Advant-e Corporation (ADVC.OB) continues to chug along with outstanding results, posting another record setting release in the third quarter of 2010.

Financial Results

Third quarter revenues were $2.38m, a 10% increase compared to the same quarter last year.

The Edict Systems Group continues to impress, passing the $2m mark in revenue for the first time in company history – this result only adds to the consistent performance by ADVC’s Software-as-a-Service business.

The traditional software business, The Merkur Group, reported its second consecutive QoQ sales increase, with revenues increasing 5% for the quarter to $379k.

Merkur continues to struggle with weak market demand, but management has cut costs and reduced bonuses in order to keep the segment continually profitable throughout the downturn and subsequent (slow) recovery.

Overall, net income jumped 37% to $434k or $0.006 per share. Year-to-date, net income is already over $1.05m.

By comparison, the company had net income of $1.19m for all of 2009 (which was the best year in company history) – if the business can even just match last year’s Q4 performance, it will be another record-breaking year.

The balance sheet remains solid with almost $0.05 per share in available cash along with an unused $500k credit line.

Catalysts

As previously discussed, ADVC has another cash dividend of $0.01 scheduled before the end of 2010. In addition, the earnings press release offers a potential growth opportunity:

“We are continuing to direct much of our energy to growth opportunities in the health care and manufacturing industries, where potential customers have shown interest in our service offerings.”

Leveraging existing software to branch into new markets is a solid business strategy – I imagine the healthcare field would be extremely interested in ADVC’s SaaS offerings.

Conclusion

While software companies are not usually the typical candidates for value investing, the market will sometimes choose to ignore even the steadiest performers.

Estimating ADVC’s intrinsic value using both DCF and EPV, the stock is worth $0.27 – $0.30 per share, a discount of 22% – 36% based on the latest closing price.

With so much cash on hand, I’d like to see management offer an additional special cash dividend in 2010 before the favorable tax treatment expires.

The company’s CEO, Jason Wadzinski, owns more than 50% of shares outstanding so it would be a nice payout for him as well.

(A thought process which reinforces the importance of investing in stocks where management and common shareholders’ interests are aligned!)

Disclosure

Long ADVC

Since starting this blog back in May, I’ve profiled a number of undervalued companies and have invested in quite a few.

However, several stocks remained on my watch list despite a detailed analysis and writeup, primary because I wasn’t able to purchase shares with enough margin of safety.

Here are updates on a few stocks that remain on my watchlist:

VIFL – Food Technology Inc.

I missed out on investing in VIFL back in August and the stock price has appreciated considerably despite no real news.

At the time, the stock wasn’t quite cheap enough to make an investment, especially since MDS Nordiron, the company’s largest shareholder, could continue liquidating its position at any time.

I didn’t see a near-term catalyst, but it looks like other investors jumped at the chance to pile into a unique business with a rock solid balance sheet.

The stock now trades higher than my estimate of intrinsic value, with third quarter earnings due out in the next week or so.

SIF – SIFCO Industries

I entitled the article on “SIFCO – A Contrarian Investment” as the business was struggling with depressed sales numbers due to weakness in its primary markets.

Barel Karsan, an investor and blogger that I admire, wrote a piece on SIFCO after my article was published entitled “Contraction Expansion.” Despite the current economic climate, management is spending almost $6m in capex (vs. a normal $2m) to expand the capabilities of the ACM group.

There is certainly risk to this strategy, as a prolonged recession could jeopardize the company if the business expansion doesn’t take off. However, if management is correct and the industry outlook is bright, SIFCO will be in an even better position to capture market share.

I think the company will probably suffer through another rough quarter of YoY comparables before it fully turns the corner, although the stock has been bid up significantly since my original article.

VII – Vicon Industries

VII’s stock has dropped almost 36% over the previous three years, as the industry is very cyclical. However, management compensation has fallen 54% in the same period, so management is not benefiting at the expense of shareholders.

Recently, Vicon announced the renewal of its employment agreement with the company’s CEO, Ken Darby, while also setting a performance based bonus plan.

The latest agreement sets Mr. Darby’s annual salary at $400k, the same as the last two years, with a bonus pool tied to hitting consolidated sales targets and performance metrics.

Aligning shareholder and management interests is definitely a positive sign for any micro cap stock.

JCTCF – Jewett-Cameron Trading Company

JCTCF is a closely held company that has flown under most investors radar – management has largely went about its business and shareholder communication has been lacking.

In the last year, the policy has changed, starting with the implementation of a share buyback program in May. The program was further extended until Jan 2011.

More importantly, the company reported outstanding fourth quarter and annual numbers, with net income jumping almost 25% for the year.

I listed the management team as a possible risk in my original article (saying they control the majority of the company and have not necessarily been forthcoming with shareholders).

However, it’s hard to argue with results: management has grown book value by over 20% per year for the past 15 years.

Conclusion

This across-the-board price appreciation was certainly helped by overall gains in the market. The S&P is up about 11% in the past three months. As they say, “a rising tide lifts all boats.”

While I missed out on investing in these securities, I think most of them are financially sound businesses and I will continue to monitor a drop in stock price or new catalysts that could be the basis for pulling the trigger.

Disclosure

No positions.

New Frontier Media Inc (NOOF) reported fiscal second quarter earnings last week, showing continued pressure on the business segments as the company discloses additional (although much lower) impairment charges.

Quarterly Results

NOOF’s second quarter revenues were relatively flat, falling to $11.2m compared to $11.4m in the prior year quarter.

Overall, international revenues are up 41% during the first six months of the year while the domestic market fell 6%.

The Transactional TV business continues to generate a vast majority of overall profits, driven largely by increased sales in the Video-on-demand (VOD) segment.

However, this revenue growth comes with additional costs as the company must make upfront investments to reach these new markets. Gross margins within this segment have fallen to 63% compared to 69% in the same quarter last year.

NOOF reported an operating loss of $286k, driven primarily by higher costs across most of the business segments and a non-cash impairment charge of $0.6m in the film production segment.

Financial Position

While the business continues to face challenges going forward, the balance sheet and financial position of the company remain strong.

The company has $14.8m in cash on the balance sheet – after backing out liabilities, NOOF’s net cash balance is $5.7m or almost $0.30 per share.

The company’s current ratio sits at a healthy 3.61.

Despite the business struggles, the company continues to generate cash, with an adjusted free cash flow of $3.37m so far in 2010.

This cash-flow number is affected by a significant increase in cap-ex expenses as the company is in the process of upgrading its storage systems. In addition, cash was paid out at the beginning of the year for producer arrangements that should be recouped before the end of the fiscal year.

New Lease Agreement

In October, the company announced the signing of a new lease agreement to consolidate its operations into a 50k square-foot facility. Historically, business operations were split between two smaller locations.

The new lease is offering very attractive leasing terms including substantial leasehold improvement allowances, and should allow for increased efficiencies in NOOF’s operations going forward.

According to NOOF’s CEO, Michael Weiner,

“We obviously will have some costs associated with moving, but we estimate combining the facilities and what we have to look forward to, we will save a substantial amount of money over the next several years by having everything in one facility, and plus the ability to grow.

So it was a very, very favorable deal…And as I say the amount of money we got from the landlord was substantial and made the deal very economically viable.”

Conclusions

Consider these valuation statistics:

Using a TTM EPS number of $0.23, the cash-adjusted P/E is only 6.9.

EV/EBIT is only 5.03.

P/Book Value is 0.7.

By most traditional valuation metrics, the company continues to remain historically cheap, even after the recent run-up in the stock price.

This conclusion is backed by management actions, as several company insiders bought back over 33k shares in August when the stock traded between $1.35-$1.50, near its 52-wk low.

A new institutional investor, Longkloof Limited, an investment holding company based out of the Virgin Islands, disclosed a new 11.5% stake as well.

While the business is certainly facing short-term pressures, the stock remains too cheap to ignore.

Disclosure

Long NOOF