Thursday, April 14, 2011

International net-net #6 Craig Wireless

Craig Wireless (CWG:CN)

Trading at C$.395 (4/14/11)

I was very hesitant to do this post for a few reasons, the first being that this is a Canadian penny stock, the second is that the latest financials are from August 2010.  As I reviewed the financials and the background of the company and figured I'd post my worksheet and a few comments.

Craig Wireless owns 4G and WiMAX spectrum licenses and leases out the spectrum to internet and wireless companies.  Craig Wireless owns spectrum in the United States, Canada, Greece, and New Zealand.  What's strange about Craig Wireless is they are headquartered in California but trade on the TSX, most of their operations are not in Canada.

What makes Craig Wireless attractive is that it's trading at 50% of the cash on it's balance sheet, and even less if you consider it's spectrum assets.  Here is my net-net worksheet:


Pros:
-The company is selling at an undeniable discount, less than 50% of identifiable assets.
-Management has shown to be shareholder friendly, on the sale of a division they returned cash to shareholders as a dividend.
-4G and WiMAX spectrum assets could be very valuable as phone networks face bandwidth capacity constraints. 

Risks:
-Craig Wireless sold off their profitable operations and now only holds cash and spectrum licenses, the company is not cash flow break even.
-The company conducts most business outside of Canada but uses the Canadian dollar as it's functional currency, currently the loonie is very strong providing a currency headwind to forex hedging contracts.
-The CFO resigned last year and was replaced in early 2011.
-A member of the Board resigned just before Christmas, no detail was given as to the reason.
-The company's financials are current as of the end of August 2010.

While this company proves that markets aren't always efficient I am taking a pass on investing with them.  The biggest issue that turned me away is that the company still has operating expenses but no way to generate revenue outside of selling spectrum.  While selling spectrum might turn out to be a lottery ticket type of reward I don't have the patience to accept the risk while waiting.  There are also too many risk factors as I mentioned above to make me comfortable even with the significant margin of safety.

Filings can be found on SEDAR: http://www.sedar.com/
SEDAR is the Canadian version of EDGAR, unfortunately I can't figure out a way to link directly to a SEDAR filing.

I'd be interested in here a bullish story for this stock, if you have one leave it in the comments.

Disclosure: I don't own any issues mentioned in this post.

5 comments:

  1. any thoughts since the latest financials were released? big drop in cash balance...

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  2. I took a look at the financials for the latest quarter and if anything it really makes this investment that much more unattractive. All they're left with is spectrum and cash that's being burned pretty quickly. I'm not sure what their end game is at this point, possibly looking into liquidation value might be worthwhile.

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  3. Interesting that so many people miss the forest for the trees. It would seem that Craig Wireless actually has some vision and is going with their experience and not trying to please a few TSX critics... if you look at the future potential of what spectrum holdings could be worth, then this company seems to be betting in the right direction... looks like they are stockpiling assets and getting rid of expensive operations... I can't find any profitable 4G operators yet... so maybe they are onto something... if you look at MHZ/POP numbers and what spectrum is worth (See Sprint in the US, etc.) Craig could be sitting on a couple hundred million in assets... and purchasing more at pennys on the dollar... they aren't asking for money or help... and seem to be pretty confident in not following the path well worn... just perhaps we may have a home run opportunity here... Management changes like CFO's shouldn't scare anyone... if they are refocusing their business then it would make sense to rid themselves of old school players...again, I'm watching closely, and listening to the rumors in the industry... quite a few well noted individuals think Craig has a strategy that is going to pay off handsomely... they aren't afraid to pay dividends... so perhaps we actually have a company who knows more than the analysts? I say keep your eyes on them... there's something potentially good happening here...

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  4. CWG hit a home run with the sale of the spectrum but has no credible path to profitable operations. That does not bode well for the stock.

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  5. Anon,

    Agreed, the best bet would probably be to liquidate and just return cash to shareholders, unfortunately that probably won't happen.

    Nate

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