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Stratcomm (SMMM) calls itself "an entrepreneurial communications company with heart". SMMM works seamlessly with its clients in developing, positioning and conveying the corporate message that was custom-designed for the respective company. One of the company's prime assets is its mailing list containing over 5 million names. Stratcomm uses every means at its disposal to maximize the value of this mailing list, both for itself and for its clients. The company, in offering "one-stop-shopping" for its corporate clients, operates 7 synergistic divisions: GULF/ATLANTIC PUBLISHING puts out 3 of the highest circulation microcap publications in the country:
Money World (current annual circulation, including newsstand sales, of 1,500,000), was launched in 1987 to serve the small-cap investor the colored tabloid format Financial Sentinel (1,400,000), launched in December 1997, which includes the only listing of all OTC small-cap stocks that trade, generates much higher response rates than any other publication, the pamphlet-styled Money World Insider (600,000), and a monthly pamphlet named Financial Sentinel Observer that is a companion piece to the Financial Sentinel In addition to the three regular publications described above, Stratcomm has begun sending out another newsletter, the Rumor Mill, and a series of publications internally referred to as Project Z, called Confidential Fax Alert. These are breezy newsletters sent out to some 400,000 non-subscribers for the purpose of keeping them abreast of investment trends and of corporate developments in the microcap world, among both Stratcomm's clients and non-clients. More importantly, these promotional pieces turn many non-subscribers into subscribers and keep the mailing list current.
RAINBOW COMMUNICATION specializes in assisting private companies prior to their initial public offering or merger with a public company. Rainbow lays the groundwork for companies taking the first strategic, legal and financial steps towards public status. The need for this kind of assistance has never been greater, as competition for capital intensifies, as the interest in public shells grows and as regulatory oversight becomes more stringent. Rainbow has been a very successful "shepherd", with a long list of successes.
CORPORATE RELATIONS GROUP
(CRG) is a recognized leader in investor relations. After screening its prospects, C.R.G. designs marketing programs for its clients, showcases the companies' activities in various media and brings the companies to the attention of an extensive network of brokers. CRG's tailored marketing programs include (1) due diligence files, (2) corporate "road-shows" and (3) telephone contact with Stratcomm's broker network, whereby the marketing personnel bring prospective clients (developed through SMMM's direct marketing) to the attention of brokers. This marketing group also advises them of corporate developments and stock movement in any of SMMM's clients.
ALTAMONTE PRINTING, acquired in July 1998, is a full-service printing company, counts a 4-color web press among its assets. In addition to doing most of Stratcomm's printing in-house, Altamonte has many long-standing outside contracts, making the division profitable and fully self-supporting.
ARROW MARKETING assists Stratcomm's clients with all their promotional and financial literature: company and product brochures, annual reports, research pieces, folders and so on.
APPLIED LIST MANAGEMENT (ALM) is a database management firm, putting all the expertise of Stratcomm at the disposal of ALM's clients in this rapidly growing field. Stratcomm's soon-to-be-launched interactive web-site, worldmicrocap.com, is seeking to position itself at the crossroads of the microcap universe. It will contain a number of features an investor expects to find in a sophisticated financial site: summaries on Stratcomm's clients, news stream, quotes, banner ads, CEO interviews etc. In addition, the web-site will contain the only complete listing of microcaps, with links to each company's own web-site. The site should be a valuable advertising and promotions tool and it should generate significant traffic and "stickiness" (willingness to linger), which is increasingly important in the short-attention-span world of web-surfing. The site will be up and running in the summer of 1999. In addition, in May Stratcomm retained the acquisition search firm Capital Link to assist in identifying synergistic media acquisition candidates. In addition, at whatever stage of development Stratcomm's clients might be, the company is in a position to provide assistance in raising capital, both debt and equity. Stratcomm does not take placement fees, since the company is not a broker-dealer (and has no intention of becoming one), but this assistance certainly cements the relationship between the client and Stratcomm.
Stratcomm's founder and CEO, Roberto Veitia, draws on his experience as a N.Y.Times advertising executive in Europe, as Wall St.Journal and Barron's representative in Latin America and as the owner of the airline magazine Mile High and the money advisory newsletter World Market Perspective earlier in his career. The management team also includes Paul Serlucco, COO/CFO, who has a Fortune 100 accounting and entrepreneurial background, Don Philpott,
President of Gulf/Atlantic, a distinguished writer and journalist, Roland Outar, President of Applied List Management and Bob Lewis, President of Altamonte Printing. It is important to note that Stratcomm is and always has been a model corporate citizen. The company makes regular and sizable donations to charitable and community organizations and is constantly seeking ways to donate funds and its expertise to worthwhile causes.
THE FUTURE
The rapid expansion of on-line investing has created a new world of opportunity for investors. New tools at investors' fingertips allow them more freedom to research companies and achieve higher investment returns as a result of the broadening of the stock universe. In this brave new world of investing, there is an ocean of information that's available, yet many companies are inefficiently priced and their contact with the investing community is haphazard. There is an obvious need for much better communication than what is in place right now:
Companies need to convey their message in a more focused and directed way, and have it available in print and on line, the dissemination of printed corporate information has to be rapid and targeted, there is a need for publications that bring attractive emerging companies to investors' attention, companies need to be shepherded through the various stages of their corporate evolution, there is a need for feedback both for the company from the shareholders and vice-versa, as always, there is a constant need for capital, both private and public, to foster growth for these emerging companies and the new world of on-line investing has forced emerging companies to revise their whole Investor Relations effort, and they are looking for guidance in this exploding new arena.
Stratcomm Media is a unique, vertically integrated company that offers all of the above. This award-winning media conglomerate, trading publicly since 1986 and US-listed since 1998, has achieved remarkable results for its client companies in its 15 year history. SMMM, best described as a diversified media and corporate communications company, is a truly value-added participant in its clients' corporate progress. Uniquely, its compensation consists of equity participation in its growing clients, making Stratcomm a very attractive investment in its own right. The company's primary resources are its client base, its broker network, its publications, its readership and, increasingly, its access to the world of on-line investing. No other company in this relatively young industry can offer the same, or with as much synergy. With millions of pieces of mail going out every year in support of its corporate clients' efforts in the public arena and with a growing presence on the internet, Stratcomm is poised to enter a period if high growth.
BUY RECOMMENDATION
Emerging from a disappointing year caused by the market dislocation that took place in the summer of 1998, SMMM is an undervalued investment vehicle. The company's client roster is larger and stronger than it has ever been, as a result of more opportunities and greater selectivity. The investment portfolio is appreciating, not only because of its higher quality but also because secondary and microcap stocks have been good performers since last year's market recovery. The synergy between Stratcomm's divisions is leading to greater operating profitability, as a result of the broader offering of services and the higher value-added services being developed. Our earnings estimate for the current fiscal year ending in March 2000 is 32c per share. SMMM is currently selling at a 7 multiple on this year's earnings (FY ending March '00) and a bargain-basement 3.5 multiple on next year's earnings. SMMM has 9 million shares outstanding, giving the company a market cap of approximately $19.5 million.
Fiscal Year ending 3/97 3/98 3/99 3/00 3/01
Revenues ($Mil.) ....11.2 17.7 16.5 14 16
Earnings ($Thou.) ....26 2,200 900 3,400 5,600
E.P.S. .....................3c 24c 10c 38c 62c
Price @ PE of 20 - - 2.00 5.60 12.40
SMMM is applying for listing on the American Stock Exchange, which should further add to the company's visibility.
BACKGROUND
The investment world has been turned on its head in the past 10 years. Not only have we witnessed the longest-running bull market in history, but more and more people are investing on-line (15% of all stockholders, at last count) and the ones who are investing on line are responsible for a proportionally greater percentage of transactions (25% of all trades). Microcaps are getting more exposure in the media, more and more "shells" have been revived and brought into some segment of the explosive world of e-commerce, and the availability of information on the web has reduced the perceived risk inherent in microcap investing. Transaction costs have been cascading downward, as on-line discount brokerages proliferate, and the investment universe has grown far beyond the traditional bounds. The need for accurate and timely information has never been greater.
CLIENT ROSTER
Stratcomm's current client list includes nearly 20 companies in various industries. Client turnover is low, but from time to time new companies are added to the list and others cease being clients of Stratcomm, as their contracts are fulfilled. SMMM signs a contract with only about 20% of its prospects, for a variety of reasons, and, as stated before, the quality of the client roster is the highest ever. The following is only a partial list and, given the above, is meant only to provide an idea of the breadth of SMMM's capabilities: World-Wide Web NetworX (WWWX) is an acquisition-vehicle and incubator in e-commerce, Aqua Clara (AQCB) sells super-oxygenated water, primarily to the convenience-store and resort market, Golf Innovations (GFIO) is an acquisition vehicle in sportswear and golf accessories, Chicken Kitchen (CKKC) is an owner/franchisor of open-kitchen style restaurants, Healthcomp Evaluation (HCEV), is one of the nation's top three companies providing health care screening and occupational health service; iLink Telecom (ILTE) is a developer of computer telephony and voice response technologies; Cyberquest is a next-generation integrated Internet solution provider, and Jagged Edge (JEMG) is a designer and seller of rugged outerwear clothing.
EARNINGS MODEL
Stratcomm's margin growth is accelerating, due to 4 factors:
More clients and firmer pricing
An expanded list of media properties
A greater scope of services, especially a growing internet presence
Firmer stock prices for microcaps, resulting in higher trading profits. Stratcomm revenues are getting back to the level attained in fiscal 1998. The earnings, however, are expected to grow in the next 2 years (fiscal 200 and 2001) by 280% and 63%, respectively. FY:..........................1999 2000 2001 Revenues (MM) ......16.5 14 16 E.P.S. ......................10c 38c 62c
KEY ASSETS
Stratcomm's preferred form of compensation is a combination of cash and shares of its clients' stock, with the stock becoming an appreciating asset. As a result, its investment portfolio is its most valuable asset and a prime source of its cash flow. In addition, the company owns 2 prime pieces of real estate - its headquarters building in Winter Park, FL (outside Orlando) and the Altmonte printing plant about 2 miles away. Finally, the SMMM mailing list, fast-growing e-mail list and broker list, though not carried as assets on the balance sheet, are the key drivers of SMMM's growth. We didn't even deal with these "hidden assets" in this research report, since it would be hard to put a realistic value on them.
COMPETITION
There are number of firms that do Investor Relations for small-cap companies. The following list cannot be exhaustive, obviously, but it will give an idea of what a few other companies are doing in the microcap Investor Relations field. The Wall St. Digest is active with various printed properties on behalf of its clients. Corporate Communications is also somewhat diversified, with research reports, marketing programs and an inter-active web-site, but is has a smaller and lower-caliber client list than SMMM. Wall St. Research provides written research reports and e-mail alerts, generally for development-stage companies. Other companies in research-for-pay and various other niche segments of investor relations include the OTC Financial Network, Fifth Avenue Communications and Barrow Street Research. Stratcomm is in a different league from these players. With all of these companies either private or having small floats, traditional valuation comparisons are not meaningful. Suffice it to say that none of the companies for which data is available has witnessed the growth rate that SMMM has over the past 3 tears. With an annual revenue rate of $35 million, SMMM is also a great deal larger than its competitors.
TECHNICAL ANALYSIS
SMMM's stock broke out to a new high of 2 3/16 the week of June 7, the highest price in the company's history. The medium-term break-out from a 3 month base took place at 1 5/8 about 2 weeks earlier. Since then, there has been a noticeable increase in the momentum indicators as the stock is showing clear signs of accumulation, with the up volume far outpacing the down volume. The near term target is in the 2 1/2 area. We fully expect the company's stock, based on the technical analysis, to trade above $4 in the early part of 2000.
CONCLUSION
The marketplace is recognizing the value of Stratcomm's vertically integrated structure, its stock portfolio and, above all, its ability to generate results for its clients and its own shareholders. With the stock selling at a new all-time high but only 7 times the current fiscal year's earnings, we think this is a compelling investment vehicle in the media and communications field. |
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