Saturday, April 29, 2006

At top of the List: VOXX: The Biggest of the Small
Trading Below Net Current Asset Value

Ticker: VOXX
Price: $12.14
Share Out: 22.6 million
Market Cap: $271.9 million
Average Daily Volume: 128000
NCAV: $319.6 million
NCAV/Market Cap: 1.18
Cash/ST investments/share: $7.90

Audioxx, an international distributor of electronics equipment, primarily mobile electronics, and consumer electronics, has the distinction of being the current king of companies trading below net current asset value. With a market cap just south of $280 million, which for all intents and purposes puts it squarely in microcap land, this company still dwarfs its NCAV cousins.

Research references to Audiovoxx in terms of being a net-net are not new. Interestingly, this is not the first time the company has traded below its NCAV, it was also on the list four years ago, when it traded in the $6 range. The company had a subsequent run-up, and now finds itself back on the list few companies would wish to be on.

Audiovoxx's mobile products include:
o mobile multi-media video products, including overhead, headrest and portable mobile video systems,
o autosound products including radios, speakers,amplifiers and CD changers,
o satellite radios including plug and play models and direct connect models,
o automotive security and remote start systems,
o navigation systems,
o rear observation and collision avoidance systems, and
o automotive power accessories, including cruise control systems

Consumer electronics products include:

o LCD and Plasma flat panel televisions,
o home and portable stereos,
o HDTV Antennas,
o Two-way (GMRS) radios, digital multi-media products such as personal video recorders and MP3 products,
o home speaker systems and home theater in a box,
o portable DVD players,
o hand-held portable GPS,
o flat panel TV mounting systems, and
o home electronic accessories such as cabling and performance enhancing electronics.

Obvously, this company operates within a highly competitive industry. It is important, however to keep in mind, that the company is a distributor of products, and not a manufacturer. This company has been very active the past few years discontinuing operations, divesting businesses, and making small acquisitions.

The Fundamentals
Fiscal Year 2005 sales fell 5 percent to $539.7 million from 2004s $567 Net income fell dramatically from $77.2 million in 2004, to a loss of $9.5 million in 2005. The electronics business is highly competitive, and its been an especially rocky road for this company over the years. For the most recent quarter, ended 2/28/06, the company reported net income of $.183 million (including disc ops of -.184 million) on sales of $103 million.

The Balance Sheet
Cash stood at $17.8 million, and short term investments at $160.8 million as of 2/28/06, while long term debt was $11.8 million. The company also listed short term debt (curr portion of long term debt) of $6.7 million. Adding in the debt, and preferred stock and subtracting the cash from market cap gives VOXX an Enterprise Value of $112 million.

The NCAV calculation:
Current Assets:
Cash: $ 17.8 million
S/T Investments: $160.8
Accounts Rec: $106.7
Inventories: $96.1
Prepaid/other: $6
Total: $387.4

Current Liabilities
Accts Payable: $40.1
Curr portion LT Debt: $6.7
Total: $46.9

Long Term Debt: $11.8
Deferred Liab: $6.6
Preferred Stock: $2.5

NCAV: $319.6 million

Institutional Ownership
Total Institutional ownership is about 65 percent. The top 5 holders
Donald Smith & Co: 8.7%
Dimensional Fund Advisors: 7.9 %
Kahn Brothers & Co: 7.7%
Aegis Financial Corp: 5.1%
Barclays Global Inv UK Holdings: 4%

Long Term Investments

The company also lists long term investments of $26.5 million. We don't have much clarity on what these represent. Keep in mind, that we do not include these, or any other non current assets in our NCAV calculation. Thats all part of the "margin of safety".

How many times have you heard us say that we "aren't crazy about the business this company operates in"? We usually say that, and its no different here. NCAV companies are what they are for a reason. We are intrigued, however, by a company trading at $12.00 that has nearly $8.00 in cash, and little debt.

*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.

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