Seeking Alpha
CFA, long/short equity, macro
Profile| Send Message|
( followers)  

I have written about GTSI (NASDAQ: GTSI) on this site many times. Simply put, this company was one of my bigger mistakes. Rather, failing to sell this company was the mistake. Let’s look at the chart:

GTSI Chart, courtesy of StockCharts.com

GTSI Chart, courtesy of StockCharts.com

That jump late last fall? An offer to buy the company from a partially-owned subsidiary. Strange, right? I thought the offer was too low, and believed a revised offer would be required or perhaps an offer would be made by a second bidder. I was right – the subsidiary (EyakTek) revised its offer upward. Then before I took action to sell, the US Government’s Small Business Administration temporarily banned GTSI from bidding on new government contracts. That led to the dramatic collapse that you see in the share price.

Ouch!

Since then, the company returned to its pre-offer prices, but I’ve held on. After all, the company is still trading at 1/2 book (and about 2/3 NCAV) and was working on exiting its position in EyakTek, which was being carried on its books for far less than market value (it was being carried for $12 million, but contributed $8 million to GTSI last year).

In early August, investors got quite a bit of good news. First, the company had freed up even more cash, leading to a balance of $45.9 million (vs. a market cap of around $42 million). Then, the company announced that it had reached an agreement to settle all disputes with EyakTek and sell its 37% interest back to the company for $20 million in cash. The company also announced that it would be buying Information Systems Consulting Group (InSysCo) for $15 million. This continues the company’s efforts to transition from reselling to the government various IT systems toward the higher margin business of providing the government with IT services.

The net effect of all this is that the company would have an extra $5 million from the sale of EyakTek after the purchase of InSysCo. Investors were left not knowing what the company had planned for this cash… until last night. After markets closed, the company filed an 8-K announcing a $5 million share repurchase program.

Let’s sum up.

GTSI trades for a market cap of $42.22 million, which is less than its current cash balance of around $51 million. $5 million of this cash will be spent to repurchase the company’s shares, reducing share count by 1.14 million (~12%). The company has no debt and, once the share repurchase is complete, will have NCAV of about $8.18 per share, or 87% higher than yesterday’s closing price.

Yes, the company lost money last year, but keep in mind that the SBA’s actions took a massive (but temporary, since the ban has since been lifted) bite out of the company’s revenues. One may view this wake-up call as a positive, as the company took action to trim headcount and other expenses, which will leave it leaner as revenues return to historical levels (which is happening).

What do you think of GTSI?

Disclosure: Long GTSI

Source: GTSI Launches $5 Million Repurchase Plan