Titan is trading a little weaker post earnings report today, and this is not unusual behavior for a stock that ran up out in front of the event.
As I stated in last night’s edition, I wasn’t sure whether the stock would keep powering up, or pullback a little on the release. Despite being cash flow positive to the tune of perhaps as high at $.05 per share, the company did report a loss, and investors don’t know how to drill down into the data and get a feel for the true financial health of the company.
I believe next quarter is going to show marked improvement as some of the non-cash baggage in this release is going away.
I still believe this one has a legitimate shot at $3 to $4. Here’s the current chart:
If the stock is going to continue correcting, $1.09 is the perfect level to buy. Note the DiNapoli 3×3 moving average and the 61.8% retracement nearly coincide at that level.
Any streaking stock is entitled to pull back a bit. I suggest setting your stop loss at $1.05, and jumping in with both feet if it pulls back to about $1.10.
In the interim, more news could just turn it around.
Comments and questions are welcome.
Why do you think the stock came down today after the conference call ?
Do you think it is a good time to pick up more ?
Editor: Yes- $1.25 is a good entry level. It’s the 38.2% retracement level. If it hits $1.10 again, that would be ideal. If $1.10 gives way, sell it at $1, but I don’t think it will happen unless the market gets really ugly for some unforseen reason. This one is just like CPNE when it was wrestling with all the excess supply. Look where we are now.
I understand that the company will be receiving a tax refund from the IRS amounting to approximately $3.5 million. It is also my understanding that the company may also receive additional settlement monies from other sources relating to fees paid to certain telecom companies as well. Can you explain this part in futher detail and how it might affect the stock price? Do we know how much these fees might amount to, and if so, when might Titan Global expect to receive these additional monies? Thanks!
Editor: The total amount in “rebates” the company might receive goes into the $10 to $12 million range. The company will use most of the money to pay down the $23 million in debt, and deleverage themselves. The primary rebates are expected to come from Sprint and AT&T- those companies simply have to apply for the rebate to the IRS, get it, and pass it on to Titan. The story on this company is not really increasing top line- it’s all about decreasing expenses and big increases on the bottom line. There are three major factors that will drive their profits higher: 1. reduced costs with no excise tax 2. The recent refinance of their debt saves about $3.5 milion in annual cash interest, and a huge amount in non-cash interest thanks to the complete elimination of non cash derivative expense (those expenses went up because the stock went up) 3. The implementation of their own switch which means lower costs and they get to keep the time on phone cards that are discarded before being used up. This company’s bottom line will improve dramatically over the next two quarters.
What’s your opinion of the Ready Mobile deal?
Editor: I believe if they end up with a major recurring revenue stream from subscribers hand sets, it will change the way the company is perceived. As far as whether this is a good deal, I can’t say because they haven’t disclosed any terms. However, this management team is pretty bright, so I will take the liberty of assuming it will be good until proven otherwise.
When are 1st quarter earnings expected, and what factors in the first quarter earnings report should investors be looking for? Are we to expect a first quarter profit? How should I go about deciding whether to buy or sell when reviewing the 1st quarter report?
Editor: Q1 numbers should be available by mid April. The quarter ends this month. I am not sure if the company will have EPS yet. It depends on the non cash charges. They may have EPS if they can back out some previous charges for non cash derivatives. Look for top line growth and growth in hand set subcribers. Gross margins is another big number that should show improvement. I will publish my thoughts on the numbers when they are available.
Yesterday’s press release re: ownership of the company seems bullish, in particular the comment that “Mr. Crivello intends to make additional open market purchases of Titan’s shares outstanding”. I would’ve thought that such news would have resulted in much stronger upside volume both yesterday and today. Do you think this is a sign that the stock will pull back again to the $1.17 level, i.e. fill the gap? Do you think that $1.40 also represents strong or weak resistance?
Editor: $1.40 is definitely resistance, but it’s too early to gauge how strong because we haven’t seen enough volume. One thing for sure- management believes. Looking forward to Q1 numbers.
What gets this stock moving up again? Thought it would move on the Readmobile deal. Any thoughts?
Editor: More corporate events. However, I believe fiscal Q1 numbers will really get it rolling. Q1 ends February- numbers have to be out by mid April.
Can you explain how Titan’s January refinancing will benefit the balance sheet, and how this will create more shareholder value?
Editor: Very simple: TTGL’s last income statement was absolutely destroyed by costs associated with derivates from their convertible financings. Anotherwords, they had borrowed a substantial amount of money from a lending source with a lot of strings attached- warrants convertible into their stock at a fixed price, and toxic conversion feature from their debt, etc. All in all, a bad deal for shareholders. Here’s what happened- since the stock went up in price, the costs of those derivates went up to TTGL- in reality there was no change other than the lender was going to make more money thanks to the stock price. The new financing is simple debt- there are no derivates and all that toxic stuff was cancelled with the prepayment of the debt. Now, the key from here is to reduce the debt. The answer to your question- it doesn’t really help the balance sheet so much, it helps the income statement. With all this crap gone, I wouldn’t be surprised to see the company deliver EPS for the first time in history in the upcoming quarterly numbers.