Update to the prior 2 posts listed here.
http://www.net54baseball.com/showthr...t=psa+business
http://www.net54baseball.com/showthr...t=psa+business
I debated whether to continue with a Part 3, but recent developments deserve comment. First, an update on PSA activity. Quarter 3 which ended March 31, 2009 saw submittals drop to 273,000 units from 292,300 the prior quarter. The last 4 quarters in order have gone from 351,500 to 301,700 to 292,300 to 273,000 units. Not a healthy trend. PSA operating income the same period has gone from $330K to $345K to $258K to $187K. This does not include PSA's share of SG&A which, if applied based on revenue, would be roughly $350K and makes the PSA division clearly unprofitable.
Their corporate owner, Collector's Universe, has made some significant moves in the last few months. They sold off a few divisions including the ones that were clearly losers. So the main divisions that remain are coins (70%), trading cards (25%), and other (5%) which I believe is mostly stamps. Overall company results for the most recent quarter did show a profit of $700K - the first profit in a long time. This occurred despite a 10% decrease in revenue from the prior year. In a nutshell, they were able to cut back on expenses by 20% to overcome the 10% revenue drop.
Nothing really unusual here - most companies cut expenses when revenue drops. The question remains, is the revenue drop temporary based on the economy or systematic of better competition and/or a drop in the "trust" factor? Also, the company was performing poorly last year as evidenced by the lack of pricing updates to the SMR and poor grading standards. Does the cut in expenses (people) make this worse? Time will tell. I'll not comment on this.
But the recent development I wanted to focus on occurred last week. Collector's Universe announced a 1.75 million share dutch auction buyback at between $5.00 to $5.40 per share. This will cost the company between $9 - $10 million. They only have $20 million cash left. The reason for the buyback given by the company is to increase shareholder value. But stock buybacks rarely accomplish this. It is my opinion that the buyback is to protect executive employment. The poison pill they enacted didn't go over too well and reducing cash makes it less likely for a company to buy Collector's Universe to take private.
But what is really interesting is that while you are guaranteed to get $5.00 or more per share, the stock price has closed at $4.90 the last 3 days. How does that happen? My guess is that more than 1.75 million shares are going to be tendered and if that happens you will only be able to sell part of your shares at that price. Better to sell all of your shares below $5.00 than part of them above $5.00. Because after the buyback occurs, and the company has less cash, and there are no more heavy buyers, who know what could happen. Not a lot of shareholder confidence. And many shareholders are insiders. Hmmm.