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Wednesday, January 09, 2013

Volt Jolt

One of the real benefits to contributing  on Real Money is the incredible community of contributors and readers.  I have developed strong friendships with several other RM commentators and enjoyed some excellent email and phone exchanges with readers over the years.  They are extremely intelligent folks with some great ideas on the market and individual stocks. One such individual is John Rudolph of Glacier Peak Capital. We invest in a similar style and share some key interests and have talked often. A few months ago he bought me a great idea that is attracting some attention this week.

Volt Information Sciences (VISI) is a staffing company founded back in 1950 by two brothers, Jerry and Bill Shaw.  In 1957 Volt became the first publicly traded staffing company. Since then the company has grown into a major provider of technical and administrative personnel to employers. Their client list includes a substantial portion of the Fortune 100 including tech giants like Google (GOOG) and Apple (AAPL). They are estimated to be the fourth largest provider of technical staff in the US today.

The company is also involved in consulting, telecommunication services, printing and publishing. The publish telephone directories in Uruguay. The printing division offers printing services for books,  newspapers and directories in Latin America. The telecommunications division is basically in wind down mode as land lines and local residential voice service become less frequent components of the telecommunication industry. The other businesses add some value to the company but the heart and soul of the business is the staffing business.

I am a big fan of the staffing business, particularly the IT side of the business as a long term investment. I believe Volt is a great addition to my portfolio but the rub here is that I can only believe this to be the case. This company has not filed audited numbers with the SEC since 2009 after an initial accounting review determined some financials would have to be restated. It is believed that the review covers about 10% of the company’s revenues for the period in question but for three years the review has not been completed and costs appear to have exceeded $60 million. The delay eventually resulted in the company being delisted from the New York Stock Exchange.

The company and its issues have been in focus this week as the value investors who now own the majority of the shares of stock not controlled by the Shaw family are hoping to actually see the financials. The company securitized some of its receivable through PNC Bank (PNC) and after being granted an extension earlier this year audited financial are due January 31 after the latest extension granted in December. So far there is just silence coming from Volt as to the deadline and their ability to meet it.

 In addition an 8K filed last month has ignited a fair amount of turmoil. The company paid a hefty bonus and raised the salary of its Chief Executive officer after just six months son the job. That does not sit well with many investors, including my good friend Mr. Rudolph. He expressed his concerns over salary increases, bonuses and option grants being made without any sign of full financial or an updated business plan and guidance. The Shaw family still controls the board and 42% of the stock and it appears that they are not responsive to shareholder concerns. With so much of their net worth in a stock that has fallen from more than $35 to less than $7 over the past six years you would think shareholder value would be more of a priority.
The thing that really rubs the investors the wrong way is that the value does seem to exist. Working from old analyst comments and the company’s quarterly unaudited updates the company generates something like $40 million a year in EBITDA. Book value appears to be about $13 a share and between cash, short term investments and collateral posted for the securitization program they have $74 million cash available. The market cap is just $137 million with a stock price of $6.61 so the stock is extraordinarily cheap if these financial are audited and verified.

I own the stock because it appears that in spite of the lack of communication and apparent lack of concern from management the value is here. The stock should be trading in the mid-teens or higher based on the numbers I am seeing. If the stock just trades up to the same discount to book as Kelly Services, my other staffing stock, the shares would gain almost 50%.

It is likely that Mr. Rudolf, myself and other investors may have to break into our wine cellars to deal with the frustration of unlocking the value but the value is here. When management gets its act together this stock should return profits in many multiples and not just mere percentages.

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