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Turn Yourself Into a Venture Capitalist
By Michael Brush
September 29, 2005
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For most investors, the world of venture capital is an enticing but
unreachable corner of the market where fortunes are made – and lost – by
Silicon Valley wizards cooking up the next big thing.
A small Wayne, Pa.-based company that takes positions in burgeoning start
ups in tech and life sciences, however, offers the average investor exposure
to a slice of the rarified world of venture capital.
All you have to do is buy shares of this company – called Safeguard Scientifics (SFE) – just like insiders did in recent months.
Since mid-June, insiders have plowed about $660,000 into the company in
steady buying as the stock advanced – including purchases by both the
incoming and outgoing chief executives. These buys were made as the company
transitions from turnaround mode to what could be a new era where results
are more about growth than survival.
In early September, Safeguard Scientifics’ turnaround chief executive
Anthony Craig passed the torch to Peter Boni, who came from the private
equity firm Advent International.
Craig’s task – starting in 2001 -- was to sell off holdings, restructure
debt and cut costs enough to keep Safeguard Scientifics above water. He’s
done. And he’s turned over a company that looks like it is in decent shape.
Safeguard has about $166 million in cash – much of which will be used for
acquisitions – and about as much debt. In the most recent quarter, sales
grew 12% to $48 million, if you exclude the acquisition of Laureate Pharma.
The company had an operating loss of about $4.5 million. Boenning &
Scattergood analyst William Sutherland estimates revenue will grow 19% to
$186 million in 2005. In the medium term, he projects “significant” upside,
though getting there may take patience, he says.
The holdings
Safeguard Scientifics is nurturing the following companies.
* Mantas, a business analytic software company whose clients include
Citibank (C ), Merrill Lynch (MER) and Verizon (VZ). Revenue grew 47% year
over year to $8.1 million in the most recent quarter.
* Pacific Title, a feature film post production services company where
revenue grew 15.4% to $9.4 million.
* Clarient, which offers cell-imaging systems and a cancer diagnostics.
Revenue was up 118% in the most recent quarter.
* Alliance Consulting, an information technology services company which saw
revenue decline 10% to $21.5 million in the most recent quarter.
* Laureate Pharma, which offers bio-processing and other kinds of product
development services to biotech companies.
Valuation
Though Safeguard Scientifics looks poised to make fresh acquisitions and
move into growth mode, the company still looks pretty cheap. The stock
trades for just over one times sales. And at $1.60 per share, the stock
trades below the value of its underlying assets, believes Boenning &
Scattergood’s Sutherland.
Serial buyer update
Since we featured the following stocks, insiders have continued to buy
despite gains of 40% to 130% for most of them during the past six months.
Serial buyers have struck again at: Chesapeake Energy (CHK), PetroQuest
Energy (PQUE), Warren Resources (WRES), Compuware (CPWR), Fleetwood
Enterprises (FLE), Par Pharmaceutical (PRX), Air Methods (AIRM), and ICO (ICOC).
This suggests more gains lie ahead, so it’s too early to book profits.
Disclaimer
At the time of publication, Michael Brush did not own or control shares in
any of the companies listed in this column. Mr. Brush is an independent
columnist for this web site.
For more on Insiders Corner disclosure, see the disclosure section in About
Insiders Corner: http://www.investorideas.com/insiderscorner/.
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