Description
Meta Group is an extremely compelling bargain at current valuation trading at EV/sales of 19%, EV/EBITDA of 2x, with a strong balance sheet (Cash & investments $31mm), deferred revenues of $50mm or 2x mkt cap and chairman of the board just bought 79,000 shares (in addition to owning 14% of the company). The investment thesis behind Meta Group is balance sheet (liquidation value) and an private market value suggests (6-7x EV/EBITDA) a value closer to $6-7 per share vs. the current $2.15.
Meta business is providing research to corporations on how and what to buy in technology to enhance productivity/competitiveness. I view Meta's business as a similar to an investment bank. Meta's business offers analysis on technology products (instead of equities), the business is based on reputation and end users success. The industry is an oligopoly made up of 3 major companies: Gartner Group, Forrester, and Meta Group. All three have been in business for over a decade and (Forrester and Gartner approaching 20 yrs). Meta group makes money three ways: Research/Advisory approximately 67%, published products approximately 6%, and strategic consulting approx. 27%. Meta group sells subscriptions to over 3100 corporate subscribers which creates a deferred revenue base of over $50mm, which is almost 2x the market cap or $4 per share). Many corporations subscribe to all 3 company’s products.
Valuation:
Part 1: Balance Sheet Valuation
Balance Sheet
Cash $23.596mm
Investments and advances $7.58mm
A/R $32.14mm
L-T A/R $1.5mm
Above sum $64mm or $5 per share
Deferred Revenue: $45.54mm
Long term Deferred Revenue $4.46mm
Deferred revs $50mm or $3.90 per share
Debt
Borrowings under revolver $1.91mm
Current portion of LTD $2.66mm
Long Term Debt $4.44mm
Total debt $9mm or .70 per share
Total shares 12.803mm x $2.15 share price
Part 2: Comps to Peer group
Forrester EV/Revs 1.57
Gartner EV/Revs 1.34
Meta Group EV/Revs .30
Group Avg. 1.07
Forrester EV/EBITDA 7x
Gartner EV/EBITDA 14x
Meta Group EV/EBITDA 3.3x
Group Avg 8x
Trades @ peer group to 8x EV/EBITDA= $6.25 and 1.07x EV/Revs = $9.19
Blended EV/EBITDA + EV/Revenue = $7.75 per share.
Company is guiding for $27-29mm for the coming qtr with EBITDA $2.5-4mm (.20-.32 per share) and revenues for the year of $115-118mm with $11-13mm in EBITDA (.86-$1 per share).
It sounds as if business will hold steady in current environment.
“In 2001, META Group introduced its IT portfolio management approach to help end-user companies better manage their IT assets and help them balance risk and return on investment (ROI). Recently, a META Group survey of IT executives found that 88% plan to adopt this approach in 2002. “
Meta Conference’s are selling out. Two Meta sold out in Feb ’02 and one next week in Chicago with over 700 attendees. CIO’s are willing to spend money to save money.
$260,000 per consultant up from $240,000 yr ago + 9%
From 10K
“Businesses and other organizations remain dependent on IT for competitive success, which has led to historical growth in IT-related expenditures (despite a recent decrease due to general economic conditions). The IT market is being driven by many factors, including intensified domestic and global competition, Internet technologies and e-business, the accelerating pace of technological change shortened product and business planning life cycles, outsourcing, and widespread business process re-engineering and corporate downsizing. “
Large Shareholders: CEO owns 14%, T. Rowe Price owns 9.2%, PAW capital partners owns 8%,
Catalyst
Liquidation value > current value, Private market value> than public value. Strong brand (13 years in business), Cash Rich balance sheet with $11-13mm EBITDA vs. EV of $20mm and installed subscriber base of over 3100 corporations and $115mm in revs. Asset value will be realize through going private, being acq., or valuation as market sees progress in business.