Individual Investor update bullish on ACRT; asks Aharoni about bankruptcy
Positive outlook for ACRT; Buy
(2/5)
On February 5, 1998, the company announced results for the second
quarter, ended December 1997, with revenues exceeding our expectations. Revenues increased more than 160%, to $23.1 million due to increased demand for the TAD program, compared with our estimated revenues of a little more than $22 million. Net income increased by more than 190%, to $1 million and earnings rose 117%, to $0.13 per share.
For the first six months, revenues rose to $43.1 million, verses $16.4
million last year. The company's TAD program grew dramatically, by 239%, to $24.8 million.
According to Taglich Brothers analyst Karl Reeves, revenues will
increase to at least $100 million in 1998 and $200 million in 1999, up
from $43.5 million in 1997. Earnings will be between $0.50-$0.56 per
share in 1998 and between $0.82-$0.90 per share in 1999. The management of ACRT considers these numbers to be conservative.
On February 4, we met with management to discuss the company's current
outlook and its plans for expansion. ACRT told us that 1998 outlook
remains very positive since it continues to open new offices and grow
its business.
The company would like to open about 15 offices by the end of the fourth quarter, ended June 1998, and according to the management, more openings are possible. Everything will depend on how successful and profitable the new offices will be. Usually it takes about 6 months before a new office hits breakeven.
Currently, the company has six offices in operation. The seventh office in Salt Lake City, was closed on December 31, because ACRT was not satisfied with the performance of the office and its branch manager.
According to the company, the revenues derived from its export business represent only 5% of total revenues. This business is not significant for the company. Actrade concentrates on its main business, the TAD program which on average continues to grow at about 200% rate.
Currently, the TAD program is based on the domestic level. But, in the
long-run, Actrade expects to expand internationally and purchase the
TADs from the companies based overseas, since more and more companies
become interested in this line of financing.
In addition, the introduction of the Full Payout TAD, announced in
December, will help ACRT to attract more companies, especially larger
ones. ACRT used to pay 75% of the TAD value and hold the other 25% as a reserve until the TAD was collected. Now, because of its almost
non-existent default rate, ACRT will pay 100% minus a 3% discount fee.
Amos Aharoni, chief executive officer of Actrade, pointed out that since 75% of the TAD's value was limiting to some companies, the 100% Payout TAD is attracting more companies.
At a present moment, there is no direct competition in the TAD market
and ACRT will continue to enjoy the economies of scale. The potential
for the TAD program is huge, Dunn & Bradstreet estimates that the total market for TADs is more than $80 billion and ACRT has not even achieved 1% of this market.
We asked Mr. Aharoni about the company he ran in Israel back in early
1980s, due to persistent posts on Silicon Investor. He stated very
openly that, as a result of his personal guarantees, there is an
outstanding judgment against him which he is working to clear up, even
though he is under no obligation to do so. Mr. Aharoni's company did go bankrupt while he was out of the country, causing him to sell his
personal assets to cover the company's debt he personally guaranteed.
But, this does not affect Actrade's current situation. Mr. Aharoni has
done a great job of running Actrade and made it a fast growing company. Revenues increased from about $9 million in 1993 to $43.5 million in 1997 and expect to be at least $100 million in 1998. Earnings rose to $0.28 per share in 1997 compared with $0.05 per share in 1993. ACRT has a good balance sheet with no long-term debt. As of December 31, its current ratio is 9.62. ACRT has great results, constantly meeting or exceeding estimates. The company had beat analyst estimates for the last four quarters in a row.
The shares of ACRT have always been volatile, especially in the latest
time when many investors had concerns about the company. But, those
people who held long positions in Actrade, were benefited. Mr. Reeves's 12-18 months price target is about $40-$50.
(Posted 02/05/98 with ACRT trading at $18.20 per share) |
