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2:16 pm
March 27, 2010
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Jae Jun
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Good news.
One thing that caught my attention was the cash balance. Looks like the company moved most of its cash to short term investments. If they felt they could put all their cash into a bond or someting, then what does that say about business and sales…?
Just got to the inventory section and am I seeing that things could actually be picking up?
In 2008, works in progress was ONLY 4! Yikes. But in 2009 it has gone up to 25,327.
The report is very easy to read and follow. Exec compensation is also very reasonable and not overpaid.
I need to go through some more numbers though but I don't think ELST is worth anywhere above $1.
Even the insiders value the stock options at $0.60 which I think is about right.
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11:17 am
March 27, 2010
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DrSues02
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| Member | posts 45 |
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ELST – 2009 Year-End Update
-Return to profitability
-Positive FCF
-NNWC improved to $.49/share, a 19% discount from the latest closing price.
Another tough year for the wireless modem company but there were some definite bright spots in the recent 10-K filing.
Revenues were down 13% to 1.8M and management expects similar revenue for 2010. However, compared to the 30% drop in revenues in 2008, revenue is showing early signs of stabilizing. Inventory numbers were also reduced significantly as the company tries to maintain cash. The company did a great job of cutting operating expenses during this period of lower sales, "using wage reductions for all Company employees, a hiring freeze for new employees, and minimal planned capital expenditures."
Overall, the company swung back to profitability with a net profit of $24,495 and positive FCF. Although the company is in the black, the performance isn't too exciting. But a profit is always better than a loss right?
From an investment perspective, downside risk is still protected by the company's NNWC, a number that actually improved in 2009 due to the cost controls. NNWC is now .49/share compared to .45/share. From the company's latest close of .40, this is a 19% discount to NNWC , meaning the (barely) profitable business can be bought for significantly less than the liquidation value of its assets.
As I said in my earlier post, you are picking up the cash and other assets of the company and getting a wireless modem business for free.
I'm going to re-do the intrinsic value calculations once the numbers are posted to Morningstar, but eyeball estimates still peg the value at around .70-.75 per share.
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2:46 am
March 9, 2010
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Jae Jun
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sorry but I wont be releasing for minor fixes. I have to build new installers and it's not that hard to do really.
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1:41 am
March 9, 2010
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zehua
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| Member | posts 96 |
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Jae, could you please give a spreadsheet update?
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3:58 pm
March 4, 2010
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Jae Jun
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I'll post it here since other careful readers may want to do it as well.
- unhide the EPVData tab
- In EPVData: Change cell D60 to the following "=IF(ISBLANK(EPV!$F$11),C60,IF(EPV!$F$11="MSN",0,I60))"
- In EPV tab: Change cell C27 to "=IF(ISBLANK(D27),SUM(C13,C14,C17,C23,C24:C26),D27)"
- In EPV tab: Change cell F27 to "=IF(ISBLANK(E27),SUM(F13,F14,F17,F23,F24:F26),SUM(F13,F14,F17,F23,F24:F26)*E27)"
- In EPV tab: Change cell O53 to "=(F13+F14)-2%*O21"
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8:19 am
March 4, 2010
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DrSues02
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| Member | posts 45 |
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Jae,
I agree about the difference between MSN and ADFVN.
However, the calculation doesn't appear to include the marketable securities row in the calculation of total assets at all, even outside the difference in sources for this particular case. Try modifying the marketable securities number – it doesn't seem to have any effect.
If you could email me the new formula you are using to add Total Assets, that would be great!
Thanks!
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4:04 am
March 4, 2010
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Jae Jun
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what's happening is that MSN includes marketable securities in the "cash and equiv" figure while advfn does not.
I've patched it up by changing a few cells. Do you want to know what to change or do you want to wait for the update? (still long way to go before updated)
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8:40 pm
March 3, 2010
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DrSues02
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| Member | posts 45 |
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Zehua,
Thanks for bringing this to my attention. I get a NNWC value of .47 and NCAV of .54 using the net-net spreadsheet. Looking at the EPV numbers, the difference seems to be arising in the source of the financial info, ADFVN vs MSN.
At first glance, I think there might be a problem with the calculations, or at least my understanding of them.
Based on the latest 10-Q, ELST's total assets should be 3.1m. MSN shows this correctly, but ADVFN only shows 1.7m in current assets.
The difference is that MSN shows 2.2m of cash & equivalents AND 1.2m marketable securities, which is technically incorrect. But total assets gives the correct 3.1m number.
As best I can tell, the standard calculation does not add up the marketable securities column at all!
Test: Use the adjust +/- to column, and change marketable securities. It doesn't have any bearing on the final total asset value.
Jae, Mind taking a look at it?
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12:08 pm
March 3, 2010
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zehua
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| Member | posts 96 |
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DrSues02 said:
Aah. Stupid stupid mistake with the shares oustanding. I check this religiously on the net-net spreadsheet but obviously didn't do the same due diligence on the 5yr OSV Spreadsheet.
The good news: NNWC is pegged at .45/share, limiting the downside risk. I've revised the estimates with the new share numbers:
 
Based on these numbers, I still think the company is undervalued but only if you are able to pick up shares below NNWC, and only for a small position. The price has ranged pretty dramatically from .38 to .55 over the last week or two, so picking an entry point is crucial.
Lesson learned – thanks Jae.
Hi DrSues02, my spreadsheet shows me that the EPV is only 0.37 when I adjusted the number of shares to 5.16M, and net income to 0.2M. Weird. It also says the NWC is 0.11. However, the other net-net spreadsheet shows me the NNWC to be 0.45. I am confused why we have the inconsistency here.
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2:37 am
February 10, 2010
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Jae Jun
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I made the same mistake and ended up buying it doh..
Bought at $0.55 which means I need growth in the company to make a profit….
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9:47 pm
February 9, 2010
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DrSues02
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| Member | posts 45 |
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Aah. Stupid stupid mistake with the shares oustanding. I check this religiously on the net-net spreadsheet but obviously didn't do the same due diligence on the 5yr OSV Spreadsheet.
The good news: NNWC is pegged at .45/share, limiting the downside risk. I've revised the estimates with the new share numbers:
Based on these numbers, I still think the company is undervalued but only if you are able to pick up shares below NNWC, and only for a small position. The price has ranged pretty dramatically from .38 to .55 over the last week or two, so picking an entry point is crucial.
Lesson learned – thanks Jae.
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1:51 am
February 9, 2010
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Jae Jun
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One part of my old job involved testing, troubleshooting and installing monitoring modems and other backend telecom equipment.
What I realized is that it is a very niche market, which is good as an investor, but the problem is that sales are not frequent. Once it's up and running, people will use it for years and years before even considering an upgrade, so upselling is pretty difficult.
The technology itself is very old, yet far from obsolete. It has and will be used for a long time, but from experience, there is no growth in the industry. I think ELST is the same.
Can you also check your numbers, I don't know how you got over $4 for the DCF because a mistake I made was not looking at the shares outstanding.
The spreadsheet says 0.67 shares which is obviously wrong. It should be 5.16m shares outstanding
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10:25 pm
February 7, 2010
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DrSues02
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| Member | posts 45 |
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ELST – Electronic System Technology
Company Description: The Company uses manufacturing, marketing, and research and development efforts to produce and market the Company’s line of ESTeem ™ Wireless Modem products and accessories. The Company’s products are offered in the process automation markets in commercial, industrial, and government arenas both domestically and internationally, as well as domestic markets for public safety communications infrastructure.
The company has been around since 1984 and sells into a competitive market with some big players like Cisco and Motorola. ELST has a number of different models that are highly specialized towards specific industries. (like a receiver designed to run on the 4.9 Ghz spectrum for first responder networks and infrastructure)
Good:
-Despite some erratic history, gross, operating, and net margins show signs of improvement:
Median Margins from 2003-2005: 54.2%, 8.3%, 4.8%
Median Margins from 2006-2008: 60%, 11.5%, 7.7%
-History of dividend payments: Company has paid an annual cash dividend in 10 out of the last 13 years, showing that the board of directors is committed to returning value to shareholders.
-The company has no long term debt. In fact, the company has very few liabilities altogether. I calculate a NNWC value of $.46/share, with $.42/share in cash & cash equivalents. At its current price, you are almost picking up the business for free.
-ELST has generated positive operating cash flow in the first three quarters of 2009. It has also squeaked out a very tiny net profit so far, primarily due to strong cost controls. (“wage reductions for all Company employees, a hiring freeze for new employees, and minimal planned capital expenditures”)
-13-D filings from Hummingbird Capital (21.5%) and Edco Partners LLC (8.16%)
Bad:
-Low CROIC and ROE with medians of 7.1% and 6.7% respectively. I usually like these numbers to be 15% or higher.
-From their latest SEC filing, management believes the economic downturn will continue to hamper sales through the beginning of 2010.
-The company can only cut costs so far and will need to generate top line sales growth. The market is dominated by much larger players and ELST might not have the marketing or advertising budget to compete.
Overall, this is a tiny company trying to make it in a tough market. Although there is always a risk with such a small company, I think there is a large enough margin of safety for a small position.
Valuation:
Conclusion:
Based on the management buybacks and strong institutional support, I believe the stock is extremely cheap, despite the limited growth prospects. I believe the goodwill impairment in 2008 knocked down the stock severely despite relatively stable revenue, cash flow, and income.
*Long ELST.
Question:
What am I missing here?
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