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Value Idea Contest - Insignia Systems Inc.

May 04, 2012 | About:
ecotycoon

ecotycoon

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General: From Insignia 2011 Annual Report:

"Insignia Systems Inc. (the “Company”) markets in-store advertising products, programs and services to consumer packaged goods manufacturers (customers) and retailers. The Company has been in business since 1990. Since 1998, the Company has been focusing on providing in-store advertising services through the Insignia Point-Of-Purchase Services (POPS) in-store advertising program. Insignia POPS® includes the

Insignia POPSign® program.

Insignia’s POPSign is a national, account-specific, in-store, shelf-edge advertising program that has been shown to deliver significant sales increases. Funded by consumer packaged goods manufacturers, the program allows manufacturers to deliver vital product information to consumers at the point-of-purchase. The brand information is combined with each retailer's store-specific prices and is displayed on the retailer's unique sign format. The combining of manufacturer and retailer information produces a complete "call to action" that gets consumers the information they want and need to make purchasing decisions, while building store and brand equity.

For retailers, Insignia’s POPSign program is a source of incremental revenue and is the first in-store advertising program that delivers a complete "call to action" on a product-specific and store-specific basis. For consumer packaged goods manufacturers, Insignia’s POPSign program provides access to the optimum retail advertising site for their products — the retail shelf-edge. In addition, manufacturers benefit from significant sales increases, short lead times, micro-marketing capabilities, such as store-specific and multiple language options, and a wide variety of program features and enhancements that provide unique advertising advantages.

The company’s Internet address is www.insigniasystems.com.

Here is a example of their product:1473691516.jpg

Risk:

The biggest threat I see over a long period of time more than 10 years is certainly their biggest competitor Valassis and News America. They are much bigger than Insignia. And that's a sizable moat over Insignia.

1699709374.jpg

Why should we not care too much about the risk from News corp. ( News America) for the next 10 years?

From Insignia's 2011 Annual Report:

"On February 9, 2011, the Company and News America entered into a settlement agreement to resolve the antitrust and false advertising lawsuit that had been outstanding for several years. Pursuant to the settlement agreement, News America paid the Company $125,000,000, and the Company paid News America $4,000,000 in exchange for a 10-year arrangement to sell signs with price into News America’s network of retailers as News America’s exclusive agent."

SOURCE: Insignia Systems Inc. press release May 2, 2012, 4:05 p.m. EDT:

"Our relationship with News America continues to improve as we work more together. The vast majority of the issues that encumbered this agreement are now resolved and we are working with News America in such a way that we believe that both companies can benefit from this agreement. "

Financial Strength

Companies that have no debt can’t go bankrupt.

Insignia has $20 million of cash and zero long-term debt.

1458506384.jpg

Management:

They learn from the past, live for the present and are optimistic about the future.

They know if they have done poorly in the first quarter they accept that fact and they are working to change it by cutting $3 million per year in expense as they start in march. A management that can talk about their mistake that's really a great management. They are also really optimist about the future, that's a sign of great management too. They are facing big challenge but they have the courage it need to act and do the good think for the share holder and their business.

SOURCE: Insignia Systems Inc. press release May 2, 2012, 4:05 p.m. EDT:

CEO Scott Drill commented, "The results in the first quarter of 2012, while disappointing, were in-line with our estimates for quarterly performance announced a couple of months ago. These poor results are not acceptable and that was the driving force behind our decision to restructure our operations in March. The restructuring should remove over $3 million of expense on an annual basis. As the charge related to this restructuring was booked in March, the Company will not realize any financial benefit from this reduced expense until the second quarter of 2012 and beyond. This expense reduction allows us to be profitable at lower revenue levels, while not affecting our ability to provide our customers with the same superior, timely performance they are used to."

They are also really conservative in the way they are spending the cash they have. So far it has give great results to shareholders because they give back good dividends and repurchase a lot of stocks. They didn't try to waste that money on overly large expansion projects, and that's good.

Undervalued?

Insignia Systems has 20.2 million of cash, $26.4 million of shareholder's equity and $26.5 million market cap.

The maximum risk is about 25% at $1.47/share. If the stock goes lower it will be like buying a dollar at a discount. So I see low downside risk, but the upside outcome could be good.

Can we see more share repurchases?

Source: 2011 Annual report

Stock Repurchase Plan

On February 22, 2011, the Board of Directors authorized the repurchase of up to $15,000,000 of the Company’s common stock on or before January 31, 2012. On May 25, 2011 the Board amended the plan to increase the maximum share purchase amount from $15,000,000 to $20,000,000."

From this 20Millions at date of December 31 2011, 10 millions have been repurchase. At December 31 2011, they had 15,229,000 share outstanding with 10Milions left to spend. At March 31 2012, they had 13,611,000 share outstanding, if they buy it all at the peak of this period at 2,20$ a share this mean they have spend (15,229,000 - 13,611,000) x 2,20$/share = 3,29 Millions wish mean they have a possibility to buy for a another 6.7Milions on 20,75 Millions in cash they are having at this period.

Conclusion:

I see this stock with low downside risk. Maximum downside risk is 25%,trading at 1.47 is equal to cash, lower than that you would be able to buy a dollar for less than a dollar, possible gain with the management in place is infinite. With Scott Drill as CEO, I believe that this company can do really well over time.

Trading at: $1.96 4:00 p.m. on 3/5/2012

Rating: 4.2/5 (15 votes)

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