

Hudson Global trades at EV/Sales of .10, lowest for the 33 companies reviewed. HSON  return is industry’s worst over 5 years at -16.90% annualized, 2nd worst over 3 years at -16.60% , and -35.53% for the past 52 weeks.  P/B of 1.20 is the industry 4ths lowest. The current stock price is ~ 3% off 52 low and 44% down from 52-week high. 


The low valuations have attracted value institutions, HEARTLAND at 11% of shares outstanding, LONE STAR VALUE 8%, POLAR ASSET MANAGEMENT 5%, and others.  Further positive attributes for a future higher stock price is reduction of shares in the float (see table below).



































Note reduction in Float















Wednesday, September 7

Bravo Brio Restaurant Group (BBRG) a Potential Mean Reverting Opportunity




Bravo Brio Restaurant Group (BBRG) owns and operates two Italian restaurant brands, BRAVO! Cucina Italiana (BRAVO!) and BRIO Tuscan Grille (BRIO).

Casual dining continues to be a difficult industry for investors. It’s rising wage costs, food inflation and simply too many restaurants. Financially, Bravo gross and operating margins continue to decline impacted by wages, food inflation and slightly lower average check size. Further, long term debt was 184.906M for year ending 2009. Still significant but LTD reduced to the MRQ 122.189M.

My investment interest in BBRG; relative valuation, mean reversion opportunity and its capital allocation priorities that focus on shareholder value with opportunistically share repurchases, and reducing debt.
BRIO moved higher to $4.88 or 8% over the last 2 days. It’s still bouncing near its 52 week low price of $4.50.


Mid day 09/07/16 BBRG is up another ~2%. But even with the 10% 3 day move, I will continue to finish the post. Hopefully for current shareholders management is buying back shares or paying down debt with their positive operating cash flow. The lower stock price may be the signal to management; focus capital allocation on a more aggressive share buyback.




Market capitalization 72.48M, Enterprise value 113.48M, EV/Revenue .27, EV/EBITDA 3.62, CFFO TTM per share $2.27, FCF TTM per share $1.12, 52 week change -60%, 52 week low $4.50, 52 week high = 12.74, insider ownership 9%



Table below shows the valuation changes from Q1 2015 to current.




































Table  below shows the valuation changes from Dec 2011 to current.




















Table immediately below shows RESTAURANT industry valuation. Note the large drop in shorts % Float for BBRG. BBRG short % float 6.97% on 6/15/16 to current 08/15/16 1.20%










Sunday, August 28

Too Cheap to Ignore: Schmitt Industries (SMIT)



Schmitt Industries (SMIT) designs, manufactures and sells test measurement products worldwide. Focus is industrial and commercial applications; grinding process monitoring, control surface finish, micro roughness measurement, laser-based non-contact dimensional, distance measurement lasers and remote propane tank level monitoring.




 






























SMIT(Schmitt Industries) may interest mean reversion, asset cheap, nano cap investors. The enterprise value is 3.38M or $1.13 EV per share with a market capitalization of 4.34M. But, it was Friday’s drop to $1.41, a 52 week low that had me purchasing a small position. The close price was $1.45.


SMIT's stocks performance trades significantly below its industry peers coupled with lower valuations for EV to sales, gross profit, book value.



Positives:

No long term debt with shares outstanding constant at 2.995M since 2012.Historical and industry relative low valuations. The TTM gross profits is greater than current enterprise value; EV/GP = .69, EV/Revenue = .29, P/TB = .60 with an enterprise per share of $1.13. Further, August 3, 2016 Schmitt Industries announced the listing of a portion of real estate holdings. http://yhoo.it/2bKf5n4

“We have significant free and clear real estate holdings for a company our size,” commented David M. Hudson, Chief Executive Officer and President of Schmitt Industries. “The Company currently owns and operates from multiple adjacent buildings in Portland, Oregon. Given the demand and valuations that the Portland commercial real estate market is experiencing, we believe it is an appropriate time to explore the sale of some of these assets,”
With SMIT's tiny 3.38 million enterprise value any sale could have a material positive impact. 

Insider ownership is 30%. The only 2016 insider activity, a purchase on 7/25/2016 for 1,000 shares at $1.91



































































The company is financially strong! Although, SMIT did post a low and declining F score of 3. This low F score impacted by an increase in losses, slower turnover of assets, slight reduction of current ratio, and a reduced gross margin. These negatives offset by no debt change, no change in shares outstanding, and quality expense accruals. A score of 3 is negative. But, recognize the score was impacted by the small negative changes in a existing strong current ratio, asset turnover, and losses.
The continued decline in gross margins looks problematic coupled with the negative foreign exchange from the strong dollar. My guess is they don’t return to profitability this year. Their financial strength and historical conservative control of expenses will carry them until profitability. 

Long SMIT