Old School Value

Post edited 6:29 pm – April 2, 2010 by eldinril

I seriously doubt that you need my approval, but I have been giving this stock a cursory look recently and finally found the time for more serious number crunching. I have to say that I agree whole-heartedly with your appraisal. I would say this is a buy anywhere below the $2.35-$2.55 range. Now that it is below $2, you are probably doing well to accumulate. I am probably going to pass on it, but am tempted by the current valuation.

Best of luck with it!

Jim

Thank you! This company look like a $7 company for me. I will try to grab some shares.

Jae,

Understandable.  I try to avoid stocks with products that kill people (like tobacco stocks), but am ok with others (like NOOF or gambling stocks).  A fine line, but it works for me.

Thanks for the compliment on the layout.  I spent way too much time in working on it!  I took another look at my post – any way to fix the formatting of the picture so it shows the full image?  Seems to be running into the rest of the wording with the current post, although it does look nice once you click on it! IMHO :)

Right now, I'm looking for some way to organize the hundreds of stocks I've been going through on a monthly basis.  I find myself rapidly screening out candidates, or putting them in various piles (that I keep in my head): Examples:

Definitely No

Maybe

Good but not at the Current Price

Immediate Research/Writeup Needed

On and on..

But there are so many symbols and my screening criteria end up showing many of the same stocks over & over again, that I end up repeating much of the work.  If there was some way to keep track of stocks, sorted by various buckets…so when I look at my next list of stocks, I can compare and get rid of those I've already researched.

Almost as if I had a dated screenshot of the summary tab from your spreadsheets that I could reference when I need to answer the question: Have I looked at this stock before?  What did I think at the time?

Rambling post, but hopefully that makes sense.  Even something simple would be a great help.  I've been thinking about building my own but you are MUCH MUCH better at Excel than me ;)

Back to the subject at end: Hopefully someone else will weigh in on my assumptions here.  Want to make sure I'm not completely off my rocker before I go and buy more!

Post edited 1:48 pm – February 5, 2010 by DrSues02

NOOF – New Frontier Media, Inc.

Company Description:  We are a leader in transactional television and the distribution of independent and general motion picture entertainment. Our Transactional TV segment delivers nine full-time transactional pay-per-view, or PPV, networks to cable and satellite operators throughout the U.S. and Latin America. Our Film Production segment produces original motion pictures and events that are distributed in the U.S. and internationally on premium movie channels, such as Cinemax® and Showtime®. Our Direct-to-Consumer segment generates revenue primarily through the distribution of content through its consumer websites.

Yes, NOOF is one of those ‘sin’ businesses that many people shy away from and I think it’s one of the primary reasons why it is substantially undervalued at its current price.

Good:

-Median CROIC of 47% & ROE of 17.6%

-Management holds a collective 7.7% of the outstanding stock.  Although this isn’t a huge number for such a small company, their most recent 10-Q shows approx. 1.8M options that vest at an average price of around $6/share.  From that perspective, management is heavily incentivized to increase share value from current prices

-The company has aggressively bought back stock in recent years.  Management issued a stock repurchase agreement in June 2008 for 1.1M shares and immediately bought back stock at prices around $2/share by Sept 2008.  In addition to the planned repurchase, the company also bought back 3M additional shares from private investors during 2008 and the first quarter of 2009.  Conclusion: Management believes the stock is undervalued

-Substantial investment from institutional investors and funds: FMR LLC (9.8%), Intana Management (12%), Royce & Associates (10.9%), Renaissance Technologies (8.1%)

Bad:

-The company has not grown FCF or EPS consistently.  The company took a large goodwill impairment charge in 2009 to write down a portion of its movie production business.

-Margins have been on a steady decline from 2005 to 2009, although gross, operating, and net margins seem to have stabilized around 80%, 15%, and 8% respectively

-DirectTV accounts for approximately 14% of the film production and transactional TV business.  In Q3 of 2008, DirectTV increased the number of channels it was carrying from 2 to 3, but then reversed this change in Q3 of 2009.  Based on my calculations, this would reduce revenue by approx 1.2m going forward

-Overall, it seems that the cable and TV companies have strong negotiating power over NOOF and dictate how many channels and what price they will pay. 

Valuation:

Although it certainly isn’t a growth story, NOOF appears to be cheap enough to offer a MOS from intrinsic value.

Conclusion:

Based on my calculations, the business is worth between $2.5 and $5.5 a share, with a likely value around $4.  Based on the management buybacks and strong institutional support, I believe the stock is extremely cheap from a value perspective, 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.

*I have a long position in NOOF and will be purchasing additional shares on any pullback below $2.