Halifax Restructuring Begins to Pay Off

Halifax Corporation (HX) has been on the GeoTeam® watchlist for some time now. At first glance it seems that it may have gotten away from us as the shares increased over 100% in reaction to positive financial results reported on June 30. But as we will outline in our next update the company may be in just the beginning stages of an accelerating growth trend.

Halifax is an enterprise logistics and maintenance solutions company providing a wide range of technology services to commercial and government customers throughout the United States. The Company's principal products are enterprise logistics solutions and high availability hardware maintenance services.

Until recently the company has not been able to report consistently profitable financial results. It appears that it has become a leaner operation, sacrificing revenues for higher margin business. Furthermore, commentary from its year end press release instills some confidence that profitability can be sustained:

McNew added, 'We have every reason to believe that our return to profitability is sustainable going forward and as noted in a recent announcement, our supply chain services program (Enterprise Logistics Solutions) is being well received by the business process outsourcing community on both a domestic and international basis and is affording us a variety of higher margin growth opportunities. Our legacy maintenance business has its challenges but given the current state of our sales pipeline it appears to be on track for an acceptable performance in the coming year. (Source: PR Newswire,June 30, 2009)

The GeoTeam® participated in the Halifax 2009 year end conference call on June 30, 2009. While on the conference call, we gathered the following information:

1. What is the potential for significant Pre-tax margin improvements? Margins are still tiny coming in at 1.1% for the fourth quarter.

Conference call input: The company appears confident that it can push towards the achievement of substantially improved margins.

2. The company commented that sustained profitability is likely. The GeoTeam® would like more insight into the likelihood of actual EPS growth.

Conference call input: The company appears confident that EPS growth will start to occur in the second half of its 2010 fiscal year ending in March.

3. What is the probability that the company will begin to experience revenue growth?

Conference call input: The company appears confident that revenue growth will start to occur in the second half of its 2010 year ending in March.

The GeoTeam® will code Halifax as a special situation restructuring play as well as a GeoBargain® On the Radar list.

Please also see the valuation scenarios we have published for Halifax.

Please keep in mind that the stock has recently risen very sharply. You should conduct your own due diligence before making your investment decisions.

Disclosure: Long HX