Value Microcaps Free-For-All

[jwbstock]

AASR.OB Turnaround?

Ascent Assurance (very recently renamed USHeatlth Group) peddles various forms of health insurance to small companies. I've been watching this small cap for about a year, waiting for signs of a turnaround. They reported a profit two days ago for the first time in quite some time:

http://biz.yahoo.com/prnews/050303/dath043_1.html

I think they are turning the corner.

It's hard to get info on this company, but this is what I have pieced together by casual observation over the last few months. AASR.OB has been a nothing special insurance company. At some time in the past, they issued some preferred stock to raise capital. As their business went south (most likely due to mediocre management) the payout of the preferred dividend started to bleed them dry. Somehow, CS First Boston ended up with all of the preferred. They converted it to common, which stopped most of the bleeding. At that point, they owned so much of the company, they could call the shots. From what I gather, they pushed the old CEO out, and brought in a new CEO who was the chairman of a $4 billion cap insurance company. CSFB also seems to be backing them in a way which isn't completely transparent. I don't think the chairman of a $4B market cap company is going to switch to a $25 million market cap backwater unless he plans to be richly rewarded. It appears that the new CEO has roughly 10% of the entire stock awarded to him as an option pool. His base salary of $250,000/year (for a $100,000,000/year sales company) is low, and so he is clearly in this for the stock gain. Put simply, he gets rich if the stock soars.

In the first full quarterly reporting period after he took the helm, they reported a profit of $0.01/share (on a $0.40 stock).
The stock has since run up 50% in the last two days (to $0.61) since the earnings announcement. If we use the patented VMZCC anualize-the-quarterly-earnings method, the forward P/E is still a reasonable 12. It's also selling at a substantial discount to book value, and at only about 0.25 price/sales.

I'm guessing the stock will pull back sometime in this quarter, as these guys still have a lot to prove. However, if the new chairman can keep racking up the profits, clearly this stock will benefit. Unlike a commodity play (where you can estimate production, sales price, and production costs to yield a profit estimate), it is difficult for me to predict the profit potential of this company. However, with a major league CEO and the backing of CS First Boston, this one is worth watching.

Beware, this stocks trades very thinly.


JWB

DISCLOSURE: a dinky 0.07% of my portfolio is in AASR.OB. I'm likely to triple my stake in the near future.