Auto Parts Looking Up: OEM and Aftermarket

We read that the auto industry is picking itself up and looking at what may have been pent-up demand that is starting to turn into an increase in car sales.  Ford reported an unexpected — perhaps even startling –increase in sales, and GM has a fleet of Chevy cars that are being advertised as offering better mileage than the comparable models of Toyota.  Who knew? Ward’s Automotive reports auto sales stats for January 2010: http://wardsauto.com/keydata/USSalesSummary1001.xls – some up, some down, some up quite a lot.

Those data precede the trashing of Toyota’s reputation due to a couple of biggie recalls that may have been handled with surprising naivete: http://www.nytimes.com/2010/02/07/weekinreview/07segal.html?ref=business. 

If you are wondering what a healthier auto industry might mean for the small-cap investor, so are we.  The auto industry is characterized by chains of vendors, each making small bits or subsystems that are delivered to the auto manufacturer, which acts in large part as a systems integrator from a manufacturing viewpoint.  So as the economy begins to look up and people begin to make major purchases such as new cars, it makes sense that the “upstream” companies will bear looking at as well.  Turns out, of course, that we are not the only ones to follow that logic.

We do not recommend stocks; we simply write about companies we find interesting.  Please do your own diligence.

Some of the first names that might come to mind when thinking of auto parts are larger companies that are not in our field of interest, though they are clearly significant (Lear, TRW Automotive, Magna, Johnson Controls, et al).  But if you believe the car-truck-and-bus industry is going to show improving results, you should also look at companies like New Albany OH-based Commercial Vehicle Group (Nasdaq: CVGI; http://www.cvgrp.com/),  which makes everything from aluminum-and-steel car bodies to electrical and wiring systems to air suspension seats for trucks.  Sales at CVGI fell off the edge of the table, as you would expect, after the stuff hit the fan in 2008, but it has been concentrating on cash flow, expense reduction and financial liquidity in a big way, so that even though revenues for the third quarter ended Sept 30, 2009 dropped to $110 million from a previous-year $192 million — and losses went up concurrently, the company says its operating income has improved quarter-to-quarter in 2009 and it has no borrowings currently under its bank revolver.  Though CVGI is not providing guidance, it may be reasonable to assume annual revenue in the $440 million range ($323 million as of the 9 months), which may make the current market cap of  $109 million worth looking at.  The stock closed Friday at $5.00 vs a 52-week high of $8.o8, on average volume of just over 80,000 shares per day — not great volume, but perhaps adequate to sustain interest. 

CVGI body construction can look familiar

Or one might look at Northville MI-based Amerigon Inc* (Nasdaq: ARGN; http://www.amerigon.com/), best known for its thermoelectric devices for cars, most notably its Climate Control Seat, which allows instant heating or cooling of car seats using negligible energy.  According to ARGN, over 90 well-known car models now offer ARGN seats, many of them as standard features.  ARGN shares closed Friday at $7.99, off its year-high of $9.85, giving it a current market cap of about $172 million.  Average trading is over 170,000 shares per day, and ARGN announced a date for its YE results:  Feb 10.

Emissions Timeline, courtesy Tenneco Inc website

A name that old-timers would associate with energy pipelines is Lake Forest IL-based Tenneco Inc (NYSE: TEN; http://www.tenneco.com/), but in fact this is a company that used to be called Tenneco Automotive, and it makes a dizzying array of emission control subsystems (including catalytic converters), suspension systems (shock absorbers included), and elastomer (rubber, more or less) products for customers all over the world.  Revenues for 2009 were about $3.9 billion, down significantly year-to-year, but with a resurgence in the wind, losses down, debt down and its good customer Ford “on a roll.”  TEN closed Friday at $18.34 vs a year-high of $21.32, for a market cap of about $870 million (about 22% of sales), and trading volume is, on average, about 1.5 million shares.

Torrance CA is home to two interesting auto parts and subassembly suppliers.  First, have a look at Motorcar Parts of America (Nasdaq: MPAA; http://www.motorcarparts.com/, which is a new-lamps-for-old company that recycles alternators and starters, buying up old ones, remanufacturing them, and selling them into the automotive parts aftermarket through retail distribution.  MPAA shares closed Friday at $5.84, just off its year-high of $5.93, on volume of a bit over 30,000 shares per day, not great in a dollar-volume sense.  Market cap is about $70 million, and a BB&T analyst is listed on Yahoo! Finance with a price target for the year of $8.00.

Also in Torrance is Enova Systems* (NYSE Amex: ENA; http://www.enovasystems.com/) a specialist in hybrid and pure-electric drive trains for a variety of larger vehicles including school buses, stepvans (think of a UPS or FedEx delivery truck), and a variety of smaller haulers for big OEMs like Freightliner, Laidlaw and First Auto Works (FAW/one of the largest in China).  ENA traces its heritage back to the old EV1, an electric vehicle program that was notoriously killed by GM in the way-back-when days, and it’s been around longer than most other companies in the electric and hybrid world.  The first half of 2009 was a distinct bummer for ENA, but the third quarter started a strong recovery, and FAW seems likely to be the largest customer in 2010 dollarwise.  ENA recently announced selection of its own Enova Ze as an electric stepvan of choice for the United States GSA.  ENA closed Friday at $1.99 vs a year-high of $2.42, and daily average volume of 45,000 shares.  Market cap is $42 million.

Finally have a look at Colmar PA-based Dorman Products (Nasdaq: DORM; http://www.dormanproducts.com/), a maker of 92,000 replacement parts, including brake parts, power steering, window handles — you name it replacement parts for automotive aftermarket companies like the Manny-Moe-Jack guys, and big-box or warehouse retailers.  As of Sept 30, 2009, sales were $280 million, actually UP from the previous year; gross profit was also up, and diluted earnings for the 9 months went from 2008’s $0.72 to 2009’s $1.04.  Of course fix-it companies are said to do well in recessions, but this one looks like it has found the charm.  DORM closed at $15.35 on Friday, vs a year-high of $17.25, with average volume of only about 29,000 shares, meaning the market may be small in terms of awareness.  The market cap is just below the 9-month sales figure, at about $270 million. 

*client of Allen & Caron, publisher of this blog.

Following the Global Stimulus Trail

Someone has to get all that money, right?

That’s one possible take on what has become a global phenomenon: the stimulus program as a response to a struggling national or regional economy. In his State of the Union address, January 27 this year, President Obama discussed a second US stimulus package, on top of the $787 billion (Recovery Act) pledged during 2009. China has presented a $587 billion stimulus plan, which represents 20 percent of its GDP. Other governments around the world are following suit.

Lord Foster's Viaduc de Millau -- very high-profile infrastructure project

One working assumption is that the bulk of the stimulus money will go to construction projects, particularly the “shovel ready” projects focused on infrastructure—roads, sewers and water treatment systems, bridges, schools, hospitals and public buildings. And President Obama stressed his preference for “green” projects, including “smart” electrical grids and energy-efficient buildings.

Money Morning noted that global infrastructure spending could reach $35 trillion over the next two decades (http://moneymorning.com/2009/02/05/infrastructure-stimulus-2). According to some analysts North America will spend $180 billion on infrastructure each year, Europe will spend $205 billion, Asia will spend $400 billion and $10 billion will be invested in Africa annually. If you still need convincing, here is a worldwide inventory of infrastructure spending plans (http://www.international.gc.ca/canadexport/articles/90121h.aspx).

Back to who will benefit, particularly small caps. How about global cement and engineering-related companies such as Texas Industries (NYSE: TXI), or Michael Baker (NYSE Amex:  BKR), U.S. Concrete (Nasdaq: RMIX), Sterling Construction (Nasdaq: STRL), Orion Marine Group (NYSE: ORN) and also an international cement engineering company doing most of its business that is outside of the USA: KHD Humboldt Wedag (NYSE: KHD). 

Texas Industries (NYSE: TXI, http://www.txi.com), at a market cap of about $940 million, engages in the production and sale of heavy construction materials in the United States. TXI operates in three segments, cement, aggregates, and consumer products.  It serves the public works, residential, commercial, retail, and industrial and institutional construction sectors, as well as the energy industry. TXI traded Friday at $33.97 vs a year-high of $47.33, with average volume of nearly 300,000 shares

Michael Baker (NYSE: BKR, http://www.mbakercorp.com/), at $350 million market cap, provides professional engineering and consulting services for public and private sector clients worldwide. Its markets include aviation, defense, environmental, facilities, geospatial information technologies, homeland security, municipal and civil, pipelines and utilities, transportation, and water.  The company offers various design and related consulting services, including program management, design-build, construction management, consulting, surveying, mapping, geographic information systems, architectural and interior design, among other services.  BKR was trading Friday at $39.46, vs a 52-week high of $44.67 on average volume of 47,000 shares per day.

U.S. Concrete (Nasdaq: RMIX, http://www.us-concrete.com/), is small at $39 million market cap, but customers include contractors in commercial and industrial construction, street and highway construction, and other public works and infrastructure. RMIX produces and sells ready-mixed concrete, precast concrete products, and concrete-related products in the United States. Its products include ready-mixed concrete; stone, sand, and gravel aggregates; building materials, such as rebar concrete block, wire mesh, color additives, curing compounds, grouts, and wooden forms; concrete masonry; and other products and tools used in the construction industry.  RMIX was trading at $0.91, vs a year-high of $3.15, probably reflecting a their substantial loss as of Sept 30, 2009 on a significantly lower revenue level, reflecting financial conditions that may have ameliorated somewhat since Sept 30.  RMIX trades nearly 700,000 shares a day on average.

Sterling Construction (Nasdaq: STRL, http://www.sterlingconstructionco.com/), at $300 million market cap, has a customer list including county and municipal public works departments, regional transit and water authorities, port authorities, school districts, and municipal utility districts. STRL is a heavy civil construction company and, through its subsidiaries, engages in the building, reconstruction, and repair of transportation and water infrastructure. Its transportation infrastructure projects include highways, roads, bridges, and light rail; and water infrastructure projects comprise water, wastewater, and storm drainage systems. The company also provides general contracting services.  STRL was trading at $19.50 on Friday, vs a 52-week high of  $20.99, on average volume of about 125,000 shares per day.

Orion Marine Group (NYSE: ORN, http://www.orionmarinegroup.com/), at $500 million market cap, has customers including federal, state, and municipal governments. Orion services the heavy civil marine infrastructure market. They provide a range of marine construction and specialty services on, over, and under the water along the Gulf Coast and the Atlantic Seaboard, as well as in the Caribbean Basin.  ORN traded at $19.00 on Friday, up 6.5%, on average volume of 300,000 shares and a market cap of 508 million.

KHD Humboldt Wedag* (NYSE: KHD, http://www.khdhumboldt.com/) is poised to split into two separate companies, pending regulatory and shareholder approval.  The current company at $400 million market cap., has a cash-heavy balance sheet, an operating business in engineering & construction (E&C), and a royalty stream from the mining and sale of iron ore at a mine in Newfoundland.  The company intends to spin out the E&C operation in a one-for-one distribution to shareholders, and to change the name of the NYSE-listed company to Terra Nova, which will become a royalty-centered company with intentions to broaden its royalty portfolio.  The cash split has been proposed as $113 million to Terra Nova and $295 million to the spinout of the E&C company.   The E&C company designs and develops plants and machinery for producing cement, largely in developing economies such as India, south Asia, the Middle East, and the former Soviet Union, with some customers in the governmental sector and others in the private sector.  KHD traded at $12.84 Friday, vs a year-high of $16.10, on volume of 275,000 shares per day, and a market cap of $389 million. — M Lucarelli

*client of Allen & Caron, publisher of this blog

Random Observations from the Winter MedTech Conferences

The second week of January found San Francisco, once again, abuzz with folks engaged in the business of medicine. The 28th annual JP Morgan Conference held the spotlight, packing the Westin St. Francis tight and the OneMedPlace and OneMedTV (www.onemedplace.com, www.onemedtv.com) crowds held court in impressive fashion across the way at the Sir Francis Drake Hotel.  A repeated nod to Brett Johnson who has constructed his OneMedPlace organization out of whole cloth and in a few short years has entered the consciousness of the industry.

From high level, the theme of this year could have been, “Things are Clearly Better – Right?” Many conversations held that thought or some close derivative as banker after banker expressed optimism, but couldn’t exactly put a finger on why. An unscientific sampling of private companies found that that those with the best VC pedigrees are finding funding while those with second tier sponsorship or that may have fallen behind original development schedules seem to have been forsaken by the system. A “down round” seems to be the best possibility for this group and many have either taken very expensive strategic money from large corporate players or have simply gone dark.

While the IPO market is still expectant (but not delivering), smaller banks seem to be doing deals at a good pace. The deal machine at Rodman & Renshaw chugs along at a good pace and regional players seem to have accelerated their deal flow as well.  Craig Levine, a banker at Chardan Capital Markets (www.chardancm.com) indicates that their deal flow – both financing and strategic – is picking up in Asia and the US.  In speaking to management teams in atendance, it seems that the anticipation of a better financing climate is leading many bankers to suggest shelf registrations for their small public targets.  This could be as much a marketing move to lock up a relationship as anything, but the shelf idea seems to have fresh legs this winter.

Despite the absense of hard evidence, the pall that hung over the 2009 version of the events has lifted and the players are smiling – we will have to see if the dollars follow the mood.

Lithium: Auto Industry Loves It, Feds Throw $$ At It

Last week  there were (at least) two articles that pointed out some important issues in the increasingly big business of electric vehicles.  Neither was front-page news. 

Sexy Tesla Roadster -- and you own part of it theoretically

One was the announcement that a small but widely heralded company, privately held, San Carlos CA-based Tesla Motors (http://www.teslamotors.com) , has gotten the signature of DOE’s Steve Chu and will harvest a bounty of $465 million in federal loans to throw its EV business plan into high gear: http://green.autoblog.com/2010/01/23/done-deal-tesla-doe-complete-loan-paperwork/.  As AutoBlogGreen’s Sebastian Blanco laconically points out, if you’re a citizen of the United States, “you’re officially an investor in Tesla Motors.”  Of course rumors of a Tesla IPO have floated around for quite a while, so you may be able to invest directly one of these days instead of funneling your cash through DOE.

Bolivia's lithium resources are vast -- and look like another world

And in the same week, a distinctly different type of news was purveyed by The Associated Press: Bolivia, which just re-elected Evo Morales as its leader, is unquestionably the Saudi Arabia of lithium, the prize mineral that Tesla and so many others are staking their futures on.  http://autos.aol.com/article/lithium-resource.  Out of the frying pan of oil and into the fire of scarce lithium deposits under dried-up lakes in the Andes?  Notice the sub-headline on the article: “Toyota secures lithium supply in Argentina.”  Argentina may not be a paragon of stability, but compared to Bolivia, it’s Gibraltar (remember that President Morales’s political party is called MAS: Movement for Socialism).  For a slide show of Bolivia’s lithium resources, go to http://www.nytimes.com/slideshow/2009/02/03/world/0203-LITHIUM_index.html (the photo above is from this slide show).

It was not long ago that Toyota’s ice-breaking Prius was a solo act, and most Americans thought of electric vehicles as glorified golf carts.  Now there is a dizzying array of EVs, HEVs, BEVs, PEVs, etc — and they  come with the brand names of virtually every carmaker in the world.   To some extent Prius is still the act to beat, though: http://www.dailytech.com/Honda+Goes+Back+to+the+Drawing+Board+to+Beat+Toyotas+Prius/article17501.htm

And if you think Tesla is pulling in a big fish, have a look at its archrival, Irvine CA-based Fisker Automotive, which secured $115 million in private equity funding this week, in order to allow it to harvest $528 million from DOE.  Basically that means the federal government is committing $1 billion to two very small companies with very pretty cars and very short track records.  And you, as a US citizen, are part of that bounty.

Sexy Fisker Coupe: Feds Have Put $1 billion into loans for Fisker & Tesla

In addition to your taxpayer-funded pending investment in Fisker, though, there is a way to put some Fisker equity into your portfolio, even though it is, like Tesla, privately held.   Irvine CA-based Quantum Fuel Technologies (Nasdaq: QTWW, http://www.qtww.com) owns a stake in Fisker that was said to be 21.9% in a financing document QTWW filed with the SEC about a year ago.  QTWW shares are trading at $0.89, down about half from its year-high of $1.77, and one assumes that the QTWW stake in Fisker has been further diluted in the meantime, because the Fisker financing mentioned in the previous paragraph was also released as QTWW news last week: http://finance.yahoo.com/news/Quantums-Affiliate-Fisker-prnews-2355193003.html?x=0&.v=1.  Smaller slice, but a much bigger pie.

But the distinctly uncomfortable feeling that comes with lithium’s presence in a series of US-unfriendly locations does not seem to be slowing anyone down.  The government of Taiwan makes it clear why this bandwagon continues to roll: according to their forecasts, sales of EVs will grow to 7.29 million units by 2018, of which 86% (or 6.26 million units) will be powered by lithium-ion batteries.  The line of thought leads directly to an increase in Taiwan’s support for Li-ion technology: http://www.greencarcongress.com/2010/01/moea-20100124.html?utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+greencarcongress%2FTrBK+%28Green+Car+Congress%29.  What would a li-ion-powered EV sell for?  What if it were $30,000 per unit?  That would create a worldwide sales projection of  nearly $188 billion for that 2018 theoretical demand.  Hefty, hefty, hefty.

Please keep in mind that we do not recommend stocks; we simply write about companies that we find interesting.  Do your own diligence.

There are various flavors of lithium batteries, including the somewhat under-wraps “Ferrous battery” that China’s BYD introduced at the Detroit Auto Show.  From what we can tell, a Ferrous battery is a lithium iron phosphate battery, so President Morales can rest easy on that one.

There are many ways to invest in the EV movement, or in the lithium sweepstakes.  Most obviously there are the shares of the 3 leading lithium-ion battery makers in the US.  First to consider is Milwaukee-based Johnson Controls Inc (NYSE: JCI; http://www.johnsoncontrols.com/), but they are way too big for us to look at, and besides, they are very diversified.  In terms of pure plays in Li-ion, the two best-known (and bigtime federal funds recipients) are NYC-based Ener1 Inc (Nasdaq: HEV: http://www.ener1.com/), which has recently been screaming ahead, not only announcing car deals, but working with Japan’s ITOCHU on a series of futuristic li-ion applications involving buses and an advanced smart grid.  HEV shares are trading Monday at $4.76, vs a year-high of $7.90, so there are doubts out there in spite of the federal money fountain spewing dollars at them.  HEV has good volume of nearly 1 million shares per day, and a market cap that flirts with $600 million.

The second name that comes to mind is Watertown MA-based A123 Systems (Nasdaq: AONE; http://www.a123systems.com/), which started out making batteries for power tools and has graduated up and up to transport applications.  Since its IPO last year, the stock has always traded above its initial sale, and is trading today at $17.83, with a market cap of $1.8 billion and daily volume of about 2.5 million shares.  Smokin!

Less well known, but just as interesting is Reno-based Altair Nanotechnologies (Nasdaq: ALTI; http://www.altairnano.com/), which may well have more interesting IP than either of its larger peers, but, like the NY Jets, got knocked out of the SuperBowl, at least for this year.  Thomas Weisel initiated on Altairnano in December with an “overweight” rating, but the stock is sagging at half its year-high price of $1.55, trading today at $0.81, and in some danger of being delisted by Nasdaq as a result.   Market cap is about $85 million, and the shares trade pretty well at 400,000+ per day.  Worth a look.

If you want to place your bets outside of Bolivia, however, your options with regard to transportation are fairly limited.  You could start, however, by looking at a company that has, surprisingly, been marginalized among investors because its heritage is in old-fashioned lead-acid batteries.  That is New Castle PA-based Axion Power Inc* (OTCBB: AXPW; http://www.axionpower.com/.  AXPW owns patents on nanocarbon ultracapacitors used in lead-acid batteries in various ways, and is in partnership with one of the world’s largest batterymakers, Milton GA-based Exide Technologies (Nasdaq: XIDE; http://www.exide.com/).  There is good reason to believe that the AXPW-XIDE team may be a contender in the early hybrid-vehicle business, especially in European markets, where carbon-emission regulations come into play in a matter of months, as opposed to the US, where the timeline is longer (but the pair was named for a federal grant of about $35 million last year, and AXPW has received various other federal and state grants as well).  The name of the battery here is PbC, comprised of the chemical symbols for lead and carbon — and whatever the outcome, these batteries will be the low-cost choice for consumers and carmakers, costing a fraction of the more exotic lithium batteries.  AXPW is trading at $1.34 today, vs a year-high of $2.75, so it is off at a rate similar to many of its battery peers.  Market cap is about $80 million after taking into account its December financing, and the shares trade about 32,000 per day.  AXPW will be presenting at the Piper Jaffray conference the last week of February in NYC.

XIDE is trading at $8.30 on volume of 650,000 shares per day for a market cap of about $630 million.  Year-high on XIDE was $8.87.

Equally interesting in the non-lithium part of the world is San Diego-based Maxwell Technologies (Nasdaq: MXWL: http://www.maxwell.com/) .  MXWL delivered it 1-millionth largecell ultracapacitor this month (http://maxwell.investorroom.com/index.php?s=43&item=107), which gives it more operating muscle than most of its peers, and is on track to do about $100 million in revenue for 2009.  MXWL will also be presenting at the Piper Jaffray conference in NYC the week of Feb 22.  MXWL shares are trading at $16.63 at the moment, vs a 52-week high of $21.81.  Average daily volume is about 220,000 shares, and the market cap is $440 million. 

Clearly there are LOTS of players in this arena — we couldn’t possibly survey them completely.  If you use a news aggregator, you will be amazed at the quantity of news on lithium-ion batteries in particular, and on EV batteries in general. 

*Client of Allen & Caron, publisher of this blog

Slam! Bang! Whack! Fitness Companies May Be More Rewarding Than You Thought

In these months of winter, after the gourmandising of the holiday season, the mind occasionally turns to fitness and recreation.  The smallcap market offers a variety of opportunities in the area, and the sporting-goods industry has been on an upswing recently as well.  According to Yahoo! Finance, this group of companies was among the biggest gainers as the market swooned late last week: http://biz.yahoo.com/ic/316.html.

NLS Elliptical Trainer -- full-body aerobic workouts

One of the strongest gainers was Vancouver WA-based Nautilus Group (NYSE: NLS: http://www.nautilus.com/), which has just completed the sale of certain of its assets related to health-club equipment to a Chinese buyer.  NLS will concentrate its efforts on retail and direct-to-consumer channels of its well-known Nautilus, StairMaster, Bowflex and Schwinn brands.  The fitness industry has been through well-publicized ups and downs, but the goodwill of brands such as those that NLS holds continue to be attractive to investors.  NLS enters 2010 with a  balance sheet clean of longterm debt, and an announced expectation of a $12 million income-tax refund this month.  Sales are down, as one might expect, from 2008 (the latest numbers are for the September quarter and nine months), but NLS remains profitable, and it has those golden names, some of which are almost as generic as Kleenex and Xerox.  The stock closed Friday at $2.54, a bit off its 52-week high of $2.96, but up more than 20% on the day, with volume of well over 400,000 shares.  NLS market cap is about $80 million; with revenues at about $135 million for the 9 months, the ratio of sales to market cap may be attractive, especially considering the stronger balance sheet and continuing profitability.

Please keep in mind that we do not recommend stocks or investments; we only write about companies that we find interesting or neglected.  Do your own diligence.

PingPong is the brand; table tennis is the Olympic sport name

NLS is not the only one with big names that have become standard vocabulary for most of us.  Consider Evansville IN-based Escalade Inc (Nasdaq: ESCA; http://www.escaladeinc.com/), which owns the brand that opened China to the west: PingPong (I grew up thinking that was the name of the game, which is more properly called table tennis).  But PingPong is not the only asset of this diversified smallcap, which also makes products for basketball and archery, among other Olympic sports.  And to counter any cyclicality, ESCA also has an office products division making hole-punches, paper-folders & shredders and other everyday desktop appliances, sold under established brand names like Mead Hatcher and Martin Yale.  ESCA shares also closed at $2.54 on Friday, but they were off a bit (3%) on the day, and down from a 52-week high of $3.44.  ESCA results for the 9 months showed a bounceback to profitability, an acceptable current ratio, and negligible debt.  With revenues that look to end the year at well over $100 million, ESCA’s market cap is about $32 million, and its daily volume is paltry (under 10,000 average).  But neglected companies like ESCA may provide some buoyancy in suitable portfolios.

Big Bertha: One of the best-known names in golf

From relatively unknown ESCA, we turn to one of the best-known sporting-goods companies: Carlsbad CA-based Callaway Golf (NYSE: ELY: http://www.callawaygolf.com/), which burst upon the golf scene with one of the biggest names to hit the sport: Big Bertha.  Today’s Callaway tends to group its clubs under names like Diablo and Odyssey, but Big Bertha is still an anchor product.  ELY closed Friday up a tad at $8.39 vs a year-high of $9.40, and on volume of well over 1 million shares.  Analyst Scott Swanson from Crowell Weedon expects ELY to perform well in 2010, in spite of a downer 2009: http://finance.yahoo.com/news/Senior-Analyst-Picks-Callaway-twst-242778719.html?x=0&.v=1.  The market cap is about $540 million, and not missing a trick, Callaway is expanding into India: http://online.wsj.com/article/SB10001424052748704586504574653832561623744.html?ru=yahoo&mod=yahoo_hs.

Poway CA-based Aldila Inc (Nasdaq: ALDA; http://www.aldila.com/) is also a golf play, although primarily known for club shafts made from space-age carbon fibers, resins and such.  Its latest new brand is Voodoo, definitely something that some golfers would engage in if that’s what it took to shave a few points off the old score.  Although it is an old and well-established name (founded in 1972), ALDA shares closed Friday slightly up at $3.98, vs a year-high of $5.95.  That reflects a yet-to-turn-around P&L that looks from the 9-month results to show revenue in the $45 million range or so for the year, with a fairly modest loss, although its latest balance sheet shows a strong current ratio, which may mean staying power.  Expense-cutting seems to be taking effect.  Market cap is about $21 million (a little less than half annual revenues), and daily trading volume is low.

Humminbird fishfinder from Johnson Outdoors

Finally, we might look at Racine WI-based Johnson Outdoors (Nasdaq: JOUT; http://www.johnsonoutdoors.com/), which is primarily a camping/fishing/snorkeling type of company, but with some fairly high-tech approaches (GPS for fish-finding — yeay).  JOUT is on a non-calendar year, and announced sales of  $356 million for 2009 in November, with a loss that is about 1/7th of what it was the year before.   Current ratio is better than 2:1, and JOUT says it has restructured its borrowings to significantly decrease interest costs in 2010.  The shares closed Friday at $10.69, nearly flat on the day, vs a year-high of $11.47, and a market cap of a little over $100 million, less than a third of sales.  Volume is very low, under 4,000 shares per day.

Time to Look to Sea Again? Marine Transport Enthusiasts Bid Stocks Up

Over the years we have worked with numerous marine transport companies, and have found the industry in general to be both interesting and, from time to time, significantly over- or undervalued.  One thing cannot be denied: the largest method of intercontinental transport is on the oceans and seas.  According to Yahoo! Finance, marine transportation is one of the “industries on the move” these days: http://biz.yahoo.com/ic/775.html.  Not surprising, and some of the gains are impressive.

Putting aside passenger lines, which are largely recreational, there are basically three large international categories of marine transport companies: (1) tanker companies, which carry “wet” cargoes that are often energy-related, as in crude oil or refined petroleum products, but could also be cooking oil or a variety of other liquid cargoes; (2) dry-bulk companies, which, as the name implies, carry dry cargoes of a wide variety, such as grains, scrap metals, coal, or ores; and (3) container companies, which carry anything that can be put into a standard freight container.   There are also some smaller categories, such as companies that carry compressed gases like LNG; or companies that operate vessels with a limited geographic range, such as barges, tugboats and riverboats of various kinds.

Most of the publicly listed marine transport companies are in one (or sometimes more) of the 3 main categories: tankers, dry-bulk, or containers.  The industry is further divided into companies that lease their vessels for lengthy periods (long-term time charterers) and those that lease their vessels for shorter times or even for short terms or for individual trips, pricing their services on the spot market, which fluctuates depending on demand.

Like the real estate market, the marine transport industry tends to follow boom-and-bust patterns.  In good times they over-build new vessels, which tends to create an over-supply of carrying capacity that sends rates down.  Put simply, when there are lots of carriers with empty ships,  rates go down.  We seem to be just coming off the bottom of one of those cycles, when “new-buildings” flooded the markets based on the boom shipping rates that prevailed at the beginning to the middle of the last decade.

Also like the real estate industry, when there is an over-supply that causes a rate plunge, some of the weaker companies can be forced out of business, which may create an even larger surplus of vessels as fleets are liquidated.  At the same time, there tends to be an increase in retiring older vessels, which are typically stripped and moored off countries like Bangladesh, where they are eventually cut up for scrap if all goes according to plan.

It was not until fairly recently that many marine transport companies were publicly traded.  Most were  privately held, many of them by Greek or Italian or Scandinavian owners, frequently multi-generational families.  But the large US investment banks “discovered” shipping companies as major users of capital, and flooded the industry with cash.  Then traditional commercial banks doubled up the cash available with debt leverage, since the equity spigots were flowing to make the balance-sheet ratios work.  One of the main results has been that there are now a wide variety of small-cap shipping companies whose shares may well be of interest to buyers familiar with the vectors that affect the business.

We do not recommend stocks; we just write about companies we find interesting.  Do your own diligence.  None of these companies is a client of the publisher of this blog.

One company that pops up on lists pretty regularly is Athens-based Diana Shipping (NYSE: DSX; http://www.dianashippinginc.com/). With its relatively conservative balance sheet, Diana’s stock has more than doubled since December 2008, when it hit a low of $7.24 — as of Friday, shares closed at $16.09, vs a 52-week high of $19.00, and trading volume exceeds 2 million shares per day.  Diana is a dry-bulk company, and anyone interested in dry-bulk shipping should become familiar with the “Baltic Dry Index” or BDI, which publishes rates for cargoes of various sizes daily.  A recent article in thestreet.com labels Diana a “winner,” quoting Cantor Fitzgerald analyst Natasha Boyden on the effects of heavy iron-ore buying in India as one of the influences: http://www.thestreet.com/_yahoo/story/10655224/1/dry-bulk-shipping-winners-genco-diana.html?cm_ven=YAHOO&cm_cat=FREE&cm_ite=NA.

The other winner mentioned in that Yahoo! Finance article is New York-based Genco Shipping & Trading (NYSE: GNK; http://www.gencoshipping.com/), a newish company (2004) that operates 30+ ships (the largest of them are all named after Roman emperors) in the dry-bulk trade.  As of September 30, 2009, their earnings stood at $3.62 per share, although Genco used more cash in “investing activities” than it generated from operations, which is a good indicator that they see good deals afloat.  Their fleet is a combination of new and used vessels, with a predilection for sister ships (which are generally thought to simplify maintenance issues).  GNK shares closed Friday at $25.68 on average volume of nearly 2 million shares, and a market cap of about $815 million.

Bermuda-based Knightsbridge Tankers (Nasdaq: VLCCF; http://www.knightsbridgetankers.com/) is on the “wet” side of the business, as the name indicates.  It is much smaller than Diana or Genco, and owns 6 vessels; it had earned $0.74 per share as of 9-30-09, and the balance sheet showed a precipitous drop in cash, especially considering its short-term liabilities (look for yourself).  At any rate, the shares closed Friday at $14.96, down from a year-high of $17.16, but up $0.93 on the day, on volume of 111,000 shares and a market cap of about $256 million.

Hong Kong-based Seaspan Corporation (NYSE: SSW; http://www.seaspancorp.com/) is a container-ship operator which announced the delivery of its 43rd vessel on January 8 (it has 25 more on order), which are typically chartered for long periods at fixed rates to big shipping companies like Maersk, Hapag-Lloyd and Mitsui.  Seaspan reported revenue for 9-30-09 of $207 million, actually a significant increase over 2008 (unusual in this industry), and says it has arranged for all the capital needed to complete the build-out of its intended fleet.  SSW shares closed Friday at $10.28, with a 52-week high of $13.07, but up $0.48 or nearly 5% on the day on heavier-than-normal volume of 477,000 shares.  Its market cap is just shy of $700 million, but one should endeavor to understand its issuance of preferred shares prior to making an investment decision.

There are many publicly listed shipping companies, but we will close this article with a glance at Athens-based Euroseas (Nasdaq: ESEA; http://www.euroseas.gr/), with a fleet of 15 vessels, 6 of which are dry-bulk carriers, with the remainder being container vessels, with a clear preference for long-term charter deals.  ESEA is much smaller than the other companies in this article, with a market cap as of Jan 8 of $133 million.  Its 9-month revenues of $47 million were just higher than its previous-year net earnings for the same period ($43 million), with profits for the 2009 9 months of $700,000 — but net income for the third quarter by itself was $2.2 million, which means things were trending up fairly strongly at least last fall.  ESEA shares closed Friday at $4.32 vs a year-high of $6.31 on average daily volume of 110,000 shares — but the shares were up $0.26 on the day, a gain of more than 6%, which reflects a gain in enthusiasm for the company and possibly the industry, at least on January 8, 2010.

Play It Again, Sam — or Just Download It onto My MP3 Player

Jon Pareles has written a perceptive history of the MP3 player and its impact on the music business on the front page of the Arts & Leisure section of Sunday’s New York Times: http://www.nytimes.com/2010/01/03/arts/music/03tech.html?ref=music.  Although the technology and device are just over 10 years old, practically speaking, the levelling effect on the industry has been significant.  I have read that of all music sales, digital downloads only account for 15%, but that doesn’t take into account all the illegal downloads and file-swaps.  I have friends who buy CDs, translate the music to gigantic MP3 directories, and then give the CDs away (they take up a lot of space, after all); if that practice is as widespread as I suspect it is, then the “MP3 effect” is broader than just digital downloads too.

Meanwhile, Aaron Cohen’s article on “Reinventing the Music Business” takes a slightly different look at MP3 and how artists ought to view the opportunity: http://www.allbusiness.com/entertainment-arts/music-industry/13632876-1.html.  One angle discussed is that MP3 downloads ought to be viewed by artists as an opportunity for self-promotion, allied with social media outreach directly to the audience they want. 

This article about U2’s Bono is one of many artist statements of worry about downloads and file-sharing: http://www.thedailystar.net/newDesign/news-details.php?nid=120335

Clearly the 800-pound gorillas in this field are iTunes, Amazon and now WalMart, none of which is the sort of company we look at in this blog.  And there are file-sharing companies like Napster and its peers, where the rights of artists or labels have in the past not been as important as volume, to put it mildly.  But there are some smaller companies, public and private, that may be of interest.  First up might be NYC-based The Orchard Enterprises (Nasdaq: ORCD; http://www.theorchard.com/), which has adopted the strategy of buying licenses and copyrights to largely older music libraries, and redistributing them, with the largest outlet being iTunes.  They acquired the former Digital Music and a significant library of oldies-but-goodies, and also has deals with some current artists, some films, and some indies.  The market is not showing great enthusiasm for ORCD, which is chugging along at about $62 million in revenue, with gross margins in the range of 24% to 26%.  The shares closed out 2009 at $1.64 vs a 52-week high of $3.49 on very low trading volume, for a total market cap of about $10 million, and that is in spite of a fairly sizeable “catalog” of music (and quite significant losses).  It may be that the market likes to see higher visibility than The Orchard has achieved, or that their exposure to the whims of distributors like iTunes and Amazon are a inspiring caution.

Seattle-based Real Networks (Nasdaq: RNWK; http://www.realnetworks.com/) is not a pure play in music downloads, but it has a significant subsidiary, Rhapsody (http://www.rhapsody.com) , that is an up-and-comer, selling its tunes on a subscription basis, not unlike the business plan that NetFlix follows with movies.  RNWK shares closed 2009 at $3.71, with a 52-week high of $4.48 and a market cap of an even half-billion dollars, on average volume over 660,000 shares per day, but the bulk of the business is not Rhapsody.

Please keep in mind that we do not recommend stocks; we only write about companies we find interesting.  Please do your own diligence.

Privately held Denver-based Beatport.com concentrates on indie artists, remixes and club music, and has been building its business since January 2004.  Financials are not available.  http://www.beatport.com.

New York and Los Angeles-based Masterbeat Corporation* (OTCBB: GRNN; http://www.masterbeat.com) is one of the new kids on the block.  It announced last week that it has reversed into a public shell and its shares are now eligible to trade.  No financials have been published yet, but clearly there will be disclosure coming for year-end prior to March 15, 2010.  The Masterbeat website lays claim to 4 million song titles licensed from major labels, including a dizzying variety of club-music dance remixes of major artists like Rihanna and Mariah Carey.  Masterbeat CEO Brett Henrichsen is a noted DJ (as well as an IBM veteran), and the site seems to be downloading at the rate of about 40,000 songs per month, on virtually no direct promotion.

Finally, Milan-based Buongiorno SpA (http://www.buongiorno.com) is a download company specifically targeted on mobile-phone users.  It has trailing 12-month revenues in the range of € 270 million (about $385 million).  A large piece of that is ringtones, games, video and even wallpaper, but the first category listed by them is music, which would make them a noteworthy supplier, with a presence globally.  Buongiorno trades on the Borsa Italiana STAR segment under the ticker BNG (BNG.MI on Yahoo! Finance).  Its shares closed 2009 at €1.16 on hefty volume of over 500,000 shares per day. 

*client of Allen & Caron, publisher of this blog

SmallCap Software Companies: Some are Surging Up

The Nasdaq Composite closed yesterday at 2252 the highest it has been since just after Labor Day 2008.  The Dow Jones Industrial Average closed at 10,465, within 100 points of its 52-week high.  Whether these have been fueled by a Santa Claus rally, or by the perception of a genuine recovery will be a subject for the history books one day, but for now, we know that there are some particularly bright areas in the market — and one of them is business software. 

Please note that we do not recommend stocks; we just write about companies that interest us, and perhaps bring ideas to the attention of our readers.  Do your own diligence. 

Leaving aside the Nasdaq giants, there are more than a handful of small-cap software companies that have been strong performers in the most recent legs of this move upward.   One might start by looking at Chelmsford MA-based Datawatch Corp (Nasdaq: DWCH; http://www.datawatch.com/), which serves more than 35,000 customers globally with products including its Monarch data mining and report-generating software — which helps businesses make sense of piles of data that is meaningless without the organization that software can bring to it.  DWCH closed at $2.49 on Tuesday, with a 52-week range of $0.77 to $2.79.  DWCH is a super-light trader, so it might take some intrepid trading skills to put together a position.

On the other side of the US, there’s Novato CA-based Sonic Solutions (Nasdaq: SNIC; http://www.sonic.com/), which helps businesses create and manage digital media (think video and other non-character-based files) across a variety of platforms.  Well-known brands include Roxio, CinePlayer, PhotoSuite and Popcorn, among many others.  SNIC also sells entertainment content to users.  SNIC closed at $12.23, vs a year-high of $12.82 (and a year-low of $0.57 for a not-quite-Matterhorn-shaped chart, but close enough for most investors), on hefty average volume of more than 400,000 shares.

Dublin-based Trintech Group* (Nasdaq: TTPA; http://www.trintech.com/) develops and markets enterprise software products that help companies stay in compliance with regulations such as Sarbanes-Oxley, and that make it possible for businesses with complex collections to reconcile invoicing and receipts even when discounts intervene to change totals.  Brands include ReconNET and AssureNET, as well as its Unity suite of products.  Primarily providing SaaS and licensing, TTPA is headquartered in Ireland, sells globally, and has almost all its operations in the USA.  TTPA closed yesterday at $3.48 with a 52-week spread of $0.90 to $3.61.  Looks like a 4-bagger to me. 

Sykesville MD-based GSE Systems (NYSE Amex: GVP; http://www.gses.com/) designs and provides simulation software and monitoring systems for electric utilities, both nuclear and oil- or coal-burning.  The products help utilities monitor water temperature in reactors, and a variety of safety factors to help utilities operate smoothly and without creating hazards for the public.  A little esoteric-sounding, but if you are reading this on a computer, you are using electricity, and if you are using electricity, ummmm, well — you get the picture.  GVP closed Tuesday at $4.98, nearer its year-low of $3.58 than its year-high of $8.35 on average volume of over 100,000 shares per day.

Or if you care to cast your eyes to the east, have a look at Herzlia, Israel-based BluePhoenix Solutions Inc (Nasdaq: BPHX; http://www.bphx.com/), which offers IT solutions that help  companies modernize their computer networks.  Their systems will mine for business rules in your legacy software and help you migrate to Linux, Unix, Windows, or .Net.  BPHX closed yesterday at $2.54 vs a year high of $3.97 on volume of about 165,000 shares on average.  BPHX reported flat to slightly down sales for their last quarter, but the bottom line was improved, at least on a non-GAAP basis. 

And if a larger market cap doesn’t scare you away, have a look at Sunnyvale CA-based Blue Coat Systems (Nasdaq:BCSI; http://www.bluecoat.com/).  BCSI provides WAN (wide area network) products that help IT administrators sweep for viruses, worms, spyware, and Trojans, as well as secure connections and sign-ons.  BCSI closed yesterday at $29.07, vs a year-high of $29.39, and average volume of nearly 700,000 shares. 

None of these companies is a household name; all of them have strong cadres of business clients who use their products and trust them.  Doubtless some will grow, some will get stale, and others will get acquired.  For all, there is a distinct market niche and a proven product.  Happy 2010!

*client of Allen & Caron Inc, publisher of this blog.

Baubles, Labels: Right Down Santa Claus Lane

Well, it’s that time of year: feverish shopping and fevered worrying about retail sales (will they?  won’t they?).  So we thought we’d look at some stocking stuffers — that is, companies that might be in your cross-hairs anyway as you ponder how to be Santa’s helper.  Clearly it’s been a challenging retail season, but we found several that may be low on the radar, and doing pretty well.

It turns out that the worries that this might be what Elvis called a “Blue Christmas” might already be slacking off: retail sales were up 1.3% in November, compared to economists’ expectations of 0.6%.  Look at this report filed on Friday by CNNMoney’s Aaron Smith: http://money.cnn.com/2009/12/11/news/economy/retail_sales/index.htm  Interestingly, according to Smith’s report, the gain owes little to auto sales, which had led the numbers earlier in the fall based on government incentive programs.  It seems that the Great American Shopper is putting his/her toe back in the water.  We suspect that may offer some opportunities for the Great American Stockbuyer as well.

Please note that we do not recommend stocks; we only write on companies that we find interesting.  Do your own diligence.

We all know that a part of Christmas is handmade.  For me that is usually just a matter of baking, but there are many folks handier than I who make all kinds of clever things.  One company that might interest the Martha wannabes is Berlin NJ-based AC Moore Arts & Crafts (Nasdaq: ACMR; http://www.acmoore.com/).  They sell all the things you need for those things you wish you could make: scrapbooks, quilts, sweaters, cookies, wreaths, potpourri, sculptures, macrame and lots more.  They sell in their own branded stores and online.  ACMR sales are not up year-over-year, and they are making losses this year, but their current ratio is about 2:1 and they seem to have a cash warchest.  In addition they have been aggressively marketing this fall, which may stand them in good stead.  ACMR shares closed Friday at $2.60,  less than half their 52-week high of $5.63, on average daily volume of about 90,000 shares.  Market cap is about $65 million, which is a small fraction of yearly sales.

G-III's chic leather outergarments with Calvin Klein labels

But if you’re not the loving-hands-at-home type, you are probably looking for gifts to buy that can just be wrapped and given, and you may already be looking at merchandise that’s made by companies most of us have never heard of.  One is NYC-based G-III Apparel Group Inc (Nasdaq: GIII; http://www.g-iii.com/), which busily stitches leather outerwear garments under a dizzying number of labels, some their own (Andrew Marc, Jessica Howard, et al), but more held under license from Calvin Klein, Sean John, Kenneth Cole, Cole-Haan, Guess, Tommy Hilfiger, Levi Strauss or Ellen Tracy.  Analysts seem unanimous in recommending this stock, and GIII closed Friday at $21.11, near its year-high of $22.25 with average volume of 185,000 shares.  Last week GIII raised its profit guidance for 2010 a hefty amount, and announced that its Q3 sales were up 3.4% when the government was cheering an overall rise of a lot less than that.  Market cap is about $355 million, which looks to be about 25% of 2009 sales — and the company is growing at a pretty good clip.

You may not know Iconix, but you probably have seen this little smiley guy

Likewise NYC-based Iconix Brand Group (Nasdaq: ICON; http://www.iconixbrand.com/), whose merchandise is available in a store near you under brands like Joe Boxer, Mossimo, OP, London Fog, Bongo and Artful Dodger.  Overall a fairly hip image, but a very solid record of performance, with sales up 8% in the difficult third quarter, very healthy EBITDA, and strong  earnings.  ICON closed Friday at $11.78, down a good bit from its year-high of $18.30 on average volume of over 1.3 million shares, and a market cap of about $840 million.

Birks & Mayors watches in 67 stores in Canada & US

But good things come in little boxes, or so I hear.  If you subscribe to that theory, have a look at Montreal-based Birks & Mayors (NYSE Amex: BMJ; http://www.birks.com/), which operates jewelry stores in Canada and the southeastern US under the two monikers of Birks (Canada) and Mayors (US).  Sales are down year-to-year, and losses are up, but BMJ shares closed Friday at $1.26, vs a year-high of $1.80, and a market cap of about $14 million (sales for the 6 months ended September were over $100 million with Xmas season ahead).  Average volume on the stock is low.

Or have a look at Bermuda-based Signet Jewelers (NYSE: SIG: http://www.signetjewelers.com/), which says it is the “world’s largest specialty retail jeweler.”  In the US Signet brands are the highly promoted Kay Jewelers and a relative newcomer: Jared (the man on TV whose GPS threatens to hold him hostage if he doesn’t show her the necklace he bought).  Marketing is where it’s at, and Signet seems to have that down to a tee.  They are also working on the basics, lowering debt, increasing store efficiency, in order to reduce losses and return to growth.  Worth a look.  SIG closed Friday at $25.41, about 20% off its year high of $29.07, with a market cap of $217 million and good volume over 280,000 shares.  Like other jewelers, a huge discount to sales.

Zale Corp is partnered with DeBeers on projects like Shared Heart

But I’d be kidding you if I didn’t say that in some weird way, Zale Corp is also interesting, in spite of widespread doubts about survivability, like this comment on Motley Fool: http://www.fool.com/investing/general/2009/12/11/5-deathbed-stocks.aspx.   Irving TX-based Zale (NYSE: ZLC; http://www.zalecorp.com/ operates nearly 2,000 stores and shows nearly $1.8 billion in sales with gynormous losses.  Their current market cap of $104 million reflects the sentiment, and the shares closed Friday at $3.25, vs a year-high of $8.51 — good volume though.  They sold Bailey Banks & Biddle, and have linked arms with DeBeers on some new “Big Ideas,” including the “Shared Heart” collection.

And if none of these works for you — there’s always eggnogg and fruitcake.

WiFi for America’s Heartland — Roll-ups Roll Out Their Plans

The centerpiece on the federal government’s holiday table may be the surprisingly fast pace of repayment of bailout funds by the big money-center banks.  There are also claims for job creation from spending the stimulus money, especially considering the initial jobs report for November showed only 11,000 jobs were eliminated in the month.  But inevitably (this is Washington DC after all) there are also charges of money slipping through the cracks and — uh-oh — disappearing.  And more than one boffin has noticed a cart-before-the-horse pattern to some stimulus programs.

The Rural Broadband stimulus package, for instance, is being administered by the RUS and the NTIA (Rural Utilities Service and National Telecommunications and Information Administration), neither of which has much experience with awarding big grants — and it may that neither of them has a MAP of which areas are underserved by current broadband suppliers.  If you can stand the boredom, there is a report by the Government Accountability Office (GAO) with the revealing title: “Agencies are Addressing Broadband Program Challenges, but Actions are Needed to Improve Implementation.”  (http://www.gao.gov/products/GAO-10-80).  Here is a take on the situation from The Industry Standard: http://www.thestandard.com/news/2009/12/02/groups-urge-changes-broadband-stimulus-programs?page=0%2C0

But however you look at it, there are some pretty interesting little companies in the  broadband services market, and some of them stand to find a bonanza in the RUS/NTIA sweepstakes.  It’s a fairly safe bet than any company in this sector has applied for some of the stimulus money, since there were reportedly $28 billion in requests for the $7.2 billion that was set aside by Congress.  I have read, but cannot say for sure, that there are 2,000 or more wireless broadband service providers in the US as I write this, which is why there are business plans popping up that want to “roll up” these small suppliers into a larger powerhouse company. 

Consider Rushville IN-based Omnicity Corp (OTCBB: OMCY; http://www.omnicity.net/), which is seeking to provide broadband services to rural users in the Midwest using wireless technologies.  OMCY announced last week that they have agreed to buy the assets of AAA Wireless, which will give them 39 wireless towers with “a footprint of 80,000 homes.”  OMCY says it has more than doubled its subscriber base in the last six months (they became public in February this year), and is on track to double again in the next six months.  It must be largely undiscovered if that is true, because the shares are trading at $0.30 vs a high of $0.95 on average volume of less than 40,000 shares a day.  But when you think about it, part of the problem of rural communities is that people seldom pay much attention to them, so it’s not a surprise that OMCY has a small audience, at least for now.

Or consider Reno NV-based Yonder Media* (http://www.yondermedia.com)  , which is currently private, but has signed an intent to merge with Salt Lake City-based Bayhill Capital Corp (OTCBB: BYHL) in what is commonly called a reverse merger (http://finance.yahoo.com/news/Yonder-Media-Architects-Merge-iw-3536792173.html?x=0&.v=1) .  What would happen is that Bayhill would be renamed Yonder Media, and the management of Yonder Media would take over the reins, including the current “affiliate marketing” operations of Bayhill’s Commission River subsidiary (http://commissionriver.com/) .  Together they have a run rate of about $3.5 million to $4.0 million.  BYHL shares are selling for $0.30, and it’s hard to say what the market cap is realistically, since in these reverse mergers, there is almost always a substantial “adjustment” to the ownership.  Yonder has a similar goal to Omnicity — but aims to cover more ground, serving 500-750 rural communities inside a few years from their current base in Nevada and California.  Management at Yonder are Silicon Valley vets with successes under their belts; the funding to date has come from the insiders, which is never a bad sign.  Of course the Yonder-Bayhill deal is contingent on several things, and there’s many a slip twixt the cup and the lip, so do your diligence, as you should on anything you buy, sell or trade.

The great city of Houston is home to Internet America Inc (OTCBB: GEEK; http://www.internetamerica.com/), which claims to have about 8,100 wireless subscribers, and has applied for ARRA stimulus funds to serve Southeast Texas.  They are making losses at present, at least partly because their older dial-up services are getting ditched as people move to better solutions, but they seem to be running at a revenue rate of close to $4.5 million annually, which does represent a year-over-year slight gain (http://finance.yahoo.com/news/Internet-America-Reports-bw-2418740372.html?x=0&.v=1) .  GEEK shares are changing hands at $0.32 today, vs a 52-week high of $0.52, for a market cap of a little over $5 million and almost negligible daily trading.  Their toll-free telephone is 1-800-BE-A-GEEK.  You gotta love that. 

Omaha NB-based KeyOn Communications Holdings (OTCBB: KEYO;  http://www.keyon.com/)  is probably the slickest of these rural broadband roll-up companies, which is not surprising since they are being packaged by a very slick and aggressively promotional PR firm.  KeyOn’s CEO announced this week the acquisition of a north-central Texas wireless broadband shop, SkyWi, which, according to the release dated December 7, will contribute $300,000 in annual revenues and $150,000 in EBITDA (http://finance.yahoo.com/news/KeyOn-Closes-First-bw-660239622.html?x=0&.v=1) .  If you can make 50% EBITDA margins, you probably will get asked to the Prom this spring, but one is tempted to say “Show Me.”  KEYO is trading today at $1.89, down from a 52-week high of $2.60, and in spite of all efforts to the contrary, average volume is still only about 30,000 shares per day, for a market cap of about $39 million, which by a rough count is about 5 times revenue.  KEYO has applied for $150 million in stimulus funding, by the way.

We do not recommend investments; please do your own diligence.

*Client of Allen & Caron, publisher of this blog.