Blair Corp (BL): A Former Perennial Net/Net Gets Taken Out
Warren PA based clothing retailer Blair, which we last reported on in August, will be acquired by Golden Gate Capital, a San Francisco private equity firm, for $173.6 million in cash, or $42.50 per share. This represented a 23.6 premium to Blair's price at the announcement of the deal.
In our last research report on Blair, we suggested the company might go private, following a relatively huge transaction in which the company bought back more than half it outstanding shares. At the time, Blair was trading in the $24 range, so relative to that price, the buyout price of $42.50 represents a 75% gain in 5 months.
Former Net/Net
In years past, Blair's name was always at or near the top of the list (in terms of market cap) of companies trading below their net current asset value. In fact, if our recent report The Top Ten Net/Nets Four Years Later had gone a little further, Blair would have been 12th on the list.
Original Blair Research
2/14/03
*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Saturday, January 27, 2007
Saturday, January 20, 2007
Stretching the definition of a Net/Net
Wake Up and Smell the Coffee: Farmer Brothers(FARM)
We hope Ben Graham wouldn't take offense if we loosened up a bit, and took a gander at some "double net/nets", or companies trading at less than two times their net current asset value. Afterall, we've already taken liberties with Ben's philosophy; he preferred companies trading at less than 2/3 of net current asset value, and we tend to focus on those trading below 1 times NCAV. Truth be told, it's slim pickings these days to find these companies (not unusual), but we'd thought it would be interesting to see what we could dig up at 2 times NCAV.
What we found was a list of about 300 companies, and one of the most interesting name we found was that of Farmer Brothers, a manufacturer and distributor of coffee. We remember this company as a thinly traded issue, trading at $400 per share a years ago. After a 10 for 1 split, and some difficult times, this company currently trades around $20--and shareholders are not happy. More on that later.
California based Farmer Brothers was founded in the 1920's, and sells coffee and other products primarily to restaurants and other institutions. Coffee accounts for about half of sales, but the company also provides 300 other products, many of which are coffee related. The company's primary raw material is green coffee, an agricultural commodity subject to many different factors that can cause wide and severe price swings. The company does utilize derivatives to hedge risk.
The Controversy
Lets face it, business at Farmer Bros has not been all that great in recent years, and sales have been flat. Investors have not been happy either. Five year total returns are in negative territory, and after looking at the balance sheet, you'd wonder whether this is a coffee company, or very bad money market fund. Much of the problem has been attributed to company insiders, who own more than half of the outstanding shares.
Tons of Cash and Marketable Securities
Farmer Brothers has $180 million in cash and marketable securities, mainly comprised of treasuries ($113.5 million)and preferred stock($61.7 million). That amount might not be that remarkable, except for the fact that the current market cap is $323 million, leaving the company with an enterprise value of just $143 million. Or in per share terms, thats $11 in cash and ms, while the stock trades at $20. The company currently yields 2.2 percent, hence the reference to being a "very bad money market fund".
The Numbers
Revenue for 2006 (year ended 6/30/06) was $207.5 million, up 4.5 % from 2005s $198.4 million. The company mananged net income of $4.75 million in 2006, up from a loss of $5.4 million in 2005. However, all of 2006's net income is attributable to dividends and interest from the companies cash and S/T investment hoard, an amount which exceeded $8 million. In other words, the operating business is not profitable.
Shareholder Revolt
Dismayed by poor operating performance, the poor use of excess capital, and disdain shown for minority shareholders, Farmer Brother's investors have become increasingly active over the years. For more on this, visit the Forum for Shareholders of Farmer Bros. Co.
Conclusion
This is one we'll be following. Frankly, we are intrigued by what might be an excellent business, with a relatively large amount of working capital. Shareholder influence can ultimately force change, and that's what it will take to right this ship.
*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Wake Up and Smell the Coffee: Farmer Brothers(FARM)
We hope Ben Graham wouldn't take offense if we loosened up a bit, and took a gander at some "double net/nets", or companies trading at less than two times their net current asset value. Afterall, we've already taken liberties with Ben's philosophy; he preferred companies trading at less than 2/3 of net current asset value, and we tend to focus on those trading below 1 times NCAV. Truth be told, it's slim pickings these days to find these companies (not unusual), but we'd thought it would be interesting to see what we could dig up at 2 times NCAV.
What we found was a list of about 300 companies, and one of the most interesting name we found was that of Farmer Brothers, a manufacturer and distributor of coffee. We remember this company as a thinly traded issue, trading at $400 per share a years ago. After a 10 for 1 split, and some difficult times, this company currently trades around $20--and shareholders are not happy. More on that later.
California based Farmer Brothers was founded in the 1920's, and sells coffee and other products primarily to restaurants and other institutions. Coffee accounts for about half of sales, but the company also provides 300 other products, many of which are coffee related. The company's primary raw material is green coffee, an agricultural commodity subject to many different factors that can cause wide and severe price swings. The company does utilize derivatives to hedge risk.
The Controversy
Lets face it, business at Farmer Bros has not been all that great in recent years, and sales have been flat. Investors have not been happy either. Five year total returns are in negative territory, and after looking at the balance sheet, you'd wonder whether this is a coffee company, or very bad money market fund. Much of the problem has been attributed to company insiders, who own more than half of the outstanding shares.
Tons of Cash and Marketable Securities
Farmer Brothers has $180 million in cash and marketable securities, mainly comprised of treasuries ($113.5 million)and preferred stock($61.7 million). That amount might not be that remarkable, except for the fact that the current market cap is $323 million, leaving the company with an enterprise value of just $143 million. Or in per share terms, thats $11 in cash and ms, while the stock trades at $20. The company currently yields 2.2 percent, hence the reference to being a "very bad money market fund".
The Numbers
Revenue for 2006 (year ended 6/30/06) was $207.5 million, up 4.5 % from 2005s $198.4 million. The company mananged net income of $4.75 million in 2006, up from a loss of $5.4 million in 2005. However, all of 2006's net income is attributable to dividends and interest from the companies cash and S/T investment hoard, an amount which exceeded $8 million. In other words, the operating business is not profitable.
Shareholder Revolt
Dismayed by poor operating performance, the poor use of excess capital, and disdain shown for minority shareholders, Farmer Brother's investors have become increasingly active over the years. For more on this, visit the Forum for Shareholders of Farmer Bros. Co.
Conclusion
This is one we'll be following. Frankly, we are intrigued by what might be an excellent business, with a relatively large amount of working capital. Shareholder influence can ultimately force change, and that's what it will take to right this ship.
*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Tuesday, January 16, 2007
PICO Holdings(PICO)Hits 14 Year High
Nevada Land and water giant PICO, which we've labeled the "poor man's Berkshire Hathaway" (much to the chagrin of some of our readers) hit a 14 year high today, closing at $38.35, up 4.3%. Shares traded as high as $38.95 on about 2.5 times normal average volume. There was no news on PICO today, which is typical. Stay tuned.
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Nevada Land and water giant PICO, which we've labeled the "poor man's Berkshire Hathaway" (much to the chagrin of some of our readers) hit a 14 year high today, closing at $38.35, up 4.3%. Shares traded as high as $38.95 on about 2.5 times normal average volume. There was no news on PICO today, which is typical. Stay tuned.
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Friday, January 12, 2007
Lazare Kaplan (LKI): A Diamond Has it Rough;
Tumbles on Second Quarter Results
Perennial net/net (trading below net current asset value) and diamond company Lazare Kaplan (LKI) took it on the chin today following the announcement of 2nd quarter results. Net sales for the 3 and 6 month periods ended November 30, 2006 were $94.4 million and $233.3 million, down slightly from last year's $96.3 million, and $235.1 million. Gross margins for both periods also fell. Net loss for the quarter was $1.4 million ($3.2 million for six months), vs. a loss of $1.4 million (income of $500K).
The company cited an increase in the sale of lower margin products (rough diamonds) for the fall in sales, and declining margins. We've yet to see a 2nd quarter balance sheet.
Shares fell nearly 7 percent today (to $9.96) on triple the average volume....that's triple the typical 3000 shares normally traded, hardly meaningful. The company had been on a nice run as of late, recently approaching the $11.00 mark.
We continue to hold LKI in our portfolio, and see it as a rare opportunity to own a net/net with potential and undervalued assets. Our shares are still up 28 percent since we took a position this past March.
Previous LKI Research:
10/21/06
1/07/06
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Tumbles on Second Quarter Results
Perennial net/net (trading below net current asset value) and diamond company Lazare Kaplan (LKI) took it on the chin today following the announcement of 2nd quarter results. Net sales for the 3 and 6 month periods ended November 30, 2006 were $94.4 million and $233.3 million, down slightly from last year's $96.3 million, and $235.1 million. Gross margins for both periods also fell. Net loss for the quarter was $1.4 million ($3.2 million for six months), vs. a loss of $1.4 million (income of $500K).
The company cited an increase in the sale of lower margin products (rough diamonds) for the fall in sales, and declining margins. We've yet to see a 2nd quarter balance sheet.
Shares fell nearly 7 percent today (to $9.96) on triple the average volume....that's triple the typical 3000 shares normally traded, hardly meaningful. The company had been on a nice run as of late, recently approaching the $11.00 mark.
We continue to hold LKI in our portfolio, and see it as a rare opportunity to own a net/net with potential and undervalued assets. Our shares are still up 28 percent since we took a position this past March.
Previous LKI Research:
10/21/06
1/07/06
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Sunday, January 07, 2007
The Top 10 Net/Nets Four Years Later
We recently discovered an interesting relic, (interesting in our minds anyway) that being a complete list of net/nets from early February 2003, when we initially launched this site. There were more than 500 companies on this list, some legitimate, and some destined for the scrap heap. We thought it would be a worthy exercise to see how the top ten net/nets by market cap fared in subsequent years. The results were very positive, exceeding even our expectations.
Times Were Different
Keep in mind, we’d just come off of a market meltdown, which is the major reason there were so many net/nets in 2003. Many were “busted” technology companies reeling from the NASDAQ collapse. Just as a rising tide lifts all boats—which is why there are so few net/nets these days-when the tide recedes, the boats will follow, and often the smaller and weaker ones are most affected.
The Numbers
The average annual return of each of the ten stocks over the period (2/7/03 through 12/29/06) was 33.5 percent. For perspective, the S&P 500 was up an average of 16.9%, the Russell 2000 23.9%, and the NASDAQ Composite 18.4% during the same period. Keep in mind, those comparisons are apples to oranges, as the average market cap of the companies on this list was about $250 million, squarely in microcap land.
The Companies (returns are cumulative, from 2/7/03-12/29/06
Circuit City(CC) up 299%
Corvis(formerly CORV, now Broadwing(BWNG)) up 116.94%
Enterasys(fromerly ETS, acquired 3/2/06) up 1.16%
Silicon Storage(SSTI) up 66.42%
Infocus(INFS) down 56.59%
New Focus(NUFO-acquired 3/8/04) up 56.21% at acquisition
Valueclick(VCLK) up 750%
Audiovoxx(VOXX) up 52.32%
Netratings(NTRT) up 191.35%
National Presto(NPK) up 149.35%
In typical fashion, there was one huge winner, Valueclick, which was extremely beneficial to the average return. Only one of the companies, Infocus, was in negative territory. What's the lesson here? If the net/net strategy is to be succesful, it needs to be done through the construction of a net/net portfolio, spreading the risk among several names. Seemingly easier said than done these days, with slim pickings among net/nets. Or is it? Stay tuned.
*The author does not have a position in any of the stocks mentioned in this report. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
We recently discovered an interesting relic, (interesting in our minds anyway) that being a complete list of net/nets from early February 2003, when we initially launched this site. There were more than 500 companies on this list, some legitimate, and some destined for the scrap heap. We thought it would be a worthy exercise to see how the top ten net/nets by market cap fared in subsequent years. The results were very positive, exceeding even our expectations.
Times Were Different
Keep in mind, we’d just come off of a market meltdown, which is the major reason there were so many net/nets in 2003. Many were “busted” technology companies reeling from the NASDAQ collapse. Just as a rising tide lifts all boats—which is why there are so few net/nets these days-when the tide recedes, the boats will follow, and often the smaller and weaker ones are most affected.
The Numbers
The average annual return of each of the ten stocks over the period (2/7/03 through 12/29/06) was 33.5 percent. For perspective, the S&P 500 was up an average of 16.9%, the Russell 2000 23.9%, and the NASDAQ Composite 18.4% during the same period. Keep in mind, those comparisons are apples to oranges, as the average market cap of the companies on this list was about $250 million, squarely in microcap land.
The Companies (returns are cumulative, from 2/7/03-12/29/06
Circuit City(CC) up 299%
Corvis(formerly CORV, now Broadwing(BWNG)) up 116.94%
Enterasys(fromerly ETS, acquired 3/2/06) up 1.16%
Silicon Storage(SSTI) up 66.42%
Infocus(INFS) down 56.59%
New Focus(NUFO-acquired 3/8/04) up 56.21% at acquisition
Valueclick(VCLK) up 750%
Audiovoxx(VOXX) up 52.32%
Netratings(NTRT) up 191.35%
National Presto(NPK) up 149.35%
In typical fashion, there was one huge winner, Valueclick, which was extremely beneficial to the average return. Only one of the companies, Infocus, was in negative territory. What's the lesson here? If the net/net strategy is to be succesful, it needs to be done through the construction of a net/net portfolio, spreading the risk among several names. Seemingly easier said than done these days, with slim pickings among net/nets. Or is it? Stay tuned.
*The author does not have a position in any of the stocks mentioned in this report. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
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