Mind CTI wants to mind someone else’s business

As it is the case for all postings in this blog, my standard disclaimers apply for this posting.  However, since this posting discusses investments, I urge you to review the disclaimers laid out in the About section with extra diligence. Moreover, even if you have already reviewed these disclaimers in the past, you need to review them again, as they are subject to change without notice.  Do it now, and remember that whatever I say in this blog posting is simply my opinion — it is not science, it is not advice, and it is not an attempt to make you act in any way whatsoever.

…. And, if you find yourself enjoying this posting, consider supporting the blog through a donation. For your convenience, PayPal links are provided to the right and at the end of the posting.

4699754409_7c3a332eb1_oToday Mind CTI Ltd. released its financial results for the second quarter of its 2013 fiscal year. I have summarized these results in a dynamic posting that you can find here (don’t worry.. by dynamic I refer to the fact that the posting is occasionally updated, not to some blinking HTML code.)

Mind CTI Ltd. is an Israeli company that I follow with a lot of interest – primarily because I think that MNDO, the company’s equity, yields a significant earnings opportunity for myself, but also because the trading patterns that were found around MNDO in relation to the annual dividend payouts by MIND CTI during the period from 2009 through 2012 (but, I hasten to say, may no longer be in effect) are intellectually interesting.

This quarter’s financial results were best characterized as being rather weak — not bad, just weak, the function of the company having lost certain long term, high-margin contracts and racing to catch up on the revenue and net income side.

As I have written about in other postings, Mind CTI Ltd., a solid generator of cash with zero debt and approximately $20 million in cash, has in the past delivered excellent annual dividends, ranging from $0.13 to $0.80, for a yield that occasionally has exceeded 10%.

With the weakening, however, this dividend may no longer be sustainable and, so, the company is faced with a situation where it has to provide shareholder value through growth of the per share price of its equity.

In response this challenge the company’s CEO put a stake in the ground in her comments on the financial results:

Given our strong cash position and our experienced enhanced organization, we believe that we are well positioned and have the required resources to respond to potentially increasing market needs and at the same time we will focus on targeting potential acquisitions that could benefit the company growth similar to the strategic acquisition in 2005 that strengthened our presence in the US and in the mobile market. The active pursuit will focus on acquisition targets at reasonable valuations that satisfy the criteria we defined: proven revenue generation, complementary technology and geography and expected accretion to earnings within two to three quarters.

In view of the loss of the high margin business and the anticipated impact on the dividend it is hard for me to imagine any shareholder who would have an issue with this strategic move, in particular since the target will be acquisitions that are attractively priced and can be accretive to earnings (per share, I assume) in less than a year.

The statement by Mind CTI Ltd.’s CEO is decisive, but still leaves a lot of room for the imagination of a shareholder in the company. Certainly, the company has the reserves to buy almost any company in the $5 to $10 million range and the staff resources to support the integration of such business as an additional division.

I, for one, can’t wait to see what happens next.

Donations, please….

As usual, if you found this posting useful or entertaining — or if it saved you time, you can express your appreciation through donation via PayPal right now.   For this type of posting a one-off donation of $10 is suggested — however, any donation is, of course, appreciated.