(Image Credit: http://pendrell.com/)
Pendrell Corporation (NASDAQ:PCO) was the biggest mover in ‘The All Investable Screener’ yesterday, up a whopping 14.8%.
Who is Pendrell Corporation?
For the past five years Pendrell has invested in and acquired IP rights, and continues to monetize those IP rights.
For example, during the second quarter of 2016, the company licensed its memory and storage patents to Toshiba Corporation to permit the manufacture and distribution of embedded Multimedia Cards (eMMC) and secure digital memory cards (SD Cards).
The license covers more than 160 patents and patents pending, and enables Toshiba to use both standards essential and implementation technologies. Read What Are the Different Types of Patents? by freep.com to understand everything about patents.
With the Toshiba license concluded, it has completed four license agreements with manufacturers of memory and storage devices since acquiring the bulk of its memory and storage patent portfolio from Nokia in 2013.
Pendrell has had a great run over the past 3 months, with its price jumping over 30% since April 26.
The question is, WHY?
(Source: Google Finance)
Pendrell recently released its earnings results for the three and six months ended June 30, 2016
Revenue
Revenue of $45.0 million for the three months ended June 30, 2016 increased by $42.9 million, as compared to $2.1 million for the three months ended June 30, 2015. Revenue of $58.5 million for the six months ended June 30, 2016 increased by $31.1 million, or 114%, as compared to $27.4 million for the six months ended June 30, 2015. The increase for both the three and six months was primarily due to larger licensing transactions during the three and six months ended June 30, 2016 as compared to 2015.
Liquidity and Capital Resources
As of June 30, 2016, the company has cash and cash equivalents of $169.2 million.
The increase in cash and cash equivalents for the six months ended June 30, 2016 of $6.8 million was primarily due to $13.6 million of collected revenue, $2.0 million received from the disposition of assets associated with its former satellite business and the receipt of a $0.4 million installment payment on notes receivable, partially offset by $9.2 million of general corporate expenditures.
Pendrell believes its current balances of cash and cash equivalents and cash flows from operations will be adequate to meet its liquidity needs for the foreseeable future.
Income
As you can see below, Pendrell reported operating income of $21 million for the three months ending June 30, up from a loss of $8 million for the previous corresponding period.
What sticks out is the company’s commitment to reducing costs, with General and Administrative costs being cut by over 50% to $1.7 Million, from $3.7 Million for the previous corresponding period.
Net income also increased to $21.3 Million, up from a loss of $8 million for the previous corresponding period.
(Source: Company Reports)
In an effort to further reduce costs the company stated, “The Company has operating lease agreements for its offices in Kirkland, Washington and Finland. The Company terminated its lease for office space in Plano, Texas effective June 30, 2016.”
Net Current Asset Value
If you’re familiar with Benjamin Graham you’ll know that he calculated Net Current Asset Value (NCAV) as a company’s current assets (such as cash, marketable securities, and inventories) minus its total liabilities (including preferred stock and long-term debt).
If we look at the balance sheet of Pendrell, we can see the company has around $200 Million in current assets and total liabilites of just $20 Million, giving it a NCAV of $180 Million. The company also has approximately $267 Million shares.
So, that would give the company a NCAV per share of around $0.67 cents, and with the company currently trading at $0.66 its right inline with its NCAV per share.
With a market cap around $175 million, cash and cash equivalents of around $169 million, and no debt, the company has an Enterprise Value of around $2 million. When you factor in operating earnings of $21 million, that means the company has an Acquirers Multiple of around 0.12.
While it’s not close to the two thirds of NCAV that Graham would have liked, for me Pendrell currently represents great value.
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4 Comments on “Pendrell Corporation trading close to its NCAV $PCO”
Thanks for the write up Johnny. One question, why does the screener show PCO with an AM of -1.46 and your writing state it should be closer to 0.12?
Thanks!
Johnny’s right. It’s a small bug in the screener that we haven’t seen before caused by PCO going from negative EV to positive EV so quickly. Fixed now.
Pendrell is still trading below its cash on the books, and you get the multi-billion NOLS, intellectual property and genius of Craig McCaw for free. Whats not to like?
PCO is as good as it gets.