First Albany: Still Stuck on First

| About: Facet Biotech (FACT)
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First Albany (FACT) reported it's 4Q and full year 2006 earnings yesterday.

Because the shares traded down 2%, I would say the street reacted negatively towards the report, but volume was only at 38,000 - 56,000 less than the average - which can hardly be considered a reaction. Still, the net loss continued to fall, coming in at 13 million and EPS sank to a loss of $0.88, compared to a loss of $0.71 in 3Q06 and a gain of $0.20 in 4Q05. In their 8-k, they list a few of their 2006 business highlights as follows:

  • Equities Investment Banking reported net revenue of $25.6 million for 2006, an increase of 42 percent compared to 2005.
  • Municipal Sales and Trading reported net revenue of $17.8 million for 2006, an increase of 33 percent from the same period last year.
  • Before we jump on the bandwagon, let's look at the big picture... for the quarter, overall investment banking revenues fell 35% QoQ, with the full year over year decline at 3%. Overall institutional sales and trading revenue remained the same Q0Q and fell 14% YoY. Also, equities investment banking and municipal sales and trading posted a 46% and 35% decrease in revenue QoQ - not exactly "highlights" to finish out the year. When it's all said and done, these departments made nice YoY gains, but combined they only made up 37% of 2006 revenues.

    Here is management's commentary on the year, from Peter McNierney, President and CEO:

    2006 was a year of restructuring, repositioning and refocusing for First Albany. Our balance sheet is much stronger today than it was this time last year and our 2007 operating plan significantly reduces the revenue necessary for break even operations. With the energy and commitment of our employees and the trust and goodwill of our clients, we believe we are positioned for success in 2007 despite the current difficult market for our business.

    They have positioned themselves in a very deep hole to start 2007 and the stock holds a lot of risk. The only positives that can be pulled from this report are as follows -

  • Cost of goods sold, as a percentage of revenue, decreased to 75%, down from 93% in 3Q06. If management is going to have an operating plan which "significantly reduces the revenue necessary for break even operations" they will have to keep lowering this number.
  • There was an impairment of intangible assets for 7.9 million for the quarter, taking a huge hit on income.
  • In the face of these few positives were some significant decreases in the last quarter, namely investment banking and institutional sales and trading. These late year declines are not positive indicators for a strong 2007, nor does it look like management is shooting for the stars, by positioning the company for "break even operations."

    When the 10-k comes out, something to look for is how much debt they've retired. They've made this a focus over the last year and one reader suggested the possibility of the company going private or being bought out in 2007, due to their minuscule size. Lightening the debt load could move the company into a more attractive buyout position. As of the previous quarter, First Albany was carrying 153 million in debt (five times the market cap), the majority of which was in notes payable. That being said, don't buy the stock on hope of a buyout, but take a "wait and see" stance instead.

    Related: First Albany: Knee Deep in the Red

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