From the Desk of Irwin Michael – September 11, 2015

Com Dev International reported its Q3/2015 results this morning and then held a 10am conference call. Given that Com Dev is a significant shareholding in our ABC Funds and its share price has been rather weak over the past two months, we were particularly wary.

At first blush the Q3/2015 earnings per share of 4¢ compared to a 6¢ analyst consensus appeared to be a headline miss. Upon further examination there were a number of one-time charges and tax benefits that clouded the company’s progress and growth opportunities including:

  • $2.5 million exactEarth postponed IPO charge
  • $4.5 million foreign exchange derivative costs
  • $8.7 million income tax recovery

More importantly on the conference call management appeared confident and optimistic as they provided clarity to the Q3/2015 results compared to Q3/2014:

  • Revenue increased 15% year over year
  • New orders rose 45.9%
  • Order backlog closed at $151.2 million versus $115.5 million

Furthermore, management explained that some of the increased quarterly costs were made in anticipation of a ramp up of new expected orders over the next 12 months. Also, they remained quite optimistic with regard to exactEarth’s strategic alliance with Harris Corporation which should materially grow its market penetration and competitive advantage.

In summary, after reviewing Com Dev’s Q3/2015 results and listening to management’s conference call comments, we believe that Com Dev remains an undervalued “sum of the parts” technology company. Moreover, it offers an attractive 2.5% dividend yield while the company’s growth opportunities come into fruition.

Irwin A. Michael Signature

Irwin A. Michael, President
I.A. Michael Investment Counsel Ltd.

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