Description
SuperCom (ticker = spcb) is an Israeli small-cap tech company.
There are ~16m shares out, the stock price is ~$4/shr and it should do ~$0.40/shr in after-tax free cash flow in 2015 (they report 15Q4 in April) and that should grow signfiicantly in 2016 and beyond.
Additionally, the comapny has ~ $2/share in net cash on the balance sheet.
From a valuation standpoint the company is incredibly cheap.
SuperCom is run by Arie Trabelis -- he took control of the ocmpany back in 2010 when it was struggling from the aftermath of the financial crisis. When Mr. Trabelis took the company over, Supercom had ~7 million in revenues and was losing ~1 million per year. After cutting costs, refocusing the business and executing a terrific acquisition, Supercom is on track to do $30m in revenue with operating margins of ~25%.
Supercom's stock price hit a high of nearly $14 in summer 2015 - at which point they were savvy enough to issue stock. However, a subsequent earnings miss and reduction in guidance caused the stock to tank. The reason for the "miss" is because a $13m deployment with an African nation was delayed from 2015 to a likely 2016 roll out. $13m is a very significant number on a $30m revenue base for 2015.
The marginal profitability of this business is very high, and Supercom's cost structure was in place for a higher level of revenue -- as a result, 2015 has been significantly squeezed.
Nonetheless, for the full year, they should still do $0.40 in after-tax free cash flow.
Supercom solves problems. Their main business is in E-ID solutions for developing countries. Supercom builds custom solutions for their customers. As an example -- they have helped Panama with their immigration systems and Tanzania with their Driver's license program.
Please view this video for illustration on the Tanzania licenses -- start at minute 4:00:
https://www.youtube.com/watch?v=0MD_zok_bwo
In addition to E-ID solutions, Supercom also has very sophisticated and flexible technology for house-arrest solutions and offender monitoring -- this is currently a small part of Supercom's business but could become much larger in the future.
In short -- Supercom has excellent managment, is very cheap, solves important problems, and is facing incredible skepticsm -- a great combination for propsective excess returns.
I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.
Catalyst
The market is very pessimistic and does not believe in Supercom's prospects -- so the announcement of a large contract -- or a meeting earnings guidance will be a strong positive catalyst.