Actua: Buybacks, Balance Sheet And Growing SaaS Business All Point To Upside
Summary
- Sum of the Parts equate to $22 on this $14 stock.
- Massive repurchasing program at the current price suggests management sees the stock as underpriced.
- Actua has over 20% revenue growth, 70% margins and 98% customer retention.
Overview
Actua Corporation (NASDAQ:NASDAQ:ACTA) is a sum of the parts SaaS story. ACTA has sold one of its four primary divisions for $133 million and in this article we outline what we see as the value of the remaining three divisions. We also look at the company's actions, which we see as supporting our thesis that Actua is significantly undervalued. We believe ACTA has over 50% upside from today's price of $14.10. The company has bought back over $140 million in stock in the last year, and has announced it has another $40 million remaining under its repurchase program. For the last five months ACTA has repurchased shares at ab average of $14.00 (see below).
Why are Saas Companies so Valuable?
Sticky Clients
As a SaaS company, Actua sales are subscription based. Wikipedia defines Saas as follows: Software as a service (SaaS; pronounced /sæs/) is a software licensing and delivery model in which software is licensed on a subscription basis and is centrally hosted. Saas companies are valuable because SaaS customers rarely leave. Instead, clients pay the fees every year and incorporate the SaaS services into their businesses. Once the customer is on board it is hard for them to leave and adopt a new platform. In addition, once scaled, the margins, which are over 70% for ACTA, can be turned into cash flow (think of the power of Amazon (AMZN), and how the critics didn't understand that Amazon wasn't to be valued on a P/E basis).
Actua has 98% customer retention and 70% gross margins. These facts have impressed some of the best known institutional investors, who combined own 82% of the outstanding stock.
Sticky Investor Base
The top five institutional holders include:
Fidelity 5.921M (17%), Vanguard 2.698M (8%), BlackRock 2.661M (7.9% which bought heavy during Q1 '17), Dimensional Fund 2.510M (7.5%) and Capital World 2.234M (6.6%).
Source: Money.net
Valuation Highlights - Sum of the Parts
Consolidated Value of the three subsidiaries based upon our estimated terminal EBITDA multiple estimates (10 x with a discount rate of 20%. 10X is the low end of the multiple scale for a Saas business and a 20% discount rate is at the high end - i.e. conservative), minority investments, NOL and deferred tax assets, and cash:
FolioDynamix (99% Ownership): $235 Million (company paid $199M in Sept.'15)
Bolt (70% Ownership): $ 50 Million
VelocityEHS (98% Ownership): $294 Million
Minority Investments: $ 40 Million (see explanation below)
Present Value of NOL/Def tax: $ 46 Million (13% of the NOL as of 12/31/17)
Cash: $ 80 Million*
Total: $745 Million
Shares Out: 33.6*
Value Per Share: $22.17*
Package Valuation based on EV/Sales
SaaS companies are selling in the private market at enterprise values of approximately 4-6 x sales. We believe Actua will sell in whole or in part at the high end of the range. We see this due to Actua's leading and pioneering market positions in two of its three subsidiaries and the third being positioned as the second largest of its kind. However, to be conservative, we forecast our target in the middle of the EV range.
TTM Sales: $124.5 Million
5 x $124.5 = $627.5Million
Minority Investments: $ 40 Million
Present Value of NOL/Def tax: $ 46 Million
Cash: $ 80 Million
Total $793.5 Million
Shares Out (FD): 33.6*
Value Per Share: $23.61*
*Please note that the cash and shares outstanding are as of 3/31/2017, but the company is buying back shares, therefore the value per share may actually be higher than our estimates.
The Company is Telling Us the Stock is a Buy by Their Actions
Actua's sum of its parts is worth much more than today's price per share. The company tells us so. In November Actua sold one of its subsidiaries, GovDelivery.com, for $133 million.
Actua bought back over $140 million worth of their stock in the open market and Dutch auction. And for the last five months Actua has basically set a floor of $14 per share buy continuing its buyback program (see buy back table below).
Recent Dutch Tender Auction
Actua repurchased 4.6 million of the 5.6 million shares for approximately $64 million ($14.00 per share) through a modified "Dutch auction" tender offer. And, year-to-date in 2017, Actua bought an additional 500,000 shares for $7.0 million.
Massive Share Buyback Plan Announced and Implemented
As reported by Actua in their 10Q filed on 5/8/17 for the period ended 3/31/17:
"ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds
Issuer Purchases of Equity Securities. We maintain a share repurchase program under which we may, from time to time, repurchase shares of our Common Stock in the open market, including pursuant to trading plans meeting the requirements of Rule 10b5-1 under the Exchange Act, in privately negotiated transactions or pursuant to one or more issuer tender offers. The program was expanded in September 2013 and again in October 2016 to allow for the repurchase of up to $189.8 million of shares of our Common Stock (of which $43.4 million is available as of May 3, 2017). The table below contains information relating to the repurchases of our Common Stock that occurred under the share repurchase program from the program's inception on July 31, 2008, through May 3, 2017."
Period Repurchased Through | Total Number of Shares Purchased (1) | Average Price Paid per Share (2) |
12/31/2016 | 11,585,943 | $11.13 |
1/1/2017 to 1/31/2017 | 78,015 | $13.99 |
2/1/2017 to 2/28/2017 | 310133 | $13.97 |
3/1/2017 to 3/31/2017 | 507639 | $13.88 |
4/1/2017 to 4/30/2017 | 333,078 | $13.99 |
5/1/2017 to 5/31/2017 | 19,926 | $14.00 |
Total | 12,834,734 | $11.41 |
(1) | All shares purchased in open market transactions, excluding 4,588,094 shares repurchased in December 2016 at a price per share of $14.00 pursuant to an Offer to Purchase that was filed with the SEC on November 7, 2016. |
(2) | Average price paid per share excludes commissions and fees. |
Source: Actua's 10Q filed on 5/8/2017 for period ended 3/31/2017
Key Numbers
Price: $14.10 | Market Cap: $473.69* |
EV: $406.22* | NOL: $353.8: $208.6 not subject to Sec 382 |
P/B: 1.41 | P/E: 7.06 (distorted due to sale of a sub) |
Annual Rev Growth 5 yrs. 51.9% | LT Debt: $0 |
Cash & CE: $80.4 million | EV/Sales: 3.27 |
Source: Gurufocus.com plus NOL data from ACTA 2016 10k.
The Business
The company owns majority stakes in three subsidiaries that provide cloud-based, software solutions as a service (SaaS). Each company provides key productivity advancements to clients in the following verticals: 1) BOLT - insurance platform exchange, 2) VelocityEHS - OHSA/FDA Compliance, and 3) FolioDynamix -wealth management.
Of the three subsidiaries, one is a market leader (VelocityEHS), one is a pioneer (BOLT), and one is a top two of its kind (Folio is the second largest wealth management platform behind Envestnet Inc. (symbol:ENV).
Actua has recently completed three strategic tuck-in acquisitions - two for VelocityEHS and one for FolioDynamix. Additionally, Actua has expanded the capabilities of all three businesses through significant technology enhancements.
Highlights of the SaaS Businesses
Each business is: a) growing revenue in excess of 20% and b) a recognized leader in a large total addressable market with high growth prospects.
Summary of the Three Subsidiaries:
Bolt - (boltinc.com) is an insurance platform where insurance providers, customers, agents and government clearing houses come together. If you are an auto insurance company but your customers want property and casualty, there is no need to turn their business down. You can go on the Bolt platform and bid their request out to a P&C carrier, thus keeping the commissions and the loyalty of the customer. Revenue growth for this division is around 25% year over year. Users on the platform increased from 56k to over 80k in the last year. The Platform is integrated into the largest 100 carriers (Progressive (NYSE:PGR), Citizens (NYSE:CIA), The Hartford (NYSE:HIG), Liberty Mutual, Travelers (NYSE:TRV), MetLife (NYSE:MET), Chubb (NYSE:CB) and many others offer quotes through Bolt).
VelocityEHS - (ehs.com) is a leading cloud based EHS (environment health and safety) management and compliance company. Its chemical management has won top management awards. The company has over 13,000 businesses and 8 million users using its solutions to protect their employees and the environment. It services many industries including biotech, construction, healthcare, oil and gas, municipalities, mining, utilities, transportation, manufacturing and retail. Its solutions include reporting dashboards, compliance management, air emissions, chemical management, environmental management, incident management and many others.
FolioDynamix - (foliodynamix.com) FolioDynamix won the Advisory Solutions Technology Innovation of the Year Award from Money Management Institute. The platform hosts over 90,000 advisors with over $7 billion in regulatory assets under management - which is up from $4.9 billion a year ago. FolioDynamix provides investment advisors, banks, brokerage firms, and service providers with wealth management technology providing visibility, efficiency, better compliance, faster growth to support advisors from proposals, to research, modeling, trading, reporting and governing all account types. Actua purchased FolioDynamix in September 2015 for $199 million. Since that time, FolioDynamix has grown and Actua has made a tuck in acquisition.
For the company's description and important metrics of each, please review Actua's presentation from May 2017 here.
Minority Investments Values (KORR's best guess - readers may want to discount the value assumed or $1.19 per share).
InstaMed Holdings, Inc. - Estimate Value of Company's Ownership: $20 M
InstaMed operates a cloud-based healthcare payments network. With its bank partners, InstaMed moves billions of dollars and information on its single, integrated network, connecting thousands of hospitals, practices and payers, and millions of patients. InstaMed's cloud technology transforms the healthcare payment process by delivering new levels of payment assurance, simplicity, convenience and cost savings to the healthcare industry.
Parchment Inc. - Estimate Value of Company's Ownership: $10 M
Parchment's cloud-based software is a transcript exchange and intelligence platform that enables the secure, rapid exchange of electronic transcripts and other student records among schools, state education agencies and individuals. Through parchment.com, students can research colleges and discover their chances of admission, see how they compare with peers, get college recommendations and send official transcripts when they are ready to apply.
Anthem Ventures Fund, L.P. - Estimated Value of Company's Ownership: $10 million
THESIS
Our thesis is that ACTA trades at a severe discount to the sum of their parts. Based upon both publicly traded and recent private consummated transactions, we believe that ACTA is worth over $22.17 per share, or over 50% from today's market price.
Disclaimer: KORR Value and its affiliates are long ACTA. KORR reserves the right to buy or sell without updating this blog. Readers are encouraged to talk to an investment professional before making an investment.
This article was written by
Analyst’s Disclosure: I am/we are long ACTA. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Disclaimer: KORR Value and/or its affiliates are long ACTA. KORR reserves the right to buy or sell without updating this blog. Readers are encouraged to talk to an investment professional before making an investment.
Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
Recommended For You
Comments (3)
2. Shares of Symbio thru sale of Freeborders in 2013.