BASED UPON FUNDAMENTALS WORTH BETWEEN $7.00-$14.00 A FAR CRY FROM THE CURRENT $2.50 SHARE PRICE
SPENDING LARGE AMOUNT OF MONEY ON R & D TO ENHANCE STALE REVENUE GROWTH ~ HUGE UPSIDE FROM CURRENT LEVELS, BUT PATIENCE MAY BE THE WORD OF THE DAY!
SONICS AND MATERIALS, INC (SIMA~ $2.50)
OTC - GREY MARKET.
We know that Scottrade and TDAmeritrade both allow purchase and sales of Sonics and Materials, inc. SIMA Investor's will need to call the brokerage firm and have "trading" call for current quote.
Corporate information- detailed from website:
Audit done by www.dhls.com
Corporate phone number 203 270 4600
Fiscal year end results for 2014 and 2015
$20.4 MILLION *****$20 MILLION
NET INCOME $2 MILLION***$2 MILLION
SHARES OUTSTANDING 3,400,000 FULLY DILUTED
NET INCOME/SH .59*********.59*********
BOOK VALUE $5.83***********$6.44
FISCAL 2016-9 MONTHS 3/31/16
NET INCOME***$1.4 MILLION
NET INCOME/SH .41
TOTAL CASH $15,866,575.00
TOTAL CASH/SH $4.67
BOOK VALUE $6.86
NO DEBT- SIMA IS DEBT FREE
When you dig deeper into the 9 month financial statement we see that for the nine months SIMA invested $1.5 million in R&D.The company has NO debt to service. The R&D is the future blood of organic growth for every company.
The estimated revenue and earnings for fiscal year 2016 will easily reach and surpass $20 million and earn over .60 again for the year ending June 30th 2016.
Before we get into the fundamentals investors should realize that management must figure out what to do with this huge cash horde that has been growing by $2 million/year during the past 3 years. By the end of the Sept Q cash in the bank will equal at least $17 million or $5.00/sh and stated book value be over $7.00. Both of these numbers will be much higher if R&D tappers off .
The company employees around 60. The President that started this company in 1969, who is 77 years old, surely is getting ready to sell or merge the company sooner than later.
Management owns around 2.8 million of the shares outstanding.
See above document filed with SEC that shows 2.8 million shares owned by management.
If you would like to see all past document filings with the SEC when they filed visit
and review all past and some current information using the symbol SIMA
I BELIEVE THAT IF THEY DON'T SELL THE COMPANY OR BUY BACK THE REMAINING 600K SHARES IN THE FLOAT THAT IT IS VERY POSSIBLE THAT A HUGE CASH DIVIDEND WILL BE ANNOUNCE AND THIS ANNOUNCEMENT COULD HAPPEN PRIOR TO YEAR-END BECAUSE OF TAX CONSEQUENCE .
If management decided to sell the company we believe that a $10-14 valuation could be a viable offer. It is almost a "turnkey" operation that just throws off huge cash flow/yr.
PSR- The current PSR is only .42 . As you know a value of 1 is consider undervalued and cheap. A value of 3 is considered fairly valued. Because SIMA trades in the "grey" market on the PINKS we will assign a 1.5 valuation which gives us a share price of $9.00/sh
PE ratio: We mentioned that for the year ending June 30th 2016 we assume that SIMA will earn .60-.65/fully diluted shares outstanding (3,4000,000). The current share price of $2.50 yields a PE est. of 4X. We believe because of Sonic's consistent earnings, very stable business, and ZERO DEBT that regardless of the exchange that it trades upon, we will assign a PE of 12X. If we assign a PE of 12X then our share price will equal $7.50 share price.
Book Value: As stated within the Balance Sheet dated March 31st 2016 the book value is $6.86. Since 6 months have passed we assume that we are closer to $7.25( NOTE: We anticipate year-end result for fiscal 2016 ending June 30th 2016 to be released shortly.) If SIMA was to trade @ 1.5X Book Value then our share price would equal $10.875/sh.
SIMA, during the past 3 years, SIMA has spent $1.15/sh on R&D. This a huge money, but the end results allows SIMA to be at the top of their game. The slightest reduction falls to the bottom-line and increase earnings. I believe that the fourth Q of fiscal 2016 there will be zero R&D expense and earnings could easily be closer to .75. If this is the case our estimated PE equals 3.3X
It is very smart that SIMA spent as much on R&D as it earns because if it didn't Uncle Sam ($20 trillion in debt) would end up taking a huge chunk!
CASH ON BALANCE SHEET: At the end of the September Q which just ended ( based upon past 11 Q's of cash growth) we assume that there is close to $17 million in cash and marketable securities. We believe that management is seriously considering a large dividend because in actuality the shareholder can get a better return that sitting in low interest financial instruments. According to Benjamin Graham, the father of security analysis, 1932 states, " Let the corporations return to their stockholders the surplus cash holdings not needed for the normal conduct of their business". It is easy to conclude that a $2-$3 dollar special dividend leaves plenty of cash for business activities. This not only would reward long and short term investors but would also revalue the share price very rapidly. The price would even firm further if management decided to declare a quarterly or annual dividend.
Another option would be for management to buyout the remaining shareholders and go totally private between $7-$10 dollars/share. This buyout by management would only cost $6,000,000.00 and would not harm the balance sheet at all because in only 2 to 3 years all the money spend on the buyout would be earned back.
A final scenario would be for management to shop the deal and just sell the company for $12-$14. The acquiring company could help finance this tender with cash on hand. At $12 the purchase price would be around $40,8000,000.00- the cash on hand of $17,000,000.00 - leaving a net cost of $23,000,000.00. This would result in a purchase of only 1 time sales- a value that is extremely cheap for a "turnkey" operation.
We strongly believe that scenario 1 or 2 are the most likely result near term for shareholders of SIMA.
Overview & Recommendation:
This investment is not for everyone. For some it will to difficult and to much of a bother to purchase and monitor. We of course understand that 95% of investor types look for the simple investment and hope and pray that it works. This is not that type of investment. This is a classic Benjamin Graham investment. It sports a very low PE, PSR, P/CF, P/C, P/B and has zero debt. Harvard Business School would use this company as a example of the perfect balance sheet and income statement.
The negative for most investor's is that it trades on the "pinks" and demands patience and only true discounted value investor types will be attracted to this true diamond-in- the-rough.
We place our strongest buy recommendation on SIMA with potential near term large dividend and/or a complete Buyout of common shareholders. This opportunity is a Cash Cow that prints money and a major distribution is upon us. Don't be left out in the pasture! As mentioned earlier a large number of online brokerage firms allow purchase (Fidelity does not) . We have placed a strong buy recommendation near term do to severe undervalued conditions and because of either a management buyout or a large dividend from an existing cash horde. From continued revenue and earnings growth we see almost zero risk on the downside.. Current price around $2.50/sh
(Note: How to buy if not familiar with the procedure: First see if your platform will except the order for "sima". Then call your trading company and ask that the trader get you a quote on this "grey" market investment. You are entitled to 3 market makers that will supply you with their current markets. If you decide to purchase, place an order either between the bid and ask or take the offer. If the order taker on the other line attempts to spin you around ask for a supervisor. It is cheaper to do the trade on line because most platforms only charge you $7/trade. On your trading platform, volume and last trade are the only elements that ever appear.)
WE MAY BUY, SELL AND OR HOLD AT OUR OWN DISCRETION .We current own shares in OPXS and also have a position in the OPXXW.
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