Is the Hedge Fund Sentiment Towards Xura Cooling Down?

A new filing with the Securities and Exchange Commission has revealed that Jeffrey Bronchick‘s Cove Street Capital has reduced its stake in the cloud-based and in-network services enablement and monetization software solutions provider Xura Inc (NASDAQ:MESG). The investor reported holding 883,300 shares of Xura, equal to 3.5% of the outstanding stock, as compared to 1.17 million shares held earlier. Meanwhile, Xura changed its name from Comverse after the latter completed the acquisition of Acision at the beginning of August. Cove Street’s move comes as the stock has surged by over 27% in the last three months and may be seen as a signal to sell, taking into account that Bronchik more than doubled his stake in Comverse during the second quarter amid an overall bullish sentiment from the hedge fund industry.

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With this in mind, let’s take a closer look at Xura Inc (NASDAQ:MESG). The stock is down by nearly 5% in pre-market trading on Wednesday, which has offset entirely the gains from the Tuesday trading session. Overall, Xura Inc (NASDAQ:MESG)’s stock has appreciated by over 28% year-to-date, but the gains would have been even higher if the stock didn’t slump in mid-June after the company reported its financial results for the first quarter of 2015, which were significantly below the previous year’s results. The company announced that it would acquire Acision on the same day. Xura’s results for the second quarter were also worse in year-on-year terms, with revenue declining to $61.63 million from $74.99 million, although it reported a net profit of $7.40 per share versus a loss of $0.75 a year earlier. However, the increase in net income is mainly attributable to the profit from discontinued operations, which amounted to $7.95 per share in the second quarter. Before acquiring Acision, Comverse had sold its assets for the operation of its business support system to Amdocs. The deal, valued at $272 million, was signed at the end of April.

Hedge funds from our database were bullish on Comverse during the latest round of 13F filings, though it’s not clear where the sentiment has headed after the company acquired Acision and became Xura Inc (NASDAQ:MESG). At the end of June, 16 funds reported holding $89.80 million worth of stock, representing 20.40% of the company, as compared to 12 funds with stakes valued at $64.50 million in aggregate a quarter earlier. Cove Street was the largest shareholder, followed by Matthew Drapkin and Steven R. Becker’s Becker Drapkin Management, which reported ownership of 1.45 million shares. However, while the position amassed only 3.70% of Cove Street’s equity portfolio, Becker Drapkin’s stake in Comverse represented over a quarter of its portfolio. On the third spot was Nokomis Capital, led by Brett Hendrickson, which trimmed its stake by 11% to 437,909 shares. Other bullish investors included Jim Simons and Mark Kingdon.

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