One of the real benefits of writing for Real Money is its incredible community of contributors and readers. I have developed strong friendships with several contributors and enjoyed excellent exchanges with readers over the years. These are extremely intelligent folks with great ideas on the market and individual stocks. One such individual is John Rudolf, portfolio manager at Glacier Peak Capital in Bellevue, Wash. We have similar investing styles and share key interests. A few months ago, he brought me a great idea that is attracting attention this week.
Volt Information Sciences (VISI) is a staffing company founded in 1950 by brothers Jerry and Bill Shaw as a technical publications service. Volt added technical temporary staff services in 1956 and by 1957, it was the first publicly traded staffing company. Since then, the company has grown into a major provider of technical and administrative personnel to employers. Its client list includes a substantial portion of the Fortune 100, including tech giants Google (GOOG) and Apple (AAPL). It is estimated to be the fourth-largest provider of technical staff in the U.S. today.
The company is also involved in consulting, telecommunications, printing and publishing. It offers printing services for books, newspapers and directories in Latin America, including telephone directories in Uruguay. The telecommunications division is winding down as landlines and local residential voice services diminish. These businesses add some value to the company, but its heart and soul is the staffing business.
I am a big fan of the staffing business, particularly on the IT side, as a long-term investment. I believe Volt is a great addition to my portfolio, but the rub is that I only believe this to be the case; I have little proof. This company has not filed audited numbers with the Securities and Exchange Commission since 2009 after an initial accounting review determined some financials would have to be restated. The review is believed to cover about 10% of the company's revenues for the period in question, but the review has not been completed in three years and costs appear to have exceeded $60 million. The delay eventually brought about the company's delisting from the New York Stock Exchange.
The company and its troubles have been in focus this week as the value investors who now own the majority of the shares not controlled by the Shaw family hope to see the financials. The company securitized some of its receivable through PNC Bank (PNC) and, after being granted an extension earlier this year, audited financial are due Friday. So far, there is silence coming from Volt regarding the deadline and its ability to meet it.
Now, an 8-K filed Monday has ignited a fair amount of turmoil. The company paid a hefty bonus and raised the salary of CEO Ronald Kochman after just six months on the job. That does not sit well with many investors, including my good friend John Rudolf. He expressed his concerns over salary increases, bonuses and option grants made without any sign of full financials or an updated business plan and guidance. The Shaw family still controls the board and 42% of the stock, and it appears they are not responsive to shareholder concerns. With so much of their net worth in a stock that has fallen to less than $7 from more than $35 over the past six years, you would think shareholder value would be more of a priority.
The thing that really rubs investors the wrong way is that the value does seem to exist. Working from old analyst comments and the company's quarterly unaudited updates, the company generates something like $40 million a year in EBITDA. Book value appears to be about $13 a share and, between cash, short-term investments and collateral posted for the securitization program, Volt has $74 million in available cash. The market cap is just $137 million with a stock price of $6.61 as of Tuesday, so the stock is extraordinarily cheap if these financial are audited and verified.
I own the stock because, in spite of the lack of communication and apparent lack of concern from management, the value is there. The stock should be trading in the mid-teens or higher based on the numbers I see. If the stock just trades up to the same discount to book as Kelly Services (KELYA), my other staffing stock, the shares would gain almost 50%.
It is likely that Rudolf, myself and other investors may have to break into our wine cellars to deal with the frustration of unlocking Volt's value -- but the value is there. When management gets its act together, this stock should return profits in many multiples, not just mere percentages.