Puradyn’s President Reviews Cost & Environmental Benefits of its Engine Oil Filtration

Oil & Gas Product News
September 2, 2014

Puradyn Filter Technology’s (OTCQB: PFTI) President, Kevin Kroger, wrote a great overview of the benefits of its engine oil by-pass filtration as part of the operations management concept of Condition-Based Maintenance (CBM) which seeks to anticipate the needs of the equipment and extend equipment life. A link to the article is below, and we loosely excerpt a few key elements [and add our own in square brackets]:

http://www.oilandgasproductnews.com/article/19317/helping-the-environment-can-also-be-good-for-profits

Puradyn Filter Technologies’ TF-240 filter provides microfiltration for engines with an oil capacity of up to 85 gallons (322 litres). It can be used in multiples to scale to larger engines that hold 500+ gallons (1,890 litres) of lubricating oil. In a test, one international drilling client safely extended oil drain intervals from 500 hours to 2,500 hours.

[That eliminates four oil changes at roughly $1,360 in oil cost per change.
85 gallons x $16 per gallon = $1,360 in oil savings per omitted oil change
$1,360 x 4 = $5,440 Gross oil savings before filter costs
Filters are ~$170 x 5 filters (one for each 500 hours) = $850
$5,440 savings – $850 filter cost = savings of $4,590 – an 84% reduction in costs BEFORE considering savings from reduced labor, downtime and the cost of transporting new and dirty oil.  We have not factored in the initial unit cost which is approximately $2,000.

Further, if we estimate the engine runs 22 hours per day, these savings would replicate at least 3 times each year, amounting to $13,770 in oil cost savings per engine / per year.  

The larger the engine, generally the more oil it uses and the more (costly) valuable it is – and the more its preservation matters from a CapEx standpoint.  Size matters in engine oil filtration as the savings and the protection/preservation value grow substantially with the engine’s size.   We have heard anecdotal evidence that these significant savings are likely dwarfed by savings in engine maintenance, including overhauls, and extended life of these costly assets.  Normal maintenance procedures, such to overhauls and full overhauls may be eliminated or substantially delayed to far longer intervals – with savings exceeding $50k before the consideration of lost productivity from down time.

What makes Puradyn an attractive investment opportunity today, is that since 2007 they have refocused their solutions and business on far larger engines, versus their prior truck and bus focus.  While they proved the technology worked extremely well, and the cost and performance benefits were clear, the magnitude of the cost savings and preservation benefits were limited by the smaller engine size, and therefore became less of a management priority with companies they were working with.

Now with a broad deployment of units within a major customer – the reduced oil and oil change costs, along with reduced maintenance costs and extended engine use, life and time between overhauls, can be very clearly seen and measured – and the benefits are compelling.]   

A large driller client of Puradyn that uses the CBM tools of bypass oil filtration and oil analysis estimates that the annual savings in new oil purchases and waste oil disposal is more than $5 million (US). This translates to an annual reduction of more than 370,000 gallons of engine lubricating oil. In addition, personnel requirements for oil drain maintenance are reduced by as much as 5,500 hours.  [And as any rational company would, they have been expanding their rollout of Puradyn filtration to more and more drilling systems.

The investment thesis for Puradyn therefore rests on their ability to leverage the clear and proven benefits of their filtration technology proven at a major drilling company – by introducing and then demonstrating the solution to other leading drillers.  This process is well underway and management remains very confident and optimistic that these sales and demonstration efforts will turn into broader deployments that should drive its financial performance and shareholder value.  No guarantees – but proven technology and a highly credible team that seems up to the task of selling substantial savings.

Our thesis remains the same following improved Q2 results from the Company.  We are waiting for further market engagement from one or more drilling companies that will signal growth and adoption that PFTI investors have been patiently awaiting.] 

Note: As we have indicated, our parent company, Catalyst Global, is engaged in discussions to be engaged as IR counsel by Puradyn, however no contract has been executed and there has been (and will not be) any compensation paid related to this or future updates.   The principal of CG Focus List / Catalyst Global has established a long position in PFTI Common Stock and will not trade in PFTI shares over the next 5 trading days.

Clean Energy – Flux Power Holdings, Inc. OTCQB: FLUX

Flux Power is Bringing State of the Art Lithium Battery Technology to Large Untapped Industrial Markets:

Forklifts, Tug & Tow Vehicles & Portable Power for In-the-Field Use.

While Fuel Cells by PLUG, FCEL, BLDP & HYGS Garner Headlines and Trading Frenzy – Flux LiFT Packs offer a much lower cost, easier to implement forklift solution versus incumbent lead-acid storage.

PCCCC

Flux has created innovative lithium-ion batteries that deliver more storage and longer lifespan at a better price. Flux’s design transcends the traditional lead-acid battery and adapts to the modern era with a safer and more cost effective product.

Flux has scaled battery technology initially developed to power smartphones and tablets up to industrial applications like forklifts and other vehicles. Flux offers a far superior power source that performs much better, lasts far longer and is substantially more cost effective.

Flux-Battery-Model

 

 

 

 

 

 

 

Flux Investment Thesis:

  • Strong industry interest/validation
    • Tested by major dealers such as Toyota Materials Handling, global leader in forklifts
    • Growing base of distributor & dealer interest in 18 states
    • Working to expand approvals to additional top OEMS
  • Substantial interest & sales potential in large markets such as beverage makers, food & grocery chains, etc
  • Partnerships with:
    • HDT Global – portable packs for military/emergency response
    • Wesley International – electric tow vehicles
    • Penguin Automated – large robots for underground mining / civil construction
  • Proven leadership – CEO /acting CFO Ron Dutt  
    • 30-year career senior management/financial executive experienced with growth and leading through transitions at DHL, Ford, Visa, Directed Electronics, Fritz Co.’s, SOLA Int’l
    • Ron Dutt LinkedIn Profile
  • Substantial Market Opportunities

The slide below is from Flux’s investor presentation (6/19/14). It illustrates the scope of some of Flux’s targeted markets.  Provided Flux can develop industry acceptance, it’s ability to scale its business is both open ended and based on already proven and patented technology.

FLUX Market Opportunity

 

 

Initiating Sales Ramp for  New Products

Flux is developing clear sales momentum for its new product lines launched earlier in the year.  We expect that this trend can accelerate as Flux “gets through” the far longer dialogues and testing that are part of entering new markets and developing a reputation and track record.

The first three quarters of FY ‘2014 (ended June 30) were focused on launching and demonstrating Flux’s LiFT Pack forklift solutions, with initial sales really starting in Q4 ’14.  The uptick in sales during Q2 ’14 related to a specialty portable power solution utilizing solar panels and storage for military field applications.

Flux Power Sales Chart

Flux Lithium-Ion Technology Offers  Array of Advantages

  • More power than lead-acid
    • Higher operating power throughout discharge – performance starts high and stays high
    • Lasts 25% longer between recharges
    • Useful life up to 6x longer
  • Light weight – easy to maneuver
  • Advanced technology & design, salable assembly, proven performance
    • Proprietary Flux Battery Management Systems (BMS)
    • Patented, state-of-the-art technology
  • Climatic adaptability – preforms in cold, wet, dry, humid and ever-changing climates & conditions
  • Customization – can be adapted to customers needs
  • Less expensive and easier to deploy than fuel cell technology

More-Up-Timelithium savings

 

lead acid

 

 

 

 

 

 

 

 

 

 

 

 

Targeting Large, Untapped Markets

While there a wide variety of attractive market opportunities for larger lithium-ion storage solutions, Flux is targeting three primary markets, but is focusing the bulk of its efforts on motive power and portable power.

  • Industrial Motive Power – Lithium packs for lead-acid replacement & new applications:
    • Lift Equipment (forklifts) starting with Class III Lifts “Walkies” via Flux LiFT packs – once Flux has solidified the Class III opportunity, it plans to scale-up its solutions for larger, higher priced Class 1 & 2 lifts.
    • Tug & pull equipment
    • Robotics for mining & civil construction – initial prototype delivered
  • Portable power - Quiet, clean, reliable power source that replaces generators/fuel for:
    • Military field operations
    • On-location entertainment production
    • Events & other remote applications
  • Stationary Power – Solar and Wind Farm Storage for Utilities
    • Longer-term opportunities
    • Pursuing partnerships with grid integrators

Partner Comments:

q2
weley

 

 

 

toyotatoyota quote

 

 

 

Disclosures: The parent of CG Focus List, Catalyst Global LLC, is an investor relations consultancy based in New York City.  Catalyst Global was formed by an investor relations professional with over 25 years of experience serving micro-, small- and midcap public companies.  Flux Power Holdings, Inc. is a client of Catalyst Global and receives over 75% of its IR retainer compensation in the form of restricted Flux common stock that vests over a one year period. Coverage of Flux Power reflects CG Focus List/Catalyst’s belief that Flux Power offers a very attractive special situation investment opportunity based on the deployment of proprietary lithium-ion storage technologies within industrial markets that have been mired in a century-old technology with myriad flaws. The preparation of this CG Focus List report is outside the IR relationship between Catalyst Global and Flux but is intended to help expand awareness of the Flux story. Neither CG Focus list nor Catalyst Global have received compensation of any kind for the preparation and distribution of this Alert. Flux management was not involved in the preparation or review of this report.

CG Focus List and/or its affiliate Catalyst Global owns approximately 0.8% of Flux’s outstanding common stock (the shares are not registered) pursuant to IR retainer compensation and through our participation in a private placement in March 2014.  CG Focus / Catalyst have a long term investment horizon (1-5 years) for their Flux investment and have no plans to sell any Flux stock for at least the next six months (we do have to pay our bills periodically and they generally request cash!).  Further, the founder of Catalyst Global is the tallest son of Timothy Collins, Sr.,  Chairman of Flux Power Holdings. Tim Collins introduced us to Flux’s CEO last fall and later became Chairman in spring 2014. We are very willing to answer questions on the status of our relationship and ownership for anyone who asks, as we completely understand there may be questions or concerns.  Rest assured that our integrity, ethics and adherence to disclosure standards are the bedrock of who we are and what we do each day, no matter the near term financial consequences.  It’s the way it should be everywhere – but alas it is not.

Authors: Our amazing intern this summer, Kate Keller, along with Catalyst Global staffers Chris Eddy & Eric Lentini

cropped-LOGO-Cropped.pngPuradyn Filter Technologies Incorporated
OTCQB: PFTI


Proven Bypass Oil Filtration Technology – t
hat Reduces Costly Oil
Changes, Downtime and Engine Wear – is Poised for Sales Breakout

pic b

Puradyn produces innovative engine oil filtration systems that drastically reduce costs, maintenance and downtime. Puradyn filters remove oil contaminants and replace additives – keeping oil in “like new” condition, reducing oil changes and increasing engine life.

Having proven the technology with several industry leaders, PFTI is now engaged in sales efforts with several substantial oil field and industrial companies that offer (but by no means guarantee) breakout sales potential. (see “New Business Activity & Outlook”)

PFTI’s CEO is sufficiently confident in Puradyn’s outlook, he has funded working capital deficits totaling $10M over several years. His background and integrity (we met with him) provide us the confidence to introduce you to this nano-cap name.

chart

 

 

 

 

 

 

 

Puradyn Investment Strengths:

  • Patented filter technology delivers >75% decrease in oil use, oil maintenance and related costs.
  • Thousands of installations in operation globally.
  • Razor-razor blade model – delivers solid ongoing revenue streams from replacement filters required to maintain filtration performance.
  • Rapid customer ROI: 100% cash-on-cash return in as little as a few weeks to several months.
  • Compatible with several large engine markets:
                                  • Oil drilling; pipeline compressors
                      • Marine vessels
                      • Mining haul trucks
                      • Hydraulic systems
                      • Heavy duty equipment
  • Solution works on all size engines including CAT, John Deere, MTU, etc.
  • Scalable production facilities support growth.
  • Impressive management team owns 28%.
                                  • CEO Joseph Vittoria was previously CEO of AVIS.
  • Very attractive valuation relative to annual customer savings and global sales potential across all markets.

chart update


“Our
patented bypass oil filtration system saves
one oil industry customer over
$5M per year.”
Joe Vittoria, Puradyn CEO

Yet PFTI’s market cap is roughly 2X this customer’s annual savings – making PFTI worth far more to the customer – than to all of Wall Street.

The CG Focus List thesis is that PFTI’s valuation hugely understates the global cost savings its patented technology could deliver – and that will ultimately be reflected through share price appreciation or M&A when sales ramp.

 

picture text box 4

Product Strengths:

  • Demonstrated nearly 70% efficiency at removing solid contaminants below 1 micron.
  • Easy-to-change filters; rugged filter canisters built for extreme conditions.
  • Filter replacement ever 250-1,000 hours
                                    • Up to 24 filter replacements per year.
                                    • Saves up to $3K per avoided oil change in large oil field applications.
  • Increases machine efficiency, oil circulation and purity and engine life.
  • Applicable to all diesel, gasoline and gas engines.
  • Approved by John Deere.

Customers/Validation:

U.S. Military

  • Supplying military contractor with 750 small units over 3 years, estimated revenue of $300K.
  • Military Tractors (Freightliner).
  • Armored fighting vehicles (MRAP).

Nabors Industries – Oil Field Services

  • Customer since 2009, ~ 2,000 units.
  • International division saves over $5M per year on 400 systems for large oil drilling rig engines.

South Ferry (Shelter Island, NY)

  • Customer since 2002.
  • Puradyn extends oil drain intervals from 250 hours to 3,000 hours on each vessel.
  • Extended time to engine overhaul by ~300%.

pic 2

 


pura
DYN’s rugged, high efficiency, multi-stage bypass filtering system consists of an external canister that houses a disposable filter element (with time release additives) and a heated chamber to evaporate water, fuel vapors and other gaseous contaminants.

 

 

 

Why Bypass Filtration is Needed

60% of engine wear is caused by particles between 5-20 microns, yet most OEM full flow filters only perform efficiently down to particles between 15-40 microns.

puraDYN bypass oil filtration systems filter particles as small as 1 micron or less, reducing engine wear from particles not trapped by normal full flow filtration. A micron is really small – 1/1,000th of a millimeter or 1/25,400th of an inch.

Emission Regulations are Driving Demand

New engines are designed to meet strict emission regulations, with the unintended consequence of generating greater amounts of soot in the oil.  Increased soot and other solid contaminants, plus fuel and water that cannot be effectively removed by full flow filters, create greater need for bypass filtration.

picture 3

 

 

puraDYN’s simple bag-and-trash filter element disposal.

 

 

 

 

New Business Activity & Outlook

Currently, a number of evaluations are in progress in the U.S., Mexico, Central  and South America, Africa, Indonesia, China, Russia and the Middle-East, and a few are about to begin.

Each customer prospect insists on a product evaluation, given the high value of the engines involved and their requirement for 24/7 service.

Of note, one evaluation is for one of the world’s largest oil & gas companies. Puradyn has already achieved the customer’s initial objective, but one final test is underway in Europe. This final evaluation is within 80% of the customer’s targeted duration and is progressing as planned.

 

Disclosure: The parent of CG Focus List, Catalyst Global LLC, is is an investor relations consultancy.  Puradyn Filter Technologies is not a client of Catalyst Global. Coverage of Puradyn reflects the belief of Catalyst and a fund manager we respect that the company represents a very attractive special situation. Neither CG Focus List nor Catalyst Global have received compensation of any kind for the preparation and distribution of this Alert.

CG Focus List and/or its affiliates do have long positions in Puradyn shares but per our trading policy, we will not effect any transactions in Puradyn shares for five days following the distribution of today’s article.

Authors: Kate Keller & David Collins – CG Focus List

www.cgfocuslist.com   ✪ 212.924.9800   ✪   info@cgfocuslist.com

SeekingAlpha Email Alert Re: Gotham Report on EBIX

Screen Shot 2014-02-21 at 11.12.21 AM

Update 12:28 Eastern:   I am now hearing that Gotham did not publish a report.  Anyone who can corroborate one way or the other?  It seems the email alerts are sent to 2,349 people as of just now…. interesting – and one of them is me.

Screen Shot 2014-02-21 at 12.27.27 PM

Click on image to read it: The Gotham City Report has not shown up on SeekingAlpha yet – likely because it’s a Pro Report, that is distributed to paying subscribers around 24 hours prior to their making it available to us unwashed masses.  Another great strategy to increase the impact (damage) that their rumor mongering can have on the share price.  Note that Greg Farrell at Bloomberg seems to be carrying the short’s water as he’s quick to report extensively their allegations – but silent on favorable developments like the dividend re-initiation and the preliminary settlement of the class action suit – with no admittance of wrong-doing. In our view that’s a crushing blow to the all the allegations to date.

The class action was based on the unverified allegations in short reports hosted on SeekingAlpha (Gotham City and another).  That triggered a stock drop that pulled in the ambulance chasers and got the class action suit moving forward.  Adding to the insanity, the Dept of Justice launched an investigation that was based on the Class action allegations (it seems someone had been actively pushing the DOJ to get involved and uncover all this wrong doing… wonder who might have done that?) – so you have DOJ actions that are based on issues who’s genesis is found in anonymously authored short reports that were masterfully launched from SeekingAlpha.  Gotham’s 3 part report on EBIX in March 2011 is worthy of the Pulitzer equivalent of the highest honors one can give to a masterfully spun tale of nefarious doing built on a litany of half truths, missed represented facts and clever omissions.

While we’ve owned the stock for over 10 years – and while it’s been a spectacular investment – over the past 3 years we have suffered true financial injury from the short sellers very effective campaign, what galls us most is how the markets seem all to happy to facilitate the process and the regulators rough up the victim!

Join us at our sister sites – Seeking Compelling Mendacity.

CG Focus

EBIX to be Acquired for $20 Cash per Share by Goldman, Sachs

Good news – bad news.

Good news first: We are batting .500 on our stock picks for CG Focus List with today’s news that Ebix, Inc. (Nasdaq: EBIX) will be acquired by an affiliate of Goldman, Sachs for $20 per share.   The release is here: http://finance.yahoo.com/news/ebix-inc-enters-merger-agreement-133029301.html  (That’s far less impressive when you note that we have only profiled two stock and up until today they were both in the red.)

CG Focus List recommended EBIX intraday on February 13, 2013 but used the day’s close of $18.42 to track performance of the idea. Based on that price, the deal at $20 (plus one $0.075 dividend) provides nearly a 9% return in less than three months – implying an annualized return over 36%.  I guess we should be dancing in the isle … but we are not.

More good news: Strangely, the market seems to think the stock is worth more than the deal price, as EBIX closed at $20.60 and held a premium in aftermarket trading to $20.25 based on what my limited resources show.  Unfortunately, given the fear, lack of transparency and limited awareness around this company – and the fact that Goldman didn’t feel compelled to pony up more than a paltry 11x trailing EPS (and not much more than 10x trailing operating cash flow) it’s hard to understand where a higher offer would come from.  And I’m not holding out much hope that the sea of ambulance chasers now trying to shake down the company will ever deliver any value to anyone but themselves.

I am a novice in the world of merger arbitrage – but am guessing the current premium to the deal price is a function of EBIX’s huge short position: 10.6M shares short at April 15th – 28.6% of total shares outstanding.  It seems that some of the shorts are deciding to throw in the towel as this doesn’t look like it will get any better and then there’s the concept of cleansing a portfolio of failed concepts to make a more appealing product for fund participants. Once the shorts unwind their positions the premium should disappear and normal deal pricing would come into play – unless I’m completely wrong and a white knight is on the way – but again, I’m not holding my breath.

The final point to be made is that the long term performance of Ebix and its shares has been nothing short of amazing, and the CEO Robin Raina and his team are to be commended, and I am a thankful beneficiary of the value creation since March 2003.

Robin Raina was named EBIX President & CEO in 1999

The Bad News:  So what is the bad news in this you may ask and if so, perhaps you may wish to stop reading for what is to follow is a bit of spoiled, self pity and venting on what could have been even thought  There were no long term investors harmed in the making of this company…

The bad news is that this tremendous success story succumbed to a merger agreement valuing the Company at a paltry 11x trailing EPS despite its high operating margins and cash generating efficiency – this business really sang financially and generated enormous cash.  That’s why a core group of us long term investors hung on despite some terrifying bouts of short attacks and body blows to the stock price. Some of us even risked our reputations to defend a company’s honor and value in the face of those attacks and freely offered experienced counsel on ways to bolster Ebix’s Wall Street profile, reputation and to support/defend its market value from the rabid short selling vandals.

For that loyalty, we are now getting cashed out after a substantial decline in the value of our equity over the last 2-3 years,  despite continued strong execution in the business.

Note to self – next time sell more, a lot more!

To put today’s deal into perspective, EBIX’s shares closed 10% higher at $22.30 on May 2, 2011 – just two years ago, and that price represented an enormous haircut – courtesy of a remarkably well orchestrated short attack launched from Seekingalpha.com – from a high closing price of $29.33 on March 23, 2011 (and yes, I’ve not adjusted for deals, etc. so it may not be as bad). That attack was masterful in every aspect of its manipulation of facts to create illusions of impropriety, poor character and even fraud – and it took the stock as low as $13 before its venom started to wear off (for a while, only).

During this two year period of shareholder value smallification, the Ebix business hummed along very impressively as reviewed below and they even bought back a lot of stock. But for some reason, the Board and management had clearly develop no plan to restore or even protect the Company’s image should they try to attack them again.  Two years later, a perpetrator with a remarkably similar pattern – struck again.  And again EBIX proved ineffective in translating their impressive business, domain expertise, recurring revenue base, and growth record AND potential into greater shareholder value or in mitigating its loss from rogue reports.

Ebix, Inc. Income statement Highlights
(in thousands) 2012 2011 2010 Change 2010 to 2012
Total Revenue 199,370 168,969 132,188 51%
Operating Income or Loss 77,008 68,748 52,507 47%
Income Before Tax 78,029 73,495 59,654 31%
Income Tax Expense 7,460 2,117 635 1075%
Net Income Applicable To Common Shares 70,569 71,378 59,019 20%

So it’s hard to jump for joy with this deal news. For someone who has spent a career in helping companies forge relationships and appreciation with investors – it causes immense frustration that Ebix refused to meaningfully alter their IR strategy or approach and that they were unable to proactively neutralize the short theses and build stronger support from Wall Street.  There was much that could have been done that would have either eliminated the need for this transaction or caused the buyer to pay more for the value they are receiving.

In closing, this outcome was a shock but not surprising – for at the end of the day – EBIX has chosen a path that will deliver great financial benefits to its management team and a modest lift to the recent share price for its holders.  Likely of far greater importance was putting an end to the incessant and highly personal critiques from “the shorts” and the widespread paranoia, concern and distrust these attacks were able to create across Wall Street.  And with petty avarice aside, most long investors such as myself are able to walk away from this stock having earned a solid or even remarkable return.  And professionally, as in a lab experiment, it allowed me to see first hand the valuation vacuum that can develop when investor communications, relationships and open dialogue are not optimized.  In effect, I was witnessing the “control” patient taking the placebo, and it confirmed the fundamental value that my skill sets do provide for those who listen.

So that’s a very long winded wrap up – and so now we need to find some more ideas to present and try to extend our hand.

Thanks for reading.

CG Focus List

P.S. We remain confident that our second CG Focus List stock, Klondex Mines Ltd. (TSX: KDX or OTCQX: KLNDF) is in great hands with a new management team and is well poised to make us look good as they transition from exploration into initial gold production this year and continue to explore and develop their Fire Creek property in Nevada.

 

1st Copperfield, Now Gotham City – Anonymous EBIX Attacks Veiled As Research

Here’s the other article I posted to provide some counterpoint to the Seeking Alpha Post by Gotham City.  The revised post (which included SA’s editorial comment) is below, followed by the initial post that was rejected.   While I am a shareholder, and have suffered from the Gotham City attack, the bigger issue is one of fairness in reporting, blogging and access.  That Gotham could do what it did and then have my reasoned rebuttals be deferred or declined for such nebulous reasons, even though I have a 7-year history with SA dating back to my first article on EBIX in September 2006: http://seekingalpha.com/article/17662-the-long-case-for-ebix is hard to understand?

Screen Shot 2013-02-22 at 10.19.15 AM

First Copperfield and Now Gotham City – Anonymous EBIX Attacks Veiled As Research – Will We all Be Fooled Again? (submitted 2/21/13) 

The downside to a free country is that a fool and his money can still be parted when they give heed to an anonymous attack of the credibility of a company and its management by a well crafted propaganda campaign that recycles previously disproved myths.

Alas, EBIX needlessly takes it on the chin yet again but for those who are patient, it creates a more attractive entry point to invest in a company with an impressive track record and a three year growth goal of $500M with comparable operating margins of ~39%. I am told that in achieving this mark EBIX shares would rise ~200% over the next three years while also paying a 1.6% yield.

But let’s get to today’s rehash report:

It’s easy to sling mud when you don’t identify yourself – the Gotham City Research name and website seem constructed solely to host this EBIX attack as they did not exist prior to last week – after the stock had broken out of a long-term trading range. The Gotham site was created only last week (Feb. 16th) as this confirms.

But this is not the first time EBIX has been so savaged. On March 22, 2011, another start-up, anonymous site “Copperfield Research” launched a savage short campaign that was amazing in its manipulation of facts and its success – the stock has never regained the ground it lost. They teased out the report on the 22nd with a link to the full report and the stock flagged a bit that day, closing at $28.70, down from the $29.07 close on the 21st but then rallied on March 23rd to a $29.33 close. Then the anvil fell on March 24th with the launch of the report in three parts – and EBIX cratered $7.10 to $22.23 on nearly 15M shares traded in one day – clearly a more artful job than Gotham has managed! But the greater damage was the impact the report had on the company’s credibility, with investors shunning the stock all the way to a closing low of $13.38 on October 3, 2011. It was very hard to hold your position under such tremendous pressure… and many didn’t.

So Gotham’s effort mirror’s previous campaigns that were very successful in creating fear and causing EBIX shares to fall despite solid ongoing growth and substantial cash generation used productively for debt repayment, share repurchases and dividends – all of which are pretty hard to fake. Cash flow is not typically what you see in good short ideas so the naysayers have had to be creative in building new reasons to fear EBIX.

Gotham hangs a lot of their view on errors in the 2010 and 2011 10-Ks and yet those filings have been reviewed by the SEC and just last month… with the benefit of all of 2012 for them to review the data. On Jan. 16, 2013 the SEC issued a “We have completed our review of your filings” letter for EBIX’s 2010 and 2011 10-Ks – link to letter:

For me, that puts a fair amount of cold water on the allegations of an SEC investigation of the Company and other claims.

As in the case of the Copperfield reports in 2011 (true masterpieces in propaganda, persuasion – I really am impressed in their manipulation of facts to make their case) the authors are not disclosed and therefore they don’t have to answer for their comments.

Copperfield’s initial report – part 1

Gotham took the same “Part 1″ approach to their report, both suggesting more to come and creating a perception of in-depth review. It’s a genius positioning that Copperfield used in breaking up what would normally be one report into three installments all posted at the same time.

Similarly, Copperfield had no prior “research” and has written nothing since, and like Gotham seems to have been created with the sole aim of serving as a vehicle to drive down EBIX’s share price. So far it’s been very effective and even Bloomberg has jumped on the innuendo bandwagon filing an article today citing the report and allegations of an anonymous firm created last week!

I haven’t even read the report closely yet – but I’m pretty certain I will find a rehash of artfully staged allegations that are very light in detail or specificity and long in opinion and in many cases present facts in a completely misleading light so that those who don’t conduct their own due diligence will likely be persuaded.

Here’s a rebuttal I wrote regarding Copperfield providing broad access to Craig-Hallum’s commentary:

The timing of today’s report seems obviously aimed at quelling the momentum of a stock that has finally started to cast off the affects of the most recent rumor recycling that occurred in a Bloomberg article citing four sources (four is always better than one – and when have every seen four sources for a rumor?) confirming that EBIX was the subject of an SEC investigation. That article also sent the stock into a tailspin. And surprise, surprise, Copperfield was there to lend a hand again.

But the Bloomberg article had to be corrected because the author grossly misstated facts around the CEO’s shareholdings and created the impression that the CEO’s holdings had dropped from over 3M shares to under 500k. I would guess that erroneous view came from one of the four sources because I know the Bloomberg reporter a little and find him open to hearing both sides of a story and far to experienced to have botched the shareholding data in his own research. The Form 4 filings are just too clear for him to have come up with that perception on his own – it seems it was fed to him by his sources and clearly not fact checked. As for the other allegations – only time will tell if any hold water.

As I have written before, I have known the CEO for around 10 years and worked for EBIX for 2 years as its IR counsel. While I find various aspects of EBIX’s IR profile to be wanting, and have expressed same to the CEO, I have found his execution in the business to be nothing short of amazing and so I have put up with a volatile stock and a depressed valuation for nearly 10 years of being a very satisfied shareholder with an adjusted cost basis well below $1.00.

EBIX’s CEO literally transformed the company, fixing the original business and acquiring amazing businesses that are very profitable, defensible and recurring. He has been fierce on cost controls and driving margins and efficiencies and has had little or no use for paying fees to Wall Street investment banks for M&A counsel or corporate finance assistance. He’s done the deals and raised the money for them with his own creativity and resources. The downside of that approach has been greater profitability and far less mainstream support

If you wonder about how were let go, our firm was gently fired after two years because the CEO felt he was not fully utilizing our services (which was indeed the case) and that he could perform the IR function in-house with existing resources and save the $$. He acknowledged that it might not be done as well – but back in ~2006 – given the scope of the company, our fees were a relevant savings and that cost discipline has been consistent during my association with the Company.

A few years ago having reached a far greater scale, he staffed up the IR role with a very capable former Wall Street analyst who does a great job.

Last but not least – I’m a fan but I’ve been around long enough to keep asking the tough questions as falling in love with a story is never wise… ever!

I have several sources who track the company closely, but I must confess I also rely on the due diligence and monitoring of EBIX that is done by its leading shareholders:

                                                             % of
Firm                       Shares             Outstanding
Fidelity                          3.9M               10.0%

BMO Asset                   2.3M                 6.0%

Wedge Capital              2.1M                 5.5%

Capital World                 1.7M                4.5%

TimesSquare                 1.4M                3.8%

Riverbridge                    1.3M                3.3%

Thompson
Siegel            1.1M                 2.8%

Pyramis*                         0.9M                 2.3%

Ashford Capital               0.9M                2.3%

Opus                              0.9M                  2.2%

*Pyramis is a Fidelity sub.

The Bottom line is that I’ve seen much sizzle and no steak, and so I encourage investors to look for corroboration of any of the allegations. It’s easy to call someone a crook but impossible to defend against it once it’s been said. Even SEC comment letters don’t’ seem to count.

From all I have seen, I have had no reason to believe there is any fundamental issue with EBIX. I just think they run a good business, do not pander to Wall Street, use tax strategies employed by multinational companies, are very disciplined in cost management but have not bought their way into a broad base of investment banking relationships that would come to their defense in such times. They are orphans in a sense, making them very vulnerable to these attacks. I do believe management needs to take this situation very seriously and take some steps to address the company’s credibility within Wall Street. In the interim, I count on EBIX to keep generating cash and paying me to wait for them to grow out of this vulnerability.

Here’s what Seeking Alpha wrote about my initial post – holding up its publishing past the market’s close. Wouldn’t it be more valuable for them to publish it and have me do an addendum? – but the above now reflects my attempt to address their comments.

Thank you.<br/>We agree – there needs to be more context presented about the history of Copperfield, and the relevance of Gotham to EBIX. It’s a bit unclear how this all came about as written. Some of the history of how prior firms (Copperfield) have attacked EBIX and driven down the stock, and how this is deja vu all over again with Gotham would be helpful. You hint at it, but again, it isn’t quite clear how it all fits together.<br/>Additionally, if possible, can you please embed the links into the text as opposed to leaving the native links as you have? So, for example, you might link to Gotham’s website on the word “site” in that paragraph instead of leaving in the native link. You can do so by highlighting the word in the editor, then clicking on the icon that resembles a globe with chains around it at the top. <br/>

Disclosure: I am long EBIX. 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.

Additional disclosure: I have been an EBIX shareholder since March 2003.

This article is tagged with: Long Ideas

 

 

Declined

Dear David Collins,

This revision doesn’t pass muster. As noted in your other piece, we welcome constructive counterpoints. If you would like to offer a constructive rebuttal of the investing issues raised, we will reconsider, but this version does not inform investors.

Sincerely Yours,
SA Editors

 

Post as Instablog

Delete Post

 

INITIAL SUBMISSION

First Copperfield And Now Gotham City – Anonymous EBIX Attacks Veiled As Research

 

 

First Copperfield and Now Gotham City – Anonymous EBIX Attacks Veiled As Research – Will We all Be Fooled Again?

 

The downside to a free country is that a fool and his money can still be parted when they give heed to an anonymous attack of the credibility of a company and its management by a well crafted propaganda campaign that recycles previously disproved myths. Alas, EBIX needlessly takes it on the chin yet again but for those who are patient, it creates a more attractive entry point to invest in a company with an impressive track record and a three year growth goal of $500M with comparable operating margins of ~39%. I am told that in achieving this mark EBIX shares would rise ~200% over the next three years while also paying a 1.6% yield.

But let’s get to today’s rehash report:

It’s easy to sling mud when you don’t identify yourself – the Gotham City Research name and website seem constructed solely to host this EBIX attack as they did not exist prior to last week – after the stock had broken out of a long-term trading range. The Gotham site was created only last week (Feb. 16th) http://www.whois.com/whois/gothamcityresearch.com

Today’s article is quite reminiscent of previous campaigns that were very successful in creating fear and causing EBIX shares to fall even though the business continues to grow and generate substantial cash (not typically what you see in good short ideas) used productively for debt repayment, share repurchases and dividends – all of which are pretty hard to fake. It’s rare to find a short idea that generates lots of cash…

Gotham hangs a lot of their view on the 2010 and 2011 10-Ks and yet those filings have been reviewed by the SEC and just last month… with the benefit of all of 2012 for them to review the data, the SEC issued a “We have completed our review of your filings” letter for EBIX’s 2010 and 2011 10-Ks – link to letter: http://www.sec.gov/Archives/edgar/data/814549/000000000013002804/filename1.pdf

For me, that puts a fair amount of cold water on the allegations of an SEC investigation of the Company and other claims.

As in the case of the Copperfield reports in 2011 (true masterpieces in propaganda, persuasion – I really am impressed in their manipulation of facts to make their case) the authors are not disclosed and therefore they don’t have to answer for their comments.

http://seekingalpha.com/article/259998-ebix-not-a-chinese-fraud-but-a-house-of-cards-nonetheless-part-i

Gotham took the same “Part 1″ approach to their report, both suggesting more to come and creating a perception of in-depth review. It’s a genius positioning that Copperfield used in breaking up what would normally be one report into Three installments all posted at the same time.

Similarly, Copperfield had no prior “research” and has written nothing since, and like Gotham seems to have been created with the sole aim of serving as a vehicle to drive down EBIX’s share price. So far it’s been very effective and even Bloomberg has jumped on the innuendo bandwagon filing an article today citing the report and allegations of an anonymous firm created last week!

I haven’t even read the report closely yet – but I’m pretty certain I will find a rehash of artfully staged allegations that are very light in detail or specificity and long in opinion and in many cases present facts in a completely misleading light so that those who don’t conduct their own due diligence will likely be persuaded.

Here’s a rebuttal I wrote regarding Copperfield providing broad access to Craig-Hallum’s commentary:

http://seekingalpha.com/article/260820-craig-hallum-research-report-provides-counterpoint-to-copperfield-claims

The timing of today’s report seems obviously aimed at quelling the momentum of a stock that has finally started to cast off the affects of the most recent rumor recycling that occurred in a Bloomberg article citing four sources (four is always better than one – and when have every seen four sources for a rumor?) confirming that EBIX was the subject of an SEC investigation. That article also sent the stock into a tailspin: http://www.bloomberg.com/news/2012-11-05/ebix-accounting-practices-said-to-be-probed-by-sec.html

But the Bloomberg article had to be corrected because the author grossly misstated facts around the CEO’s shareholdings and created the impression that the CEO’s holdings had dropped from over 3M shares to under 500k. I would guess that erroneous view came from one of the four sources because I know the Bloomberg reporter a little and find him open to hearing both sides of a story and far to experienced to have botched the shareholding data in his own research. The Form 4 filings are just too clear for him to have come up with that perception on his own – it seems it was fed to him by his sources and clearly not fact checked. As for the other allegations – only time will tell if any hold water.

As I have written before, I have known the CEO for around 10 years and worked for EBIX for 2 years as its IR counsel. While I find various aspects of EBIX’s IR profile to be wanting, and have expressed same to the CEO, I have found his execution in the business to be nothing short of amazing and so I have put up with a volatile stock and a depressed valuation for nearly 10 years of being a very satisfied shareholder with an adjusted cost basis well below $1.00.

EBIX’s CEO literally transformed the company, fixing the original business and acquiring amazing businesses that are very profitable, defensible and recurring. He has been fierce on cost controls and driving margins and efficiencies and has had little or no use for paying fees to Wall Street investment banks for M&A counsel or corporate finance assistance. He’s done the deals and raised the money for them with his own creativity and resources. The downside of that approach has been greater profitability and far less mainstream support

If you wonder about how were let go, our firm was gently fired after two years because the CEO felt he was not fully utilizing our services (which was indeed the case) and that he could perform the IR function in-house with existing resources and save the $$. He acknowledged that it might not be done as well – but back in ~2006 – given the scope of the company, our fees were a relevant savings and that cost discipline has been consistent during my association with the Company.

A few years ago having reached a far greater scale, he staffed up the IR role with a very capable former Wall Street analyst who does a great job.

Last but not least – I’m a fan but I’ve been around long enough to keep asking the tough questions as falling in love with a story is never wise… ever!

I have several sources who track the company closely, but I must confess I also rely on the due diligence and monitoring of EBIX that is done by its leading shareholders:

                                                            % of
Firm                           Shares            outstanding

Fidelity                       3.9M              10.0%

BMO Asset                  2.3M               6.0%

Wedge Capital           2.1M               5.5%

Capital World             1.7M               4.5%

TimesSquare             1.4M               3.8%

Riverbridge                1.3M               3.3%

Thompson Siegel       1.1M               2.8%

Pyramis*                    0.9M               2.3%

Ashford Capital         0.9M               2.3%

Opus                           0.9M               2.2%

 

The Bottom line is that I’ve seen much sizzle and no steak, and so I encourage investors to look for corroboration of any of the allegations. It’s easy to call someone a crook but impossible to defend against it once it’s been said. Even SEC comment letters don’t’ seem to count.

From all I have seen, I have had no reason to believe there is any fundamental issue with EBIX. I just think they run a good business, do not pander to Wall Street, use tax strategies employed by multinational companies, are very disciplined in cost management but have not bought their way into a broad base of investment banking relationships that would come to their defense in such times. They are orphans in a sense, making them very vulnerable to these attacks. I do believe management needs to take this situation very seriously and take some steps to address the companies credibility within Wall Street. In the interim, I count on EBIX to keep generating cash and paying me to wait for them to grow out of this vulnerability.

Disclosure: I am long EBIX. 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.

Additional disclosure: I have been an EBIX shareholder since March 2003.

 

 

 

EBIX – Analyst at $11B Fund Counters Gotham Smear

I had submitted the following article to Seeking Alpha but it was rejected so rather than play the game, I decided to publish it here.  Hope you find it helpful.  The analyst I site is at a highly credible growth fund manager known for long term ownership of stocks. He of course is not in a position to comment on behalf of his firm so he asked that I withhold his name.  SA should understand that.

Screen Shot 2013-02-22 at 10.20.23 AM

A Screen Capture of my “Declined” advisory from SA.

Interesting that SA refuses to publish my post when they freely published an anonymous report from a newly created firm…  I’m not comfortable with their editorial censorship – particularly given all the things I have read on the site.  It does seem they are not being impartial?  Let the readers decide.

Wanted to pass on the following unsolicited comments from an analyst at a well respected, $11B growth manager regarding EBIX and the Gotham City “Report.” He has particular expertise in accounting in Singapore and accounting in general – clearly something the Gotham writers are assuming most people don’t have. His fund does not have a position in EBIX at this time.

I called the analyst who sent this to me to thank him and get his permission to redistribute it. Among the things he said was the accounting was perfectly normal in his view and even noted that Google has 8 Singapore registered sub’s but mentions none of them in their 10-K (I take him at his word). He said it made sense to him but he could see how they (Gotham) were presenting this as irregular.

Subject: EBIX

Date: February 21, 2013 3:03:13 PM EST

I saw the move in EBIX shares today, and read the “research” by Gotham City Research on Seeking Alpha. Neither I nor my firm have a position in EBIX, but I have been following them since meeting with the company last summer. I saw your comment on the article and thought you may handle IR for the company. If that is the case, I would like to pass along a few observations that may be of use to you. For background, I have an undergraduate degree in accounting and finance, am a CFA charter holder, and at one time negotiated a pioneer tax status extension with the Singapore Economic Development Board (EBD) for a company that had made a number of acquisitions.

1. The credibility questions in regards to the 990 filings do seem spurious, as the author fails to point out that Robin Raina has contributed “about” $2MM a year to his foundation for the past few years, which is perhaps what he was referring to in the interview.

2. The inter company (aka “related party”) loan that seems to be the primary concern of the author would not be disclosed on a consolidated balance sheet, unless the obligation was subject to exchange rate fluctuations, which is almost never the case. If inter company transactions were reflected on consolidated balance sheets, or in footnotes, companies like Google or GE would require hundreds of pages for footnotes alone in their 10-K.

3. To me, knowing accounting, the transactions seem to be fairly obvious, though confusing to those that have never seen cross border IP transactions at the granular level. It appears that US Parent loaned money to Singapore sub, which purchased the intellectual property in the Australia transaction, with the tangible assets staying with the Australian sub. On a consolidated basis, this all rolls up to one clean balance sheet. Why? The company is taking advantage of Singapore’s favorable tax climate by having that subsidiary purchase the intellectual property in the foreign transaction, and then using “transfer pricing” to determine the portion of the revenue for each contract that is “earned” with the IP in Singapore, with the remainder of the revenue “earned” in Australia, thus lowering the effective tax rate. See comment 5 below.

4. The Australia cash flow statement does appear to be somewhat incorrect, in excluding the two offsetting items, but this does not impact the actual cash flow calculation, nor does it impact the consolidated financials since these were all inter company transactions.

5. The difference in the revenues and income for Australia per SEC and ASIC filings seem to be explained in that on a books basis it reflects the tax treatment where a portion of the revenue from a customer is attributed to the intellectual property held by the Singapore sub, while the revenue is actually generated by customers in Australia. For comparison, look at how Google runs revenue through its low tax subsidiaries (i.e. Ireland) on a tax basis, while reporting those revenues as being from the United States in its SEC filings.

6. On the unbilled receivables question, it seems that the company is properly accounting for these. As a refresher, Unearned Revenue is a Balance Sheet account, appearing on the liability side. Unearned revenue can be created if a payment is received for work yet to be completed, or for billings on long term contracts. For a nice summary, see: http://ndhcpa.com/wp-content/uploads/2012/12/THE-NDH-GROUP-LTD-TIA-ACCOUNTING-FOR-COMPUTER-SOFTWARE-REVENUES-10-08-04.pdf.

7. Why has the company not responded? I imagine it is because they are in a quiet period pre-earnings release, though I have not confirmed this. Impeccable timing on the part of the author.

8. Final note, take a look at the open interest in the Mar 15, 16 and 17 strike puts last week. Unusual? Looks like someone is having a good day.

As for the open interest in options he mentions, he said that on Bloomberg he could see the open interest in March 2013 Puts was limited but ramped substantially a week ago. He said economic studies confirm over and over that options that are 25% or more out of the money, with one month to expiration, are generally like a lottery ticket – they rarely pay off; and that institutional investors would not purchase them. So the aggressive purchase activity is an aberration. From my notes, this is what he saw on Bloomberg – it may be off slightly but the gist is correct and you can look for yourself.

March 2013 EBIX $17 Puts – the open interest went from 700 to 1,900 contracts from 2/13 to 2/14, all trading at the ask price.

March 2013 EBIX $16 Puts – the open interest went from 1,100 to 1800 contracts from 2/13 to 2/14

March 2013 EBIX $15 Puts – the open interest went from 680 to 1,200 contracts from 2/13 to 2/14 – someone paid $0.40 for what is now priced at $2.50

So with the same authority that Gotham questions EBIX, I can state that Gotham – or someone knowledgeable about their plans clearly placed their bets on these options (and perhaps the stock as well) prior to a premeditated plan to attack the stock. They made that investment even before they bought the Gotham website.

Just trying to provide some balance to the story.

Disclosure: I am long EBIX. 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.

Additional disclosure: Have been a shareholder for nearly 10 years and am disgusted by how the media covers this hatchet job as if it were credible – when the author is anonymous and the website was launched last week.

This article is tagged with: Long Ideas

HERE’s The response to my submission.  I can publish it here now because it’s not on SA.

 

 

Declined

Dear David Collins,

Thank you for the submission, and we do welcome counterpoints, but in order to publish we’d need several revisions. First, we’d ask you to identify the fund the analyst is with, or explain why you can’t. Second, the information on the options is interesting, but the allegations of impropriety are not sufficiently supported. Lastly, if the analyst could provide sources supporting their statements, that would add to the credibility.

Sincerely Yours,

SA Editors

The “New” Klondex Mines – Nevada Gold Moving to Initial Production

Feb. 19, 2013     Klondex Mines Ltd.  TSX: KDX or OTCQX: KLNDF    $1.25

High-Grade Nevada Gold Mine Transformed the Past 8 Months
by New CEO, Team, Plan & Funding; Now Targeting Initial Gold
Production by Year-End with a Team That Has Done it Before

Site View Photo

Why Klondex? – Why Now? KDX has been transformed over 8 months by a new Board & management. Key issues have been addressed, a realistic plan and budget confirmed, $30M in funding raised, impressive exploration results continue, & management is executing on its goals to reach initial bulk sampling. The “New Klondex” story is not yet well known, but the company is working to change that.

KDX Table 1

Klondex Strengths:

  • CEO led Midas mine (Newmont) & Hollister mine from start-up to production of
    over 80k gold oz/year
  • Clear plan for continued development & initial production at Fire Creek by end of 2013
  • Capital in place to fund 2013 program
  • Clear goals: new resource, drilling, vent raise, water management, milling agreement, board additions, bulk sampling
  • Recent exploration has shown high grades, Main Zone continuity and discovered new West Zone
  • Under-explored: meaningful exploration potential
  • In heart of Nevada gold country; good geologic, regulatory & infrastructure environment
  • Low-Cap-Ex path to initial production
  • Significant valuation discount on EV/Resource basis
  • “New Klondex” story not well known

KDX Table 2

About: Klondex Mines is a gold exploration & development company focused on its Fire Creek gold property in Nevada with a gold resource of 1.6M oz. indicated and 0.5M oz. inferred.
Klondex has developed an underground decline and workings to access mineralization for in-fill and exploration drilling as well as bulk sampling. Fire Creek is permitted for small scale, bulk sample gold production anticipated to commence by year-end 2013.

Recent Visible Gold Discovery at Fire Creek

Visible Gold

KDX Intercepts

www.cgfocuslist.com   ✪  212.924.9800   ✪   info@cgfocuslist.com

Disclosure: The parent of CG Focus List, Catalyst Global LLC, is currently providing and has provided investor relations services to Klondex Mines Ltd. since 2007. Coverage of Klondex Mines by CG Focus List is completely independent of Catalyst Global’s IR activities and reflects the belief of several major investors that Klondex shares represent significant value at this time. Neither CG Focus List nor Catalyst Global have received compensation of any kind for the preparation and distribution of this Alert.

CG Focus List and/or its affiliates do have long positions in Klondex shares but per our trading policy we have not bought or sold shares in the last five trading days following today’s article and will not effect any transactions in Klondex stock for five days following the distribution of today’s article.

EBIX, Inc. Nasdaq: EBIX – Our Valentine?

Insurance Services/Software Provider EBIX, Inc. (EBIX) – Our Valentine? 2/13/13
(Alert issued intraday, stock closed at $18.42, up $1.24 (7%) on 1.3M shares)

EBIX Chart

13M shares short out of 37M… we hope the shorts are saying… “What me worry?”

Our planned approach for CG Focus List was to prepare a more formal and thorough one page Alert on each idea, but for those who know us and EBIX – and given time constraints – we threw this together to re-flag the idea for you on a day when the stock is acting “better.” We were not planning to profile EBIX at this time, but today’s trading was brought to our attention by a chartist we know who had told us the stock was a “Sell” on a technical basis the past two years; he now thinks it looks attractive but not conclusive.  We have been working on what was going to be our first idea for CG Focus List. It is almost ready for the presses so you will see one more idea in the next few days.  Then we’ll get back to asking for your favorite stock ideas!  Please be generous and please spread the word about CG Focus List.

As long term believers (and shareholders) in the EBIX story the past 10 years (though we have seen the stock stagnate the past 2 years under waves of rumor & innuendo while getting progressively cheaper…) today’s trading activity makes us think it’s not hopeless that Wall Street could love again… Thank you St. Valentine!?

The naysayers can sling all the mud they like about the stock & the CEO (a former client for 2 years ~2004-2006), but the growth, cash flow and business premise all seem very real; and the execution over 10 years nothing short of amazing. Further, we are hopeful that organic growth will seep into the numbers more each successive quarter as the sales team and selling/cross-selling initiatives they have put into place the last year or two mature at the same time the Company’s expanded size and scope make it more likely to win new or additional business from larger insurance players.

As a major holder of the stock said to us the other day, and we’ve not checked his math yet but he knows the story well (we paraphrase): “if EBIX delivers on the CEO’s goal of growing to $500M in sales with comparable operating margins (~39%) within 3 years, the share price should rise 2-fold while maintaining the same single digit multiple and paying us a 1 1/2 % yield along the way…” (We note that the prior goals of $100M & $200M in sales seemed a stretch but have both been achieved as promised).

Someone’s going to be right on the stock, but we believe that 10 years of precedent with a CEO who’s executed well and delivered as promised on the business while increasing his exposure to the stock is a data set that is more reliable than the scurrilous rumors adeptly floated into the market to scare away week hands. Of course we could be wrong so we keep asking the tough questions as well…

The shorts have certainly succeeded in creating fear around the name, but perhaps the tide has turned and they are experiencing some fear as the stock comes to life on no news as Q4 reporting approaches.

Either way, we do expect the shorts to return with their proven methods, particularly if the shares continue their rally in the coming days and months.  They’ve been masterful and far too successful in scaring 25% and more out of the stock each time they make a run for the Company.

Suffice it to say, we think the story is worth a very close look and a fair review of the pros and cons.

EBIX is covered by Craig-Hallum and Singular Research and perhaps Northland – not sure?

Steve Barlow is the IR guy and very good at it.

Steve Barlow
678.281.2043
steve.barlow@ebix.com
www.ebix.com

Call him not us!  He’s paid to know the answers. We’re just trying to add value by exchanging ideas worthy of consideration.

Disclosure: CG Focus List and/or its affiliates have had a long position in EBIX shares for years but per our policy we have not bought or sold shares related to this position in the last five trading days following today’s article. Feeling the stock was depressed and a potential rebound candidate on Q4 results, we had put in place a modest LONG trading position more than five days prior to this article. We may reduce this position as a result of the execution of out of the money limit orders, depending on EBIX market activity.

 

Welcome to CG Focus List

Thank you for visiting CG Focus List, a free service dedicated to introducing investors and media to compelling small and micro-cap investment ideas.  The ideas are sourced from a network of investment community contacts we have gotten to know, respect and trust over the past 25 years.  These are not trading calls but fundamental investment ideas that we hope to efficiently outline in just one page.  From there you should do your own due diligence and consult with your investment advisor prior to any investment.

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