Tuesday, 24 October 2017

RCON Spikes On News, VISI News Presents Great Value Opportunity

Last week we issued a trade alert on Recon Technology, Ltd. (RCON). Our readers who were patient over this week were rewarded today when RCON announced a $2M waste water treatment services contract, with revenue expected to start this quarter. The stock hit as high as $2.64. We sold some shares at a 30%-50% gain and have since bought some back with the pullback under $2.00. While the contract isn't huge, it represents the second deal in the waste water treatment sector which means RCON plans on making a lot of noise in this industry with gigantic potential in China.

Our new alert is on Volt Information Sciences, Inc (VISI). We got in at $3.20 and then it immediately spiked to $3.60 so this alert is given out quickly with speed in mind so forgive the very minimal information presented here. Make sure you do your own diligence, but on this surface this looks like a value play.

VISI made the following announcement today:

"Volt Information Sciences, Inc. (“Volt” or the “Company”) (VISI), an international provider of staffing services and managed service programs, today announced that it has entered into a definitive agreement to sell its quality assurance testing business (the “Business”), a part of its Technology Outsourcing Services and Solutions segment. The buyer, Keywords International Limited (“Keywords”), is a leading international technical services provider to the global video games industry. The Business, known in the industry as VMC, provides production development, QA testing and customer support to companies primarily in the video gaming and mobile industries. The sale will not include the call center services unit of the Company’s Technology Outsourcing Services and Solutions segment, which Volt will continue to own and operate.

Under the terms of the Stock Purchase Agreement, Volt will receive $66.4 million in cash at closing, subject to customary working capital adjustments. The sale is conditioned upon Keywords’ satisfaction of a financing contingency to fund the purchase price.

The disposition of these non-core assets, which represent approximately 5% of Volt’s global revenue, will allow Volt to become a pure-play staffing company. I am confident that the Business will continue to prosper under Keywords’ management,” said Michael Dean, Volt’s President and Chief Executive Officer. “The anticipated cash proceeds from the sale will significantly strengthen Volt’s balance sheet and notably bolster our liquidity position. Importantly, this transaction will help streamline our operational focus within our core staffing business, where we are best positioned to create long-term shareholder value.”

Upon the closing of the sale, which is anticipated shortly, Volt’s current financing agreement with PNC Bank will require a $25 million paydown of our outstanding debt. Volt’s board of directors and management continue to review a broad range of options to drive shareholder value and advance the Company’s plan for growth. We look forward to further communication with our shareholders regarding potential opportunities in the near future."

VISI will receive $66.4 million in cash for a division that represents 5% of total revenue. At $3.60, the market cap is only $75 million. If the other 95% of the business is representative of the valuation the company received for that 5% of non-core business, the market cap would be worth (66.4/0.05) $1.3 billion. Let's just work one step at a time and say the market cap should be worth $150 million with the new cash infusion and pay down of debt. That's still a double from where it is now.

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Disclosure: We are long VISI and RCON

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