Glentel: Value Play or Growth Stock?

A reprint of Nick Waddell ‘s Seeking Alpha Instablog post, originally published May 4, 2009

Remember 1983? If you do it might be for a night in February of that year when the final episode of MASH became the most watched television show ever. Or perhaps it was for November 2nd, when Ronald Reagan signed a bill creating Martin Luther King Day. It may have even been the last day of the year, when Apple’s “1984” Super Bowl ad debuted.

Whatever you remember it for, you almost certainly do not remember 1983 for the emergence of a small Canadian tech company called Glentel (NASDAQ:GLNIF, TSX:GLN). That’s how long the Telco has been public. It has taken Glentel almost as long as that to bear real fruit for investors. But as we turn towards the second half of 2009, some twenty six years after its IPO, an argument could be made that Glentel has never been in better shape.

Glentel’s story has more than its fair share of twists and turns. The Company’s roots actually go all the way back to an auto glass shop in New Westminster, BC that was founded by the Skidmore family, in 1946. Fast forward to 1985, and Glentel became the original service dealer for communications giant Rogers; a move that seems less unlikely when one recalls the mania and prestige that surrounded having an actual working phone in your car in those salad days of cellular. By 1989, the little glass shop was called TCG and it had just completed a purchase of a company called Glenayre Electronics, which it renamed Glentel.

Glentel entered the cellular age when phones were the size of handbags and twice as expensive. But even in its early days it was a timid offering.The Company was divided into two business units. One was the retail division. Missteps by its other side, the business division, caused a major roadblock that would ultimately set The Company’s fate in motion. As the dot-com era was ramping up; Glentel made major bets on fibre-optics and wireless services that never panned out. A deal made with NASDAQ high-flier Jaws Inc. (NASD:JAWS) epitomized the era. On July 12 1999, the two companies made a deal to “explore sophisticated wireless data services”. Just two years later, JAWS was put into receivership. Glentel faired better, but it wasn’t doing well; its stock fell from $13 to pennies as the wireless sector was hit particularly hard.

Whether its hand was forced or not, Glentel’s new focus on its retail side of its business meant it finally started getting things right as the millennium closed. After opening the first of its “Wireless Wave” retail outlets in 1997, The Company began to focus on retail operations  -and the strategy worked. Glentel’s retail presence often took the form of smallish kiosks in high-traffic malls. Canadians liked the service, which was informal, quick, and knowledgeable. By the summer of 2003, Glentel grew to sixty four of its “Wireless Wave” stores in malls. By 2008 it had over 250 corporate locations (including its Tbooth/La Cabine T and Wireless etc.brands). Not surprisingly, Glentel’s revenue took off too; growing from $45.6 million in 2000 to $289 million in 2008.

Glentel’s stock has had a more or less steady climb since then, but has never touched it 1999 peak, despite the fact the company’s balance sheet is in far better order. Glentel’s market cap of approximately $90 million is still less than one third of its sales. It’s also generating such a healthy free cash flow that The Board increased The Company’s dividend to nine cents per share last month. The real shocker with Glentel’s numbers, though, might be its growth rate. Despite being priced like the stodgiest of value plays, Glentel continues to advance with the lithest of growth stocks. The Company’s revenue has more than doubled in three years; it grew from $143 million in 2005 to $289 million in 2008.

Most analysts regard the mobile phone industry as a mature one. Indeed, penetration rates in North America are, by most counts, nearing 100%.Companies in the sector are facing increasing costs to stay competitive and razor thin margins once they get there. So how has Glentel managed to improve its lot so drastically in a space with so little wiggle room? Comments made by Glentel CEO Tom Skidmore to The Globe and Mail last year suggest that The Company, while being lumped in and valued with its more staid peers, is actually a knowledge based enterprise. Skidmore describes an information chasm between analysts who fixate on the hundred features that new handsets may have and the five features that consumers actually use. “Cell phone providers service plans are Byzantine” said Skidmore.“This is where Glentel comes in, we sell knowledge.”

It’s highly unlikely Glentel will ever be valued like the latest sexy IPO. The company, however, has found a way to leverage insight learned from mistakes of the past to carve out an increasingly rosy future. Value stock or growth play, investors should stay on the line.

All Number in Canadian figures. Disclosure: No Position.