Troptions Cryptocurrency Not Baked into Stock Price
- Niche Market for Landline Phone Service
- Large Market Potential for Neglected Market
- Earnings and Troptions ICO Short Term Catalysts
- Undervalued Clean Public Company
SW Innovative Holdings Inc. (SWHI) has been pretty quiet over the past couple years and has been sticking to its business plan of serving the telephone landline market catering to the demographic that can’t get phone service due to credit issues. They are marginally more expensive that the current carrier but their prepaid service doesn’t require a $150 deposit to set up phone service either. Right now the company only operates in the Houston area with no plans to expand until they have positive cash flow in this market. The company recently embarked on an advertising plan that uses Troptions to get the word out for people to sign up for the services. Troptions purchased 15,000 prepaid telephone landlines in exchange for the first month of service.
Expanding Marketing Efforts
The Houston-The Woodland-Sugar Land is a nine-county metropolitan area referred to as the “Greater Houston” area and ranks as the fifth largest metropolitan area in the United States and the second-largest in Texas. The U.S. Census Bureau estimated the population was 6,490,180 in 2010 with 2.1 million people in the City of Houston. Within the Greater Houston area Chase Bank estimates that 30% or 1.9 million people use pawn shops and check cashing stores for their banking needs. The company is shooting for a 1% market penetration of 20,000 people in the next 3 years. Using an average of $40 per month if they hit their mark in 3 years they could be generating as much as $800,000 monthly. The demographic of credit challenged customers the company is targeting is largely ignored by the large telecoms.
This summer the company planned to use some of the money they raised recently on the Reg A offering to up their marketing efforts. Going after this market means rolling up your sleeves and using guerilla tactics. The low hanging fruit are people in the penal system on probation that are required to have a land line. Networking with the bail bondsman and parole officers and getting their flyers in the hands of these people is a must. Advertising in the local pawn shops and cash checking locations would be the logical next step along with billboards in the depressed neighborhoods. The local groceries stores also have free newspapers called Green Papers that the locals regularly reads for deals. This credit challenged group traditionally only responds to print and local radio advertising because they don’t have smart phones or internet connectivity. In late July the company funded some of its marketing efforts through a barter exchange for 15,000 prepaid contracts in exchange for 7,692,307.60 Troptions with a $1.0 million market value. The company then turned around and used some of those Troptions to hire Nicole Danielle Management and Promotions for a year contract that costs $120,000 worth of Troptions. The company also signed up with HillTop Radio Show Entertainment LLC paying them $250,000 worth of Troptions for advertising.
Earnings Report
The 10-Q is due out in the next couple of weeks and it will be interesting to see what sort of traction the company has developed over the summer. The company makes about 46% gross margin on the first month because it includes the $30 activation fee but then makes 38% monthly on the phone service. These margins are excellent for any business but it depends on the customer acquisition costs. Looking at the company overhead it seem like 1000 customers is needed to achieve break-even results. Given the almost 2 million people in the target market this doesn’t seem to be a very high hurdle to jump over. The other interesting feature should be a significant strengthening of the balance sheet due to the Troptions asset. It’s premature to know how the accountants are going to treat this but it should be reflected as some sort of asset on the balance sheet.
Troptions Wild Card
The company still probably has approximately 4 million Troptions left on their balance sheet and with the Troptions ICO set for November 11, 2017 this could represent a considerable asset that could be monetized should the ICO do well. Monetization of a crypto currency is similar to a stock in the sense that you go onto an exchange such as the DEX and put in offers to sell it. Troptions are denominated in XCP which is trading close to $10.00 and XCP is quite liquid and can be converted into Bitcoin which can then be taken out as dollars.
Valuation
As of the last Quarterly the company had 252,062,103 shares outstanding. At a price of .0012 this represent a market capitalization of approximately $300,000. Given that a public shell is typically worth $500,000 the stock appears to be undervalued. There is no convertible stock leading to toxic dilution but there are some significant upside catalysts. Keep in mind that SWHI still has about 4.0 million Troptions. This represents a huge asset that could be monetized should the ICO be successful. The Troptions ICO is calling for an $11.00 ICO price putting the book value at $44 million. There can be no assurances on what the ICO price will be but it lists the current trading price at $6.50. Either way you look at this there is a valuable asset that could be monetized and investors should base their investment decisions on the underlying business and the value of a fully reporting public company.
Investment Summary
Since most of the assets of this company are in the cryptocurrency Troptions, this might be an excellent way to play the Troptions ICO scheduled for November 11, 2017. Despite the value of the underlying asset there is a real business here that is percolating. If the company is able to shave off some of their cryptocurrency and turn it into dollars and execute on their business plan it’s not hard to see that this company is undervalued on many metrics. Investors can play with the value of Troptions in their minds from as little as $1 million up to $44 mill. With little downside due to dilution and so much upside in cryptocurrency and a stock structure conducive to price appreciation this appears to be a solid play for long term investors interested in a couple of short term catalysts.
This article was submitted by Mike Sheikh. Mike is a contributor for Seeking Alpha. Mike (or PSinvestor) have NOT been compensated for this article and currently holds a position in the company, but may trade it in the near future. You can follow Michael on TWITTER @breckskifan
