Benj Gallander and Ben Stadelmann are co-editors of Contra the Heard Investment Letter
When investing, there can be a heap of red flags that signal: “Avoid this stock. Avoid. Avoid.” One is when a chief executive officer disappears swiftly, whether it is because they are kicked out by the board of directors or leave by their own volition. Investors can pretty much expect that the next quarter or more are going to be ugly and more surprises are likely in store.
The opposite scenario is what recently happened at Alaska Communications (ALSK – Nasdaq), where the transition was as smooth as silk. Anand Vadapalli, who had been the head honcho for 13 years, decided to leave last June, but has been sticking around as an adviser through the end of the year. William Bishop, who had been serving as interim CEO, took on the official mantle.
Mr. Vadapalli always sounded optimistic on conference calls. Alas, the Anchorage, Ala.-based telecommunications company’s results did not mirror his apparent confidence.
Mr. Bishop is almost an Alaska Communications lifer, having worked there in various capacities since 2004. Also an Alaska native, Mr. Bishop is an example of the local boy made good, without going very far from home. But can he enhance the valuation of a company that has been in the doldrums for years?
Revenue for the fifth year in a row looks to be about US$230-million. The bottom line will likely be single-digit black, like it is in most years. There appears to be little to stimulate the stock price, which has remained pretty flat for the past decade. Back then, sales were about US$350-million, before part of the operations were sold, and the company paid a quarterly dividend of US$0.215. There has not been a payout since 2012.
Not surprisingly for a broadband communications enterprise, Alaska’s debt is high at US$259-million. The book value is not quite twice the trading price, and delightfully, none of it is in goodwill. Insiders own a healthy proportion, just south of 12 per cent and have been acquiring more. The share buyback last year was around one million shares, or 2 per cent of the float.
It has been more than eight years since this entity traded in double digits, and prior to the 2008 recession, it traded near US$16. Given the tally of the pros and cons, one can easily wonder if the days of glory are well past and this corporation will remain dead money.
Benj Gallander likes to think not. He bought shares at US$1.51 about a year and a half ago. With the stock trading near US$1.80, there has been a reasonable return thus far. Activist investor Karen Singer also felt there was lots of potential, buying about 5 per cent of the company.
Yes, that is more than the Contra Guy. She has been very successful with this kind of purchase in the past, recently with SeaChange International (SEAC – Nasdaq), which has increased handily since her entry.
While dramatic share appreciation would be lovely, Mr. Gallander feels the most likely exit could be a takeover. There are numerous competitors in the small Alaska market including AT&T Inc., EarthLink, GCI and Wave. Swallowing Alaska Communications at US$3, a healthy premium to the current price but still below the book value, would only cost an acquisitor about US$160-million, not much for an established player in this sector.
Currently, analysts are ignoring this stock, perhaps fearing frostbite. Sometimes that is the perfect situation to buy a bargain before there is any excitement. Other times, a company like this can stagnate, simply carrying on from quarter to quarter with little progress. If a takeover bid does not arrive, it will be up to Mr. Bishop to relight the torch and ignite the stock price.
Hopefully, he can do better than Mr. Vadapalli, who talked the talk, but ultimately for shareholders did not walk the walk.