mardi 22 décembre 2009

Investment idea: Envoy Capital

NB. This is a letter I sent to the authors of the Greenback'd blog, a great value investing blog specializing in net-nets and liquidations (see my blog list to the left).

On the TSE: ECG or on the NASDAQ: ECGI.

According to Google Finance:

Envoy Capital Group Inc. (Envoy) is an international consumer and retail branding company, and a merchant banking and financial services company. The Company is engaged in providing marketing, communications, and consumer and retail branding services for promoting clients’ products, services and business messages utilizing such media as print, broadcast and the Internet. Envoy provides consulting, branding, packaging and retail design services to clients in Canada, the United States, Mexico, United Arab Emirates, China and South America, as well as project work for clients in other countries worldwide. Envoy conducts its branding services through its wholly owned subsidiary, Watt International Inc. (Watt International), which is a brand strategy and design consultancy. Watt International provides services, such as strategic brand consulting, corporate identity and communications, retail branding and store design, and package design.

At Dec 22, the market cap was 9,84 M$ Canadian, and there were 8,56M Shares outstanding.

Since the end of FY 2005, the number of shares outstanding went from 21,01 M to 8,56 M, thanks to substantial issuer bids in 2006 and 2007.

At the end of FY 2009 (, document released on december 16, 2009, I have attached it as a PDF), the company had cash of 13,931 M$, investments held for trading of 5,154 M$, A-R of 2,00M$, for total current liquid assets of 21,08 M$ (all figures in Canadian $).

The total liabilities are 1,958 M$ (no debt, mainly accounts payable), plus 0,012 M$ of minority interest.

The company therefore has 19,115 M$ of net current liquid assets, and trades for 9,84 M$, which seems to indicate a large margin of safety.

Furthermore, while the company has been losing money on a GAAP basis, it has been cash flow and free cash flow positive in the last 3 years:

In 2007, operating cash flow was 1,605 M$ while cap ex was 0,135 M$ for free cash flow of 1,47 M$.
In 2007, operating cash flow was 5,342 M$ while cap ex was 0,442 M$ for free cash flow of 4,9 M$.
In 2007, operating cash flow was 9,22 M$ while cap ex was 0,122 M$ for free cash flow of 9,09 (!!) M$ (almost equal to the current market cap).

The cash flows mentioned in their reports are higher than those on Google Finance, because they seem to include the trading gains the company made on its investments.

Even then, however, using the Google Finance data, the company is substantially free cash flow positive over the last 5 years (

Also, there has been very heavy insider buying from early 2009 until october, at prices just a shade above the current market price.

2 of the directors own a large proportion of the stock (32,5% between them, and were 2 of the insiders doing the aformentioned buying, see:

Finally, the company announced a restructuring earlier today, in which the CEO was replaced and one of the directors (12,7% owner John H Bailey) resigned. I am not sure of the implications of the resignation of Mr Bailey, could be a negative.

The company also announced a 2,4 M$ charge that would be recorded, and stated that the restructuring would lead to annualized cost savings of 1,8M$.

The final sentence of the press release could interest you (It did interest me!):

In addition to this restructuring plan, the Board of Directors is looking at every opportunity to realize the inherent value of the Company.

I really do hope that the company announces another substantial share buyback, heck they could easily privatize the company even while paying a good premium over the market price!

So feel free to comment and do your own analysis, I would be curious to hear of your opinion, as this really seems to be a dollar selling for a quarter or less!

Thanks for your very informative blog.

Michel Boyce

Disclosure: I own a position in ECG

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