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OTC Journal
November 19, 1999 Volume II, Issue 60
Email : info@otcjournal.com
URL : otcjournal.com
To OTC Journal Members:
Important Announcement
Tomorrow, Saturday the 20th, the OTC Journal and all related sites and links will be down from 6:00 PM Pacific Time until early Sunday morning. The building in which they are housed is shutting down its power for maintenance. Don't worry if you're playing the Stock Game, it will be working again on Sunday morning.
Great Week
It's been a great week for several of the companies that we cover. In last Friday's edition we expressed the opinion that the bear market for micro cap stocks that began in mid-July was over, and the time to jump back into this market is now.
If this week's performance was any indication, so far we are correct. Here are some key performances of the companies that we have covered:
Blue Zone
We brought you Blue Zone (OTC BB: BLZN) last Friday at $5. The stock traded as high as $8 on Thursday, and is now settling into the mid $7 range. Click Here to read that edition.
NetSol International
NetSol International (OTC BB: NTWK), our best profile of 1999, made another new all time high today trading at $7.8125. If you have never seen a short squeeze, you might be in for a treat. If you don't own this stock by now with all the coverage we have given it you're brain dead or your not paying attention. The Hedge Fund which has been accumulating this stock filed a revised 13-G with the SEC. They now own over 10% of the Company, which is probably most of the public float. They are continuing to buy at all time high levels. Click Here to read our edition which covers Blue Water Partners' participation.
Qiao Zing Universal Telephone
This one proves the importance of having a long term outlook on investing. On November 28th, 1998 we published a special situation alert. We arranged for our members to participate in the IPO of Qiao Xing Universal Telephone (NASDAQ: XING) through the Underwriter. We know that about 400 members opened accounts and bought the IPO. The IPO was priced at $5.25, and the stock only traded into the high $5s on opening day. When the stock dropped below the IPO price we got numerous e-mail messages from members complaining about the performance. Last week the stock was trading quietly at $3 on very little volume. XING went from $3 to $28 in two days this week. A dream move of a lifetime. We hope some of you were still holding it. Click Here to read our original coverage.
Important Updates
US Microbics (OTC BB: BUGS)
We originally profile BUGS back in April at $4.50. Click Here to read the original profile. The stock has recently been trading in the $2.50 to $3 range. The stock had dropped into the $2 range, so we visited the company yesterday for an update. They fell six month behind their business plan, but are now on track and should have a great year in 2,000. Bargain basement shoppers may want to look at this one for a solid rebound.
Envoy Communications (TSE: ECG)
This is a great company but our timing for publishing our original profile was horrible. The stock was trading at $8.90 on July 17th, just as major market correction for small cap stocks began. The stock briefly traded above $9(CDN), then started a slow and painful descent to a low of $4.80(CDN).
The stock has traded back up into the high $6(CDN) range, and we believe it is poised to continue the upward trend. The NASDAQ listing application that we mentioned in the original profile was temporarily derailed by the drop in price, but it is now estimated that the stock will begin to trade jointly on the NASDAQ and the TSE sometime in January.
We are simply going to re-release our original profile for your review. With the small cap market rebounding strongly, and a number of brokerage firms having buy recommendations on the stock, now is the time to have another look at this company:
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This profile is being reprinted exactly as it appeared on July 17th. We have only update the closing price and volume. Click here to read the company's most current financial statements. If you wish to purchase this stock you will probably have to call your on-line brokerage firm. For quotes, at the Yahoo! quote site at quote.yahoo.com, it can be found as ECG.TO. Click Here for the current quote.
Envoy Communications Group, Inc. (TSE: ECG)
Corporate Web Site: envoy.to
Toronto Stock Exchange Ticker Symbol: ECG
Estimated Shares Issued and Outstanding: 18 million
Estimated Public Float: 9 million
Closing Price and Volume: $6.80 on 94,550 shares
Market Capitalization: $160 million (CDN)
52 High and Low:$3.30/$8.85 (CDN)
Envoy Communications is a traditional and Internet based Advertising Agency specializing in digital media for the New Millennium. Over the last three years, their growth has been proportional with the growth of the Internet; Highly Explosive.
Envoy is the largest purchaser of Internet Advertising in Canada for major Corporate Clients, and derives about 50% of its revenues in the U.S. from Companies such as Microsoft, National Discount Brokers, Fedex and Adidas. Geoffrey Genovese, the President of Envoy, describes the Company as follows:
"As a New-Breed Company, Envoy is an integrated e-marketer, digitally driven and committed to
building global brands, both off- and on-line."
The following is short list of Envoy's current client base:
CDNow Fedex Microsoft National Discount Brokers Tobisha
Adidas BASF Benjamin Moore Lexus Castrol
Honda Kraft General Foods Nabisco Pillsbury Sprint
McDonald's Midas PETsMART Wal-Mart Stores Ralph's
Home Depot Esso Labatt Breweries Circle K Beatrice
The Companies in the table above are just a small representation of Envoy's client base. Envoy also represents many other well known clients worldwide.
Over the last year, Envoy has experienced dramatic growth which has been achieved through a combination of a 25% internal growth rate and three very significant acquisitions.
Envoy's fiscal year coincides with the third calendar quarter, the end of September. The numbers speak for themselves in the following table:
Year Sales Profits
Fiscal 1997 $23,444,317 $1,179,343
Fiscal 1998 $37,844,485 $1,502,799
First Six Months Fiscal 1998 $12,789,036 $666,473
First Six Months Fiscal 1999 $64,472,965 $1,191,462
All figures are in Canadian Dollars
Sales measured from the 1st half of 1998 to the 1st half of 1999 were up nearly 400%. Profits were not up proportionally, but the costs associated with the acquisitions along with diversifying into lower margin products and services account for the difference.
Margins are expected to improve over coming quarters as economies of scale and increasing efficiencies enter into the results for future quarters.
It is projected that Envoy Communications is on track to enjoy over $125 million in revenues in fiscal 1999, up from $23.5 million in just two short years. More than a 500% increase.
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Acquisition Growth Strategy
This outstanding growth has been achieved through a combination of acquisitions and internal growth. The following acquisitions were completed in the last year:
Hampel Stefanides was acquired on November 9th, 1998. Hampel is a New York based Advertising Agency whose clients include Castrol Motor Oil, National Discount Brokers, CDnow, BASF Corporation, and Aer Lingus.
The Devlin Group was acquired on February 9, 1999. This company is an Internet Specialist with a number of Fortune 500 Companies as clients which include IMAX Corp, IBM, Federal Express, and Health Canada.
The Watt Group acquisition was consummated on June 9th, 1999. This advertising agency specializing in servicing large retail chains, and their customer base includes Wal-Mart, Safeway, and PETsMART.
These Acquisitions were financed with a combination of cash and stock. The cash portion was financed with debt. Profit margins will improve as these companies integrate, and duplicate efforts are eliminated with economies of scale.
In May of this year, Envoy completed an $18.5 million equity financing at $5.50 per share with sophisticated Institutional Investors. This strengthened Envoy's balance sheet, eliminated all the debt associated with the acquisitions, and left the Company with over $13 million in working capital for corporate expansion.
Approximately 3.4 million shares were issued at a discount to today's market. However, with the stock averaging over 300,000 shares per day in volume, these shares could be absorbed by the market in ten trading days if they were all for sale. With the financial performance this Company has demonstrated, it seems unlikely that all these shares would be have to be absorbed by the market anytime soon.
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Comparative Market Valuation
We took a quick look at the market valuations of other comparable companies which trade publicly. Members that want to do their own, more comprehensive research can Click Here for a complete list of Comparable Companies with links to their financial performance and market capitalization.
The following table provides you with a sampling of several companies within the same industry group. Although no companies in this table are identical in annual sales volume to Envoy, compare the Market Capitalization.
There are no companies on this list with Market Capitalization much less than $1 billion. However, Envoy has only achieved a $162 million market capitalization, suggesting that the Company is grossly undervalued as compared to other companies of similar proportions.
Company Stock Symbol Annual Sales Profits EPS P/E Ratio Market Capitalization
Double Click DCLK $89 Million N/A N/A N/A $3.76 Billion
Catalina Marketing POS $264 Million $37.6 Million $1.981 50.43 $1.85 Billion
Omnicom OMC $4.4 Billion $323 Million $1.73 43 $13.3 Billion
Saatchi and Saatchi SSA $600 Billion N/A $.47 39 $802 Million
Envoy Communications ECG (TSE) $125 Million $2.25 Million (Estimated) .22 (estimated) 40 $162 Million
*These figures are in Canadian Dollars
The most ridiculous comparison is to Double Click (NASDAQ: DCLK). This company is losing money on only $89 million in annual sales. Yet the Company trades at nearly a $4 billion market valuation. Envoy, a Company which derives most of its revenues in Internet Related Advertising Sales, isn't even trading at a fraction of the market value, yet has much stronger sales and profitability.
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Analyst Coverage and Institutional Participation
Nearly every major brokerage firm based in Canada has research following on Envoy Communications with buy or strong buy recommendations.
Cannacord Capital, one of Canada's largest brokerage firms, issued a Buy Recommendation on May 4th with a 12-Month target price of $15.30.
During our research on Envoy, we found a published round table discussion by analysts and money managers concerning the Company and its phenomenal management performance. This discussion took place on May 21st, and if you wish to read the entire reprint simply Click Here.
The participants in the discussion were David Wong of Canaccord Capital Group, Steve Mizener of BPI Small Cap Funds, Ed Ho of the Dynamic Small Cap Fund, and Gene Vollendorf, a portfolio manager at Bissett & Associates Investment Management Ltd.
Here are the key excerpts which should concern investors:
Gene Vollendorf: "Envoy, with their acquisitions consolidated now, I think you're going to see explosive growth opportunities. Again, no reason why it can't be in the $15 range, sooner rather than later, and beyond that, $20."
Ed Ho: "I think that's being a little promotional. I'm a value investor so I try to be ultra conservative with my numbers. I ultimately may set numbers - expectations a little bit lower - and if I reach those expectations, then I'll revisit or maybe I'll adjust it then. My hurdle rate for an investment is sort of 50% in 12-24 months before I'll even buy something. I think I'd be negligent to say I think it should be a $30 stock or a $20 stock or even a $15 stock, but when it gets to $12 in the near term I will review that and see where the progress has been. That's one stock where I sort of have to watch as it develops because it's developing so fast."
Steve Mizener: "I'd say our expectations are perhaps a little more modest than some, but we still see great upside in the stock"
If you are considering investing in this stock, we strongly recommend you read the entire Round Table Discussion which you can find by Clicking Here. We have reprinted some excerpts from that discussion, but we want to make sure these comments are not taken out of context.
Other Research Reports can be obtained directly through Envoy's Corporate Web Site found at envoy.to. Click Here to go directly to the Research Reports.
There is already very significant Institutional Participation in the stock. The following is an abridged list of the current Institutions which have a position in Envoy Communications: (This information was provided for us by the Company)
Templeton Funds
Pembroke Mutual Funds
Bisset and Associates Mutual Funds
Altamira Management
BPI Capital Management
Van Berkom Mutual Fund
Elliot & Page Advisors
There are numerous other funds that have positions in this stock, but the list is too long to republish.
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Conclusion
If you like investing in Internet Stocks, but want to avoid the risks associated with the high flyers that have great potential technologies, but no real sales or earnings, the you need to take a strong look and Envoy Communications.
If you decide to invest in Envoy, remember that the quote you see on your screen is in Canadian Dollars. Therefore, if the stock is in the $9 range, you will end up investing at about $5.85 in US Dollars, because the Canadian Dollar is worth about $.65 in US Money.
All the financial information we have published on the Company in this profile is in Canadian Dollars, but it is all relative and doesn't change the valuation picture at all.
You won't find all the information or research tools that you normally would on the Internet on U.S. Companies for Envoy Communications.
As long as Envoy Communications continues to trade on the Toronto Stock Exchange only, the Company will get limited exposure to the investing community. It is commonly accepted amongst International Money Managers that the two most liquid markets where stocks tend to get the best valuations are the New York Stock Exchange and the NASDAQ NMS.
However, Envoy will be making the jump to a dual listing in the US Markets and the Toronto Stock Exchange. The Company filed its SEC Form 20-F to trade in the US markets on June 2nd. They anticipate trading on the NASDAQ NMS. We spoke with sources at the Company yesterday, and they anticipated approximately 90 days from now they will trade on the NASDAQ NMS along with Microsoft, Intel, Sun Microsystems, and all the other big boys.
This is the reason that we have published this profile now. We are trying to give our members some valuable information on Envoy Communications ahead of a big Wall Street following.
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As always, we suggest you use caution when making investment decisions. Remember, it's your money.
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Disclaimer
The OTCjournal.com Newsletter is an independent electronic publication committed to providing our readers with factual information on selected publicly traded companies. All companies are chosen on the basis of certain financial analysis and other pertinent criteria with a view toward maximizing the upside potential for investors while minimizing the downside risk, whenever possible. All statements and expressions are the sole opinions of the editors and are subject to change without notice. This profile is neither an offer nor solicitation to buy or sell any securities mentioned. This newsletter is owned by SSP Management, Inc, a wholly owned subsidiary of 1st Net Technologies, Inc ("1st Net"). While we believe all sources of information to be factual and reliable, in no way do we represent or guarantee the accuracy thereof, nor the statements made herein. The editor, members of the editor's family, and/or entities with which they are affiliated, may own stock in and have other financial dealings with the companies who appear in the publication. To that degree, this newsletter should not be regarded to be an independent publication. SSP Management has been paid a one-time fee of $50,000 for representing Envoy Communications for a period of one year. The fee has been paid by BG Capital Group acting on behalf of Envoy Communications. SSP Management has not been retained by, nor has any formal relationship with Envoy Communications. SSP Management, the parent company of the OTC Journal, has been paid a fee of $50,000 in cash, and 50,000 shares of restricted stock as compensation for representing Netsol International for a period of one year. SSP Management has received the following compensation for representing US Microbics for a period of one year: $50,000 in cash, and 50,000 options convertible into restricted stock, exercisable at $1 per share. In a related transaction, SSP Management intends to exercise its option by signing a promissory note to US Microbics for $50,000. The OTCjournal.com critiques may contain forward looking statements relating to the expected capabilities of the companies mentioned herein.
THE READER SHOULD VERIFY ALL CLAIMS AND DO THEIR OWN DUE DILIGENCE BEFORE INVESTING IN ANY SECURITIES MENTIONED. INVESTING IN SECURITIES IS SPECULATIVE AND CARRIES A HIGH DEGREE OF RISK. THE INFORMATION FOUND IN THIS PROFILE IS PROTECTED BY THE COPYRIGHT LAWS OF THE UNITED STATES AND MAY NOT BE COPIED, OR REPRODUCED IN ANY WAY WITHOUT THE EXPRESSED, WRITTEN CONSENT OF THE EDITORS OF OTCjournal.com.
We encourage our readers to invest carefully and read the investor information available at the web sites of the Securities and Exchange Commission ("SEC") at sec.gov and/or the National Association of Securities Dealers ("NASD") at nasd.com. We also strongly recommend that you read the SEC advisory to investors concerning Internet Stock Fraud, which can be found at sec.gov. Readers can review all public filings by companies at the SEC's EDGAR page. The NASD has published information on how to invest carefully at its web site.
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