Access Plans (APNC.OB) has been featured on Value Uncovered several times before (see here and here).

The company continues to put up record results and is on pace for its best year ever, yet the stock has languished below $1 for most of 2010.

Strategic Alternatives

Based on recent news, it appears that management agrees with my analysis.

On November 11, APNC announced that it will pursue a broad range of strategic alternatives to enhance shareholder value.

These alternatives include a possible going private transaction or raising money for future acquisitions.

For many micro-cap stocks, especially those quoted outside of the major exchanges, it is often difficult to rise above the crowd.

The market hasn’t responded to APNC’s latest acquisition, nor its growth prospects going forward, so it appears to be in the company’s best interests to strongly consider taking the company private.

The stock market has at least responded favorably to this news, as the stock is up over 12% in the past few days.

Research Report

On the heels of this strategic announcement, a research report was also published by RJ Falkner & Company, describing APNC as a “diamond in the rough” type of investment opportunity.

While the report is certainly biased (RJ Falkner is compensated for their services), I think it echoes a number of valid points that I have brought up before.

I have grouped together a few excerpts:

Efficient Operations

“Access Plans should require minimal capital to execute its business strategy, since it does not have to inventory products and services. This suggests that the Company should generate a significant and growing stream of “free” cash flow from operations that could be available for acquisitions, future cash dividends, and/or stock repurchases.”

Management is in the process of transitioning its new Insurance Marketing division (a very low margin business) to its more lucrative membership plan options, which should provide a significant boost to how much cash hits the bottom line.

“APNC now has an opportunity to increase sales of high-margin healthcare benefit programs through its national network of health insurance agents and through other non-affiliated health insurance agencies.”

And management has done it before with the Retail Plans division:

“This division has replicated many of the features that have allowed the Wholesale Plans Division to be highly successful in the rent-to-own industry in the development of plans for other retailers and direct marketing channels”

Macro Trends

The number of businesses offering health insurance coverage is shrinking:

“As the number of uninsured individuals has increased, the market potential for APNC’s non-insurance healthcare savings programs has expanded significantly.”

In addition, baby boomers are starting to retire, increasing the demand for healthcare services – and Medicare doesn’t cover everything:

“While the federal Medicare program covers a portion of healthcare expenses for senior Americans, gaps in coverage provide a significant market for APNC’s supplemental healthcare savings programs.”

Financials & Valuation

“For the year ended September 30, 2010, we expect the Company to report net income of over $3.0 million, or $0.15 per diluted share, on revenues of approximately $54 million, representing an after-tax return on beginning shareholders’ equity of approximately 26.2%.”

The company has paid down nearly all of its long-term debt, is buying back shares, and will likely have a record year in cash flow and profits.

“Based upon a generally accepted “rule of thumb” that growth stocks should command a P/E ratio of approximately 1X their earnings growth rate, we believe APNC shares should sell for at least 13X-15X earnings as the success of the Company’s business model becomes apparent to investors. Based upon our EPS estimate ($0.21-$0.22) for the upcoming fiscal year, this suggests the potential for capital appreciation of 215%-290% in APNC shares (to the $2.70-$3.30 area) over the next 12-18 months.”

While this forecast is very optimistic, my own estimates peg an intrinsic value of $1.70 under the most conservative estimates (no growth, current FCF levels), and a more likely valuation scenario of $2-$2.50.

Conclusion

As I’ve said in my previous write-up, investors seem to be concerned that the financial reform bill will negatively impact APNC ‘s operations – in truth, the net result is probably the opposite.

I’m encouraged to see that management is willing to explore options to reward existing shareholders.

It remains to be seen how the story plays out, but it appears that APNC’s future could yield substantial upside.

Disclosure

Long APNC. No affiliation with RJ Falkner & Company.

Advant-e Corporation (ADVC.OB) continues to chug along with outstanding results, posting another record setting release in the third quarter of 2010.

Financial Results

Third quarter revenues were $2.38m, a 10% increase compared to the same quarter last year.

The Edict Systems Group continues to impress, passing the $2m mark in revenue for the first time in company history – this result only adds to the consistent performance by ADVC’s Software-as-a-Service business.

The traditional software business, The Merkur Group, reported its second consecutive QoQ sales increase, with revenues increasing 5% for the quarter to $379k.

Merkur continues to struggle with weak market demand, but management has cut costs and reduced bonuses in order to keep the segment continually profitable throughout the downturn and subsequent (slow) recovery.

Overall, net income jumped 37% to $434k or $0.006 per share. Year-to-date, net income is already over $1.05m.

By comparison, the company had net income of $1.19m for all of 2009 (which was the best year in company history) – if the business can even just match last year’s Q4 performance, it will be another record-breaking year.

The balance sheet remains solid with almost $0.05 per share in available cash along with an unused $500k credit line.

Catalysts

As previously discussed, ADVC has another cash dividend of $0.01 scheduled before the end of 2010. In addition, the earnings press release offers a potential growth opportunity:

“We are continuing to direct much of our energy to growth opportunities in the health care and manufacturing industries, where potential customers have shown interest in our service offerings.”

Leveraging existing software to branch into new markets is a solid business strategy – I imagine the healthcare field would be extremely interested in ADVC’s SaaS offerings.

Conclusion

While software companies are not usually the typical candidates for value investing, the market will sometimes choose to ignore even the steadiest performers.

Estimating ADVC’s intrinsic value using both DCF and EPV, the stock is worth $0.27 – $0.30 per share, a discount of 22% – 36% based on the latest closing price.

With so much cash on hand, I’d like to see management offer an additional special cash dividend in 2010 before the favorable tax treatment expires.

The company’s CEO, Jason Wadzinski, owns more than 50% of shares outstanding so it would be a nice payout for him as well.

(A thought process which reinforces the importance of investing in stocks where management and common shareholders’ interests are aligned!)

Disclosure

Long ADVC

New Frontier Media Inc (NOOF) reported fiscal second quarter earnings last week, showing continued pressure on the business segments as the company discloses additional (although much lower) impairment charges.

Quarterly Results

NOOF’s second quarter revenues were relatively flat, falling to $11.2m compared to $11.4m in the prior year quarter.

Overall, international revenues are up 41% during the first six months of the year while the domestic market fell 6%.

The Transactional TV business continues to generate a vast majority of overall profits, driven largely by increased sales in the Video-on-demand (VOD) segment.

However, this revenue growth comes with additional costs as the company must make upfront investments to reach these new markets. Gross margins within this segment have fallen to 63% compared to 69% in the same quarter last year.

NOOF reported an operating loss of $286k, driven primarily by higher costs across most of the business segments and a non-cash impairment charge of $0.6m in the film production segment.

Financial Position

While the business continues to face challenges going forward, the balance sheet and financial position of the company remain strong.

The company has $14.8m in cash on the balance sheet – after backing out liabilities, NOOF’s net cash balance is $5.7m or almost $0.30 per share.

The company’s current ratio sits at a healthy 3.61.

Despite the business struggles, the company continues to generate cash, with an adjusted free cash flow of $3.37m so far in 2010.

This cash-flow number is affected by a significant increase in cap-ex expenses as the company is in the process of upgrading its storage systems. In addition, cash was paid out at the beginning of the year for producer arrangements that should be recouped before the end of the fiscal year.

New Lease Agreement

In October, the company announced the signing of a new lease agreement to consolidate its operations into a 50k square-foot facility. Historically, business operations were split between two smaller locations.

The new lease is offering very attractive leasing terms including substantial leasehold improvement allowances, and should allow for increased efficiencies in NOOF’s operations going forward.

According to NOOF’s CEO, Michael Weiner,

“We obviously will have some costs associated with moving, but we estimate combining the facilities and what we have to look forward to, we will save a substantial amount of money over the next several years by having everything in one facility, and plus the ability to grow.

So it was a very, very favorable deal…And as I say the amount of money we got from the landlord was substantial and made the deal very economically viable.”

Conclusions

Consider these valuation statistics:

Using a TTM EPS number of $0.23, the cash-adjusted P/E is only 6.9.

EV/EBIT is only 5.03.

P/Book Value is 0.7.

By most traditional valuation metrics, the company continues to remain historically cheap, even after the recent run-up in the stock price.

This conclusion is backed by management actions, as several company insiders bought back over 33k shares in August when the stock traded between $1.35-$1.50, near its 52-wk low.

A new institutional investor, Longkloof Limited, an investment holding company based out of the Virgin Islands, disclosed a new 11.5% stake as well.

While the business is certainly facing short-term pressures, the stock remains too cheap to ignore.

Disclosure

Long NOOF