A hedge fund manager who wishes to remain anonymous owns Lightbridge Inc. (LTBG). Here's his exlanation of why he owns the stock, taken from a January letter to investors in his fund:
Our investment in Lightbridge Inc. is both a play on an ecommerce enabler as well as a deep value story that we believe is under appreciated by the street. Lightbridge has two businesses:
The most interesting is Authorize.net, an online payment gateway provider that enables small and medium sized merchants to accept payment via the web. Authorize currently has 136,000 merchants using its payment gateway, which is a significant base from which to grow. Authorize recognizes an upfront fee as well as an ongoing revenue stream based on the volume of business the merchant transacts online. Authorize is growing revenues 30%, outpacing ecommerce growth with EBITDA margins north of 30% and 70% incremental margins. Lightbridge still holds its legacy wireless activation business, which we expect it will divest by the end of 2006. The Authorize business trades at about half the valuation of Cybersource, its only publicly traded comp, on an EV/EBITDA basis and a significant discount to Ebay’s recent purchase of VeriSign’s payment gateway business for 6x revenue.
The market is also assigning no value to Lightbridge’s wireless business, which we believe the company will sell later this year. This will create a pure play payment gateway company, and the market should begin to give credit to Lightbridge for the strong growth and profitability of the Authorize unit.
Lightbridge has $75m of cash on the balance sheet, or nearly $3 a share, and we expect the company to initiate a share buyback later this year.