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  • Radiant Heats Up

    Radiant Logistics (NYSEMKT:RLGT) looks to be in a very good position at this point, for a number of reasons:

    a) cheap financing via preferred offering

    b) reduced transportation expense due to OTE acquisition

    c) more agent station conversions in the hopper

    Here is Crain's plan, as it's taking shape:

    1. acquire networks (done)

    2. acquire company owned gateway locations, especially at cross border locations (NY, LA, Laredo, now DFW, ATL, PHX)

    3. develop density in trade lanes to improve transportation margin (OTE acquisition)

    4. funnel volume through company owned gateways, capture more of the margin

    5. internalize truck brokerage, customs brokerage, etc. to capture more margin. Crain mentioned that if Radiant acquired a $100M truck broker, "most" (51%?) of the $10M of gross margin would be captured as ebitda. Going by recent acquisitions of truck brokers, it looks like Radiant could do a deal at 2.5 - 3x post-synergy multiple

    6. do more agent conversions, esp at gateway locations. Crain listed some of the targets in the most recent presentation (Miami, Detroit, Houston were mentioned)

    7. set up company station overseas (already setting up HK location)

    So Crain is essentially developing a feeder and toll booth structure - generate the volume at the agent stations and then feed it through the company owned linehaul network and company owned gateway stations. It's very clever way to leverage the agent volume. And OTE is a good fit because the network serves all of the same airports. Essentially it runs a taxi service between the airports, as its largest customer is probably an airline.

    Disclosure: I am long RLGT.

    Tags: RLGT
    Nov 25 8:20 AM | Link | Comment!
  • Trio-Tech Again

    Trio-Tech is profiled below. However, the below article does not tell the whole story. Trio-tech is a company in transition. The company is shifting into real estate and, to a lesser extent, oil and gas fabrication. Currently, the company is undercapitalized for the opportunities it is trying to pursue. Working capital is funded by $2mm in bank funding, and another $3mm of borrowing supports a real estate development in Malaysia.

    The company's manufacturing operations are a drain on cash and do not produce a profit. It is likely that the manufacturing operations will be sold or shut down, freeing up to $5mm.

    Real estate

    The company has recently pursued a policy of developing real estate. There is approximately $4mm currently invested in China real estate. That real estate does not generate a significant return (what is the cap rate on Chinese real estate? It must be extremely low), but is carried on the books at book value minus depreciation. Adding back depreciation, it is worth roughly $2 per share. The real estate division also participated in a deal that netted the firm $1.7mm in fees for undetermined services, perhaps connecting a real estate partner with government officials. In reality, the fee was a return of capital, and the real compensation was 10% ownership of a joint venture. As you can see, the transactions are complex and hard to understand.

    In addition, real estate is also at work in the testing operations. A $5mm facility in Malaysia, for instance, hosts a testing and manufacturing joint venture with Freescale (Trio-Tech owns 55% of the joint venture). In addition, a property bought in 1994 in Thailand for roughly $400,000 is likely worth $1mm or more. A property recently for sale in Malaysia, listed on the books at $135,000, was recently under contract for $1.1mm. The company pulled the purchase due to increasing real estate values, or so it says. All in all, those real estate values (outside of the RE division) add up to roughly $2 per share.

    Adding together the China and operations real estate sums up to $4 per share.


    The testing division is a high-fixed cost business, which means that incremental revenues provide fat margins. Currently, the company operates a large facility in Malaysia, and it recently opened a facility in Tianjian, China. The Tianjian location is ramping up production and the company has stated, in the most recent earnings report, that it is optimistic about that business. A ramp in revenues could show significant benefits on the bottom line.


    Currently, the value of the real estate exceeds (in fact doubles) the current value of the stock. However, a small cap (indeed micro cap) such as Trio-Tech is unlikely to get full-credit for any asset that does not produce income, and the China real estate is at astronomical cap rates. In addition, the real estate in the testing business will not be credited until those assets are monetized (and counting them as assets is in fact a form of double counting, seeing as the sites are currently in use).

    The main catalysts are two fold, or actually three. One is a sale or shutdown of manufacturing, generating a source of funds. Two is an improvement in the testing business, and improved margins (which is in fact already underway). Three is a sale of any of the current real estate assets, or significant rental income. Unfortunately, I don't see the real estate ever generating much interest among investors until the assets are sold.

    Corporate governance

    Interestingly, as a US company, Trio-Tech has excellent corporate governance, up to a point. Directors fees are low and share count is stable. Unfortunately, the chairman, CEO and CFO form a kind of iron triangle preventing outsiders from effecting change. The two employees and the chairman will block any attempt to reduce their salaries or effect other changes that would indispose the current management. That means management is very unlikely to do anything to benefit shareholders that would also put management out of a job.

    Disclosure: I am long TRT.

    Tags: TRT
    Feb 19 1:40 PM | Link | Comment!
  • Six Catalysts To Move IDT

    IDT is a telecom service provider providing calling card services. IDT has a number of other businesses which are not currently reflected in the stock price and that may provide catalysts in 2013.

    IDT bids for Vivaro. IDT recently took out a $25mm bank loan, despite over $150mm of unencumbered cash on the balance sheet. In all likelihood, this loan was secured to purchase the assets of Vivaro, a competitor that recently entered bankruptcy. Additional assets and revenues from Vivaro could provide substantial margin and market share expansion. Announcement of the Vivaro sale process will likely occur next week (I have no information that IDT will be bidding; that is simply speculation).

    Fabrix Systems sold. Fabrix is a provider of cloud services to the cable industry, including Cablevision. Fabrix is roughy 66% owned by IDT, and the most recent proxy statement listed selling Fabrix as a key goal for 2013. It's hard to say how much Fabrix is worth, but Dell, Cisco and IBM are possible suitors. I would estimate proceeds at between $1 and $5 per share - again, it's hard to say what Fabrix is worth.

    Zedge builds on momentum. Zedge is the largest site for trading free ringtones and wallpapaer, and recently added an app for the Apple iPhone. Revenues are growing at 20% sequentially and profits are already rolling in, despite just $5mm of run-rate revenues. A recent transaction put Zedge at a value of roughly $4 per share. Depending on the success of the recent initiative to offer personalized mobile game recommendations, the potential opportunity is large and not reflected in the stock.

    520 Broad St. IDT owns an empty office building in Newark with approximately 500,000 ft. of office space. Reports have leaked that Goldman Sachs and real estate developers plan to turn the empty building into student housing. Hard to say what the value of the building would be, but potential upside is $1 to $2. Simply getting the mortgage off the balance sheet (it is non-recourse to IDT) would be a positive.

    Mobile remittances. Offering remittance services via mobile phone is a natural extension of IDT's international callling-card business. With a large installed base of US users who currently have an IDT internet account (via the Boss Revolution pinless calling service), IDT is a natural to provide remittances services to immigrants sending cash back home. The technology is there, and IDT currently operates a bank in Gibraltar to smooth the regulatory approvals. This is a large opportunity and the incumbents (Western Union, Moneygram) are fat targets.

    Returns cash. With nearly $5 per share of unencumbered cash, IDT will likely reinstitute a dividend or return cash via buybacks. In addition, the cash is a call option on new opportunities (see Vivaro buyout above).

    There are many ways to win with IDT in 2013. If IDT catches some breaks, a double is not out of the question.

    Disclosure: I am long IDT.

    Tags: IDT
    Jan 11 11:39 AM | Link | 1 Comment
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