March 21, 2018 - 4:21pm EST by
2018 2019
Price: 1.32 EPS .05 .10
Shares Out. (in M): 10 P/E 26.4 13.2
Market Cap (in $M): 14 P/FCF 22.0 11.0
Net Debt (in $M): 1 EBIT 1 1
TEV ($): 15 TEV/EBIT 29.6 14.8

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ADDvantage Technologies (AEY) was written up in VIC in January of 2013 when the shares
were at $2.17 per share and before that in September 2010 when it traded at $2.94 per share. I think it’s
time we give these, now highly undervalued, shares a reevaluation.
In this iteration the circumstances are very different. The shares now trade at $1.32 per share
which represents about 70% of net current assets or liquidation value (Note: this gives zero value
to its significant real estate holdings.) and at 51% of tangible book value. So the story now
changes from an earnings story to a deep value turnaround story and one of the rare stocks in this
expensive market selling materially below liquidation value.
The Company is basically operating at a break-even level as it digests a major acquisition made
in October 2016 of Triton Miami for $8.5 million plus some earn-out provisions.. The bet is that
it will be able to successfully integrate this acquisition and return to a solidly profitable
operation, which seems probable. Meanwhile, we get a nice margin of safety at the current price.
AEY distributes and services a comprehensive line of electronics and hardware for the cable
television and telecommunications industries. The Company also provides equipment repair
services to cable operators. In addition, it offers telecommunications customers decommissioning
services for surplus and obsolete equipment.
Several subsidiaries, through their long-standing relationships with the original equipment
manufacturers (“OEMs”) and specialty repair facilities, have established themselves as value-
added resellers (“VARs”). AEY has a reseller agreement with Arris Solutions to sell cable
television equipment in the United States. AEY is one of only three distributors of Arris
broadband products. They are also a distributor of Cisco video products as a Cisco Premier
Partner, which allows the Company to sell Cisco’s IT related products. In addition, AEY is a
designated as an authorized third party Cisco repair center for select video products. Other
subsidiaries also sell products from other OEMs including Alpha, Blonder-Tongue, RL Drake,
Corning-Gilbert, Promax, Quintech, Standard and Triveni Digital. In addition to offering a broad
range of new products, AEY sells surplus-new and refurbished equipment that is purchased in
the market as a result of cable or telecommunications operator system upgrades or an overstock
in their warehouses. AEY maintains one of the industry's largest inventories of new and used
equipment, which allows them to expedite delivery of products to its customers.
The Company reports its financial performance based on two reporting segments: Cable
Television (“Cable TV”) and Telecommunications (“Telco”). The Cable TV segment sells new,
surplus and refurbished cable television equipment to cable television operators (called multiple
system operators or “MSOs”) or other resellers that sell to these customers throughout North
America, Central America, South America and, to a substantially lesser extent, other
international regions that utilize the same technology. In addition, this segment repairs cable
television equipment for various companies. The Telco segment provides quality new and used
telecommunication networking equipment, including both central office and customer premise
equipment, to its customer base of telecommunications providers, enterprise customers and
resellers by utilizing its inventory from a broad range of manufacturers as well as other supply
channels. In addition, this segment offers its customers decommissioning services for surplus and
obsolete equipment, which it in turn processes through its recycling program.
For fiscal 2017 (the year ending September 2017) the Company reported a minor loss of $.03 per
share,“We reported strong top line revenue growth in both the fourth quarter and full fiscal year,
driven by the acquisition of Triton Datacom assets which expanded our Telco offering into
the desktop phone segment and broadened our customer reach,” commented David
Humphrey, President and CEO of AEY.
The best way to get a good handle on prospects for 2018  is, I believe, is to quote the assessment of the
Company’s CEO, We see significant room for further growth in our Telco segment, specifically
at Nave Communications, which reported a disappointing sales performance in fiscal 2017. We
have identified the challenges faced by Nave and are directing resources into improving
its sales infrastructure to allow it to expand both its end-user and reseller customer base in order
to increase sales. This strategy is well underway, driven by our new VP of Sales. We remain confident
that Nave has a fundamentally sound business model and look forward to seeing the impact of our strategy
as it takes hold over the next few quarters. Sales from the Cable TV segment were down in the fourth
quarter of fiscal 2017, reflecting fluctuations in demand that are typical for the industry. However, the
Cable TV segment’s overall performance throughout fiscal 2017 still generated consistent, positive earnings
and remained flat relative to fiscal year 2016 results. While we are pleased with the consistent positive cash
flows that the Cable TV segment generates, we are pro-actively working to continually improve operational
efficiencies and to maximize the profitability of this business,” continued Mr. Humphrey.
“Looking ahead, we have implemented a plan focused on improving results in the Telco segment
and continue to implement our strategy to grow the value of our business. We anticipate that Nave’s
sales initiatives will serve to expand its customer base which, combined with Triton’s diversified offering
and strong sales capabilities, will enable us to achieve stronger revenue growth as we progress through
fiscal 2018. In addition, although we believe that the Cable TV segment revenues will be down again next
quarter, we are working consolidating some of our facilities in order to efficiently manage costs and
support margins,” concluded Mr. Humphrey.
Revenues for the first fiscal quarter of 2018 were flat to last year. Improvements in the Telco division offset a decline in the Cable TV segment. Titron, the recent acquisition, is performing well with improved revenues and gross margins versus last year. Nave communications, a 2014 acquisition, is also beginning to show improved results. My Humphrey was very positive in the prospects for improving result for the coming quarters.
As for the balance sheet, we have a current ratio of 4.2  and only $1.7 million of a long term notes payable. Net current assets are $1.89 per share and tangible book value is $2.59. In addition, the Company owns 162,500 square feet on ten acres of office space, warehouse and service center at Broken Arrow, Oklahoma. It owns 8,000 square feet of land and offices in Deshler, Nebraska. AEY  owns 12,000 square feet of office, warehouse and service facility in Warmister, Pennsylvania, near Philadelphia. It owns a 60,300 square foot facility Sedalia , Missouri. Finally it owns additional facilities in Suwanee, Georgia and New Boston, Texas. The important point here is that this is a solid book value made up of real marketable assets.
Management owns 31% of shares outstanding and can be expected to be sensitive to shareholder concerns. Mr. Humphrey was paid a total compensation package of $280,000 last year, which is not unreasonable. Mr. Chymiak, Chief Technology Officer and major shareholder (26% od shares outstanding), was paid $338,000, which I consider mildly high for his position. But, it does seem that shareholder interest and management interest are aligned.
So the AEY, situation is very simple. We have a Company operating in a competitive environment who has managed to run in the break even range during the last few years. The Company is a major player in its niche market and is hopeful of materially improving results. The balance sheet is in excellent shape with ownership of land and facilities all over the country. All of this would not be too exciting, until you consider that the shares trade at a 30% discount to conservative liquidation value (giving zero value to the land and facility ownership) and at 51% of book value. Hence, the downside is fully reflected in the share price and liquidation would clearly yield substantially more than the share price. Any modest success in generating profits would lead to a major move in the share price. We have a large margin of safety, limited downside and a possibility of sharp rise in the shares. This is extremely rare in the current market.
1) The shares are not very liquid and the total market cap is small.
2) Management may find it difficult to return to profitability.
3) Management may exercise undo influence in the management of the Company with its 31% ownership.
4) The Company operates in a competitive environment.


I do not hold a position with the issuer such as employment, directorship, or consultancy.
I and/or others I advise do not hold a material investment in the issuer's securities.


1) The main catalyst is a return to profitability.

2) A management buyout of the remaining public shares given how undervalued the shares are.

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