Today's closing price of $2.47.
9/30/15 - 6,233,655 Shares short, MIFI closed at $2.21
9/15/15 - 6,060,675 Shares short, MIFI closed at $2.36
With average daily share volume of 272K, 23 days to cover.
Analyst estimate for MIFI's 2016 revenue increased to $336.72M from $303M. Still well short of MIFI's management claim for 2016 revenue. Current Market Cap of $131M is .4X 2016 revenue estimate of $336.72M. At 1X 2016 revenue estimate of $336.72M, MIFI would be trading at $6.25 per share.
"It's Time To Generously Reward MIFI As An IoT Market Leader"
Full disclosure that the author of the article is Long on MIFI.
With today's move, MIFI has broken out above the 50 DMA with little resistance to $3 in the short term before heading to the 200 DMA of $4.
With 6M+ shares short (12% of total shares & 19% of the float), MIFI short covering could accelerate the share price based on a low number of sellers and low volume being traded. Expect a test of the 52 week high heading into and out of earnings when announced during the 1st week of November.
Sentiment: Strong Buy
The results, however, include adjustments that management does not expect to be reoccurring in the future. Other income mainly consists of R35,4 million profit on the sale of TPL Trakker Limited shares and a R20 million fair value gain on the revaluation of the remaining TPL Trakker Limited shares.
With the continued focus to reduce inventory balances, decrease stock days, decrease receivable days and with the proceeds from the sale of the TPL Trakker Limited shares, the group continued to generate positive cash flows ending the year on a cash-positive position of R11,4 million after paying back R30,9 million in debt and a further R9,6 million worth of overdraft facilities. This demonstrates the significant improvement in collections and the effect of controls and processes implemented when compared to the negative cash position of R30,4 million on the prior year.
Revenue dropped 4% from year ago (Yesterday's headline)
Cost of Sales dropped 18% from year ago
Gross Profit grew 5% from year ago
EBITDA grew 73% from year ago
Operating Profit grew 469% from year ago
Profit after tax grew 1,028% from year ago
Earnings per share grew 1,144% from year ago
2015’s positive performance attracted the interest of Novatel Wireless Inc. (Novatel), a company listed on the NASDAQ in the United States of America, which has subsequently resulted in Novatel’s offer to acquire all of the ordinary shares in DigiCore, other than the ordinary shares held by any subsidiaries of DigiCore and the ordinary shares held by the DigiCore Holdings Limited Share Trust for an amount of R4,40 per share, which offer became unconditional on Tuesday, 15 September 2015 to be executed on Monday, 5 October 2015.
Based on the information below published by Digicore & MIFI, we're still waiting on a SENS and Press Release...... (SENS is the equivalent of a SEC filing in the US) On or about Sept 30th & Oct 1st.
The following dates assume that the Scheme becomes unconditional and that neither court
approvals nor the review of the Scheme is required and will be confirmed in the finalisation
announcement if the Scheme becomes unconditional:
Scheme Finalisation Date expected to be on or about Wednesday, 30 September
Scheme Finalisation Date announcement expected to be released on SENS on or about Wednesday, 30 September
Scheme Finalisation Date announcement expected to be published in the South African
press on or about Thursday, 1 October
Scheme LDT expected to be on or about Friday, 9 October
Trading in DigiCore Shares on the JSE suspended from commencement of trade on or about Monday, 12 October
Scheme Consideration Record Date to be recorded in the Register in order to receive the Scheme
Consideration expected to be on or about Friday, 16 October
Scheme Implementation Date expected to be on or about Monday, 19 October
Scheme Consideration payment expected to take place on or about Monday, 19 October
Termination of listing of DigiCore Shares from the JSE at commencement of trade on or about Tuesday, 20 October
Digicore Holdings says FY revenue down 4 pct
FY profit before tax for group increased to R86,7 million compared to R8,6 million in prior period
Gross profit margin increased from 63,5% to 69%
(Revenue coming down was expected as Digicore stopped selling to credit risk and low margin customers. Profit shot up 10X higher based on the sale of stock holdings in Pakistan. Focus on profit margins is paying off at 69% GPM. All in all, a nice report and it's all about the revenue growth potential which is the reason for the Novatel buyout.
My belief is that recent trading activity has very little to do with MIFI financials, valuation, confidence, or anything business related at this point. MIFI's stock is being controlled by a few major holders/funds, but any gains or losses are all on paper until the positions are closed. I believe that is the dilemma facing the short side right now. They know that any significant covering to secure their profits will trigger MIFI higher based on the low volume of daily trading. This will all be played out over the next few weeks and months as the options come closer to expiration.
1 USD = 14.0298 ZAR 1 ZAR = 0.0712767 USD
Depending on what percentage of revenue comes to Digicore in South African Rand, the currency exchange rate will be a factor. On the positive side, MIFI's costs will come down on payroll and expenses in South Africa with the strong dollar. On revenue, it will depend on how much business Digicore does outside of South Africa. In the end, I believe MIFI should see a significant benefit from the strong dollar making this acquisition even stronger.
It was actually 53,000 shares or approx $125,000 of his own money. 15,000 shares Mon, 19,400 shares Tues, and 18,600 shares Wed.
Volume has been so low this week and now that the SEC Filings is out. It will be interesting to see volume tomorrow.
Two items of note with the below Digicore Expectations from the article titled "Digicore earnings will leap" published on August 21st, 2015:
Taking out the profit from the sale of shares in TPL Trakker Pakistan, Digicore grew earnings by 149% YOY. With the sale included, they will report an increase of 797% YOY.
And, Digicore still owns 22.97% of the company so Novatel could decide to sell the profitable stake in TPL Trakker to raise more cash in the future or pay down the debt for the purchase of Digicore.
"Digicore, which is the subject of a buy out offer, says its profitability in the year to June will leap off the back of the sale of shares in a unit. In a trading statement issued to shareholders on Friday, the listed vehicle tracking company said its earnings per share would be at least 26.37c - representing an increase of 797% on the 2.94c a share it reported last year. However, its headline earnings per share will gain at a slower rate, coming in 149% higher at a minimum of 4.38c. Digicore explains the boost to its earnings is mostly thanks to the profit it achieved on the sale of shares in TPL Trakker Pakistan. In the six months to December, Digicore sold 6.3 million shares, or 11.5 percent of its holding, in the Pakistan-based company for R5.9 million, droping its stake down to 22.97 percent."
Key dates ahead: Digicore Earnings release on Sept. 30th and Novatel acquisition of Digicore expected Oct. 19th
The Rodman presentation was posted today under Events & Presentations under the Investors section of the Novatel website. Nothing really new, but a documented visual of all the MIFI projections such as:
$200 million M2M run rate revenue by fiscal year end 2015
35% to 40% Gross Margin for overall business for 2016
45% to 50% Gross Margin for M2M business for 2016
$25M to $40M Non-GAAP Adjusted EBITDA in 2016
All Segments EBITDA positive by year end 2015 including Legacy Novatal, FW, and Digicore
Positive Total FCF in 2016 after interest costs
Also, slide 8 has a T-Mobile logo on a chart as High Margin/High Loyalty for Value Creation. I'm not clear on what this is in reference to between Novatel and T-Mo. Maybe news to come.
MIFI reached a high of $2.97 between Aug 14th and Aug 31st, so that's the peak for the 800K in additional short interest. The closing price on Aug 31st was $2.78 and volume has been extremely low averaging only 444K over the last 7 trading days. Clearly, the shorts haven't covered anything and won't until MIFI gives them a reason.
Today's news about US Cellular isn't going to do it. The Digicore earnings might, but the daily drop in the South African Rand is lowering the revenue estimates in USD denomination. (Rand has dropped by 11.4% since June 18th meaning $80M in USD revenue on June 18th would be $70M in USD today when converted from RAND to USD) John Carney has been on board since April and he needs to deliver with some of his past employers, Google, Sprint & T-Mobile. But, more importantly, MIFI needs to announce some IOT solutions and partnerships as most investors discount the Mobile Broadband business completely even though Alex Mashinsky touted a solidified revenue stream through 2017.
As I said earlier today, the next 4 months will be extremely critical to MIFI's future. Worst case, I believe MIFI management/investors would sell the company as consolidation in IOT is inevitable. (Just look at all the companies presenting at CTIA)
I just watched Glenn's presentation where he expressed and shows the numbers of IOT devices exploding over the next 5 years. He shows examples of applications across many different industries and expresses how the activity to mobilize and connect devices is happening everyday.
MIFI's marketcap is $125M with projected sales revenue of $300M and soon to be $400M after the acquisition of Digicore.
Seems like IOT and MIFI aren't operating in parallel and the next 4 months will be critical for MIFI's future.
August...I was referring to the initial question about the vote to approve the increase from 100m to 150m common shares. Unreserved Common Shares have no affect on MIFI's share price. Right now Analyst's don't have a complete way to value MIFI as the final piece to the puzzle will be the Digicore earnings and guidance. Also, the South African Rand has been falling aggressively against the dollar since the deal was announced on June 18th. (Down 12% from 1 USD = .08168 ZAR to .0722821 ZAR today)
The additional shares will be Unreserved Common Shares Available for Issuance. So they have no affect on the stock price or the valuation of MIFI until the Board of Director's decide to do something with the shares.
Yes, August....Those shares are included in the "reserved" allotment of 47.1 million shares. Reading my post, I addressed how outstanding shares will grow from 52M today to approx 67M (including the Feeney earnout) over a period of time, but the additional 30M won't become outstanding until up to 5 years from now. By then, MIFI could payback the debt, convert the debt at $5.00 per share, or do a combination of the two.
Feeney's reserve is 3,225,806 shares per the closing price of MIFI as of the closing of the deal March 27th. (Per the Proxy. Page 8)
Point of Clarification.....MIFI doesn't have 100 million shares outstanding. At the time of the Proxy, MIFI had 50.3 million shares outstanding with another 47.1 million "reserved" for future issuance. Of the 47.1M "reserved", included is the 30M on the books to cover the $120M convertible note due in 5 years. (also there is a 6M share protection clause as the conversion of the $120M at $5 would be only 24M shares)
All this proxy vote did is provide MIFI will the ability to do further deals if and when it makes financial sense.
Outstanding Shares are approx 52M today and could grow to approx 67M until the note is converted some time in the next 5 years which would take MIFI to approx. 97.5M shares outstanding in the future.
Admittedly, this author has disclosed that they are Long MIFI in his Portfolio and Personal Accounts so take it as you will, but the focus of this article was on HC2. HC2 is invested in MIFI for a future 500% to 1000% return or a $20 to $40+ future stock price. (Following the money)
Novatel Wireless (NASDAQ:MIFI) is the next largest value driver for HC2. HC2 owns 25% of Novatel, a mobile hotspot (they make the Verizon (NYSE:VZ) Jetpack) and industrial internet of things business. This stock is actually quite compelling in and of itself (perhaps we will analyze it in a future write-up), with the talented and entrepreneurial Alex Mashinsky serving as CEO, and Phil Falcone sitting on the board of directors. At a recent MIFI share price of $2.80, the stake is worth $37M (and is currently significantly undervalued relative to its 2016 targets, in our view). Although the stock price can be volatile, this holding is easy to value, as it's just based on the market price of MIFI stock times the number of shares held by HC2.
Sentiment: Strong Buy