July 8, 2008
Summery
Telecom billing service company based on Israel. Looks like a pure software company. Recent price around $1.
Investment story:
At end of 2004, the company setup two term deposit one 20m 7-year and one 10m 10-year with one bank. It has quite weird term: if the LIBOR rate is below some level, the term bear a very high rate of interest. If the LIBOR rate is over the level, it doesn't bear any interest. It is like the opposite of a regular term deposit. But the bank has the right to teminate it every six month while the company need to pay penalty to teminate it.
Obviously this is a crap term. I think the bank anticipated a LIBOR rate increase and set this up. Even the LIBOR doesn't raise, the bank can always end it. Half year later, at May 2005, the LIBOR is over the contract rate. Since then, the bank paid no interest to the deposit.
Mid of 2006, Oren Bryan serve as new CFO.
June 2006, the company withdraw 20m of 7-year term deposit, paid 1.33m penalties. At end of 2006, the last 10m 10-year term deposit were released by the bank with no penalties. It looks quite strange to me because the bank have no reason to give up the interest free money.
Right at the same time of Dec. 2006, the company purchased another 10m of 5.4% interest bond mature at 2011. It also purchased 22.8m of CDO backed ARS (Mantoloking CDO 2006 LTD SER 2006-1A Class A-2, ISIN#US564616AB65) at the same month. I suspect this is from the same bank which give up the 10m deposit at the same month.
Mantoloking CDO ARS
Class Amount Max Interest
Class A-1 $375m LIBOR+0.3%
Class A-2 $166m. LIBOR+0.62%
Class A-3--E $170m LIBOR+0.57%--3.5%
52,750 Preference Shares with an Aggregate Notional Amount of U.S.$52,750,000 ???
At Dec. 2007, it withdrawed the 10m bond close to par value. And switch to saving like account at interest of 4.95%
Feb. 2008, Rafi Wiesler replace Oren Bryan as new CFO.
February 20, 2008, they filed a Statement of Claim with the Financial Industry Regulatory Authority(FINRA) and commenced an arbitration against the international bank and certain employees thereof that invested in the CDOs on behalf of the Company.
May. 2008, Itay Barzilay replace Rafi Wiesler as new CFO.
July 2008, It marked down 20.3m of ARS to 5.1m. A 75% write off. The mature year of ARS is 2046. Actually those ARS are CDO backed. If based on eTrade's last years 73% off deal with another party. The 75% write off seems enough. The ARS continue to receive 3.4% interest payment.
Currently the 20.3m still receive 3.4% interest, plus thee 10m saving. So the interest income for Q1 2008 interest income still comes 0.45m.
(Updated Feb. 2009)
Another company named STMicroelectronics won ARS arbitration against Credit Suisse ordered by FINRA for $406m recently. Link
(Update Aug. 20, 2009)
After more write done, now the book value are $55,000. The arbitration is sheduled at Nov.-Dec. 2009.
(Update Sept. 10, 2009)
The arbitration has been settled with MNDO get back $18.5m back.
Analysis:
1. No debt.
2. As Dec. 2007, tangible book value around $0.91. If not including CDO investment, book value around $0.68.
3. Pretty good dividend record for the past 5 years. Around 20% based on current price.
4. In the past 5 years. Operating income 9m/5 roughly 1.8m pre year.Recent 3 years only around 1m.
5. Based on current interest income level and the operating income, it could get 1.8m+(0.45mX4) = 3.6m. Take 35% as tax rate. After tax could be 2.34m pre year revenue. Which is $0.11 pre share.
(Updated Nov, 21, 2008) This is not correct anymore, it is interest income for Q1, Q2, Q3 2008 are $484,000, $161,000, $18,000. Seems is disappearing, don't know the reason yet since they still have 10.9m in cash. That should have some interest as well.
Another thing is that they have write down over 15m of ARS, which means they have a lot of capital loss can carry over for income tax. For the next few year they don't need to pay tax unless they recover some value of the ARS.
Risk
1. It might be hard for them to get the 1.8m pre year operating income.
2. The CDO might decrease more. In this case the book value will be more off.
Conclusion:
Looks like 1.09 should be a bargain price already. However, according to the two risk, need more research.
Updated of Q1 and Q2 2008 data
Aug. 22, 2008
1. After paying the 4m dividend, now the book value is about $0.70.
2. Continue to write off $1.8 million of the $5.1 million ARS. Now the face value of it is $3.4m. Totally it has wrote off 17m of the 20.3m ARS.
3. Both first quarter and second quarter revenue is over 5 million. Real income for 6 months around 1.2m before tax. Cash flow 2.1m.
4. Added two new customers: one on U.S. one on Europe.
Analysis:
1. Their business is getting better. Only the ARS continue to write off.
2. Recently there a many banks start to buy back ARS as par value while their broker Credit Suisse hasn't doing anything yet. I feel their wrote off is too big. If Credit Suisse do the same thing, then their book value will be 0.70 + (17/21.5) = $1.49. Even take half of the 20.3m ARS. Their book value still be $1.00. At current situation, the risk much less than previous months.
Q3 2008 data
Nov. 14, 2008
1. Recent price around $0.90.
2. At Sept. Credit Suisse agree to buy back ARS under 10m at per value. Since MNDO ARS's par value is 20.3m. It is not included in this settlement. MNDO continue to receive interest frome ARS.
3. Continue to write down 1.1m of the ARS. Now the face value is $2.2m.
4. Book value include 2.2m ARS is $0.64. Book value exclude ARS around $0.55. Book value include ARS at par value(20.3m) is $1.49.
5. Real earning around 0.5m. Cash flow around 1.2m
6. Authorize stock buy back up to 2.1m of shares( 10% of outstanding) will start at the end of Nov. 2008.
Nov. 21, 2008
Bought some at $0.70. Seems not a bad price. It is quite interesting when compare this company with TSE:BLZ side by side
MIND BLZ
Bought Price $0.70 $2.05
Shares 21.5m 15m
Market Cap $15m $31m
Revenue $18m $37m
Gross Margin 70% 70%
SG&A+R&D 60% 55%
Growth 2% 30%
Although MIND net margin is less than BLZ, it seems more stable.
Feb. 19, 2009
Q4 and whole year 2008 data
1. Q4 Revenue $4.6m. Operating Income $0.6m. Whole year operating income 0.3+0.7+0.5+0.6=2.1m.
2. There is an expense of 0.9m related deferred revenue were deferred at first half of 2008. Don't know what it is.
3. Continue to write down ARS by $1.3m. Now the face value of ARS is $0.9m. Write down goodwill by $2.2m.
4. For whole year 2008, interest income is only $0.5m much less than $2.0m in previous years.
5. Whole year cash generated is 4.1m. Really good.
Mar. 27, 2009
Bought some other at $0.60. Current price around $0.80.
1. Buy back 2.1m shares. Now share outstanding is 19.5m. Will continue to buy back, up to $1.2m more.
2. Book value $0.59. Cash 9.7m. Cash $0.50 pre share.
3. Insider holding
| Monica Eisinger | | | | 4,200,888 | | | 21.6 | % |
| Lloyd I. Miller, III | | | | 1,746,460 | | | 9.0 | % |
4. 2007 compensation for 5 top officers are $1.1m. Need to wait release of form 20F around July 2009 to get 2008 data. ( 2008 compansation are $1.3m)
May. 20, 2009
Q1 2009 data
Current price $0.98
1. Around $0.02 income per share.
2. Around $0.6m in cash flow.
3. Bought back 242,000 share by $151,000 during this quarter. Average $0.67 per share. Around $1.0m left to proceed.
4. ARS arbitration postponed to Nov.-Dec. 2009.
Aug. 20, 2009
Q2 2009 data
Current price $0.98
1. Around $0.01 income per share
2. Cash flow $2.1m.
3. Totally bought back 2.8m share by $2.3m. Now share outstanding 19.2m. No more buy back recently.
4. Book value $0.67. Cash per share $0.61.
5. Employee are 322. Most of them(226) are from Romania.
6. Added one new customer and back log are $7.2m will be billed by end of 2009.
7. Got an Securities Class Action Lawsuit mainly on misleading statements of the ARS investment.
Sept. 10, 2009
Recent price around $1.50 after arbitration has been settled for $18.5m.
1. Book value $1.52.
2. Will distribute $0.80 special dividend.
Nov 05, 2009
Q3 2009 data
Bought more shares around $1.48. Current price $1.56
1. Around $0.035 income per share
2. Cash flow $1.6m.
3. Book value $1.60. Share outstanding now 18.8m.
4. Backlog 4.2m will be billed by end of 2009.
5. New buy back plan up to $1.8m. $0.4m remaining in previous plan.
Other thoughts:
With decent cash flow and earnings(>$0.10 per share each year). The company are fairly worth $1.50 per share if multiple by 15 P/E ratio. If the $0.80 dividend get approved(which I think the chance is high). It is trading around $0.70-$0.80 with earning $0.10 and book value around $0.80. Very attractive. However, (1) the dividend is not guaranteed. (2) The class action lawsuit is still unclear.
Apr. 21, 2010
After paying $0.80 special dividend and $0.20 yearly dividend. The stock is currently trading at $2.20.
1. For full year 2009, it is pretty good as generated cash flow of $6.1m
2. Cash at end of 2009 is around $18.2m after paid $0.80 special dividend.
Nov. 09, 2010
Q1 to Q3 2010 data
Recent price $2.30.
1. Sales up by 18%. Earning $0.07 for each quarter. Total $0.21.
2. Book value $0.90. Cash $19.6m
3. Operating cash flow for nine months are $5.4m. Cash flow not including dividend $5.1m.
4. Indicated new dividend policy to income+depreciation which might increase this year's dividend to 0.25 to 0.30 level.
Disclosure: Author has a long position in MNDO
