Value Find: AVP, Inc.
Pro beach volleyball has become big business and one little-known micro cap represents a pure-play on this growing trend in sports entertainment.
Los Angeles, Calif.-based AVP, Inc. (OTC: AVPI) is the producer and marketer of the AVP Pro Beach Volleyball Tour, the largest and most well-regarded national touring series in the sport. AVP has exclusive contracts with 200 of the top American male and female volleyball players, including Olympic medalists. The size of the company’s tour has more than doubled since 2001 with the popularity of the sport having been enhanced in recent years by improved TV coverage on NBC and Fox. AVP staged 18 outdoor events across the U.S. last summer and, in a move to capitalize on the sport’s rising popularity, will kickoff a new 19 event winter tour this January.
Reorganized in 2001 under a new management team led by sports agent and CEO Leonard Armato, AVP’s revenue rose to $21.5 million in 2006 from less than $5 million in 2002. The explosive top-line growth and near breakeven results last year prompted a buyout offer in April from Shamrock Capital Growth Fund, a unit of Shamrock Holdings, a private equity investor with over $2 billion in assets under management. Shamrock, the investment arm of the Roy E. Disney family, has a long history of successful media and entertainment related investments.
The April buyout offer at $1.23 a share represented an 18% discount to the $1.50 a share that AVP was trading at directly ahead of the offer. The low-ball price was met soon after with strong resistance by several major AVP shareholders. Under the terms of the Shamrock deal, AVP CEO Armato would have retained his management position and “rolled-over” his 30% ownership stake in AVP into the new Shamrock-controlled company. AVP officially announced in early September that it and Shamrock had mutually decided to terminate the proposed deal.
Since that time, shares in lightly-traded AVP have continued to drift lower. At a recent price of $1.02 a share, the stock is now down over 30% since April. While the pulled buyout offer has certainly weighed on the stock over the short term, looking out over the longer term, this pullback could represent an attractive entry point for aggressive investors. After all, Shamrock wouldn’t have made its offer unless it saw good long-term value in the name. Plus, AVP CEO Armato likely wouldn’t hold onto his hefty stake in AVP unless he saw good things ahead.
For the fiscal second quarter ended June 30, AVP posted revenue of $10.8 million, a 48% increase from a year ago, and net income of $0.9 million, or $0.03 a diluted share, compared with net income of $0.05 million, or nil a diluted share, a year earlier. AVP’s net income would have been $0.05 a diluted share, excluding one-time expenses related to the since-withdrawn Shamrock buyout offer. AVP ended last quarter with nearly $6.2 million in cash on hand. The stock closed at $1 on Wednesday, with shares ranging between $0.55 and $2 over the last 52 weeks.
For the full year 2007, AVP, with a market capitalization of about $21 million, expects total revenue of $24.7 to $26.6 million and a loss in the range of $2.1 million to $4 million. This compares to a loss of just $0.34 million last year. AVP blamed the expected larger loss on costs associated with the Shamrock deal, increases in prize money and increases in production, media and staffing costs associated with new growth opportunities. It is worth noting that Diker Management, an 18% shareholder in AVP, has publicly stated that AVP could post normalized net income of at least $3 million this year. Diker has also pegged the fair value for AVP at over $2 a share.
While I think this price target is aggressive, I don’t think it’s unreasonable that AVP could trade back up to the $1.50 level over the next few quarters. There has been no news flow out of the company in recent months to indicate that operating momentum has slowed. In September, Crocs, Inc. (Nasdaq: CROX) renewed as the title sponsor of the AVP Crocs Tour for another five years. Other tour sponsors include Anheuser-Busch Companies, Inc. (NYSE: BUD), McDonald’s Corporation (NYSE: MCD) and Hilton Hotels Corp (NYSE: HLN). In March, AVP re-launched its AVP.com website in partnership with MLB Advanced Media LP, the interactive media arm of Major League Baseball.
There are definite risks to AVP, even at its current depressed price. Listed on the lowly OTC Bulletin Board, the stock is thinly traded with no analyst coverage and the company doesn’t hold quarterly earnings calls. AVP has posted blistering growth the past few years, but still hasn’t solidly broken into the black and remains somewhat capital constrained. Finally, as a smaller sports entertainment play, AVP is certainly susceptible to a slowdown in consumer spending.
Bottom line, AVPI is a speculative “value find” that should only be considered for aggressive, risk-tolerant investors. I would look to accumulate positions around the $1 a share level.
About the Author
Contributing author Matt Ragas is an investment writer and analyst with ten years of experience analyzing small and microcap stocks, with a particular emphasis on value and turnaround situations.
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