In a new filing with the Securities and Exchange Commission, activist J. Carlo Cannell‘s Cannell Capital reiterated its position in Envivio Inc (NASDAQ:ENVI) and issued a presentation, in which it expresses concerns regarding the company’s performance and once again urges the shareholders to withhold their votes for two incumbent directors at the Annual Meeting. Cannell owns around 1.66 million shares of Envivio, which represent 6.12% of the nano-cap company’s outstanding common stock.
Following the activity of activists like Cannell is particularly important for smaller investors who want to profit through piggybacking the moves of smart money, because generally when an activist with a solid track record of winning campaigns and proxy fights gets involved into yet another company, it usually indicates a potential for an upside for the stock. Cannell filed its first 13D regarding Envivio Inc (NASDAQ:ENVI) back in January and the stock has gained more than 25% since then. This is also supported by the fact that most often companies in the middle of an activist campaign usually witness an inflow of capital from other large investors, such as passive hedge funds. The increase in popularity is also a good sign, especially for small cap companies, which align with our strategy. We determined that most popular small-cap picks among hedge funds have a potential to beat the market by nearly one percentage point per month. This approach also showed returns of more than 135% in the last 2.5 years of forward testing, versus some 55% for the S&P 500 ETF (SPY) (see more details here).
Envivio has been performing poorly since its IPO in May 2012 as its stock has dropped by more than 80%. The weak performance of the stock is related to the disappointing financial results in the years that the company has been public. In its presentation, Cannell Capital blames the management for providing improper forecasts that couldn’t have been met by wide margins. Cannell added that Envivio has an unsustainable cost structure and it has been increasing its expenses as the revenue has been declining.
In addition, Cannell also states in the presentation that Envivio Inc (NASDAQ:ENVI), which is engaged in providing software-based Internet Protocol video processing and distribution solutions across different formats and networks, is underperforming its competitors, such as Elemental Technologies, which was founded six years after Envivio, but which managed to achieve a 50% revenue growth last year, while Envivio’s revenue declined by 4%.
All in all, as shareholders have been constantly disappointed by the management’s and the board’s performance and poor communication with them, Cannell proposes a set of measures aimed towards improving the situation at Envivio Inc (NASDAQ:ENVI) and bringing the stock price back. The investor considers that one of the priorities should be the preservation of cash acquired from the IPO and that excess costs that top 100% of revenues should also be reduced. Therefore, in order to achieve these goals, the only possibility for shareholders is to vote against the current board, which, according to Cannell, has mismanaged their money and destroyed a large portion of the company’s value.
However, since Envivio Inc (NASDAQ:ENVI) has only $50 million in market cap, it does not hold the potential to attract a lot of investors. Overall, among more than 700 funds from our database, only five disclosed long positions in Envivio with a total value of $10.43 million as of the end of March. Among them, the largest stake is held by Edward Gilhuly and Scott Stuart‘s Sageview Capital, which owns some 2.63 million shares, followed by Cannell and Chuck Royce’s Royce & Associates with 751,900 shares.
Cannell Capital holds a relatively small equity portfolio, valued at some $320 million and focuses on small-cap companies, which are usually less followed on Wall Street. Over the years, Cannell has engaged in proxy fights and activist campaigns involving companies like ValueVision Media (currently known as EVINE Live Inc (NASDAQ:EVLV)) and Procera Networks Inc (NASDAQ:PKT).
The full presentation of Cannell about Envivio is available below:
Cannell’s Presentation on Envivio
Disclosure: none
