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  WiLAN for the WIN?

BENJ GALLANDER, BEN STADELMANN, and PHILIP MACKELLAR

Monday March 20, 2017

Let us cut to the chase: it has been quite difficult for us to find much value in the market for the past six months or so. Fortunately, we are stock pickers, so while we remain wary of the overall bourse and the heights that it has achieved, cherry-picking savoury investments is our forte.

Thus, during December, in the heart of tax-loss season when we often strike, WiLAN was purchased for $1.98 a share. This Ottawa-based company, founded 25 years ago, is in the intellectual-property biz, via both development and purchasing. It then licenses the technology to other companies.

Since chief executive officer Jim Skippen came aboard in 2006, he has completed agreements with more than 300 enterprises, which equates to deals worth over $900 million. It seems like new accords are announced every month or so.

Alas, WiLAN often engages in litigation to protect its patents — currently, the enterprise is engaged in about 60 lawsuits. Heavens to Murgatroyd! That is anathema to our collegial way of doing business, yet not enough to discourage us from warily throwing dollars in this corporation’s direction.

WiLAN’s stock has taken a beating. In 2011 it traded above $9. From this angle, the decline seems exaggerated. In the most recent quarter, the company had revenues of slightly better than $30 million. Net income was $8.6 million, which worked out to 7 cents a share. Cash and its equivalents registered $108 million. There is zero debt. Shares are being repurchased, leading to a declining count.

In addition, there is a quarterly dividend of 1.25 cents. That sounds decidedly small, but works out to about 2.5 percent based on our purchase price. Not so bad, particularly in this world of low interest rates. Still, that is about one-quarter of the payout during fatter times, and if the bottom line of the business improves, in all likelihood so will the disbursement.

Critical to the success of this company, besides licensing deals and winning lawsuits, is having a wide swath of patents. This it does, and over the past few months it has beefed up the portfolio further with acquisitions from Eastman Kodak, GlobalFoundries and Panasonic.

When we had a long talk with Mr. Skippen, he pointed out how the firm was evolving. In the past, lawyers were paid standard fees to pursue cases. That methodology has changed to primarily engagements on a contingency basis. This lowers the risk for WiLAN, but one wonders whether their legal beagles are of the same quality as before.

Investors should be aware that revenues for this corporation are quite lumpy. That can make the stock price more volatile. If WiLAN receives a big monetary decision via the courts, that could propel the stock price up quickly.

WiLAN is unique in the Canadian landscape, the only publicly traded firm of its ilk. In the United States there are some, but even there intellectual property is a specialty field.

Currently, the stock price is about $2.40. Our initial sell target is $4.84, so we suspect that this enterprise can perform about a double.


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