At the moment, employment sucks and we know that. BUT, we also know it will get better. Let's look at a potential play on that improvement.
When the turn does come, where will we look? I am guessing employers will crawl, not rush into re-employment of staff. With that being said, I think companies that provide professional services will be the first to benefit from this trend. The cost / benefit to the employer is huge and given any recovery will most likely be a shaky one, employers will want to add people at a minimal cost in terms of both training and continued employment cost. Volt enables both of these scenarios.
Enter Volt Information Services (VOL):
Volt Information Sciences, Inc., incorporated in 1957, provides staffing services, and telecommunications and information solutions. The Company is organized in two businesses: Staffing Services and Telecommunications and Information Solutions. Staffing services segment provides a range of employee staffing services to a range of customers throughout North America, Europe and Asia/Pac, and has expanded operations in Latin America. Telecommunications services provide telecommunications and other services, including design, engineering, construction, installation, maintenance and removal of telecommunications equipment for the outside plant and central offices of telecommunications and cable companies. In September 2008, the Company sold the net assets of its DataNational and Directory Systems divisions.
Services offered by the Staffing Services segment fall within three major functional areas: staffing solutions, information technology (IT) solutions and e-procurement solutions. Staffing solutions provides managed staffing, temporary/contract personnel employment and workforce solutions. This functional area comprises the Technical Resources (Technical) division and the Administrative and Industrial (A&I) division. This functional area also provides direct placement services and, upon request from customers, subject to contractual conditions, is focused to allow the customer to convert the temporary employees to full-time customer employees under negotiated terms. In addition, the Company's Recruitment Process Outsourcing (RPO) services deliver end-to-end recruitment and hiring outsourced solutions to customers. The Technical division provides skilled employees, such as computer and other IT specialties, engineering, design, life sciences and technical support. The A&I division provides administrative, clerical, accounting and financial, call center and light industrial personnel.
E-procurement solutions provide global bid human capital acquisition and management solutions by combining Web-based tools and business process outsourcing services. IT solutions provides a range of services, including consulting, outsourcing and turnkey project management in the software and hardware development, IT infrastructure services and customer contact markets.
Telecommunications and Information Solutions
This segment is divided into three sub segments: telecommunications services, computer systems, and printing and other. Telecommunications Services segment designs, engineers, constructs, installs and maintains voice, data, video and utility infrastructure for public and private businesses, military, and government agencies.
Computer Systems segment provides directory and operator systems and services primarily for the telecommunications industry and provides IT maintenance services. The segment also sells information systems to its customers and, in addition, provides an application service provider (ASP) model, which also provides information services, including infrastructure and database data services to others. This segment consists of Volt Delta Resources LLC, Volt Delta International, LSSiData and the Maintech computer maintenance division.
Super... So why Volt?
- Volt is global and stands to benefit as the global recovery takes hold
- Professional/technical skills will be in high demand and Volt enables employers to better manage costs
- Insiders/Founders/Directors own 42% of the outstanding shares
Let's look closer at Valuation, because we value guys like that stuff.
Volt has typically traded at 16-20 times earnings and about twice book value (remember that). Earnings, as one would expect have suffered along with employment and Volt has reported operating loss from continuing operations in the 2009 six-month period of $21.7 million, or ($1.04) per share, compared to a loss from continuing operations of $12.3 million, or ($0.56) per share, in the fiscal 2008 six-month period. The Company incurred a restructuring charge of $7.1 million ($4.2 million, or $0.20 per share, net of taxes) and goodwill and long-lived intangible impairment charges of $7.3 million ($6.8 million, or $0.32 per share, net of taxes) in the first six months of fiscal 2009 as compared to a restructuring charge of $1.5 million in the comparable fiscal 2008 period.
About what you would expect given what has happened to employment.
So then, what's to like?
1. Cash and cash equivalents, excluding restricted cash, totaled $141.5 million at the end of the second fiscal quarter of 2009.
On May 3, 2009, the Company had sold a participating interest in accounts receivable of $50.0 million under its securitization program and had the ability to finance an additional $125.0 million under the program. In addition, the Company may borrow under a $42.0 million five-year unsecured revolving credit facility (“Credit Facility”) and the Company’s wholly owned subsidiary, Volt Delta Resources (“Volt Delta”), may borrow under a separate $75.0 million revolving secured credit facility (“Delta Credit Facility”). On May 3, 2009, the Company had borrowed $10.7 million under its Credit Facility and Volt Delta had borrowed $41.7 million under the Delta Credit Facility.
Why does that matter? The company's current market cap? $131 million meaning it is trading for LESS THAN THE CASH ON ITS BOOKS..
2. Book Value.
Currently about $18 a share. Remember earlier we said Volt tends to trade on average about 2x book? Its current valuation is of .3x book. Look closely, this isn't 3x it is point 3x book or 33%.
Let's look at it this way. Say tomorrow the company decides to close up, sell it all and distribute the proceeds to shareholders.
Right now you would pay $6.61 a share for the stock. The cash on hand comes to $6.77 a share, so already you are up in the investment and not a single asset has been sold. Let's then say the current book value of $18 a share gets slashed 80% (I am not saying it would, just picking an extreme scenario for illustration). That leaves $3.60 a share for shareholders for a nice total of $10.37 or 56% profit. The margin of safety here is huge...
Simple, the global slowdown takes longer than anyone thinks to resolve itself. If US unemployment hits 10% and then stubbornly stays there for all of 2010, large share price recovery is put off. Now, depending on the global economy we could see improvement as it recovers absent the US but large shares gains will need US participation. The company has ample cash and debt availability to withstand a prolonged poor employment scenario. Because of this, the risk is not a "will it survive or not" situation but a "how long before shares recover" situation.
Like any of these deep value plays (especially ones tied to employment), because the valuation is so rock bottom, if you wait until you see clarity in employment you very well may be buying a $10-$12 stock vs $6.
Disclosure: No position