Came across this company a few days ago. Pretty interesting company in the network communications industry -
The website business description is as follows:
MRV Communications, Inc. is a leading global provider of optical carrier Ethernet, optical transport and WDM equipment, as well as network integration and managed services. MRV's solutions enable the delivery and provisioning of next-generation optical transport and carrier Ethernet services over any fiber infrastructure. MRV provides equipment and services worldwide to telecommunications service providers, enterprises, and municipalities, enabling network evolution and increasing efficiency, while reducing complexity and costs.
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The company grew quite a bit in the last few years through some really dumb acquisitions. The company actually ended up getting delisted as it got lax with its financial filings. However, last year there was an activist campaign and the activists actually won control of the board. Since then the company seems to have adapted a much more shareholder freindly stance. There was a large special dividend in November returning $75m in excess cash to shareholders ($0.475/share). Activists involved in this opportunity include Bill Martin and Tilson.
The company has also divested underperforming divisions and cleaned up the financials. A new CEO was also recently hired (Feb 3) and there has been considerable change in the board. So the transformation seems to be underway. The activisits seem to have got control and we can somewhat alleviate concerns of a value-trap or catalyst.
The company is split into two divisions – network equipment and network integration. The business itself is pretty ordinary with Gross Profit margins of around 40% and operating profit in 5-10% range. Though the net income margin is low, it should still be a profitable company and the company does have the ability to generate some cash-flows. I would estimate that combined these two lines should give the company an intrinsinc value of around $0.90.
Now however, this is where it gets interesting – the company currently sports a surprisingly strong balance sheet that doesn't seem to be recognized. Even after reducing cash by $75m from the last reported numbers (sept qtr end) the company still has (after the dividend) about $0.50/share in cash on the books. Not bad considering the entire company trades for $0.99. When over half the market cap is in cash thats a good start. Also its worth noting that the cash balance alone practically covers its current liabilities.
Additionally the company has some valuable NOL's ($176.5 million for federal income tax purposes) as of December 31, 2010.
Add all these factors up and I would give this company an intrinsic value of atleast $1.40 (excluding the NOLs). Currently it trades for $0.99 so a decent amount of MoS here.
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Now, one thing that I find interesting is the company has been stressing "unlocking value" recently. It has hired Oppenheimer to help with this which suggests the company is trying to sell itself. Further, the company stressed the M&A experience in the press release announcing the new CEO which may be an indicator that they want to have someone in place to manage the process of the sale. (of course it could also mean more acquisitions but given the activist control of the board, i think its unlikely). Furthermore, they have brought up their NOL's a bit lately which also suggests actively looking at finding someone that can use them. Given the state of the markets right now, I would not be shocked to see an announcement here in the next 6-9 months. However, even if there isnt an announcement, I think the investment here has a lot of other things going for it and should be safe.
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