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Tuesday, July 18, 2006

CSG Systems: Something in the Cards?

By William Trent, CFA of Stock Market Beat

Watch List member CSG Systems (CSGS) is a sleepy little company that provides billing services to cable and satellite providers. When we last wrote about them, we summed up the story as follows:

Telecom billing service provider CSG Systems (CSGS) posted $0.33 EPS in the first quarter, $0.02 ahead of the consensus estimates. A review of the 10Q indicates that the company, which has both bought and sold businesses in the last several months, remains a stable cash flow generator. The absence of the lavish retirement payout to the former CEO last year made margin comparisons favorable. However, with one customer representing 24 per cent of sales and the top five accounting for 71 per cent, investors need to beware the potential loss of a top client. Further, looking at past trading patterns suggests investors may be wise to sell in May and wait a while.

The company reports earnings next Tuesday, July 25, and has issued two significant press releases in as many days:

CSG Systems Names Mike Scott Chief Operating Officer

“Mike has been integral in CSG’s success, taking a lead role in daily operations as well as our recent divestiture and acquisition activities,'’ said Nafus. “As we continue to refine our focus on the North American cable and DBS markets, this new title more accurately reflects Mike’s leadership and role in helping us to operate our business, pursue growth and further leverage our strong client relationships and unique value proposition.'’

CSG Systems says board okays repurchase of $350 mln of shares

CSG Systems International Inc. on Tuesday said its board has authorized the repurchase of up to $350 million of the company’s outstanding common shares. The company said the board also approved the buy back of 10 million shares under the program. This brings the total number of shares under the buy back program to 30 million, it added. Since the inception of the repurchase plan in 1999, the company has bought back about 14 million shares, it said.

Now color us crazy, but we wonder why a company that issues an average of two significant releases per quarter (at best) would suddenly have two in a single week, and that the week before an earnings report. Is it possible their results or guidance will be disappointing and they are hoping to butter investors up prior to the news?

Now, before you pull out your order book consider a few points. First, really bad news like losing a top five customer would probably have been announced already due to the Sarbanes Oxley rules. Second, the stock is already pretty reasonably valued on an enterprise value to free cash flow basis. Third, the nature of the companies business results in earnings and cash flows that are quite stable. Of course, that overall stability sometimes results in market overreactions to small misses.

In the end, we may be reading too much into two stories that just coincidentally came out this week. But they caught our attention, and we figured we would bring them to yours.

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