Dan Carroll of Litmus Capital presentation produced by sumzero and Institutional Investor on the long case for IDT Corporation (NYSE:IDT).

IDT Corporation

IDT Corporation (NYSE:IDT) is the Swiss Army Knife of investment opportunities – there’s something for every kind of investor.

The company is cheap, neglected and misunderstood. Led by a serial entrepreneur, it’s a sum-of-the-parts story of growing asset-light businesses with a great balance sheet, net cash and hidden assets. It has a management team who has shown some very shareholder-friendly behavior over the last few years – not surprising since they own over 30% of the company. It pays a 3% dividend for the income oriented. For the momentum crowd there’s exciting phrases like “cloud software”, “emerging markets” “underbanked consumer” and “mobile advertising” none of which you’re paying for today, but you stand to profit from. There’s a good chance of a spinoff of at least one of those assets in the next year, following on three IDT Corporation (NYSE:IDT) spinoffs since 2009.

IDT Corporation (NYSE:IDT) is cheap because 1) it had had a checkered history until 2009, 2) many people think the core business is shrinking when it’s now growing, 3) much of the value is hidden for now and 4) it’s only covered by one sell-side analyst that I don’t think has a good handle on the situation.

What’s it worth? It’s too hard to say with any precision but the core assets cover the stock price and you’re getting some very interesting fast-growing businesses for free. I think the stock has upside of 50% to well over 100% from here depending on how those free options work out.

There’s two ways to think about IDT Corporation (NYSE:IDT)’s valuation.A simplistic top view would be

$505mm market cap

less ~$95 million of excess cash,

less maybe $35 million excess real estate

= $375 million TEV.

Last year it generated about $44mm of CFFO-Capex, so that’s 11%+ FCF yield, with FCF growing over 50% last year.

There’s also a 60c run-rate for a ~3% yield.  That crude analysis shows that IDT Corporation (NYSE:IDT) is attractive, but misses three valuable businesses that to date, are barely contributing to EBITDA. It also punishes the stock for an elevated level of capex related to these investments. To capture the true value requires a sum-of-the-parts analysis.

H/T Curry Goat

Dan Carroll of Litmus Capital: Long IDT