A reader asked for my thoughts on a company, so here is the analysis. First Albany Companies (FACT) is an independent investment banking and institutional money management firm, located in Albany, NY.
Their core businesses are as follows:
First Albany Capital - A broker/dealer subsidiary which underwrites and trades in municipal capital markets, analyzes and trades in equity capital markets, and performs an advisory and capital raising service through investment banking. Descap Securities - A mortgage and asset-backed security trader and advisor. FA Asset Management - Provides enhanced indexing and asset guidance to institutional investors. FA Technology Ventures - A venture capital provider for early and expansion stage companies in the information and energy technology sector.
The company's stock price is trading right around $2 and it has a market cap of $32 million. With an average volume of 94,000, this stock doesn't see much action on the Nasdaq. Its shareholders haven't seen anything positive either, as the stock has shaved off close to 70% in the last year and is at its 52 week low. In the most recent five quarters, only one (4qtr, 05) produced a net income.
The most recent quarter, ending Oct, 06, saw a net income loss of $12 million, compared to a loss of $2.9 million the year before. This translates to a loss per share of 0.71 in the most recent quarter. There isn't much cash on hand and their debt, while half of what it was from a year ago, is still significant.
With all of that gloom behind us let's look at some positive forces working for the company:
Management has pared off the convertible arbitrage advisory business and has shifted the focus to 2007, bringing in three senior sales persons to their institutional business and adding three senior analysts. The departure of the convertible arbitrage business should see a decrease in expenses of $1.5 million, due to one time charges in the previous quarter. Price to sales and book ratios are extremely low, .19 and .51, respectively, while cash flows from operating and investing have been strong (around $20 mill). Financing cash flow has been hit due to debt retirement. They have hired six senior members to bulk up their staff - three on the equity analysis side and three on the institutional sales side. This is a significant number and could be a tipping of the hat to increased business projections for '07.
There you have it - a company knee deep in the red, and a stock that reflects the slumping performance and is searching for a bottom. It goes without saying that '06 was a very strong year for M&A, had a decent number of IPO's and First Albany didn't capitalize. On the other hand, this is the kind of company you want to be long in, should they turn it around. Limited exposure and disdain from the street can be a great pre-cursor to strong performance.
The remaining question is - Will and how can First Albany turn it around in '07? Getting their hands on more IPO's (Business Week expects 2007 to be a strong year for IPO's), as well as M&A advisory (Lazard's recent guidance suggested 2007 will be similar to '06 for M&A), and increasing institutional assets under management through sales force additions. Their 4th qtr results are scheduled for Feb 20th and will bear witness to whether or not management can stop the bleeding and start to build some momentum. I'll post a brief update once I take a look at the numbers and read about management's guidance, but in the meantime, track the stock and become familiar with its trading patterns.
FACT 1-yr chart