Investors commonly rely only on quarterly and/or annual reports to evaluate a company. But occasionally, companies will issue press releases or interim reports that can be valuable. Important and material information is often contained in these reports, and investors can often use this info to determine whether things are going as expected. Consider Quest Capital (QCC), a mortgage lender with very little leverage.
We discussed Quest as a potential value investment three months ago. For this stock to realize its price potential, one of the key success factors is that loan losses (i.e. mortgage debts that customers can’t pay) do not come in well below management’s estimates. The company has stopped issuing new loans for the most part, so if things are going as planned, cash should be coming in at a decent clip, adding to the company’s safety and liquidity.
Last week, the company issued a release with some details describing its intentions towards its preferred shares. First of all, the company declared that it has paid its quarterly preferred dividend in cash. While this may seem non-newsworthy, the company actually has the option of paying this pref dividend in common shares, and it did so just two quarters ago. The fact that it has paid cash for the 2nd straight quarter suggests the cash flow situation is under control.
More significantly, however, the company also described some details with respect to restructuring the terms of its preferred shares. The company paid an upfront cash fee (again, suggesting its cash flow situation has improved) to lower the dividend it now has to pay on its preferred shares and for the right (but not the obligation) to redeem its preferred shares early. The pref dividend was 13.5% (now 12.75%, to be lowered to 12% in three months), as these shares were issued at a time when the company was in dire need of cash. But the fact that the company appears to be focusing on reducing and redeeming these preferred shares for cash suggests that the cash flow situation appears under control.
With the info provided by press releases and interim reports, investors can fine-tune their assessments of a stock’s value that was likely primarily derived from the company’s annual and quarterly reports. Subtle or not-so-subtle hints in such reports can help confirm or deny an investor’s thesis.
Disclosure: Author has a long position in shares of QCC
