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Smart Pro - an interesting deep value stock

January 07, 2013 | About:

I’ve been absolutely addicted to the show Homeland (one word: amazing) recently. To try to make myself a bit more productive will I rip through the episodes, I’ve been flipping through random 10-Ks and Qs. While doing that, I stumbled on Smart Pro (NASDAQ:SPRO) and found it interesting.

The company makes training courses for a variety of professions. Results have been poor the past few years, which may imply the company is having trouble switching from the cd/dvd delivery method to a more cloud / web based one (that’s just a theory, I don’t know if that’s at all what’s happening). Still, I think the industry alone is enough to make in interesting- it seems like there’d be some serious potential synergies from a competitor acquiring them, as a competitor could add SPRO’s products to their own and use the sales force to push both product lines.

Combine that acquisition potential with a pretty cheap stock price, and I think you’ve got the makings of an interesting value investment. After adding back non-economic amortization expense,the company should come in a bit better than break even this year (note that the fourth quarter appears to be their strongest, so even though they’ve operated at a bit of a loss so far this year they should be on pace to reverse that to at least break even). Management pays themselves quite well, so an acquirer would certainly add back some of their salaries when calculating synergies as well.

Today’s stock price gives the company a market cap under $7m. With $5.8m in cash and no debt, an acquirer would only be paying $3.5m or so for the whole company if you assume a 30% acquisition premium. Considering the company does $15m+ in annual revenue (and that after several years of declines), that would be pretty cheap for all of the potential cost synergies, to say nothing of the revenue synergies from giving the sales force new product and free upside potential from a sales turnaround.

There’s also reason to believe there’s potential for change here- an investor filed a 13-d on them, owning 13% shares, or about as many as the entire executive team.

Of course, there are some other issues. There’s absolutely no indication management is looking to sell, and while they do have a decent ownership stake, the money they make in fees and salaries each year rivals the amount they would get in a buyout.

And management has shown a willingness to make acquisitions, which means they may prefer to continue buying and growing (and thus support increases in their salaries) then selling the company or returning a bunch of cash to shareholders (much like AEY keeps saying they’d rather buy a company than repurchase shares at dirt cheap prices).

Overall, I think SPRO is an interesting company, but I’m not ready to pull the trigger just yet.

Disclosure- Long AEY

Rating: 2.0/5 (5 votes)


Rynoceros premium member - 4 years ago
the linked 13-D is over 4 years old, so I wouldn't consider it to be a potential catalyst for change.

Not sure, but I believe reading somewhere that Mr. Ben-Dov has been investing in CEO Greene's companies for many years. That said, I hold SPRO shares and consider it a good value here.

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