Thursday, July 18, 2013

Aastra Management Does It Again

I raved about Aastra's management in an article I wrote about two years ago in which I highlighted the stock. Since then, the company's primary market (Europe) has only gotten weaker. But shareholders have done extremely well, amassing gains of over 75%. How is this possible? A good chunk of the credit has to go to management.

Not only has management been able generate strong free cash flow despite a declining market, it has not blown the cash on ill-conceived investment ideas. The latter point may make it appear as though I've set a low bar for the company, but you'd be amazed how rare it is to find a company willing to flow the fruits of its labour back to shareholders. There are a lot of cash cows I'd love to buy, but the milk is often spoiled due to some transformative acquisition meant to get the company back on the path to growth, as I've discussed a number of times (one example).

In Aastra's case, it really is the shareholders who have benefited from the company's cash flow, through a combination of buybacks and dividends. Vaulting the company's shares up 25% yesterday was an announcement that a special dividend of $7.20/share will soon be paid out; the company's shares closed at $19.25 before the announcement.

A big reason for this management team's "generosity" with shareholders is likely the result of the fact that management owns a significant percentage of the company. Nothing reduces agency costs like an agent that is also a principal.

Finally, for some reason Aastra's stock is extremely volatile. Even though the company has generated positive earnings for years on end, employs no leverage and maintains a strong cash position, shares of Aastra trade all over the map. This allows the patient investor to pick them up at a discount every time Mr. Market panics.

As such, Aastra becomes the latest company to join the Value In Action page.

Disclosure: No position


Anonymous said...

Hi Saj,

Did you sell before the dividend date at the higher price? I'm struggling with whether to hold on to get paid the 7$ dividend or sell based on the appreciation...


Saj Karsan said...

Hi Phil,

Yeah I sold it last time it was in the 20s. I guess how you will be taxed on that dividend should probably play a role in your decision.

Anonymous said...

Holding mine, picked up at and management is going to take it private at an offer of 30 as the market continually gives it no respect...he is using the cash payout to help his financing

Anonymous said...

Forgot to add the above is 100% pure speculation lol. Won't let mine go 4 less than 28 though, institutions or mgmt have any history rolling previous phat payouts back in after it gets marked down on ex-divvy date?