Sidoti Micro Cap Conference Notes (Part 1 of 2)

January 12, 2010 · Leave a Comment

Yesterday I attended Sidoti’s Micro-Cap Conference in NYC, where I had the opportunity to hear the strategies these companies are implementing to grow their business directly from executives. Today, I am including the notes from the first 3 companies I visited: Zoom Technologies (ZOOM), Cryptologic (CRYP), and Monmouth Real Estate Investment Corp (MNRTA). Keep in mind that these are not meant to be company analyses, but only notes taken while listening to the presentations. Each presentation was 15 minutes.

Tomorrow I will be highlighting Hooker Furniture (HOFT) and Answers Corporation (ANSW). In addition, I will also be providing a summary of the topics covered by the keynote speaker Larry Kudlow.

For a list of presenters along with corresponding financial snapshots, see the conference company list HERE.

 

Zoom Technologies (ZOOM)

Presenter: Anthony Chan, CFO

  • Zoom Technologies provides electronic manufacturing services (EMS) for Chinese and global original equipment manufacturer (OEM) customers, as well as involves in the design and production of mobile phone products. It develops and produces GSM and CDMA mobile phones, wireless telecommunication modules, digital cameras, cable TV set-top boxes, and GPS equipment. It also produces its own brand of cell phones in China.
  • Only 47% of people China have cell phones, compared to 94% in the US. According to CFO, the company will be able to capitalize on the land to mobile shift in China.
  • Company is majority owned (51%) by Mr. Lei Gu, who serves as Chairman & CEO.
  • Industry margins are thin, but company’s margins are even thinner. These are expected to remain thin for the foreseeable future. It seems that company is a price taker, not a price setter. Therefore, CFO is satisfied with getting contracts that will allow the company to make money even at razor thin margins.
  • Company’s structure is dictated by the requirements imposed by the Chinese government.
  • CFO described Chinese government partnership as positive, citing that the government provides interest-free loans to the company as long as company manufactures cable set-top boxes for the state-run cable company.
  • An interesting concept the company has developed is burning ads into the company-branded cell phones. When these phones are activated, an ad is displayed for the buyer. Not much additional detail was given on this.

 

Cryptologic (CRYP)

Presenter: Brian Hatfield, President & CEO

  • Company is a leading developer of online casino software.
  • After the US prohibition of online gambling passed in 2006, the company re-focused its growth efforts to Europe and Asia. The UK is currently its largest market.
  • Company has gained 26 new customers since Mr. Hatfield took over the company in 2008.
  • Company is focused on bringing entertainment brands to their casino games, as branded games are fastest growing segment of their business. Some of these brands include The Incredible Hulk, Daredevil, X-Men, and Wonder Woman.
  • Cryptologic has exclusive gaming and casino rights to Marvel comic book characters. However, it also has a licensing agreement with DC Comics, Marvel’s main competitor, allowing the company to keep total control of comic superheroes in the gaming industry. The DC brand includes Batman and Superman, the two best-known comic heroes in the world.
  • From concept to delivery, the company’s mean turnaround cycle is roughly 1 year.
  • Deposits can be made freely, but first-time players cannot withdraw winnings from a Cryptologic-powered casino until they receive a PIN number, which is sent through the regular postal service. The policy discourages some players, but it is a lot more secure than other sites. According to CEO, this fraud control measure has resulted in one of the lowest fraud rates in the industry (under 1%).
  • Cost-cutting measures expected in the future, as company will be merging Cyprus and Malta offices into one (announcement will be made later this week).
  • CEO does not think prohibition is likely in European countries at least not in the near future. It is also interesting that he sees online gambling returning to the US, but not any time soon. He mentioned that a kay barrier is the opposition byVegas casinos, which have lobbied strongly in 2006 for the prohibition of online gaming in the US.

 

Monmouth Real Estate Investment Corporation (MNRTA)

Presenters: Eugene Landy – Founder, Chairman & CEO

                      Michael Landy – VP, Investments

  • The company’s primary business is the ownership of real estate. Its investment focus is to own net leased industrial properties, which are leased to investment-grade tenants on long-term leases. In addition, the company holds a portfolio of REIT securities.
  • The Company has approximately 6,132,000 square feet of space that it leases, of which approximately 2,910,000 square feet, or 47%, is leased to Federal Express Corporation (FDX) and its subsidiaries. The company also leases to other high-quality tenants such as Coca Cola, Kellogg, Caterpillar, Anheuser Busch, among others.
  • The company operates at a 4% vacancy rate, much lower than the national average of 12%.
  • Company owns a total of 61 properties in 25 states. It leases them at an average of $5.36 per square ft.
  • Roughly 10% of company is invested in REIT securities, weighted towards preferred shares. Additionally, company offers 8% yield.
  • For the past 3 years, company has returned 9% vs. -43% for MSCI US REIT benchmark.
  • Company’s founder (over 42 years in the industry) mentioned all data points tracked by company indicate a V-shaped recovery.

Categories: Value Investing
Tagged: conference, CRYP, Cryptologic, micro cap, microcap, MNRTA, Monmouth Real Estate Investment Corp, new york, sidoti, ZOOM, zoom technologies

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