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Otelco, Inc. Message Board

  • walk57 walk57 Feb 8, 2013 9:35 PM Flag

    Greed & Fear

    On this date last year, OTT IDS units closed at $12.98/unit. OTT was paying almost a buck a unit in dividends & IDS sub note interest. Life was good for income investors. OTT also had THE worst capital structure in the USA. Bar none. Any hitch in the food chain would cause a major disaster. Two hitches in the food chain happened. TW & the government. Some...Lamp and I forget who the other one was, saw this. They made money.

    Fast forward to 2013. OTT, still profitable despite the major setbacks in the TW contract cancellation & government antics, is trading for $1.50/unit.

    Yes, OTT is not going to pay an unsustainable dividend/interest payment of over $0.24/unit per quarter going forward. Yes, OTT's earnings (at least short term) are taking a hit due to the two events mentioned above. But OTT (even with industry headwinds) will be more profitable long term. Maybe not 1Q 2013, but soonafter. The deal with the banks, at least in my opinion, aligns their interests with the remaining new stockholders, with of course, the banks safety net built in. The banks DO NOT want to see a failure here. They stand to make lots 'o dough combined with their interest & equity stake in the proposed plan.

    Someone here referred to this as a classic Greenblatt situation. I agree. Read the books. OTT is so off the radar of institutions its funny. 10% ownership (and declining at last check) combined with only 13.22M units outstanding is a nice setup. Bankruptcy for some investors (you've seen the posts here) is scary.

    Someone else in investing also once said "be fearful when others are greedy, and be greedy when others are fearful."

    I may be very wrong, but mark me down as greedy here.

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    • I didn't expect such a large pullback after the stock shot up last Friday, and thought it would stay above 2 and head higher. After all, the Valuation Analysis in the 8K results in a current value for the stock of between 2 and 5, and the risk of shareholder value going to zero was eliminated, in my view. I agree that the self-interests of the lenders will ensure that Otelco continues to operate, even if a "Trigger Event" happens. It appears the stock is basing around 1.45 to 1.50, just a quarter above the old base of 1.25. It's a little disappointing for me that it dropped back down so far, but it gives others a very good entry point before heading higher.

      • 1 Reply to lineupsinglefile
      • I agree, but its impossible to know where OTT's price or the price any other security goes in the short term. But I believe OTT is much "safer" now at its current price than it was when I was purchasing it at around $1.30/unit in November. The market has not reflected its reduction in risk...yet. The uncertainty of the banks cooperating on the debt due in October has been removed. As such, I have been a buyer in the last few days.

        While OTT's projected 2013 EBITDA is expected to go down roughly $13M as compared to past years, its balanced out by the over $13M in savings from not paying dividends & interest as OTT has in past years ($0.972/IDS unit per year times 13.22M units outstanding). I also think the Companys 2013 projection ($32.5M EBITDA) supplied to Evercore & the banks is very conservative. That could also balance out some of the dilution you mentioned. Evercore's $33M to $70M estimate of the value of the new stock was calculated solely on OTT's numbers.