CCUR: Unknown Stock, Huge Opportunity

Concurrent Computer Corp. (CCUR) supplies global cable operators such as Comcast (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.

Comments

[kingfrogcash]

I think your being a little generous on the cash from A/R since they also have A/P. They have either lost Comcast or at least won't be in their second generation upgrades. CCUR isn't unknown, they were dropped by the analyst community before the reverse split. The earnings press release and analyst calls are almost totally void of color on what made up their sales. By every indication they are late to the game for portability. Their one success is a video pump and it's unknown on how long they can ride it. At the last two vendor shows, they only had hotel suites instead vendor booths. They are being very secretive. Based on their history of the last 5 years, one may be more inclined to think, they have nothing rather than something.They had cut costs and have not increased R&D. Their main competitor Seachange (SEAC) has sales in the +40m per Qtr talks color big time while boasting offshore R&D.
Yet SEAC produces very little profit to their shareholders.
Investors quick to hear CCUR (before the current management team) say STEC was their vendor for flash. I would suggest you look at STEC instead of the VOD vendors for growth.

2009 May 31 09:05 AM

[Envoy Global Research]

Thanks King for your take here. It's funny because nearly all the negatives you bring up are positives from my perspective and the valuation appears to already reflect alot of the pessimism in your analysis.

For example: "Dropped by the analyst community. "
This is great news for any small cap investor. As that means latent buying pressure when some analyst picks up coverage again.

The bottom line is that CCUR despite all the troubles over the years, has a great balance sheet for a company this size, and is actually making good money relative to the market cap. If they continue to report strong profits, the stock will move up significantly. If they end up doing $0.70 in earnings in the next twelve months, which is very reasonable, there is no way the stock will stay at $5 with nearly $3 in cash. More than likely it will move to $8 to $10.

2009 Jun 02 05:57 PM

[imapedestrian]

I wanted to write this one up myself... Steve beat me to it.

I agree... I think it has bottomed here and that the risk/reward profile is pretty clear.

You get a company with a stable balance sheet, not too much debt and pleny of cash. Revenues appear to be growing, even if it is not at an impressive rate so far. Also, you have a new management team that has shown signs of actually changing things.... cutting costs, refreshing marketing efforts and development strategy.

If this thing goes down more it will because the entire economy is tanking.

I spoke with Kirk Somers recently who mentioned that CCUR has had initial discussions with YouTube and Hulu about intergrating the MH4500 VOD software on to existing servers. They currenlty stream videos pretty inefficently and there is huge opportunity for improvement. CCUR is the only VOD supplier I know that is hardware agnostic and could pull this kind of thing off. All other providers require the buyer to use their hardware. In this environment, who wants to buy hardware if you do not have to?

King probably has a very bad taste in his mouth (as do I) because he used to be very bullish on this stock when it was much higher (see Yahoo message board posts). I have a blackeye and a broken jaw from this thing, but have to admit that even though I experienced the giant tumble I am pretty excited about it here. Sold most of mine a bit higher than it is now, and am getting tempted to get back in.

Disclosure: Slightly long, somewhat bruised and beaten but feeling a bit better.

2009 Jun 03 02:28 PM

[normboyz]

The one thing I don't get is when the Galleon dump of CCUR stock cascaded the stock price to a $3 handle, and the company was having a good quarter, why didn't management step up to the plate with the added cash and buyback discounted shares? And no insider buying either.

Are the board of directors working for the shareholders, or are they just there to collect a paycheck?

2009 Jun 20 07:36 AM

[kyusuKyodo]

Qtr after Qtr CCUR dissappoints and yet there are these groupies that cheerlead this pos. God help those who buy this stock. 2 reverse splits in its history, most of the cash is from a secondary that was placed 2 years back. R&D = ZERO. Top heavy management structure. Management thrives on buzz words with no track record of delivering on promises. Good Luck.

2009 Jun 20 10:43 AM