From: firstname.lastname@example.org (SmallCap Investor News)|
December 22, 1997
The SmallCap Investor
Stock of the Month
Tech Electro Industries, Inc.
Nasdaq: TELE, TELEW
Baby Berkshire In The Making?
Berkshire Hathaway and its founder/president, Warren Buffett, have
famous for their strict adherence to the fundamental principles of
investing. An individual investor following the company since its
would be extremely wealthy today. But Berkshire shares consistently
for over $40,000 per share - far out of reach for investors seeking
low-priced bargain stocks.
Tech Electro Industries offers investors a near-ground floor
join a kind of small-cap holding company - a baby Berkshire, if you
for about $3.50 a share.
In February 1997, a group of investors took control of TELE with the
purpose of using the company as an acquisition vehicle. The investor
bought 1.1 million common shares and 1 million stock options
$2.10 each for total consideration of $1.87 million.
The company's new management - Chairman of the Board and
Kim Wah Tan, Vice President Kim Yeow Tan, and Vice President
Secretary Sadasuke Gomi - have since attracted two top-flight
additions: Steven Scott as an executive vice president and John Rosati
Scott is primarily responsible for acquisitions and strategic planning.
was formerly senior vice president at Dean Witter Reynolds in Beverly
and has helped raise a total of over $1 billion dollars in his career.
Rosati is responsible for researching potential business opportunities
the high-technology and communications industries. A recognized
the development of advanced technology initiatives for a wide
applications, he boasts 25 years of international and domestic
experience in technology products, development, marketing, sales and
distribution. He also chairs the Physics Advisory Council and
Science Advisory Council at UCLA.
This strong leadership group has earnestly launched the company's
mission: make intelligent acquisitions and that will boost growth
dilution. The company has indicated that it will not consider using
for acquisitions until TELE is trading at a minimum of $15 per share.
Therefore, TELE's current plan is to finance acquisitions with debt
the target company in cash. The target companies are profitable
TELE can pay the interest on the debt used to buy them and still have
plenty of profits left over to fall to the bottom line and boost TELE's
earnings per share. And because shares outstanding will not grow with
acquisition, significantly large increases in earnings per share are
Seeking acquisitions which will enhance shareholder value, TELE is
two key strategies:
(1) The company will buy businesses for five times EBITDA
interest, taxes, depreciation and amortization) or less. Essentially,
seeks to purchase earnings at a low price.
(2) The company will buy assets below fair market value. This would
buying companies that have hidden assets - assets which are carried
books at much less than fair value. This often includes land carried on
books at its purchase price, although its fair market value is
On December 19, TELE announced that it is acquiring 63% of Long
based U.S. Computer Group Inc. for $1 million in cash and a $1.5
loan. The company's services include system maintenance for Digital,
Midrange, Sun and leading brand PCs, new and used equipment
integration and design services, and support services such as disaster
recovery and business relocation. U.S. Computer Group, which has
the INC. 500 list of the nation's fastest-growing privately held
for five consecutive years, has annual revenues in excess $25 million
is profitable. According to TELE, the liquidation value of this
$5 million and the acquisition will immediately add approximately $1
share in shareholder equity.
From our discussions with management, we feel that this acquisition
add $0.25 or more per share to TELE's consolidated earnings in
Management is committed to boosting the company's growth, and
this is just
the first of many steps which have been quietly worked on for the
TELE has also previously announced that it is interested in acquiring
Black-eyed Pea USA Inc., a restaurant chain owned by DenAmerica
(Amex: DEN). According to press releases, WAM Acquisitions LLC
purchase Black-eyed Pea for about $69 million in cash. WAM
then to sell Black-eyed Pea to TELE. But DenAmerica, which itself
Black-eyed Pea in 1996 for about $65 million, rejected the offer from
However, discussions with TELE management lead us to believe that
with DenAmerica to buy Black-eyed Pea are still occurring and that
acquisition may well come to fruition. If so, it would add well over
million in revenues and over $15 million in EBITDA to TELE. After
accounting for interest payments on the debt needed to finance the
acquisition, enough profit could fall to the bottom line to increase
earnings per share by $1 or more.
TELE is also working on various other acquisitions which could add
significantly to earnings per share, but no specific information has
released by the company thus far.
Besides the companies that TELE plans to acquire, it also has an
business which imports, distributes and sells electronic components
the manufacture and assembly of high-technology products such as
oil field equipment, medical instrumentation, and uninterruptable
supply systems. The company is an authorized distributor for two
groupings of Panasonic, USA and Varta USA. Additionally, the
lighting products and batteries and battery products.
According to management, revenue growth for TELE's existing
be as much as 100% in 1998, which would result in over $14 million
revenues. Management also indicated that this business would be
Based on TELE's existing business and the acquisitions mentioned
company could generate 1998 earnings per share of well over $1.
this figure, a stock price of $10 or more would be justified - more
triple its current price of $3. But if TELE is successful in its
acquisition strategy, the stock has the potential to go much higher than
An investment in TELE is speculative and should only be made by
who can afford to take significant risks. TELE has completed only
acquisition to date (under current management), and there is no
that the company will be successful in making future acquisitions. If
successful, however, the rewards to shareholders could be enormous.
TELE also has warrants outstanding trading under the symbol
warrants provide more leverage than the common stock, but that also
them riskier. The exercise price for the warrants is $3.30, which buys
shares of TELE common stock. The warrants can be redeemed by
upon 30 days' written notice, if the average closing bid price of TELE
exceeds approximately $5.10 per share for any 30 consecutive trading
prior to the notice of redemption. We expect that the company will
warrants for redemption as soon as it is able.
So is Tech Electro really a baby Berkshire in the making? A bit of a
stretch, perhaps. But the two firms' commitment to fundamental
of value investing are remarkably similar. We like Tech Electro
management's vision and its achievements to date, and view the
an attractive speculative investment for risk-tolerant investors.
-The SmallCap Investor
Company Name: Tech Electro Industries
Nasdaq Symbols: TELE, TELEW
Stock price on date of report: $3.375 bid, $3.50 ask
52 Week Range: low $1.375, high $3.50
Common Shares Outstanding: 3,446,875
Common & Equivalents: 7,905,000
Float (common): 900,000
Market Capitalization: $11,633,203
Insider Ownership: 52.43% (as of 6/24/97)
(This report was written by The SmallCap Investor and has not been
or approved by Tech Electro. Earnings and price estimates were
our own analysis and were not provided by Tech Electro.)
For more information on Tech Electro, please contact Steven Scott,
executive vice president of the company at (800) 895-5551.
Current stock price, graph, and news:
Copyright 1997 Axxess, Inc. All rights reserved.
This report does not represent an offer to buy or sell securities and is
provided for informational purposes only. The information in this
was obtained from sources believed to be reliable, however, Axxess,
cannot guarantee its accuracy. This report is not intended to be a
description of Tech Electro. Readers are advised to consult with their
independent tax, business and financial advisors with respect to any
investment, including any contemplated investment in the company
in this report. All information contained in this report should be
independently verified with the featured company and by an
financial analyst. You should independently investigate and fully
understand all risks before investing. Employees of Axxess, Inc. may,
time to time, buy or sell securities mentioned in The SmallCap
However, it is the policy of Axxess, Inc. that employees are restricted
from trading in The SmallCap Investor Stock of the Month during the
beginning two weeks prior to publication and ending one month after