Value investor Mario Gabelli is the CEO and chairman of the board. He directly owns 29.74% and indirectly another 9.27%. Gabelli has consistently stated that he believes shares are undervalued, and has backed it up by repurchasing shares.
On August 28, LICT received its second unsolicited offer (PR) of the year. The first was immediately rejected as inadequate. The board is currently considering the second. The price is not disclosed, but the press release states: "As with an earlier unsolicited proposal which LICT disclosed on February 19, 2014, the current proposal represents a significant premium to LICT’s recent trading price. In addition, the proposed price is closer to the prevailing financial and marketplace dynamics in LICT’s industry than the previous proposal."
Telecom transactions are heavily influenced by EBITDA multiples. EBITDA is used to control for different depreciation assumptions and capital structures. In LICT's Q2 earnings PR, they state their EBITDA guidance for the year, of around $41mm EBITDA before corporate expenses, and including DFT, a business they recently agreed to sell (expected to close in Q4). Adjusting to exclude DFT and corporate expenses (assuming $3.4mm based on the average of several recent years), LICT has around $34mm EBITDA. As illustrated below, LICT currently trades at 4.3x EBITDA.
| Share price | 4,800 | |
| Shares | 0.022327 | |
| Mkt cap | 107.2 | |
| EBITDA | 34.4 | Excluding DFT; 3.4mm Corp Exp |
| Net debt | 41.5 | Excluding DFT |
| EV/EBITDA | 4.3 |
Below is a table with comparable companies and operating metrics and trading multiples. The LICT numbers exclude DFT.
LICT's basic operating metrics are strong relative to comparable companies. It has managed to stabilize revenues in the declining parts of its wireline business and is now increasing revenue year over year. Looking at the table, it is doubtful that Gabelli would accept less than 5.5x or so (around where he sold DFT), and 7x+ seem possible, though around 6-6.5x seems most likely. All of these prices are substantially above recent trading levels.
If the deal does not occur, which is quite possible, the price could fall. However given the operating facts, the cheap valuation, and association with Ganelli, I will be comfortable owning the stock for quite some time regardless of the outcome. Though not an important part of the thesis, given the M&A environment, I would not be surprised either if LICT receives additional offers.
LICT is not particulatly cyclical. One of the main risks in owning LICT as I see it is regulatory risk (ICC and USF changes being made by the FCC). I can say confidently that I know less about this than the market. The market though does not ascribe going out of business multiples to other regulated parts of telecom businesses, and I don't see anything special about LICT in this regard.
Conclusion
Though I didn't post much historical financial information in this post, LICT's business is moving along nicely, and the price remains quite cheap. As frustrating as it can be to pay double my original purchase price, I plan to increase my position in LICT, depending on availability of the stock.
Disclosure: Long LICT, and hopefully buying more soon
| Company | Rev | Mkt Cap | Net Debt | EBITDA | EBITDA Margin | Rev 6M 2014 vs 2013 | Net Debt /EBITDA | EV/ EBITDA | LICT Implied Px |
| LICT | 85 | 107 | 42 | 34 | 41% | 6.4% | 1.2 | 4.3x | 4,800 |
| FTR | 4,667 | 6,763 | 7,112 | 2,040 | 44% | -3.9% | 3.5 | 6.8x | 8,633 |
| CTL | 18,136 | 23,815 | 20,778 | 5,793 | 32% | 0.5% | 3.6 | 7.7x | 10,015 |
| OTEL | 76 | 5 | 112 | 28 | 37% | -8.3% | 4.0 | 4.2x | 4,582 |
| LMOS | 203 | 322 | 331 | 84 | 41% | -4.4% | 3.9 | 7.8x | 10,130 |
| Scenario - DFT Implied | 5.8x | 7,031 | |||||||
LICT's basic operating metrics are strong relative to comparable companies. It has managed to stabilize revenues in the declining parts of its wireline business and is now increasing revenue year over year. Looking at the table, it is doubtful that Gabelli would accept less than 5.5x or so (around where he sold DFT), and 7x+ seem possible, though around 6-6.5x seems most likely. All of these prices are substantially above recent trading levels.
If the deal does not occur, which is quite possible, the price could fall. However given the operating facts, the cheap valuation, and association with Ganelli, I will be comfortable owning the stock for quite some time regardless of the outcome. Though not an important part of the thesis, given the M&A environment, I would not be surprised either if LICT receives additional offers.
LICT is not particulatly cyclical. One of the main risks in owning LICT as I see it is regulatory risk (ICC and USF changes being made by the FCC). I can say confidently that I know less about this than the market. The market though does not ascribe going out of business multiples to other regulated parts of telecom businesses, and I don't see anything special about LICT in this regard.
Conclusion
Though I didn't post much historical financial information in this post, LICT's business is moving along nicely, and the price remains quite cheap. As frustrating as it can be to pay double my original purchase price, I plan to increase my position in LICT, depending on availability of the stock.
Disclosure: Long LICT, and hopefully buying more soon
