Ebix, Inc. (NASDAQ:EBIX)

great qtrly results & numbers

there may be a bump in the offer price, there looks like a shareholder lawsuit that is asking for a higher price. I found this article on reuters:

ATTENTION SHAREHOLDERS: The Sale of Ebix, Inc (EBIX) Under Investigation by The Young Law Firm

Phoenixville PA — The Young Law Firm is investigating potential claims against the Board of Directors of Ebix, Inc (“Ebix” or the “Company”) (NasdaqGS : EBIX) concerning the proposed buyout of the Company by an affiliate of Goldman, Sachs & Co. The investigation concerns whether Ebix’s Board of Directors obtained fair value for the sale of the Company and whether the Board has fulfilled its fiduciary duties to Ebix’s shareholders in connection with the sale.

Under the terms of the proposed transaction, shareholders will receive $20.00 per share in cash. The transaction has a total approximate value of $820 million.

Shareholders have rights. If you own shares of Ebix and would like to learn more about these matters, please contact:

Henry Young Esq.
The Young Law Firm
Toll Free: (888) 452-7252
Email: contact@theyounglf.com
or visit: www.mergersbuyoutsandfraud.com/ebix-merger-buyout-shareholder-lawsuit/

The Young Law Firm is a national shareholder litigation firm located outside of Philadelphia, Pa. We protect individual and institutional investors in state and federal courts nationwide. For more information about the firm and class action cases in general, please visit our website: www.theyounglf.com.

Three great runs in March through April 2013: Can we do it four?

Fundamentals: I read TMF1000's excellent review in CAPS and checked some of the details independently. Looks like a solid company in a good market, suffering from bad press. I like the fact that insiders have a large stake in the company.

Technical: I have been watching EBIX float down for a while, waiting for bottom to form and an opportune time to get in. As of March 20, 2013, I interpret the triangle formation (completed circa March 20) to mean the end of a local bottom for this stock. $16.19 looks like a good price to get in.

Early April 2013 update: Upside momentum appears to have strengthened in this stock. The bottom it made in March is now more obviously a bottom.

April 23, 2013 and May 1, 2013 updates: Strong price action continues. I am following Justin Mamis' advice to ride a strong trend until it fails. No failure, yet....

great financials, decent amount of cash

High on profitability, low on price.

Magic formula with good morningstar grades and high CAPS rating

magic formula pick that's a 5 star CAP rating

short run, probably a loser; long run they should be fine. I'm half in.

IBD EPS, RS, SPROE, Acc ratings plus P/E and div yield
SOFTWARE 94 9 AC 9PE 1.9%DIV

Value

Seeking Alpha was providing positive commentary on EBIX until 2/21. At that time, they revealed that they are short the stock and accused the company of accounting anomalies. The stock price plummeted, but It remains a company with valuable products, poised for continued growth.

The moment is strong with this one. Positive financials and good EPS figures.

Ebix stock appears to be cheap on traditional valuation measures. FCF of $71m is 10.5% of an enterprise value of $679m. Revenues have almost doubled in the past 3 years and earnings growth has been very healthy too. FCF and eps line up indicating a high quality of earnings.

Typically a growing software company with these characteristics would sport a p/e ratio over 20x, not less than 10x like Ebix. So what is the fly in the ointment?

Three months ago there was a Bloomberg article that alleged that Ebix was subject to an internal SEC probe. The stock immediately dropped from $24 to $16. This is a continuation of allegations made against Ebix that is most likely driven by short sellers of the stock. Short interest in the stock stands at 42%. My long investment thesis does not rest on the shorts being wrong, but on the high uncertainty created by the allegations. This is a classic low risk, high uncertainty situation.

Why is it low risk?
The reason the stock is low risk is that the revenues are driven by the Software-as-a-Service model. Customers need to continue paying to keep access to their systems that are essential to their business. Switching costs are high to move to unfamiliar software. Their cash flow is secure.

It seems unlikely that there is a major fraud going on here. The CEO owns a lot of stock. The cash flows are difficult to fake. What seems more likely is that there was some accounting incompetence due to excessive cheapness on the part of the CEO i.e. the accounts department were viewed as a overhead to be minimised. These mistakes are probably at least a year or two in the past.

Why is it high uncertainty?
Investors are on tenterhooks waiting for the SEC investigation to be announced. I see this playing out in one of three ways :-

(1) An SEC investigation is announced and its findings are not material to company results. Odds 30%, Fair value $25
(2) No SEC investigation is announced and the uncertainty (eventually) clears for investors. Odds 65%, Fair value $30
(3) An SEC investigation is announced and its findings are serious and result in a major reductions in past sales and earnings. The board sack the CEO. Odds 5%, Fair value <$8.

That is the basic thesis. If it all turns out marvellously well it could be a 4 bagger in the next 3-5 years, due to a doubling in the earnings and a doubling in the p/e ratio. Downside risk is low in the medium term, say 1-2 years, but the stock will take a temporary hit if there is an SEC investigation.

Here are some other random qualitative factor I like about Ebix
(1) Diversified customer base, no customer represents more than a few percent of sales.
(2) Low cost provider, due to software centre in India.
(3) Characterful CEO who is a demon on driving down costs and owns 9% of the stock.
(4) Growing sales and earnings during the recession (a horrible period for their customers, the insurance industry).
(5) Proven ability in successful acquisitions and quick integration.
(6) Large open ended opportunity as insurance industry moves away from paper.

Will improve info for insurance companies

Value- stock has been beaten down. Turn-around

Continuously improving income, low debt despite aggressive acquisitions. Indicators up across the board make me consider this one and undervalued stock. However, if there is truth to the accounting irregularities leveled against them it could change the story.

Solid company, that keeps getting beaten down by short sellers and anonymous new articles. Play the regression channels on this, and know that the underlying company is strong.

Play the bounce, sell @ $24

I already have a small take in EBIX and am increasing it. It is a Rule Breaker, although not currently one of their Best Buys Now. I was going to wait until a pull back on price, but had some cash available from liquidation of other stocks. It has a low P/E, reasonable valuation, and revenue and EPS are growing.