Vocaltec: A Company with Cash and a Growing Business in Emerging Markets

Those of you who have followed my posts here, know that I have been focused on small caps where the market cap trades below cash value in the business. I have focused on a few Israeli small caps including MAIL and ANSW and a Tel Aviv Stock Exchange traded company called Babylon.

I have recently accumulated a position in Vocaltec (VOCL) for the following reasons:

1. VOCL market cap is around $9MM and cash is approximately $9.5MM at a share price of $1.70. This means you get the revenues free, assuming that management is managing the burn rate effectively, which I think they are.
2. Ido Gur, the company's CEO purchased shares on the open market. Mr. Gur is an accomplished executive with lots of telecom experience from his days at ECI Telecom (ECIL). I believe in his leadership and vision for the company.
3. The Company is focused on selling its VOIP boxes in the developing world such as Brazil and Nigeria. The stock market under appreciates the growth in these market segments today and yet these are the markets that often make more sense than the challenged western economies for a small company.
4. The core original VOIP technologist is still with the company as CTO. As a venture investor, I can tell you that this is key for a turnaround.
5. VOCL has key channels such as IBM that provide leverage in the model.

I wish I had bought my large position back in May but I think this stock has legs.

Full Disclosure: Long VOCL, MAIL and Babylon

P.S. I was unable to retrieve the conference call transcript from the VOCL website to quote from it.

Comments

[Envoy Globa...:]

Hi Michael,

Thanks for writing up VOCL. I highlighted this on Envoy Research back in August.

I think it

Oct 27 07:37 AM

[Envoy Globa...:]

I think it is important to add that VOCL has approximately $2 million in restricted cash, which is seemingly used as a security deposit against certain leases (according to the 20-F). This seems very high for these purposes, and since I can't find any other reason for such a high restricted cash balance, I believe that some of the restricted cash will be freed up soon, implying that the cash balance/per share is a bit higher than you estimate.

All in all, it seems unbelievable that a company whose business is improving every quarter (they should break even by year end), and that finds itself at very opportune time in the VOIP industry, can trade at a negative enterprise value. The risk/reward here is simply incredible.

Very similar situation to MAIL at $3, and once people discover VOCL it should provide a similar return.

Oct 27 07:45 AM

[Envoy Globa...:]

MAIL continues to slide. Maybe you can suggest to management over at ANSW to takeover MAIL? Seems like ANSW has more credibility with Wall Street, so they garner a higher valuation than MAIL, despite having a very similar business model and despite MAIL's larger top line and better profitability. So an acquisition of MAIL would be immediately accretive for ANSW and support a much higher valuation for ANSW shares.

Oct 27 12:13 PM

[The telesco...:]

I agree. I think VOCL will be an incredible growth story. Just after you wrote this, they announced another huge deal with Far East Telecom. It seems to me that the deals they are making are approaching or are in excess of their market cap. This is very unusual.

Oct 28 03:04 PM

[Michael Eis...:]

This belongs over on my MAIL posts and, In fact, Many years ago, I suggested it to ANSW but, alas, it did not happen!

I think MAIL will be fine. I think they will surprise the naysayers this quarter and beyond. It is a thinly traded small cap stock where one of the original founders blew out of a big position which weighed on the stock. There seem to still be some sellers hanging out there. I think the company reports earnings in early November so we can see soon! I think it is a buy at these $7 levels.


On Oct 27 12:13 PM Envoy Global Research wrote:

> MAIL continues to slide. Maybe you can suggest to management over
> at ANSW to takeover MAIL? Seems like ANSW has more credibility with
> Wall Street, so they garner a higher valuation than MAIL, despite
> having a very similar business model and despite MAIL's larger top
> line and better profitability. So an acquisition of MAIL would be
> immediately accretive for ANSW and support a much higher valuation
> for ANSW shares.

Oct 29 10:24 AM

[Michael Eis...:]

I agree. It is not a stock to trade. It is one you put away for at least 12 months and then come back to look at it. Really good management team (CEO) that put its money where its mouth is by buying stock on the open market.


On Oct 28 03:04 PM The telescopic investor wrote:

> I agree. I think VOCL will be an incredible growth story. Just after
> you wrote this, they announced another huge deal with Far East Telecom.
> It seems to me that the deals they are making are approaching or
> are in excess of their market cap. This is very unusual.

Oct 29 10:25 AM

[The telesco...:]

Although I have to admit I'm having a hard time not looking at it. In my opinion, once earnings go north then this can't be valued on assets or cash per share anymore.

On Oct 29 10:25 AM Michael Eisenberg wrote:

> I agree. It is not a stock to trade. It is one you put away for at
> least 12 months and then come back to look at it. Really good management
> team (CEO) that put its money where its mouth is by buying stock
> on the open market.

Nov 09 03:38 PM