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Access Plans, Inc. (APNC.OB) – A Persistent Undervaluation

|Includes: Access Plans, Inc. (APNC)

 On November 11, 2010, Access Plans, Inc. (APNC.OB) announced plans to explore strategic alternatives to deliver value to shareholders. Evidently management was disappointed with the performance of the company’s shares and began considering taking the company private.

Management has good reason to question its current share price. It has been trading below $1.00 since early May (around 5x earnings) well below its highs around $2.20 in 2007. While the stock has declined by more than 50% since 2007, the company has grown revenue by 120%, eliminated all of its long-term debt, repurchased significant amounts of its shares, and regained profitability through operating margin improvement. In fact, it would seem that management has been successful in achieving its goals related to its 2007 merger with Benefit Marketing Solutions, in that promised expense synergies have largely been provided (“The integration of the two companies will result in direct cost savings and the company expects a large impact on the bottom line.” Source) in that the 5-year average SG&A expense as a % of Revenue prior to the 2007 merger was 69% vs just 21% for the 3-year period following the merger! Additionally, earnings increased 476% after just three years.

ValueUncovered has also profiled Access Plans here, with more evidence as to the value opportunity. The question then remains, why has the market so brutally beat this stock down?

Two of possibilities:

1. Investors don’t understand the company. This may be the situation with Access Plans, as they have undergone a merger and several acquisitions. Investors are left wondering how the latest acquisition’s integration will work and whether or not it will be successful. In the press release announcing management’s intention to investigate value unlocking transactions, the possibility of making further acquisitions is included, which may not solve the problem.

2. Investors are looking beyond the company. The presence of a new competitor, increased or changing government regulations, or something else beyond the company that would affect the company going forward may make a value opportunity persist longer than the investor would like. This may also be the case with Access Plans, as ValueUncovered points out that the changing health regulations in the United States has a debatable effect on Access Plans going forward.

All this shows that it is insufficient to purchase undervalued companies (though, this is obviously the right starting point!). Beyond merely identifying an absolute undervaluation, the investor must also consider what catalysts exist that can be expected to ultimately unlock the identified value. In this case, Access Plans’ management is creating the catalyst itself by exploring a going private transaction, however this was only recently announced and prior to that there was no identifiable catalyst, potentially leaving the investor holding a stock for an extended period, increasing the opportunity cost of the investment.

Author Disclosure: At the time of publication, the author DOES NOT have a position in securities of this company.

Read more: Access Plans, Inc. (OTC:APNC) – A Persistent Undervaluation | Frankly Speaking 
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Disclosure: No Position