Back in March 2020, Emmis (OTCMKTS: EMMS) acquired Lencore Acoustics for $75M while having an adjusted enterprise value of $19M. There isn’t much information about Lencore but enough to add that Lencore is currently a cash cow and possesses greater value than the price it was acquired for.
According to a post by PRNewswire, in April 2020 the company announced that it is delisting its Class A common stock from Nasdaq and deregister from SEC, thereby suspending its public reporting obligations and expect savings of $1M per year. Below is an excerpt from CEO Jeff Smulyan.
Jeffrey H. Smulyan, the Company’s CEO stated, “We’ve undertaken a detailed and thoughtful review of the costs and benefits associated with being a Nasdaq-listed and SEC reporting company. After careful consideration, our Board of Directors unanimously decided to voluntarily delist from Nasdaq and deregister with the SEC as we believe the expected savings of more than $1 Million per year outweigh the advantages of continuing as a Nasdaq-listed and SEC reporting company.”
However, Investors have been disappointed with the management of the CEO, who had been selling media assets in order to purchase Lencore which had recently been delisted from a major exchange. Adding to investor woes, there have been governance, and transparency issues. As per a recent MarketBeat report,
“Emmis Communications’ stock was trading at $3.02 on March 11th, 2020 when Coronavirus (COVID-19) reached pandemic status according to the World Health Organization. Since then, EMMS stock has decreased by 47.0% and is now trading at $1.60.”
The volatility in the share price could be attributed to the Covid-19 situation. However, investors do need to look at Emmis Comm’s Beta value. It currently has a 5-year Beta value of 1.52 which is above 1 and that historically means share price is influenced by the broader volatility of the market. Which means the share prices rise more than the market when the market is going up, but very importantly fall faster than the market is going down. So, investors need to consider the volatility of the share price. These apart investors also consider the history of revenue and earnings growth.
Over the last 10 years, Emmis (OTCMKTS: EMMS) has been slow to learn that their business investments weren’t feasible anymore. From traditional broadcast, print assets and radio stations, nothing really worked for them. A long-drawn divestiture ended in the splitting of Media Co and selling of Austin Radio stations. The current valuation of Emmis differs from what it was in 2016 when its CEO had attempted to make the company private.
Looking at the acquisition of Lencore Acoustics by Emmis (OTCMKTS: EMMS) which sold sound masking solutions to Govt and enterprise customers. There has been extraordinarily little information about Lencore, partly owing due the fact that it was privately held and also that Emmis wasn’t transparent about the financial information released. From the disclosure made by Emmis, it seems that they may have over payed for Lencore. There isn’t enough data to properly value Lencore at this moment.
Emmis (OTCMKTS: EMMS) along with Lencore has a wide range of assets which total to $75.25M. Taking in the adjustments and corporate overheads, there is margin of safety on the current enterprise value.
22% of the company is owned by the Management & Board. Via a special share class, the CEO controls the company. Over the last ten years, the performance of the management has been decent wherein they managed to get out of traditional businesses and avoid debt.
On a concluding note, despite the risks of Covid-19, Emmis (OTCMKTS: EMMS) has a certain degree of safety provided by its assets and the recently acquired Lencore. Over the next few years, Emmis can still be considered a safe bet with the additional disclosure about Lencore, selling of some remaining assets or even being re-listed on the major exchange.