Emblaze a value play with smartphone potential

After receiving a payout from the ENRC takeover of CAMEC last week, I have used some of the money to take a position in Emblaze Group (BLZ). Emblaze is a Technology company which has 2 main areas of business Growth and Innovation. The growth side consists of a 50.1% holding in NASDAQ listed Formula Systems (FORTY). Formula Systems holds majority stakes in 3 NASDAQ listed technology companies, all of which are trading profitably. The Innovation side of the business consists of a majority stake in Zone-IP Ltd, a video conferencing software supplier, a 95% stake in Emoze, which has developed a software solution which allows any phone to accept email.
The most exciting part of the innovation side of the business though is Emblaze Mobile, which together with well renowned partners has developed a smart phone, which they will believe will revolutionise the business. This Mobile entitled the Else Intuition, the statistics of the phone are very impressive and I am hopeful that they will announce contracts with some major telecommunications companies. Should this phone be even moderately successful then there is tremendous scope for the share price to rise.
Should the Else Intuition fail to take-off then I imagine the shares will see a sharp drop, but will then quickly recover as the rest of the business is taken into account. Emblazes stake in Formula Systems is valued at today’s market capitalisation and exchange rate at just over £47million, which is a big chunk of the £57million market capitalisation of Emblaze. I also believe that Formula Systems is currently significantly undervalued. It is trading at a P/E ratio of 13.5, which is low for a growth company; it is also yielding an impressive 20% dividend. It has current assets which cover both the short term and long term debt and it has total net asset value of $279million. This means that if Formula Systems were to sell at their net asset value Emblazes stake would be worth over £83million. Which is actually an increase of 45% to today’s market capitalisation. You could argue that Formula Systems should trade at a discount to their net asset value, however if they were trading at their net asset value the shares would be trading at a P/E of 23.6 which is not that inconceivable for a growth company, the yield would also still be an impressive 8.7%.
So in conclusion I believe the downside is capped and the potential upside is significant. The Else Intuition which is scheduled for launch on the 24th of November could be the company changing product that will transform this company into a major player in the important smart phone market. I’ll be keeping my fingers crossed, but should it not live up to the hype I am happy in the knowledge that the other components of the company still make this a value play.