Saturday, May 13, 2006
Pointer Telocation Ltd. (PNTR) revisiting
A leading provider of Stolen Vehicle Retrieval services in Israel, Argentina and Mexico, and a leading provider of Road Side Assistance and Towing services in Israel....The flagship service includes service and distress buttons installed in the car. Pressing a button links you to the appropriate emergency center. They compete with Lo-Jack (sec, LOJN) which has gross margins of about 50% and operating margins of about 8%.
Looking at their 20-F (which is just a 10-K for foreign businesses). Filed June 30, 2005. Fiscal year ends Dec 31, 2004. Look at the table on page 30 for a great overview of 2000-2004 income statements.
They provide several services to car owners and insurance companies: road-side assistance, towing, stolen vehicle retrieval. Most of the services are in Israel (via Shagrir). In Argentina via Tracsat (Pointer owns 86.5% of Tracsat stock) and in Mexico via Pointer SA (Pointer owns 68% of Pointer SA). Percentages of revenues have been shifting strongly toward Israel (25%, 49%, 72% of revenues in 2002, 2003, 2004 respectively) because Israeli revenues have been growing strongly while Latin American revenues are flat or falling.
In the table on page 30, we see that Pointer has pretty much lost money consistently while the share count has grown substantially. This is lousy.
If we jump ahead to 2005 results and "guidance" for 2006 (I hate guidance), we see that things are better, but still pretty crappy. Revenues increased due to an acquisition. Revenues increased partly due to expanded operations in Argentina and Russia (bad).
Gross margins in 2005 were 37% vs 31% in 2004 due mostly to the Shagrir acquisition. They reported a first time operating profit of $1 million in 2005.
Assets are more than half goodwill (bad). The current ratio is less than half due mostly to short-term bank credit and long term loans maturing. 2.5 million shares outstanding (vs 1.7 million at the end of 2004).
Cash flow from ops was $5.8 million due largely to gigantic depreciation, non-cash charges on financial shenanigans, favorable changes in assets/liabilities (imagine how crappy the balance sheet must have been at the end of 2004). Free cash flow for 2005 was around $3.5 million. But in prior years it very negative.
A gigantic amount of cash went into the acquisition. They gained about $6 million from an investment. They financed a net $40 million (roughly the cost of the acquisition) via bank longs and shareholder loans. Stock options added $6 million in cash.
DBSI Investments has controlling interest in the company, apparently. Assisted by 318K options.
At the end of 2004, there were options on 18 million shares and warrants on 77 million shares (F-32 and F-33). However, this appears to be subject to a 1-for-100 reverse stock split (notice the balance sheet shows 170 million shares outstanding in Dec 31, 2004) meaning the fully diluted share would be around 1 million shares.
I'm going to assume 4 million totally diluted shares, which is a pretty high estimate but justified by their crappy balance sheet. If this company were to end up with at least $2 million in free cash flow on a regular basis, then the stock would be worth around $7.5 per share. Since the stock is selling for $6.73, there's nowhere near enough margin of safety to make this very interesting. The problem is that expenses seem to be scaling too much with revenue increases (typical of an acquisition, and don't give me any synergy crap). However, a lower price would greatly help.
This ain't no ISCAR.