IF anyone is ever silly enough to run a competition to find the sickest company on the stock market, and Briefcase could be just the place for such a game, then it would be hard to go past Quadrant Iridium. From 75 cents three years ago, the once-highly-rated Quadrant has fallen to less than 4 cents – despite owning a slice of a global business and having the backing of one of Perth’s most successful investors, Michael Boyd.
There are other companies which have outperformed Quadrant’s 95 per cent share price fall which, in the Olympic spirit, Briefcase describes as a backwards two-and-a-half belly-flop, but none started with such high expectations.
It was because Quadrant attracted the backing of Boyd, a man worth more than $200 million from his stake in the Sonic Healthcare business, that it seemed timely to have a fresh look to see if Quadrant could go any lower, or might be on the way back. The jury is still out with its final verdict, though there are interesting signs of life in the patient.
Before looking at recent events, a little history, starting with the theory behind Quadrant, which first snatched the headlines as a classic bottom fishing exercise.
For "just" $US20.8 million the Perth company acquired an 18 per cent stake in Iridium, an American adventure backed by big business names, including Motorola, in launching 66 low-orbit satellites (plus 13 orbiting spares) and a proposal to sell telephone and data services to people requiring a global reach.
Sadly for such a bold concept, which cost $US6 billion to get off the ground (a most appropriate turn of phrase for a satellite operator), there was no stampede to buy Iridium’s telephone services. For starters, the handsets themselves were bricks and the cost of a call required taking out a second mortgage on your house.
Obviously Briefcase exaggerates, but not by much, as shown in the early sales numbers which indicate that two men, and their dog, signed up for Iridium Mark One. The only user of substance was the US Army which liked being able to chat to its troops around the world.
The rescue of Iridium, as with most such attempts at corporate mouth-to-mouth, has been harder than anyone imagined, hence the share price crash by Quadrant, thumping losses and the need to raise a modest $340,000 in mid-August via a placement of 10 million shares at 3.4 cents each.
But, before that August capital raising, Quadrant had been saying some interesting things to the market – not that anyone was listening because a report on July 14 and another on July 22 sank without trace in the local media.
The first statement was a shareholders update, signed by Boyd as chairman, an unusual event in itself given his desire for a low profile. Boyd described the first six months of the year as "significant", with growth coming from a new telecoms investment and a stake in a global SMS (short message service) venture.
Iridium, the big game, got just one paragraph in Boyd’s four-page letter but it did contain a comment that Iridium Satellite LLC "continues to trade cash flow positively" though a return is not likely in the near term.
Briefcase, to put it mildly, is fascinated by the fact that Iridium, after so much rubbishing, is cash flow positive and, while that might be a long way from posting a profit, it is a big change in outlook for one of the technology world’s greatest disasters.
The second statement came on July 22 and was billed as a "three-year status report" on Iridium. Briefcase, which is used to three-month reports from mining companies, found this second Iridium document which looks at three years of activity more than interesting because the satellite telco claims to have positive earnings before interest tax depreciation and amortisation and to have now signed up more than 100,000 users.
The "brick" handsets have shrunk, along with call costs, and data services and Internet connections have been added to the sales package that is said to be attracting between 2,000 and 3,000 new subscribers a month. Revenue in the first half of 2004 was up 17 per cent, coming on top of a 44 per cent increase in calendar 2003.
Briefcase, as always, declines to give investment advice, but after such a stellar non-performance over the past three years, and with Boyd’s stoic commitment to such a public flop, it might be worth having a look at a most unusual telco.
ON the subject of almost forgotten companies here is another business that has dropped off most radar screens because (a) it is seriously small and (b) because it went for a premature gallop last year and then failed to deliver the goods.
Ammtec, a rather dreadful shorthand name for Australian Metallurgical & Minerals Testing Consultants (no, that’s even worse), is one of the few listed assay laboratory operators processing drill core and other samples for mineral explorers and mine developers.
Last November, as the boom in speculative mining stocks hit fever pitch, Ammtec joined in with a share price run from $1.35 to $2. That little burst of irrational exuberance was dowsed in February when the company said its half-year to December had been dreadful with sales down 16.4 per cent and profit down 54.7 per cent to a lowly $446,000.
The point everyone missed is that businesses such as Ammtec are late movers in the minerals exploration cycle. In the December half there were new floats being assembled, the start of the China sales boom – and not a lot happening in the field; not enough samples for assaying.
The June half, contained in the overall result for financial 2004 and reported on August 17, saw all that change. Revenue soared by 29 per cent and profit more than tripled to $1.57 million for the half year.
In response, investors have added 5 cents to Ammtec’s share price which has rushed all the way from $1.62 to $1.67, a curiously flat performance given the $2 high in the silly season of the boom and the fact that the outlook is particularly bright given float money is finally finding its way into the ground and the big boys of iron ore and nickel are spending furiously on exploration.
"I prefer rogues to imbeciles, because they sometimes take a rest." Alexander Dumas.