Maran Capital, a Denver, Colorado-based investment management firm, is bullish on Atento SA (NYSE:ATTO). The firm recently released its Q4 investor letter (you can download a copy here) in which chief investment officer and founder Dan Roller shared his thoughts on Atento, a $705.8-million market cap provider of BPO services in Latin America. Let’s take a look at what Roller said about ATTO in the letter.
As you know, I look at a number of special situations categories in my constant search for value. One category is equity capital markets activity – in this case, the sale of blocks of stock in secondary transactions.
Atento is a company that I have followed for several years, since its IPO in 2014. It is the number one business process outsourcing firm in Latin America. Their primary business is the somewhat low margin (EBITDA margins have averaged about 12-13% over the last few years) but also fairly sticky business of outsourcing call centers (with an increased push of late to offer additional value-added solutions).
Atento has had its share of headwinds over the past few years (currency, political instability in Brazil). But over the last year or so, business has improved. The company has reduced leverage, improved margins, and started growing again. The market didn’t miss this, and the stock appreciated from under $8/sh to $12.50/sh over the year through November, 2017. With that as the backdrop, Bain, the largest owner, decided to sell just under a quarter of their position (about 19% of the company) in November (they continue to own roughly two thirds of the shares). Rather than a slight discount to last trade ($12 say, vs. the last trade of $12.50), the secondary offering was priced at $9/sh, nearly 30% lower than the unaffected price. Yes, this is the very same company that the market was willing to pay $12.50/sh for the week prior.
(And they say the markets are efficient!) I think the risk/reward in ATTO is fairly compelling. The company is trading for under 5x 2018E EBITDA, about 0.5x sales, and at a double digit FCF yield. Comparable companies in the US trade for over twice the valuation. Granted, there is more political and currency risk in Brazil, but also better growth prospects.
I think intrinsic value is high-teens per share. This would be a logical target for private equity or a US business process outsourcing firm looking to diversify globally, should Bain decide to completely exit from their position (especially after they saw how the market treated their minor divestiture this time around).
Atento SA (NYSE:ATTO) is a provider of customer relationship management and business process outsourcing services in Latin America. It also provides nearshoring CRM/BPO services to companies that carry out their activities in the United States. For its third quarter of 2017, the company reported revenues of $501.3 million, up compared to $443.7 in the same quarter the year before. Reported loss for the quarter was $12 million, or $0.16 loss per share, versus a loss of $0.5 million, or $0.05 loss per share, in the 2016 quarter.
Shares of Atento are down nearly 6% so far this year, while the stock has jumped more than 7% over the last 12 months; currently trading at $9.55. The consensus average recommendation for the stock is ‘Overweight,’ while the stock has a consensus average target price of $14.92, according to analysts polled by FactSet.
Meanwhile, some hedge funds tracked by Insider Monkey also see a value in ATTO. As of the end of the fourth quarter of 2017, there were 13 funds in our database with positions in the company.