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The Titan (OTC
BB: TTGL) Tango: 2 Steps Forward, 1 Back |
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It always seems to happen when I'm
traveling, and I seem to be traveling quite a bit these days. Last week
Titan
Global filed it's year end 10K audited financial statement, which comes
at a pretty weird time. Their fiscal year ends at the end of August. It's
unusual. I was a bit behind the 8 ball digesting the news, as I was locked
in a big, silver tube at 35,000 feet headed somewhere. I know I was
up there, I just don't remember where I was going.
The knee jerk reaction- the stock
sold off in pretty dramatic fashion in very short order. The stock had
been hanging in the $1.80 to $2 range in this fairly tumultuous market
environment. On a high volume day (368,000 shares), the stock sold off
to as low as $1.39, and rebounded the next day. We're within about $.10
of where we were when this whole thing started.
So, what didn't the market like about
the 10K, or any other issue? Could it have been the $23.8 million in net
losses the company booked? How about the possibility of a reverse split,
which was mentioned in a subsequent release. The microcap market hates
reverse splits.
I believe the abrupt sell off in
the stock was a combo package- the $23.8 million in losses, the potential
reverse split, and the overall climate of fear in today's market.
There is unrecognized value here,
and you have to drill down to find it. The stock does not trade efficiently.
There simply isn't a big enough audience. If they can deliver on promised
results, this stock will eventually have to trade up from the current level.
$23.8 million in losses? Is
that a real number? Here's the facts- you tell me. $14 million of
the losses were booked because the stock went up in price. Imagine that.
The underlying value of previously issued warrants went up because the
stock went up- forcing the company to book non cash losses- it's the new
Draconian accounting procedures that skew these presentations.
Another $7.1 million or so
went to depreciation and amortization. These kinds of expenses are a bit
more traditional, but still are non cash.
The last non cash charge was booked
as "deferred revenue"- a treatment the company had not engaged in before-
out of their telecom division. It relates to their 30 million phone cards
sold annually. In this case, $12 million worth of long distance
time has already been sold on their cards- it just hasn't been used. Therefore,
it's booked as an expense. Once it gets used, it becomes revenues. TTGL
already has that $12 million in cash to use as it sees fit. Their
product has already been sold.
Here's how it all pencils out in
the end:
-
$23.8 million in losses
-
Less $14 million because the stock
went up (non cash)
-
Less $7.1 million in depreciation
and amortization (non cash)
-
Less $12 million in deferred revenue
in the telecom division (they already have the cash)
-
Equals: $9.3 million in operating,
cash flow profits for the year.
-
That's a little over $.16 per share
in positive cash flow.
So, what's not to like about these numbers?
This is shaping up into one heck of a strong performer. They need to get
these financing related warrants all converted to common stock so they
don't have to book losses as the price goes up, and need to get in front
of more institutional investors who can understand the model and get involved
in the stock.
On a go forward basis, this gets
really intriguing. Future financial filings will contain results from their
recent leverage buy out divisions- specifically Appalachian Oil
and USA Detergent. Both companies were bought in September, so none
of their performance shows up in year end numbers.
With these two acquisitions, TTGL
believes it can generate nearly $750 million (yes, that's 3/4 of $1
billion) in revs in fiscal 2008, and make $15 to $20 million.
All this, with little or no equity dilution (straight debt).
Here's the chart- look familiar?
In this turbulent market, it is a familiar pattern. Stocks have definitely
come down in the last month, and many are very close to their 61.8% retracement
levels.
Right now, I believe these pullbacks
are buying opportunities, but investors are unwilling to act. There is
too much headline shock every day related to the financial services behemoths
that are being forced to take these big write downs in loan portfolios.
It's the wrong season for the market
to go into a comatose state. There is a lot more upside. There might be
a few more weeks or a month of headline shock, but the shock is a bit overdone.
Once bids start firming up the values of performing loan portfolios, financials
will turn, and the headline shock will be long forgotten.
In the meantime, TTGL stock
continues its pattern of two steps forward, one back. Financially, the
company is moving forward quite nicely. The reverse split contemplated
to attain the $4 minimum to get a NASDAQ Listing does not seem imminent.
If it happens with a NASDAQ listing, it will be a positive. They delivered
$9.3
million more than their expenses in 2007.
Remember this- earnings are nice,
but earnings are an accounting opinion; cash flow is a fact. If you have
more money coming in than going out, you will be around for a long time.
This past fiscal year, TTGL had $9.3 million more coming
in than going out.
I believe TTGL will be the
first OTC Journal featured company to come from nowhere to $1
billion in annual revenues. I'm just not sure when it will be reflected
in the stock price. The stock market is all about rooting out growth and
value before the rest of the world finds out, then having the patience
to wait for others to want to bid up the stock.
You can just wait for a more favorable
market, or accumulate. Like the Hollywood writers, microcap buyers are
currently on strike. They will be back, and you should be positioned ahead
of them.
TTGL- the $95 million
market cap vs $750 million in annual sales this coming fiscal year-
still, the most "undervalued" and least recognized company I follow.
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