Zunicom, Inc. (OTCBB:ZNCM) announced on September 12th that it would be spinning off its wholly owned subsidiary, Universal Power Group. The new supply chain logistics company would trade on the Amex with the symbol UPG. In UPG's S-1 statement with the SEC, they elaborate on their company:

"We are (i) a third-party logistics company specializing in supply chain management and value-added services and (ii) a leading supplier and distributor of portable power supply products, such as batteries, security system components and related products and accessories ... These services enable our customers to operate more efficiently and enhance their business by providing them with cost savings through effective sourcing, reducing inventory maintenance levels and streamlining distribution and order fulfillment. In addition, we also source and distribute batteries and portable power products under various manufacturers’ and private labels, as well as under our own proprietary brands, UPG™, Adventure Power®, UB Scootin®, Batteries & Beyond™, Charge N’ Start™ and UNILOK™. We believe that we have one of the largest inventories of batteries in the United States and are one of the leading domestic distributors of sealed, or “maintenance-free,” lead-acid batteries.

Our customers include original equipment manufacturers (“OEMs”), distributors and retailers, both on-line and traditional. The products we manage and distribute are used in a diverse and growing range of industries, including automotive, marine, recreational vehicles, medical devices and instrumentation, consumer goods, electronics and appliances, marine and medical applications, computer and computer-related products, office and home office equipment, security and surveillance equipment, and telecommunications equipment and other portable communication devices. Our largest customer is Brink’s Home Security (“Brinks”), one of the largest installers of security systems in the United States.

In each of the last nine years we have achieved double digit growth in net sales. Over that nine-year period, our compound annual growth rate in net sales was 32.86%. Similarly, our income before taxes has grown in four of the last five years. Over that five-year period, our compound annual growth rate in income before taxes was 18.26%. For 2005, our net sales were $81.3 million, and our income before taxes was $1.9 million. For the six months ended June 30, 2006, our net sales were $44.2 million, and our income before taxes was $1.2 million."

Unlike most spinoffs, this company has a long operating history (having first organized in 1968) - this removes one of the key risks associated with spinoffs. However, this stock does have one big risk - Brinks Security accounts for nearly 50% of their business. Although they have been lowering this number during the past few years, the loss of Brinks would be a significant hit to the company's earnings. The contract with Brinks is up for renewal in May 2007.

So, will this new stock be a buy? Well, spinoffs generally outperform the market because of one key factor that often makes them undervalued... When parent companies launch a spinoff, shares of the spinoff are distributed to parent company shareholders. Often times these shares are unwanted and immediately sold. This creates a windfall that artificially deflates the stock's price (since there was no change in fundamentals). This makes UPG a stock worth watching as it gets closer to spinning off.

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