InFocus Corporation (NASDAQ:INFS) is a deeply undervalued asset situation with two activist investors, Nery Capital Partners and Lloyd I. Miller, III, disclosing holdings in the company. At its closing price yesterday of $0.63, INFS has a market capitalization of $25.6M. We estimate its liquidating value to be more than 80% higher at $46.7M or $1.15 per share. With Nery Capital Partners and Miller pushing the company to enhance its stock price, we believe INFS is an attractive opportunity.
About INFS
INFS is a provider of digital projection technology. The company markets projectors and related accessories for use in the conference room, board room, auditorium, classroom and living room. “InFocus” is the company’s primary brand and is sold worldwide. In addition, many of the products are offered under a global reseller brand, “ASK Proxima.” INFS’s investor relation website is here.
The value proposition
According to its latest 10Q, INFS lost $25.6M last year and has continued to make losses in each of the last three quarters. The company does have some value on the balance sheet, as our summary analysis demonstrates (the “Carrying” column shows the assets as they are carried in the financial statements, and the “Liquidating” column shows our estimate of the value of the assets in a liquidation):
INFS has $124.7M in current assets, $55.2M ($1.36 per share) of which is cash and equivalents. We’ve discounted the receivables by a fifth to $31.4M or $0.77 per share and inventory by a third to $20.3M or $0.50 per share. The company has no debt but total liabilities of $81M or $1.99 per share. Deducting the liabilities leaves a liquidating value of $46.7M or $1.15 per share. INFS is currently trading at $0.63 or 55% of its value in liquidation.
The catalyst
Nery Capital Partners disclosed its original 9.8% holding in INFS in a November 5 13D filing. Initially purchasing its holding in INFS as a passive investment, Nery Capital Partners was moved to an active stance after an “evaluation of [INFS’s] financial performance and in light of [INFS’s] decreasing stock value.” Nery Capital Partners has since contacted the company’s board or management “with respect to, among other things, steps that [INFS] could take to improve [its] financial condition and increase shareholder value.” As of its amended filing dated December 5, Nery Capital Partners holds 11.2% of the company.
Lloyd I. Miller, III disclosed his 5% holding in INFS as a passive investment on November 5 in this 13G filing. On November 19, Miller updated his original filing to an active 13D filing. Miller said in the new filing that he acquired the holding in INFS as a passive investment but:
“…now believes it would be in his best interest, and those of other shareholders, to attempt to influence the governance and business strategies of the Company. Following Miller’s evaluation of the Company’s financial performance and in light of its recent declines in stock value, Miller decided that he may seek to contact the Company’s Board of Directors or management in order to engage in discussions regarding governance and enhancing shareholder value.”
Miller’s new filing states that he agrees with the views of Nery Capital Partners INFS is undervalued and represents an attractive investment opportunity and that the company should “consider the views expressed by its shareholders and pursue new alternatives to increase shareholder value.”
One alternative to increase shareholder value is to complete the stock back that the company initiated in the third quarter of 2008. Authorized to purchase up to 4M shares over a three-year period, as of September 30, the company had only repurchased 50,000 shares at an average price of $1.53 per share. Given the substantial discount of INFS to its current asset backing, any shares bought back at these levels have a large positive effect on the underlying asset value. We would like to see INFS buy back as many of the 4m shares as possible as rapidly as possible. Update (December 15): We’ve conducted an analysis of a buy back on INFS’s per share value. In short, if INFS buys back 20M of its 40.7M issued shares (approximately 50%) at Friday’s closing price of $0.67, it would increase its per share liquidating value from $1.15 to $1.61 (a 40% increase).
Conclusion
At $0.63 INFS is trading at 55% of its $1.15 per share value in liquidation. Although the stock jumped 25% yesterday, it is still very cheap. With Nery Capital Partners and Lloyd Miller in activist mode, this is an interesting opportunity.
Yesterday INFS closed at $0.63 and the S&P 500 Index closed at 873.59.
[Disclosure: We do not have a holding in INFS. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research.]
Greenbackd 