Tuesday, June 03, 2014

Imation: Back to Net/Net Land

Imagine our surprise to finally identify another net/net with a market cap in excess of $100 million. Now as rare as a Phillies win over the Mets (much to my chagrin), this was a big find. Not really. We are just getting desperate for net/nets. Not really, either.

Imation IMN has been what we would term a perennial net/net. The company was a member of our Cheap Stocks 26 Net Net Index, and perhaps the epitome of the proverbial "cigar butt". Imation has not generated a positive bottom line on an annual basis since 2009, and the main attraction- a healthy amount of cash- has dwindled from $305 million at year end 2010, to $126 million as of the latest quarter. The level of cash has stabilized in the past six quarters, a good sign, but this company still has its work cut out for it.

With $3.09 per share in cash ($2.61 net of debt), Imation currently trades at .96 times net current asset value and .63 times tangible book value. While that may appear enticing, this is a company in transition; one that generates 65% of revenue from what management terms "declining businesses". They continue to try and cut costs, and divest lower margin businesses- they sold Memorex last year- in favor of those that management believes will provide higher margins.

For the current price of $3.32, investors theoretically receive $2.61 and net cash, the fixed assets (on the books at $50 million) and call option on the company's prospects for 72 cents. That assumes that the intangible assets and goodwill are worthless.

Of course, the above is meaningless if the company resumes burning through it's cash.

While Imation is back on our radar, we've seen this story often in net/net land; and are not yet convinced that it will have a happy ending.

Ticker: IMN
Price: $3.31
Market Cap: $139 million
NCAV: $144 Million
Price/NCAV: .96
TBV: $5.28
P/TBV: .63
Cash: $126.2 million
Cash/Share: $3.09
Debt: $19.8 million
Net Cash/Share: $2.61

*The author has no positions in companies mentioned. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only

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