Multiband Corporation (MBND) and its subsidiaries provide contract installation services including voice, data, and video services in the United States. The company operates through three primary segments. Field Services maintains nearly 20% of all DIRECTV's (DTV) installations, maintenance and upgrades for single-family homes. The Multi-Dwelling Unit segment offers satellite television services to residents of multi-dwelling-units through a network of affiliated operators and is the largest nationwide DIRECTV master system operator. The Engineering, Energy & Construction (EE&C) segment provides engineering and construction services for the wired and wireless telecommunications industry, including public safety networks.
The breakdown of revenues from these three segments is shown below.
|Field Services||Multi-Dwelling Unit||Engineering, Energy, & Construction (EE&C)|
The Field Services segment ran into some headwinds in 2012 as DIRECTV installation and maintenance revenue slowed from record levels in 2011. According to the company's CEO, this revenue should be flat in 2013 from 2012 levels. The company took on strategic initiatives to replace this revenue, but it takes time to replace mature margined revenue with diversified start-up margins. It is likely these efforts will start to bear fruit in the near term. On the company's third quarter conference call, the CEO indicated 2013 should be a much better year for Multiband with "expanded top line, expanded EBITDA, and expanded net income."
It is likely the Field Services segment will still grow in the low single digits next year, but with improved margins the bottom line should see a nice boost. The Multi-Dwelling and EE&C segments should see continued revenue growth in the 20-30% range. The company is currently estimating fourth quarter revenues of $72-77m and EBITDA of $4-5m. Analysts currently have an average EPS estimate of $0.04 for Q4 2012 and $0.25 for 2013.
|Q4 2012 (est.)||$72-77m*||$4-5m*||0.04**|
**Average analyst estimate
2012 was also a year of just plain bad luck for Multiband. Catastrophic healthcare claims totaled $1.75m through the first 9 months compared to $500,000 for all of 2011. The company is insured for the first $250,000 of coverage, but has to pay anything above that amount. The CEO indicated he believes these increased claims are an anomaly and should normalize over time.
One of the most glaring reasons this company, in my opinion, is tremendously undervalued is because of their conservative accounting. While many other companies in the industry capitalize the leases of their service vehicles, Multiband does not. They have instead chosen to treat these as operating leases. This effectively reduces EBITDA by roughly $3-4m a quarter.
|EBITDA||EBITDA if capitalized lease|
|Q4 2012 (est.)||$4-5m||$8.5m-$9.5m|
Basically, a simple accounting change doubles their EBITDA overnight. The CEO recently indicated Multiband will start to phase in this accounting change over the coming quarters and FASB will mandate that all companies in the industry capitalize their fleet vehicles by 2015.
It also appears major holders haven't been too pleasured with the performance of the company's stock. In a recent letter dated December 7, 2012 to the Multiband Board of Directors, Carlo Cannell, of Cannell Capital LLC wrote:
Dear Mr. Miller,
Cannell Capital LLC ("CC") writes today with two proposals for the Board of Directors of Multiband Corporation ("MBND" multibandusa.com) - the common equity of which CC, and / or accounts managed by CC, own 11% as of 5 December 2012.
The first is for MBND to engage an advisor to sell MBND. (Please understand that sell means sell - not consolidate, buy, restructure or otherwise engage in financial engineering and/or monkeyshines.)
There is precedent for said proposal. On June 8, 2011, Unitek Global Services. Inc. ("UNTK" unitekglobalservices.com) presented an offer to acquire MBND for $4.50 per share in cash and UNTK common stock. (Based on the $1.51 closing price of Multiband Corp on November 16, 2012, this represents a 279% premium.) Whilst we cannot speak for the present interest of UNTK in MBND, if any, we believe that there are other sundry parties - both strategic and financial - that would proffer reasonable consideration to assume and amortize the attractive assets of MBND over a larger and more consistent base. According to our estimates MBND presently trades at the appetizing enterprise valuation of 25% to 2013 revenues and about three times EBITDA.
On September 14, 2012, UNTK acquired the assets of privately held Skylink LTD. UNTK will pay up to $23.5 million in cash for this Buckeye concern which enjoyed revenues of $31 million and EBITDA of $6 million over the last year. Applying the same revenue multiple as the Skylink acquisition to MBND would yield a price of $9.50 per share for MBND - a 664% premium to today's price.
The second proposal is to strengthen the balance sheet by means of a mantra of cost-cutting and cash generation during the current period of operational turbulence. Costs should be reduced wherever possible - starting with a 50% cut of management compensation pecuniary and non- pecuniary. Compensation for non-executives (which was up 41% in 2011 over 2010) should likewise be reduced from the current $113,000 per director. Abandon the proposed acquisition and related financing of MDU Communications International, Inc ("MDTV.OB" mduc.com) and strand other "science" projects. Re-direct all your energies to reducing and refinancing current debt as so ably demonstrated via cash generation over the past few years.
It appears the market is drastically mispricing Multiband. 2013 should be a much improved year and with the company only trading at 7 times forward earnings and an even lower multiple of EBITDA, the stock seems poised for significant upside if management can execute.
**Financial figures via Capital IQ
Disclosure: I am long MBND. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Additional disclosure: I am not a financial advisor. You should consult your own financial advisor before acting on recommendations to consider its suitability for your investment circumstances.