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Hennessy Advisors (HNNA)
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 HNNA-RAM-2017421.ITK (5kb) downloaded 12 time(s). HNNA 2017-0421.pdf (46kb) downloaded 17 time(s).Hennessy Advisors is an investment management firm. It has its headquarters in Novato, California. It is a small cap company. Its market cap is approximately $130 million while its revenue for the last full year was $51.4 million. The company manages 16 open-end mutual funds. Total assets under management are $6.7 billion as of 9/30/16. Growth in funds under management was boosted by the acquisition of the assets of The Westport funds. This addition closed September 26, 2016. The company recently started charging 12b-1 fees of .15%. The maximum allowed rate is .25%. Several of its funds rate highly with the Lipper Analytical service.
Attached is a PDF version of an SSG generated using ToolKit. The projection for 5 year EPS began with the last quarter EPS. In addition, an ITK file for import is attached. The judgement calls and the rationale are as follows:
EPS growth rate – 12.5%. Value Line does not estimate EPS growth. ICLUBCentral’s Equity Research Service has recent growth at 23.8% and EPS growth predictability rated 9.1 out of 10. The Value Line report dated 1/27/2017 gave past 1 year EPS growth at 46%. I decided to be much more conservative with a 12.5% EPS growth rate. The 12.5% growth rate also appears to be achievable with the projected sales growth rate below. The trend in pre-tax profit on sales is also positive which will help EPS growth.
Sales Growth Rate – 12.5%. The recent sales growth rate from the Equity Research Service is a decent 14.9%. Value Line gives a 1 year change at 13.5%. My 12.5% figure is just being a bit more conservative. Checking EPS growth with the Preferred Procedure, my estimated 12.5% EPS growth should be accomplished with 12.5% sales growth. Pre-tax profit on sales has increased recently.
Projected High PE – 14.6. The 10 year average high PE is 21. The 5 year average high PE is only 14.6. I decided to go with the more recent average.
Projected Low PE – 7.9. A similar analysis was done for the projected low PE, settling on average for the most recent 5 years.
Projected Low Price – 11. Using trailing 12 months earnings of 1.88 and a projected low PE of 7.9 gives a projected low price of 14.9. This is a very small company and subject to more price volatility. I chose to adjust the low price to approximately 65% of the current price. The average price drop in a recession is 30%. With this being a small company I increased that to 35%. I settled on an even 11. This is close to the recent severe market low price of 11.7 reported by ToolKit.
My analysis gives an Upside/Downside ratio of 5.3, which places HNNA in the Buy range. I do have a concern with the amount of debt carried by the company. This is mitigated a bit by a decrease of approximately 13% in 2016. Hennessy Advisors appeared as a recommended buy in the April 2015 Small Cap
Informer newsletter of ICLUBcentral. I recently opened a position in Hennessy Advisors for a personal account.
Russell Malley
StockCentral Community Leader
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