Thinking Big About Small Companies

A Tree Falls in the Forest, A Canadian Company Reports a Great Profit

November 11th, 2014 | Posted by Torin in GLN

Neither is heard, apparently.

I say this because last week Glentel reported a third quarter profit that far surpassed any reasonable expectation, and yet the stock has barely budged.

Glentel’s Canadian business, suffering under a recent regulatory change that caused many Canadian consumers to delay handset purchases and upgrades, generated EBITDA that was 55% greater than last year’s third quarter result, and 20% above the second-best third-quarter in the segment’s history. Prior to this report, it seemed possible that consumer demand for new phones would not fully return for as many as three years. Now, just one year in, demand already looks robust.

There is more good news: Glentel is likely to report a phenomenal fourth quarter as well. On top of rebounding customer demand, the fourth quarter will benefit from strong sales driven by the successful release of the iPhone 6, which hit stores in the last week of September. It is quite possible Q4 will be another record.

These are strange things to be writing about a stock that is down 20% YTD and is trading just off the lowest levels it has seen in four years.

Glentel was already a cheap stock; the great third quarter and the promise of more to come make it even cheaper. The company is currently generating about $1.70 of cash EPS, putting the FCF multiple at 7x, or inversely, the FCF yield at 14%. The dividend yield now is 5%.

2015 EBITDA is likely to be $75M+. The company’s enterprise value today is a little under $310M. By the end of the 2015, free cash flow generation will have reduced that by about $40M, assuming the cash is retained. That will put the EV/EBITDA multiple around 3.5x.

I won’t bore you with the rest of the Glentel’s investment merits; I have discussed them in detail elsewhere on this site if you’re interested. For now it suffices to say that Glentel is cheap, cheap, cheap.

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