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Mar
25
Radiant Communications shares are a steal (Too bad they are getting stolen)
Posted by: Gerry Wimmer
3/25/2013
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TOP IDEAS: Radiant Communications Corp. (TSXV: RCN) stock is up 67% but the take-out offer at $0.85 is an injustice for minority shareholders, just as the good gets going.

We were right about our call in September 2012 on Radiant Communications and the undeniable value of this Company's stock trading around $0.50. (See: Radiant Communications Corp. shines value for small cap investors).

We were right again that a going private transaction proposal for Radiant Communications could surface in 2013 (See: Investorfile has a view for 2013 – Prediction #6).

But we were wrong to assume that this Company's Board of Directors would act in the best interest of all its shareholders to maximize value.

In 2012 Radiant Communications Corp. (TSXV: RCN - $0.84), an Information Technology (IT) infrastructure service provider for mid-sized businesses who need reliable managed networks and cloud hosting solutions, had a very successful year generating cash flow and record profits for its shareholders. During the year the Company re-signed several existing customers to new multi-year IT service contracts and added major retailers under contract for managed connectivity and cloud IT services.

Financially, 2012 was also a turnaround year. On revenues of $32.7 million, Radiant Communications earned gross margins of 40%, produced $2 million of EBITDA and had $0.03 per share in earnings. The Company generated $3.8 million of cash from operations and, by the end of 2012, held $6.9 million in cash and marketable securities and was debt-free.

Last year Radiant Communications was a good story. This year the story may get better, except for its minority shareholders.

Why?

On March 8, 2013 the Company announced that its Board accepted an offer from two of Radiant's controlling shareholders: Maxam Opportunities Fund and Pender Growth Fund, to take the Company private for $0.85 per share.

This is a sweetheart deal for the controlling shareholders. The offer implies Radiant Communications has an enterprise value of under $6 million and is worth less than 3x EBITDA or only 18% of its annual revenues. (Cogeco Cable is buying Peer 1 Network Enterprises for 12.6x EBITDA, a comparable company to Radiant Communications.)

We have often said that the Investorfile blog is a platform for investors to become more informed about the good, the bad and the sometimes ugly practices in the small cap market that can impact share value. Radiant's going-private offer is a good example of the "ugly”. The share price offer agreed to is an embarrassment for this Company's independent board members.

For now the upside on this stock pick for our Top Ideas list has been capped at 67%. I guess an investment in Radiant Communications stock was too good to last, for some of its shareholders at least.

The Company has 15.1 million shares outstanding.

Radiant Communications website: www.radiant.net.

Author Ownership Disclosure: TSXV: RCN - Long


Read Disclaimer:

This article is for informational purposes only. This article is based on the author's independent analysis and judgment and does not guarantee the information's accuracy or completeness. The information contained in this article is subject to change without notice, and the author assumes no responsibility to update the information contained in this article. The information contained within this article should not be construed as offering of investment advice. Those seeking direct investment advice, should consult a qualified, registered, investment professional. This is not a direct or implied solicitation to buy or sell securities. Readers are advised to conduct their own due diligence prior to considering buying or selling any stock.

Investorfile.com is not engaged in an investor relations agreement with Radiant Communication Corp. nor has it received any compensation from Radiant Communications Corp. for the preparation or distribution of this article.

The author of this article has acquired and may trade shares of Radiant Communications Corp. through open market transactions and for investment purposes only.

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Comments:
Posted by: Bryan Hoseman
The valuation on the Radiant deal is flawed and apparently all efforts by other parties to put in bids have been met with resistance from their not very independent committee who was set up to evaluate this deal. I personally know one party who has experience on this first hand. They want to put a bid in over $ 0.85 but have been ignored by the board which consists of Campi''s buddies (The Maxam guy). Sucks to be a shareholder. It would be good to have the OSC and BC regulator actually do something about this. t
Posted by: Neil Milton
Gerry - Absolutely, bang on with Radiant Communications. This is an opportunistic screwing, and perfectly good example of the ''ugly'' in capital market activities. The only reason to do the transaction, and the only reason for this pricing, is to squeeze the minority. The markets are entirely premised upon trust - and when it is eroded, the cost of capital rises rapidly for all not just the oppressive. This is precisely the reason that regulators like the OSC should be all over a deal like this.

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Gerry: Thanks for small cap stock suggestions over the past 5-years. Your record is very impressive and your analysis has been excellent over the years. I think small investors (and fund managers) should pay much more attention to your work. I look forward reading your blog over the next 5-years!