|Shares Out. (in M):||51||P/E||na||na|
|Market Cap (in $M):||19||P/FCF||na||na|
|Net Debt (in $M):||-27||EBIT||-13||-14|
Craig Wireless (CWG) is an extremely cheap Canadian-listed microcap. With 26.8 million CAD* in cash, no debt, and 51.34 million shares outstanding, the company trades at a -7.5 million EV. The Ben Graham-style net-net (Cash + 75% of A/R + 50% inventory – all liabilities) valuation is 25.8m CAD—1/3rd above the 19.3m market cap! The fact that the market cap is so small may explain why the stock is overlooked, as well as the fact that the company’s focus area, WiMax, is currently less popular with the tech momentum crowd.
CWG was incorporated in 2002 and listed on the TSX in 2007. It is essentially a holding company created to buy wireless spectrum assets. The initial focus was on spectrum to be used for WiMax data/voice and CWG currently owns (or has long-term leases on) spectrum in the US, Greece, Norway and New Zealand. The company had spectrum in Canada which they sold in 2010—generating the large amount of cash they currently have. In addition to the spectrum assets the company has some limited wireless services operations that allow them to continue holding and/or monetize their spectrum assets.
At the current price, you are essentially getting all the spectrum assets entirely for free, so the company can be thought of as a call option on the value of its spectrum. In fact, given the company’s -7.5 million EV, you are getting paid to hold the call option. What is the catch? CWG is spending cash on its limited WiMax deployments. Looking at the past quarter and estimating forward, CWG has a roughly $2.6 million/quarter burn.
What is the value of the spectrum assets? If we are to believe CWG’s own estimate, they state that the Canadian assets sold represent 22.3% of their total spectrum assets (measured in megahertz weighted on a per-population basis). That means that if all the spectrum is valued equally to the 80 million for the Canadian spectrum, then remaining spectrum assets would be worth $280 million! Of course, as it is likely CWG sold off its best asset first, we can dismiss that figure as wildly optimistic, but it does give an upper bound of the valuation.
Looking in more detail at the assets to get a sum of the parts valuation:
If we assume no (essentially breakeven) value for the US and Greek parts of the business, no value for the NOLs, 14.8 million for the Norwegian and New Zealand licenses, and add in the 26.8 million in cash, that gives a valuation of 41.6 million, or CAD 0.81/share – over 2x the current price. Any good news in Greece or the Palm Springs operation could unlock significant additional value beyond that.
There are three notable risks:
(1) As a result of a dispute related to the Greek operations, Lannet Communications, while in bankruptcy, filed a 254 milling Euro suit against CWG in Athens courts. According to CWG’s 10Q, “The Company is confident in its position that no payment will be required.”
(2) The prior CFO, Wesley Thiessen, left “to pursue other career opportunities” effective Feb 28, 2011 and was replaced with Murray Bamforth. In the most recent 10Q, CWG calls out “certain material weaknesses in internal control over financial reporting,” specifically that: “key finance accountabilities are not effectively segregated due to resource constraints.”
(3) To control decision making, the company has issued multiple voting shares worth 200x more votes than the subordinate voting shares. There is a risk that management uses that control to make dumb decisions with the cash or pay out excessive compensation to themselves.-----------
*Note & Disclosure: All figures in this writeup are Canadian Dollars. At the time of writing the exchange rate was C$ 1 = US$ 1.0447. This idea is for discussion purposes only and is not a recommendation to buy or sell any security. The author may from time to time buy or sell this and other securities.
The company trades below its net-net valuation, and value can be its own catalyst. Also, if the company is able to make good progress in winning customers in Palm Springs (where they launched operations in March) or else sell any of their current spectrum to gain capital, that will have a major impact on the valuation.
|Subject||RE: Norway and NZ licenses|
|Entry||06/04/2011 08:47 PM|
Devo, Good catch--you are correct. I should have written, "If we assume no (essentially breakeven) value for the US and Greek parts of the business, no value for the NOLs, 7.4 million for the Norwegian and New Zealand licenses, and add in the 26.8 million in cash, that gives a valuation of 34.2 million, or CAD 0.67/share – 1.7x the current price." This doesn't change the thesis but does reduce the margin of safety. My apologies for the error.
|Subject||Lack of wireless spectrum|
|Entry||06/24/2011 04:30 PM|
Intesting link of Gary Shapiro, President of the Consumer Electronics Association, discussing yesterday the need for additional wireless spectrum: http://bit.ly/iTEdkO As this issue gains more visibility it will be a positive for CWG.