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Articles (42) 

A Deeply Ignored Staffing Company With a Tremendous Turnaround Opportunity

Volt has a deep and improving historical and relative valuation discount with a clean capital structure

August 01, 2017 | About:

Volt Information Sciences (VISI) provides staffing, outsourcing, and IT services. The company's business segments are staffing services (North American, International, Technology Outsourcing) and Corporate/Other.Founded in 1950 by the Shaw family, currently, own ~20% of shares outstanding. Volt is the first public staffing company.

This potential outsized opportunity is based on multiple evolving factors.

Opportunities:

* The 21 trailing month market value dropped -55.92%. This contrasts with a period of multiple operational and financial improvements. These contrasting attributes only strengthen Volt's (VISI) case for short and long term mean reversion. The current market price is $3.65 per share or 76.39M.

During the trailing 21-month period, these are a few specific improvements. The sale of non-core businesses, management's focus and realization of higher margins. Material investment in information technology to improve competitive position, operations and reduce costs. System implementation completed this quarter. Twenty months ago a new turnaround specialist and CEO (Michael Dean ) recruited with Board level changes forced by activist investors. Additionally, this quarter received a long awaited tax refund payment used to pay down debt. VISI sits on 146M federal NOL and 55M in other federal tax credits.

* Positive macro industry trends exist for temporary staffing. Further, the industry's fragmented attributes offer future MA activity for potential company sale of company or growth after a fully realized turnaround. Note today (07/31/17) staffing company CDI received a go private deal, up 33% today on news. Also, an industry study reported 2% of the workforce is temp. But, the current 2% workforce is a fraction of future years estimates of 10% based on macroeconomics and political trends. The trend higher for a fractionalized work force is inevitable.

Volt's temporary staffing business is healthy and a majority of total revenues. Technology and Engineering's permanent staffing business drags on its profitable progress. Additionally, opportunities exist if they focus exclusively on temp staffing and sell permanent placement business.

* The current market price of $3.65 or 76 million market capitalization / 147M enterprise value does not fairly handicap management's value unlocking activities, low business risk profile, capital light requirements and the higher probabilistic future value. Also, VISI is historical and relative valuation cheap. (more on this covered below).

* Management sits on an exceptional company requiring only modest improvements to grow its free cash flow with existing large revenue base. A small 1% improvement in operating margins is reachable. That change will indeed impact free cash flow and its tiny 76M market value with just 14.19M shares in the public float.

* Additional positive factors to consider, ~ 30% held by insiders with founding family at ~20% coupled with proactive/activist shareholders (Glacier Peak Capital as one example). This ownership structure will continue pushing market value enhancements. Moreover, the lack of analyst coverage is not helping the stock price. VISI TTM revenue of 1.289 Billion, 61.70 revenue per share deserves and should see future coverage. Lastly, positive 2016 and 2015 insider activity with neutral 2017.

Notable enhancing historical valuation attributes:

Strong and improving capital structure with a stable share count and debt reduction. Gross margin improvements and a stock that now trades at a 75% of the TTM gross profit. Another interesting ratio is EV/MC. My guess this should stay stable. But the market value dropped more than enterprise value may signal market overreaction. Lastly, improving F score, asset turnover, and deep valuation discounts for EV/GP and EV/Revenue.

HistoricalValuationv1.png

Relative Valuation

Click for quotes on the 18 industry competitors included in the table below (ZPIN,MHH,KFY,TBI,KELYA,BBSI,HSII,KELYB,DLHC,BGSF,JOB,EGL,CCRN,KFRC,RECN,CDI,HSON,VISI,STAF,DHX,)

Volt ranks at or near the lowest for the following. Percentage above 52 low, EV/Sales, shares short as a percentage of float, market and enterprise value drop. High F score of 6, insider ownership, percentage off 52 high, financial strength. These metrics support the large discount thesis to the 18 industry staffing peers.

Industry%2BComparison.png

Long term activist shareholders with incentivized insider ownership to turn around the company.

Ownership.png

Risks:

* Many uncertainties exist such as continued falling revenues, declining operational margins, growing losses. These negatives will impact liquidity and flexibility to buy back shares if operations don't stabilize over the next few quarters. In addition, the longer time to realize profitability and stability significantly reduces the present value of VISI and confidence of shareholders.

Long: VISI


Rating: 2.5/5 (2 votes)

Voters:

Comments

bkw82
Bkw82 - 3 years ago    Report SPAM

Who is this author? I can't agree at all with you. Revenue has been flat for 15 years and it has been shrinking for the last 3. So I think, 'ok, I'm dealing with a stalwart here, maybe their free cash flow margins are high and they're tucking away a ton of cash.' Wrong. They have operated at a loss for the last 7 out of 10 years. In the words of Buffet, 'Turnarounds seldom turn' and I sure as hell wouldn't bet on something that looks like crap to begin with.

shadowstock
Shadowstock premium member - 3 years ago

Who is this Bkw82? I can't agree at all with you. Revenue decline is from sale of non-core assets. But read above, gross margins increased and the company trades at 75% of TTM Gross Profits and 12% of sales, industry’s cheapest valuation.

So, I think, 'ok, I'm dealing with an entrenched board, a long-time CEO extracting an easy fat salary. Wrong. Activist shareholders such as Livermore Partners’ David Neuhauser allocated their valuable time and efforts 2 years ago, and will wait. They see VISI with significant upside, low risk business model and industry tail winds. They worked and succeeded to change the CEO and board representation. Other activist such as Glacier Peak recently increased position to 2,203,439 shares or 10.70% of shares outstanding. There are others.

Volt financial reporting incompetence resulted in not filing financial statement from 2009 to 2013. No fraud, cash reported correct.

In the word of Buffet, Berkshire Hathaway Shareholder Letter 1989

"If you buy a stock at a sufficiently low price, there will usually be some hiccup in the fortunes of the business that gives you a chance to unload at a decent profit, even though the long-term performance of the business may be terrible."

And I sure as hell wouldn't miss adding shares at these prices with something that looks cheap too begin with.

shadowstock
Shadowstock premium member - 3 years ago

Last year’s interesting commentary, it’s still valid.

So, I'm Buying More” commented Livermore Partners as the stock traded around 8 per share.

"extremely frustrated by the price action, VISI's new board and management are making the right moves to transform (Volt) into a true global operating company that has the potential to compete again."

“Years of mismanagement have to be factored into the equation, so the turnaround -- even with new management -- will take time. “

“This is a true dislocation of value and one to be bought, though management and the board must be bold and close the gap on what is now a 50%+ gap to its true intrinsic value." with more than $10 million in lower costs -- allows strong cash flow and eventually earnings per share, providing an avenue for the company to use its more than $140 million NOL and shield taxes.”

Simply put, I (Tim Melvin) concur.

I rather not make a comparison. But CDI is near the same market size and industry staffing focus. July 31, 2017 “CDI Corp. to be Acquired by AE Industrial Partners for $8.25 Per Share in Cash”. It moved up 33% on the day. CDI reported 33M net loss for the TTM, 37M loss for 2015, lower F score, higher valuation for sales, gross profit and other attributes.

zon4ever
Zon4ever - 3 years ago    Report SPAM

Thanks for the article shadowstock. Great snapshot and discussion of the company's potential. We have given you a shout out at GeoInvesting since we too are covering the stock.

shadowstock
Shadowstock premium member - 3 years ago

Zon4ever

Thanks! I understand there is no guarantee. It’s a probabilistic bet and I own shares and will buy more as the stock drops. Over the next few years I’m betting there is a positive expected value to realize above average return. But I can’t know.

This post is from my free blogspot. I never make money if my ideas get picked up by Gurufocus or others. It’s just my honest opinion.

shadowstock
Shadowstock premium member - 3 years ago

I have no affiliation or use service now. But if you're looking for smart people doing micro cap investing research.

https://geoinvesting.com/meet-geoinvesting-team/

"Zou Soueidan joined the GeoInvesting Team in 2008. He holds a degree in Engineering from The Pennsylvania State University. In addition to performing public company due diligence, his primary contributions to the company include ensuring the integrity of GeoInvesting’s website infrastructure and security, and the daily management of website and investment product development. Mr. Soueidan’s career in Engineering spanned 1996 to 2007. He served as lead task manager for several multi-million dollar, federally funded projects. Requirements for this role included mastering software programs that facilitated the various aspects of engineering design. At GeoInvesting, Mr. Soueidan also uses his technical background for downstream report editing prior to publications."

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