Description
Sykes is trading at 65% of its 4.88 book value. It has 2.26 per share in cash - 3.93 if receiveables are included. Over the last two years, restructuring and litigation costs have masked the fact that the company has been generating cash
Sykes provides customer and technical support to technology/consumer, communications and financial services companies - delivered via phone, email & the web from 40 sites in the United States, Canada, Europe, Latin America, Asia and Africa. They also provide a range of business stragey/consulting services. Sykes also provides order & fufilment services in Europe.
Sykes targets Fortune 500 companies, and this shows in their revenue concentrantion, in 2001 57% of revenue came from the top 10 customers - led by SBC.
The company is 38% owned by John Sykes (Chariman, President & CEO)
Revenues have been falling for the last two years (9mth revenue comps are $ 339,230, $ 376,415 and $ for 2002, 2001 and 2000). Decreased revenues have resulted from companies being more cost-conscious, delaying roll-outs and reduced sales. Sykes' operating expenses (direct salaries and general & admin) have scaled pretty well in line with revenues, suggesting the business (restructuring expenses aside) is coping with the changing market.
Looking at the balance sheet over the period of declining revenue, we have (as at 30 Sept 2002, 31 Dec 2001 and 31 Dec 2000);
Cash .......... $91m .. $50m ... $30m
Receivables ... $68m .. $94m .. $136m
in addition to managing receivables, cash has been helped by a $10m decline in capital expenditures in the 9 mths of 2002 against the same 2001 period - and 2001 capex was substantially down from the 2000 capex. The decline in capex makes sense in the context of declining revenues, and likely can be maintained until revenues have recovered closer to their previous levels. The 2001 capex was inline with the years depreciation & amortisation, so 2002's is likely to be >$10m below D&A.
The critical question is always what the company intends to do with the cash. On August 5, 2002, the Company announced that its Board of Directors authorized the Company to repurchase up to three million shares - this would correspond to about 7.5% of outstanding shares.
In practice they're also constrained by the 30 Sept revolving credit agreement not to spend more than $7.5m (plus the 0.5m already spent).
These repurchases began at prices from $6.28 to $6.75 (this is prior to the announcement regarding the settlement of the lawsuit)
Acquisitions are another possibility the company is considering, but at this point, if they were prepared to buy back stock at $6.75; then $3-4 has to look exceptionally attractive. Renegotiation of the line-of-credit to allow further buybacks is possible - especially with the CEO's large holding providing an incentive
Catalyst
Share buybacks
Continued cash generation
Improving revenues off existing capex base