CCUR: Unknown Stock, Huge Opportunity

Includes: CCUR, CMCSA
by: Steve Andrew

Concurrent Computer Corp. (NASDAQ:CCUR) supplies global cable operators such as Comcast (NASDAQ:CMCSA) and Cox with vital software that makes video on demand possible. CCUR’s technology creates and supports the operation of everything that happens after a cable customer hits the VOD button on his or her remote. This includes the menu and its operation, playing of the selected video feed (movie, TV show, etc.), in video commands (pause, fast forward, etc.), and the process of billing the customer for the VOD purchase. This technology is vital to the operation of the cable companies’ extremely lucrative VOD market. The company also utilizes data gathered during the customer’s VOD sessions to tailor advertising content to specific customers. This technology will continue to accelerate growth as VOD accelerates growth on PCs - think Hulu and YouTube - and mobile devices, such as iPhones.

Currently the VOD business is growing at around 16% YoY for the trailing 9 months but an investor can assume that 20%+ percent growth is achievable in better economic conditions. This business makes up roughly 66% of last quarter’s revenue with the remaining made up by a different video technology utilized in military and industrial applications. During the last quarter the company took a large, non-cash write off of goodwill ($17.1 million), primarily stemming from a 1999 acquisition. Excluding this impairment charge and the related tax benefits, the company earned $1.3 million or $0.16 a share. Future earnings for the company look even stronger as the company’s lone analyst has a $0.70 EPS number for FY2010.

CCUR, as of 3/31/09, had nearly $24 million in cash and over $23 million in accounts receivables. Looking back over the company’s history of A/R, this appears to be a normal first calendar quarter increase and should be 100% collectable. With that being the case the company should end the next quarter with somewhere around $40-$45 million in the bank. With the stock trading at a market cap of only $39 million, an investor can capitalize on a fast growing company, in a fast growing sector, for the cost of the cash in the bank.

The most likely explanation for the discounted share price is a combination of the overall markets loathing of the cable sector as a whole and the lack of liquidity in the stock (averages about 40,000 shares per day). This represents a great opportunity for smaller investors to accumulate shares while larger funds have to wait for the stock to increase in value and liquidity. Based other companies in the industry, CCUR should get between a 15 and 20 P/E multiple. If the company does do $0.70 in FY2010 it would be hard to believe this stock would be any less than $15 ($0.70*15[P/E]+$5[cash]) in a year’s time. The lack of liquidity does pose a significant risk as well. The cash position of the company provides some security and if an investor can patiently buy the stock, the liquidity risk of the stock can be mitigated.

Disclosure: I am long CCUR.