Update
Zapata Corp
Ticker: ZAP
Price:$6.06
Market Cap:$116 million
Avg Volume: 7500
When we last reported on Zapata Corp, the company had announced the sale of its interest in Safety Components (Ticker:SAFY) for $51.2 million, or $12.30 per share. While we were disappointed with the sale price (SAFY trades in the $15.00 range), we understood the reasons for the lower sale price: SAFY does not have much liquidity, and Zapata's large stake in the company necessitates a discount.
In any event, we now have more details about the sale, and specifically of tax consequences to Zapata. The original purchase price of the Safety shares was $47.8 million. According to Zapata, after adjusting for transaction costs and tax basis changes, this will result in a taxable gain of just $292,000. Good news for Zapata shareholders (not that there has been much good news lately, as reflected by the sliding stock price).
Current Analysis
As of 9/30/05, and not reflecting the Safety Components sale, Zapata had $38.1 million in cash, and $14.7 million in long term debt. After recognizing the sale, Zapata should have approximately $85.4 million in cash.
Current cash (9/30/05): $38.1
Safety Sale: $47.8
Taxes on sale: $ .3
Approximate Cash: $85.4
If you have followed the Zapata story, you'll recall that their major asset is a 58 percent stake in Omega protein (ticker:OME), the leading provider of fish oil. Omega, currently trading at $6.00 per share (mkt cap $150 million), has been sliding as a result of damage to their processing facilities in the Gulf region, due to hurricane Katrina. Omega reported poor results for the third quarter (a 6.1 million loss, versus $1.8 million in income for the same period last year), and faces disruption to its operations well into this year. The company claims that insurance will cover damages to their facilities, but it is unclear how long this will eat into their top and bottom line.
Sum of the parts valuation
The following is a sum of the parts valuation for Zapata, considering Zapata's net cash (cash minus debt, and its stake in Omega.) We completely discount any remaining Zapata assets in this valuation. First, since Omega Protein is consolidated into Zapata's financials, we need to back out Omega's cash, represented on Zapata's balance sheet:
Zapata's Cash: $85.4
less Omega's cash: $10.5
less Zapata LT debt: $14.7
Net Cash: $60.2 million, or $3.15/share
Stake in Omega: $87 (150*58%) or $4.55/share
Total: $7.70/share
Of course, a discount might also apply in the Omega stake. Applying a 20 percent discount, for instance, reduces the valuation to $6.79/share.
Conclusion
Your editor has been disappointed in Zapata. While still holding shares, and believing it is worth more than the current price, problems at Omega are having an effect on the stock. If Omega were to emerge from recent issues, and traded at $10 per share, for example, the effect on Zapata's value is considerable. Wishful thinking? You bet. We value investors employ a lot of that....sometimes to our detriment.
*The author has a position in Zapata. 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, November 25, 2005
Saturday, November 19, 2005
Blair Corp- Update
Ticker: BL
Shares Out: 3.94 million
Market Cap: $162 million
Price: $41.2
Avg Volume: 30,000
P/E: 22
Dvd Yield: 1.5%
We thought it was time for a brief update on Blair Corp, the small Warren, PA based catalog and internet clothing retailer. Blair was another of the companies on your editor's list of below NCAV companies in a 2002 article published in a major personal finance magazine. While Blair is not currently trading below its NCAV it still was when we started this site in 2003, and was one of our first Cheap Stocks posts.
Since then, shares of Blair are up about 90%, not including dividends. What really caught our attention was the fact that the company recently bought back more than half of its outstanding shares. What does that tell you?
The Fundamentals
2004 fiscal year sales were $540.8 million, down from 2003’s $625.5 million, however, the decrease was primarily due to a divestiture. Net income was $14.9 million in 2004, for a net profit margin of 2.7 percent, versus income of $14.5 million in 2003, and a 2.3 percent net margin.
For the third quarter of 2005, Blair reported sales of $98.1 million, and net income of $1.4 million, down from $107.1 million and $2.9 million for the same quarter last year. The company attributed the decline to the sale of its Crossing Pointe catalog, weaker than expected response to its letter mailings, asset sales, and tender offer related expenses (the company bought back 4.4 million shares @ $42 per share).
After the stock buyback, the company has just 3.94 million shares outstanding, so these shares are getting tougher to come by. The balance sheet is not as strong as it once was. The company spent much of its cash hoard ($50.5 million at year end 2004), and took on debt ($143 million at end of third quarter, listed as short term notes payable)in order to finance its tender offer.
Going Private?
The tender offer, announced last May, and completed in August, has us thinking that this profitable company might ultimately go private. Rigorous regulatory issues, such as Sarbanes Oxley, can weigh heavily on small companies such as Blair. The following is the company's explanation of the tender offer, from a May, 2005 press release:
From the company's perspective, this move seems like a takeover defense, or effort to retain control of the company. That's probably true, but Blair might still be on the way to going private. The question is, can you make any money if that happens? We'll leave that question open.
*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.
Ticker: BL
Shares Out: 3.94 million
Market Cap: $162 million
Price: $41.2
Avg Volume: 30,000
P/E: 22
Dvd Yield: 1.5%
We thought it was time for a brief update on Blair Corp, the small Warren, PA based catalog and internet clothing retailer. Blair was another of the companies on your editor's list of below NCAV companies in a 2002 article published in a major personal finance magazine. While Blair is not currently trading below its NCAV it still was when we started this site in 2003, and was one of our first Cheap Stocks posts.
Since then, shares of Blair are up about 90%, not including dividends. What really caught our attention was the fact that the company recently bought back more than half of its outstanding shares. What does that tell you?
The Fundamentals
2004 fiscal year sales were $540.8 million, down from 2003’s $625.5 million, however, the decrease was primarily due to a divestiture. Net income was $14.9 million in 2004, for a net profit margin of 2.7 percent, versus income of $14.5 million in 2003, and a 2.3 percent net margin.
For the third quarter of 2005, Blair reported sales of $98.1 million, and net income of $1.4 million, down from $107.1 million and $2.9 million for the same quarter last year. The company attributed the decline to the sale of its Crossing Pointe catalog, weaker than expected response to its letter mailings, asset sales, and tender offer related expenses (the company bought back 4.4 million shares @ $42 per share).
After the stock buyback, the company has just 3.94 million shares outstanding, so these shares are getting tougher to come by. The balance sheet is not as strong as it once was. The company spent much of its cash hoard ($50.5 million at year end 2004), and took on debt ($143 million at end of third quarter, listed as short term notes payable)in order to finance its tender offer.
Going Private?
The tender offer, announced last May, and completed in August, has us thinking that this profitable company might ultimately go private. Rigorous regulatory issues, such as Sarbanes Oxley, can weigh heavily on small companies such as Blair. The following is the company's explanation of the tender offer, from a May, 2005 press release:
As a result of this tender offer, two of Blair’s major shareholder groups, Loeb Partners Corporation and Santa Monica Opportunity Fund L.P., have each separately agreed to enter into “standstill” agreements with Blair and tender all of their shares. As part of the standstill agreements, the two groups have agreed they will not attempt to exercise any control over management of Blair, they will vote in accordance with the board and management of Blair, and they will not acquire any additional shares of Blair for a period of five years.
“Blair will not accept Loeb’s recent offer to acquire the company,” said John Zawacki, president and CEO, Blair Corporation, “but will instead go forward with the repurchase of more than half of our shares. We believe the interests of our shareholders, a fundamental priority of the Board, are best served by this stock tender buyback and the entrance into standstill agreements with two of our institutional investors. We are very pleased to reward our long standing investors and are convinced that Blair’s dedication to our core customers and our independence as a Warren- based company will maximize shareholder value for many years to come.”
From the company's perspective, this move seems like a takeover defense, or effort to retain control of the company. That's probably true, but Blair might still be on the way to going private. The question is, can you make any money if that happens? We'll leave that question open.
*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, November 12, 2005
A Growth Stock? Out of my element…Lessons learned..and more
Jones Soda Co
Ticker: JSDA
Price: $4.88
Market Cap: $105 million
Shares Out: 21.4 million
P/E Ratio: you don’t want to know
2004 Revenue: $27.54 million
2004 Net Income: $1.33million
This is not the typical company we research here at Cheap Stocks. We are not oriented toward growth stocks; we wish were, but we just are not wired that way. We gravitate toward deep value plays, and Jones is far from deep value. So why dedicate valuable Cheap Stocks real estate toward a company trading at more than 100X earnings? Because this company reminds us our greatest investing mistake, Hansen(Ticker: HANS, $67.39).
You may have seen our March 7, 2005 column regarding our Hansen adventure (click on Hansen to see). The short version is that your editor purchased shares in the $3.5 range a few years back, watched the company trade sideways, and below, saw it ultimately hit $10, and sold. Nice gain, right? Fast forward, the now trades at more than $67, and that’s after a 2 for 1 split. Effectively, your not-so-bright Cheap Stocks Editor left more than $60000 on the table, by not holding onto the original 500 shares of Hansen. I know, I know, you should never look back after a gain, but it’s difficult not to. Truth be told, it’s a wonder I held the stock until it hit $10, it’s doubtful I would have ever held it to the current level.
Back to Jones…..
Jones Soda Co sells it sodas (under the Jones Soda Co. and Jones Naturals labels), teas and energy drinks in 41 states, and Canada. You may have seen there distinctive looking bottles sold in supermarkets, at premium prices (in my eyes, anyway) and other stores, these feature interesting flavors, and ever changing labels, submitted by consumers. The company has also made a name for itself at Thanksgiving, selling a soda assortment that includes such flavors as turkey and gravy, and mashed potato (no joke, check it out on their website). I’ve also noticed a growing presence in Target Stores, where Jones sells 12 packs at somewhat inexpensive prices. Inroads into a major chain such as Target make this an intriguing story.
The Fundamentals
It ain’t cheap. There’s no other way to say it. At about 140 times trailing 12 month EPS, 2.8 times sales, and 19 times book value, this company should not be within 10 feet of the words “Cheap Stocks”. But, however, we at Cheap Stocks are warming up to the idea of paying up for rapid growth in certain cases, and this company may fit the bill…..We have to at least be open to the possibility.
Jones 2004 fiscal year sales were $27.45 million, up nearly 37 percent from 2003’s $20.1 million. Net income was $1.33 million in 2004, for a net profit margin of 4.8 percent, up from 2003’s $324 thousand, and 1.6 percent. Through the third quarter of 2005, net sales are $32.4 million, up sharply from $21.1 million for the same period last year. Earnings, however, are down, $720,000 for the first three quarters of 2005, versus $1.245 million for the same period in 2004.
The company does not have much to speak of in the way of assets ($9.7 million in total assets, $303 thousand in cash) nor does it carry much debt either ($116 thousand in LT debt). This explains the high price to book ratio, but also the company’s very high returns on capital and equity (more than 60% for each).
The Risks
Trading at such high multiples (to nearly everything imaginable) it appears that there is a great deal of growth priced into the stock. Still, trading below $5, the stock well off it’s high of about $8. While we are impressed by the company’s exposure in Target, we believe that the agreement expires in 2006, and are not aware of renewal prospects. Finally, the beverage market is extremely competitive, shelf space is difficult to secure, and margins are typically low.
Conclusion
While we don’t currently own Jones, we’ll be following the story, and perhaps looking for an entry point. A continued presence in Target, continued innovation in flavors and packaging, and growing brand recognition would all be pluses for this company. We’d imagine a great deal of price volatility moving forward. Finally, it is conceivable that ultimately, a bigger player takes Jones out.
*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.
Jones Soda Co
Ticker: JSDA
Price: $4.88
Market Cap: $105 million
Shares Out: 21.4 million
P/E Ratio: you don’t want to know
2004 Revenue: $27.54 million
2004 Net Income: $1.33million
This is not the typical company we research here at Cheap Stocks. We are not oriented toward growth stocks; we wish were, but we just are not wired that way. We gravitate toward deep value plays, and Jones is far from deep value. So why dedicate valuable Cheap Stocks real estate toward a company trading at more than 100X earnings? Because this company reminds us our greatest investing mistake, Hansen(Ticker: HANS, $67.39).
You may have seen our March 7, 2005 column regarding our Hansen adventure (click on Hansen to see). The short version is that your editor purchased shares in the $3.5 range a few years back, watched the company trade sideways, and below, saw it ultimately hit $10, and sold. Nice gain, right? Fast forward, the now trades at more than $67, and that’s after a 2 for 1 split. Effectively, your not-so-bright Cheap Stocks Editor left more than $60000 on the table, by not holding onto the original 500 shares of Hansen. I know, I know, you should never look back after a gain, but it’s difficult not to. Truth be told, it’s a wonder I held the stock until it hit $10, it’s doubtful I would have ever held it to the current level.
Back to Jones…..
Jones Soda Co sells it sodas (under the Jones Soda Co. and Jones Naturals labels), teas and energy drinks in 41 states, and Canada. You may have seen there distinctive looking bottles sold in supermarkets, at premium prices (in my eyes, anyway) and other stores, these feature interesting flavors, and ever changing labels, submitted by consumers. The company has also made a name for itself at Thanksgiving, selling a soda assortment that includes such flavors as turkey and gravy, and mashed potato (no joke, check it out on their website). I’ve also noticed a growing presence in Target Stores, where Jones sells 12 packs at somewhat inexpensive prices. Inroads into a major chain such as Target make this an intriguing story.
The Fundamentals
It ain’t cheap. There’s no other way to say it. At about 140 times trailing 12 month EPS, 2.8 times sales, and 19 times book value, this company should not be within 10 feet of the words “Cheap Stocks”. But, however, we at Cheap Stocks are warming up to the idea of paying up for rapid growth in certain cases, and this company may fit the bill…..We have to at least be open to the possibility.
Jones 2004 fiscal year sales were $27.45 million, up nearly 37 percent from 2003’s $20.1 million. Net income was $1.33 million in 2004, for a net profit margin of 4.8 percent, up from 2003’s $324 thousand, and 1.6 percent. Through the third quarter of 2005, net sales are $32.4 million, up sharply from $21.1 million for the same period last year. Earnings, however, are down, $720,000 for the first three quarters of 2005, versus $1.245 million for the same period in 2004.
The company does not have much to speak of in the way of assets ($9.7 million in total assets, $303 thousand in cash) nor does it carry much debt either ($116 thousand in LT debt). This explains the high price to book ratio, but also the company’s very high returns on capital and equity (more than 60% for each).
The Risks
Trading at such high multiples (to nearly everything imaginable) it appears that there is a great deal of growth priced into the stock. Still, trading below $5, the stock well off it’s high of about $8. While we are impressed by the company’s exposure in Target, we believe that the agreement expires in 2006, and are not aware of renewal prospects. Finally, the beverage market is extremely competitive, shelf space is difficult to secure, and margins are typically low.
Conclusion
While we don’t currently own Jones, we’ll be following the story, and perhaps looking for an entry point. A continued presence in Target, continued innovation in flavors and packaging, and growing brand recognition would all be pluses for this company. We’d imagine a great deal of price volatility moving forward. Finally, it is conceivable that ultimately, a bigger player takes Jones out.
*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.
Wednesday, November 02, 2005
Trading Below Net Current Asset Value:
Trans World Entertainment Corp
Ticker: TWMC
Price: $6.45
Current P/E: 11
Shares Out: 31.9 million
Market Cap: $208 million
Net Current Asset Value: $215.4 million
Average daily volume: 115,000
*All Data as of market close 11/1/05
Trans World entertainment is an Albany, New York based specialty retailer, operating a chain of 810 stores, selling music, video, video home system products and games in 46 states. 249 stores are free standing, operating under the“Coconuts Music and Movies”, “Wherehouse Music and Movies”, “CD World”, “Streetside Records”, “Spec’s Music”, and “Second Spin” brands, while 560 are mall based, operating under the “FYE, For Your Entertainment” brand. The company also operates one Planet Music store. Music (CD’s, mainly) accounted for 55 percent of 2005 sales, Video products represented 29.2 percent, while Games and other represented 15.8 percent. (Before we go any further with this report, this company is not a potential real estate play, as 809 of the stores are under operating leases)
We recently identified this as a profitable company trading below NCAV. (Finding a company trading below NCAV that isn’t profitable is relatively easy. Those that are simultaneously generating a profit are few and far between.)
We are not typically crazy about retailers here at Cheap Stocks, especially those in highly competitive spaces, such as Trans World. However, discovering a retailer trading below NCAV is quite rare. One of our first postings when we started this site focused on Circuit City, at the time, cash rich, and trading below its NCAV, also in a highly competitive retail segment. Circuit City subsequently had a nice run-up. We are not making a comparison between the two companies, however.
The numbers
Fiscal year 2005 sales were $1.365 billion, up slightly from 2004’s $1.33 billion. Net income was $41.8 million in 2005, versus income of $23 million in 2004. Net profit margins were 2.8 percent in 2005, up sharply from 2004’s 1.4 percent.
…..And Now For The Bad News….
Companies often make the NCAV list because their price, and hence market cap fall, sometimes dramatically. It’s not typically a case of net current assets rising. In Trans World’s case, the company has taken a hit recently, falling from the $15 range this past spring, to the current $6 level. Why the drubbing? The company has been lowering earnings guidance significantly. Back in May, the company announced earnings expectations of $.85-$.90 per share for the year (ending 1/06). By July, their expectations fell to $.80-$.85. In August, the company lowered guidance again, to $.65-$.70. Last month, the company lowered guidance yet again, all the way down to $.25-$.30. Trans World attributed the latest news to weakness in music and DVD sales, and the lack of any strong new releases. Can it get any worse? It certainly could, given this company’s recent pre-announcement record.
The balance sheet
As of 7/30/05, the company had $50.9 million in cash and $20.9 million in long-term debt (including capital leases). Current ratio stood at 2.22, while quick ratio was .38. All in all, a decent, but not great, balance sheet. (If you’ve read our NCAV reports in the past, you know how much we here at Cheap Stocks love cash, and dislike debt in our NCAV companies)
The NCAV Calculation (in millions)
Current Market Cap: $208
Current Assets: $484
Current Liabilities: $218
Long Term Liabilities (primarily LT debt) $40
Net Current Asset Value: $215
NCAV/Market Cap: 1.03
Institutional ownership (greater than 2 percent)
Morgan Stanley: 10.3 %
Dimensional Fund Advisors: 9.2 %
Barclays Global Investors: 4.8 %
LSV Asset Management: 3.5 %
American Century Investment Management: 2.1 %
AX Rosenberg Investment Management: 2%
Conclusion
We are not crazy about the highly competitive business in which Trans World operates. While the current assets are highly concentrated in inventory- which must be moved in order to realize sales/profits- that is par for the course with a retailer. Otherwise, the balance sheet is decent, with net cash of $30 million, or about $1 per share. The company’s constant negative earnings guidance announcements are troublesome. The question is whether all the bad news, and none of the positives, are currently reflected in what appears to be a cheap current price. Only time will tell, but this is one worth watching.
*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.
Trans World Entertainment Corp
Ticker: TWMC
Price: $6.45
Current P/E: 11
Shares Out: 31.9 million
Market Cap: $208 million
Net Current Asset Value: $215.4 million
Average daily volume: 115,000
*All Data as of market close 11/1/05
Trans World entertainment is an Albany, New York based specialty retailer, operating a chain of 810 stores, selling music, video, video home system products and games in 46 states. 249 stores are free standing, operating under the“Coconuts Music and Movies”, “Wherehouse Music and Movies”, “CD World”, “Streetside Records”, “Spec’s Music”, and “Second Spin” brands, while 560 are mall based, operating under the “FYE, For Your Entertainment” brand. The company also operates one Planet Music store. Music (CD’s, mainly) accounted for 55 percent of 2005 sales, Video products represented 29.2 percent, while Games and other represented 15.8 percent. (Before we go any further with this report, this company is not a potential real estate play, as 809 of the stores are under operating leases)
We recently identified this as a profitable company trading below NCAV. (Finding a company trading below NCAV that isn’t profitable is relatively easy. Those that are simultaneously generating a profit are few and far between.)
We are not typically crazy about retailers here at Cheap Stocks, especially those in highly competitive spaces, such as Trans World. However, discovering a retailer trading below NCAV is quite rare. One of our first postings when we started this site focused on Circuit City, at the time, cash rich, and trading below its NCAV, also in a highly competitive retail segment. Circuit City subsequently had a nice run-up. We are not making a comparison between the two companies, however.
The numbers
Fiscal year 2005 sales were $1.365 billion, up slightly from 2004’s $1.33 billion. Net income was $41.8 million in 2005, versus income of $23 million in 2004. Net profit margins were 2.8 percent in 2005, up sharply from 2004’s 1.4 percent.
…..And Now For The Bad News….
Companies often make the NCAV list because their price, and hence market cap fall, sometimes dramatically. It’s not typically a case of net current assets rising. In Trans World’s case, the company has taken a hit recently, falling from the $15 range this past spring, to the current $6 level. Why the drubbing? The company has been lowering earnings guidance significantly. Back in May, the company announced earnings expectations of $.85-$.90 per share for the year (ending 1/06). By July, their expectations fell to $.80-$.85. In August, the company lowered guidance again, to $.65-$.70. Last month, the company lowered guidance yet again, all the way down to $.25-$.30. Trans World attributed the latest news to weakness in music and DVD sales, and the lack of any strong new releases. Can it get any worse? It certainly could, given this company’s recent pre-announcement record.
The balance sheet
As of 7/30/05, the company had $50.9 million in cash and $20.9 million in long-term debt (including capital leases). Current ratio stood at 2.22, while quick ratio was .38. All in all, a decent, but not great, balance sheet. (If you’ve read our NCAV reports in the past, you know how much we here at Cheap Stocks love cash, and dislike debt in our NCAV companies)
The NCAV Calculation (in millions)
Current Market Cap: $208
Current Assets: $484
Current Liabilities: $218
Long Term Liabilities (primarily LT debt) $40
Net Current Asset Value: $215
NCAV/Market Cap: 1.03
Institutional ownership (greater than 2 percent)
Morgan Stanley: 10.3 %
Dimensional Fund Advisors: 9.2 %
Barclays Global Investors: 4.8 %
LSV Asset Management: 3.5 %
American Century Investment Management: 2.1 %
AX Rosenberg Investment Management: 2%
Conclusion
We are not crazy about the highly competitive business in which Trans World operates. While the current assets are highly concentrated in inventory- which must be moved in order to realize sales/profits- that is par for the course with a retailer. Otherwise, the balance sheet is decent, with net cash of $30 million, or about $1 per share. The company’s constant negative earnings guidance announcements are troublesome. The question is whether all the bad news, and none of the positives, are currently reflected in what appears to be a cheap current price. Only time will tell, but this is one worth watching.
*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, October 22, 2005
Top 20 Market Cap Companies Trading Below Net Current Asset Value
A few weeks back, your Cheap Stocks editor stated that he was having trouble identifying any compelling companies trading below NCAV. While that sentiment has not changed radically, this weeks report will identify a list of companies currently trading below their NCAV. Keep in mind that, unless stated, no judgements are being made on these companies. Many NCAV companies bear that distinction with good reason: they may be near death. You may notice one familiar name on this list, Discovery Partners (DPII), which we reported on several months back. That stock is down about 15 percent since that report.
Company(Ticker), Mkt Cap, NCAV
UTSTarcom(UTSI), 646.5, 677.9
Audiovoxx(VOXX), 305.8, 341.2
InFocus(INFS), 130.3, 183.6
Discovery Partners(DPII), 74.7, 86.9
Lazare Kaplan(LKI), 71.7, 81.2
Corgentech(CGTK), 70.3, 86.1
Axonyx(AXYX), 56.3, 62.1
Network Engines(NENG), 50.6, 51.1
Pharmos Corp(PARS), 37.7, 49.2
Concord Camera(LENS), 34.1, 58.4
Remec Inc(REMC), 32.7, 121.2
IntraBiotics Pharmaceuticals(IBPI), 31.9, 48.3
Adams Golf(ADGO), 31.1, 31.4
First Aviation Services(FAVS), 30.1, 32.5
Strategic Distribution(STRD), 29.6, 42.3
Coast Distribution System(CRV), 27.1, 27.8
Sport Chalet Inc(SPCHB), 23, 29.2
Cadus Corp(KDUS), 21.3, 24.4
Enesco Group(ENC), 19.6, 37.5
Catalytica Energy Systems(CESI), 19.5, 22.2
There you have it. A lot of very small names on this list. One of the more interesting ones is electronics manufacturer Audiovoxx, which was trading below its NCAV 3 years ago, and was referenced in a story I published then. At the time, VOXX was trading around $4 a share, and subsequently had a very nice run up, knocking it off the NCAV list. Now, its back on the list, at a much higher price ($13 range).
As always, be very cautious with these companies. Many of them may be here for good reason.
*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.
A few weeks back, your Cheap Stocks editor stated that he was having trouble identifying any compelling companies trading below NCAV. While that sentiment has not changed radically, this weeks report will identify a list of companies currently trading below their NCAV. Keep in mind that, unless stated, no judgements are being made on these companies. Many NCAV companies bear that distinction with good reason: they may be near death. You may notice one familiar name on this list, Discovery Partners (DPII), which we reported on several months back. That stock is down about 15 percent since that report.
Company(Ticker), Mkt Cap, NCAV
UTSTarcom(UTSI), 646.5, 677.9
Audiovoxx(VOXX), 305.8, 341.2
InFocus(INFS), 130.3, 183.6
Discovery Partners(DPII), 74.7, 86.9
Lazare Kaplan(LKI), 71.7, 81.2
Corgentech(CGTK), 70.3, 86.1
Axonyx(AXYX), 56.3, 62.1
Network Engines(NENG), 50.6, 51.1
Pharmos Corp(PARS), 37.7, 49.2
Concord Camera(LENS), 34.1, 58.4
Remec Inc(REMC), 32.7, 121.2
IntraBiotics Pharmaceuticals(IBPI), 31.9, 48.3
Adams Golf(ADGO), 31.1, 31.4
First Aviation Services(FAVS), 30.1, 32.5
Strategic Distribution(STRD), 29.6, 42.3
Coast Distribution System(CRV), 27.1, 27.8
Sport Chalet Inc(SPCHB), 23, 29.2
Cadus Corp(KDUS), 21.3, 24.4
Enesco Group(ENC), 19.6, 37.5
Catalytica Energy Systems(CESI), 19.5, 22.2
There you have it. A lot of very small names on this list. One of the more interesting ones is electronics manufacturer Audiovoxx, which was trading below its NCAV 3 years ago, and was referenced in a story I published then. At the time, VOXX was trading around $4 a share, and subsequently had a very nice run up, knocking it off the NCAV list. Now, its back on the list, at a much higher price ($13 range).
As always, be very cautious with these companies. Many of them may be here for good reason.
*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.
Sunday, October 09, 2005
Bob Evans Farms
Ticker: BOBE
Price: $22.75
Mkt Cap: 799 million
Enterprise Value: $1064 million
Dvd Yield: 2.1 %
Total Restaurants: 683
Owned Restaurants: 516 (includes property)
As I noted a few weeks back, one area we’ve started to research is restaurant chains that actually own their locations. These days, many lease their stores. In light of the recent Sears-Kmart deal, which was largely real-estate focused, and similar chatter about Toys R Us and even McDonald’s, we’ve got our eyes open for similar situations, albeit on a much smaller, “Cheap Stocks” kind of scale.
You’ve probably heard of Bob Evans Farms, a casual dining chain that owns and operates 591 Bob Evans Restaurants in 21 states in the Southeast, Midwest, and Mid-Atlantic. They also operate 92 Mimi’s café’s primarily in California and the west, and have a food products business as well. All Mimi’s locations are leased, but 516 Bob Evans Restaurants are owned by the company. That is where it may get interesting.
I’ve only been to Bob Evans once. It was somewhere in the middle of Pennsylvania, the day after our wedding, and my new bride and I were on our way to Philadelphia airport. The food was fine as I recall, although she was feeling sick, and didn’t eat much…..(I guess that’s what being married to your Cheap Stocks editor can do to a girl…) In any event, since then, I’ve passed many Bob Evans, and those that I’ve seen have mostly been near major highways.
Now, we don’t claim to know where each owned restaurant property is located, or what these properties are worth in their local markets. We just found it interesting that a $1 billion (enterprise value) chain owns so much real estate. In fact, if you divide enterprise value by owned restaurants, you get just over $2 million. Is each Bob Evans property worth $2 million? Probably not, but we really can’t say. Still, it’s an intriguing situation.
Fundamentals
It’s not a great story fundamentally, but the chain is profitable. Although total sales grew 21.9 percent to 1.46 billion in 2005, same store sales for Bob Evans Restaurants fell 3.6 percent. The company opened 37 new Bob Evans and 11 new Mimi’s during the year, accounting for the sales increase. The company earned $37 million in 2005 for a 2.5 percent net profit margin (not even close to McDonald-like margins), down from 2004’s $72 million and 6 percent net.
Operating Segments
The food products segment (Owens sausage, Bob Evans brand products) accounted for 18.5 percent, or $260.9 million in 2005 revenue, versus 20.7 percent, or $248.4 in 2004. Operating margins are not spectacular for either business, 4.7 percent for restaurants in 2005, and 3.4 percent for food products, versus 9.7 and 7 in 2004.
Costs
For restaurants, the number one cost of doing business is labor and benefits costs, which represented 40.9 percent of sales in 2005, and 39.6 percent in 2004 for Bob Evans. Next up is the cost of materials, which represented 25.9 percent in 2005, and 24.4 percent in 2004. The long and short is that rising labor costs, and growing materials costs (rising fuel costs don’t help matters) are not good for the restaurant industry. Throw in an economic slowdown, and people don’t eat out as often.
Expansion Plans
The company plans to open 20 new Bob Evans and 15 new Mimi’s in fiscal year 2006, along with plans to remodel 50 Bob Evans, and rebuild another 14.
Conclusions
We are not crazy about the restaurant sector right now. We also don’t see Bob Evans as a powerhouse brand in the industry. A niche player, maybe. A good marketing campaign might work wonders. What we do find intriguing, however, is the fact that this company is asset rich, and we of course, mean the real estate. We don’t currently have a position in Bob Evans, but will follow their progress.
*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.
Ticker: BOBE
Price: $22.75
Mkt Cap: 799 million
Enterprise Value: $1064 million
Dvd Yield: 2.1 %
Total Restaurants: 683
Owned Restaurants: 516 (includes property)
As I noted a few weeks back, one area we’ve started to research is restaurant chains that actually own their locations. These days, many lease their stores. In light of the recent Sears-Kmart deal, which was largely real-estate focused, and similar chatter about Toys R Us and even McDonald’s, we’ve got our eyes open for similar situations, albeit on a much smaller, “Cheap Stocks” kind of scale.
You’ve probably heard of Bob Evans Farms, a casual dining chain that owns and operates 591 Bob Evans Restaurants in 21 states in the Southeast, Midwest, and Mid-Atlantic. They also operate 92 Mimi’s café’s primarily in California and the west, and have a food products business as well. All Mimi’s locations are leased, but 516 Bob Evans Restaurants are owned by the company. That is where it may get interesting.
I’ve only been to Bob Evans once. It was somewhere in the middle of Pennsylvania, the day after our wedding, and my new bride and I were on our way to Philadelphia airport. The food was fine as I recall, although she was feeling sick, and didn’t eat much…..(I guess that’s what being married to your Cheap Stocks editor can do to a girl…) In any event, since then, I’ve passed many Bob Evans, and those that I’ve seen have mostly been near major highways.
Now, we don’t claim to know where each owned restaurant property is located, or what these properties are worth in their local markets. We just found it interesting that a $1 billion (enterprise value) chain owns so much real estate. In fact, if you divide enterprise value by owned restaurants, you get just over $2 million. Is each Bob Evans property worth $2 million? Probably not, but we really can’t say. Still, it’s an intriguing situation.
Fundamentals
It’s not a great story fundamentally, but the chain is profitable. Although total sales grew 21.9 percent to 1.46 billion in 2005, same store sales for Bob Evans Restaurants fell 3.6 percent. The company opened 37 new Bob Evans and 11 new Mimi’s during the year, accounting for the sales increase. The company earned $37 million in 2005 for a 2.5 percent net profit margin (not even close to McDonald-like margins), down from 2004’s $72 million and 6 percent net.
Operating Segments
The food products segment (Owens sausage, Bob Evans brand products) accounted for 18.5 percent, or $260.9 million in 2005 revenue, versus 20.7 percent, or $248.4 in 2004. Operating margins are not spectacular for either business, 4.7 percent for restaurants in 2005, and 3.4 percent for food products, versus 9.7 and 7 in 2004.
Costs
For restaurants, the number one cost of doing business is labor and benefits costs, which represented 40.9 percent of sales in 2005, and 39.6 percent in 2004 for Bob Evans. Next up is the cost of materials, which represented 25.9 percent in 2005, and 24.4 percent in 2004. The long and short is that rising labor costs, and growing materials costs (rising fuel costs don’t help matters) are not good for the restaurant industry. Throw in an economic slowdown, and people don’t eat out as often.
Expansion Plans
The company plans to open 20 new Bob Evans and 15 new Mimi’s in fiscal year 2006, along with plans to remodel 50 Bob Evans, and rebuild another 14.
Conclusions
We are not crazy about the restaurant sector right now. We also don’t see Bob Evans as a powerhouse brand in the industry. A niche player, maybe. A good marketing campaign might work wonders. What we do find intriguing, however, is the fact that this company is asset rich, and we of course, mean the real estate. We don’t currently have a position in Bob Evans, but will follow their progress.
*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.
Wednesday, September 28, 2005
Update:
Zapata Corp
Ticker: ZAP
Price:$7.02
You may recall our May 11 report on tiny Zapata Corp, a holding company which owns significant stakes in two publicly traded companies, Omega Protein, (ticker:OME)and Safety Components Inc, (Ticker :SAFY)and has a nice amount of cash on it's balance sheet. The main reason we liked the company was because in our minds, (however small they may be) buying Zapata shares was the cheapest way to gain exposure to Omega Protein, whose fish oil business we like.
On September 26th, Zapata announced that it has sold, subject to shareholder approval, its 77 percent stake in Safety Components to a private equity investor, Wilbur Ross, for $51.2 million, or $12.30 per share( by our calculation, but we don't yet have all the details.) At the time of our May research piece, Safety was trading at $14.95 per share, and most recently traded on the OTC Bulletin Board at $14.00. While we are disappointed with the sale price, it reflects a discount because Zapata's stake is large, and Safety Components has little liquidity. Such discounts are somewhat customary, and in some cases, quite larger. We don't know all the details of the deal yet, but will update the sum of the parts valuation summary we produced in May, once they become clear.
In any event, the news has had little effect on Zapata, which is down 20 percent since our May report. We still hold Zapata shares, and will be quite interested to find out how Mr. Glazer, as in Malcolm Glazer, 51 percent owner of Zapata, will utilize the proceeds.
*The author has a position in Zapata. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Zapata Corp
Ticker: ZAP
Price:$7.02
You may recall our May 11 report on tiny Zapata Corp, a holding company which owns significant stakes in two publicly traded companies, Omega Protein, (ticker:OME)and Safety Components Inc, (Ticker :SAFY)and has a nice amount of cash on it's balance sheet. The main reason we liked the company was because in our minds, (however small they may be) buying Zapata shares was the cheapest way to gain exposure to Omega Protein, whose fish oil business we like.
On September 26th, Zapata announced that it has sold, subject to shareholder approval, its 77 percent stake in Safety Components to a private equity investor, Wilbur Ross, for $51.2 million, or $12.30 per share( by our calculation, but we don't yet have all the details.) At the time of our May research piece, Safety was trading at $14.95 per share, and most recently traded on the OTC Bulletin Board at $14.00. While we are disappointed with the sale price, it reflects a discount because Zapata's stake is large, and Safety Components has little liquidity. Such discounts are somewhat customary, and in some cases, quite larger. We don't know all the details of the deal yet, but will update the sum of the parts valuation summary we produced in May, once they become clear.
In any event, the news has had little effect on Zapata, which is down 20 percent since our May report. We still hold Zapata shares, and will be quite interested to find out how Mr. Glazer, as in Malcolm Glazer, 51 percent owner of Zapata, will utilize the proceeds.
*The author has a position in Zapata. 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, September 24, 2005
Where Have all the Stocks Trading Below Net Current Asset Value Gone
When we started this site, the focus was primarily on Ben Graham's concept of investigating companies trading below their NCAV. (Actually, Graham was more stringent than we are, preferring stocks trading at 2/3 or less of their NCAV.)If you hadn't noticed, it's been quite a while since we featured an NCAV company. The truth is, your editor is not finding that many of interest these days, and I'd rather focus on other areas of value (at least what we here at Cheap Stocks consider to be value), than fill space with the lastest NCAV company that is nothing more than a cigar butt with no puffs left.
When I started researching and writing about NCAV companies in the late 90's, early 2000, there were many promising examples. In 2001/2002, there were literally hundreds of examples, some that ultimately rewarded shareholders well. But during certain periods, there just aren't many worth mentioning. But that can change very quickly. We'll keep looking.....
What are we working on now?
One fascinating area (to us anyway)is trying to identify creative real estate plays. You know we have an affinity for companies with land holdings, but this is a little different. Remember the Sears/K-mart story? It was all about retail locations owned by Sears. The same with Toys R Us. McDonald's also had a nice run-up a few months back when it was suggested that the company's owned restaurant sites might be worth a great deal more than the market price reflected.
We started the research a few months back, trying to identify similars situations. Our research, which is still in the initial phase, is focusing on the retail restaurant sector. At this point, we have identified one restaurant chain, a small cap, of course, that happens to own most of its locations. You've no doubt heard of this company. We hope to publish our initial piece on this company (which we don't own) next week.
When we started this site, the focus was primarily on Ben Graham's concept of investigating companies trading below their NCAV. (Actually, Graham was more stringent than we are, preferring stocks trading at 2/3 or less of their NCAV.)If you hadn't noticed, it's been quite a while since we featured an NCAV company. The truth is, your editor is not finding that many of interest these days, and I'd rather focus on other areas of value (at least what we here at Cheap Stocks consider to be value), than fill space with the lastest NCAV company that is nothing more than a cigar butt with no puffs left.
When I started researching and writing about NCAV companies in the late 90's, early 2000, there were many promising examples. In 2001/2002, there were literally hundreds of examples, some that ultimately rewarded shareholders well. But during certain periods, there just aren't many worth mentioning. But that can change very quickly. We'll keep looking.....
What are we working on now?
One fascinating area (to us anyway)is trying to identify creative real estate plays. You know we have an affinity for companies with land holdings, but this is a little different. Remember the Sears/K-mart story? It was all about retail locations owned by Sears. The same with Toys R Us. McDonald's also had a nice run-up a few months back when it was suggested that the company's owned restaurant sites might be worth a great deal more than the market price reflected.
We started the research a few months back, trying to identify similars situations. Our research, which is still in the initial phase, is focusing on the retail restaurant sector. At this point, we have identified one restaurant chain, a small cap, of course, that happens to own most of its locations. You've no doubt heard of this company. We hope to publish our initial piece on this company (which we don't own) next week.
Saturday, September 17, 2005
Plum Creek TimberTicker: PCL
Price: $38.83
Market Cap: $7.14billion
Enterprise Value: $8.7 billion
Dividend Yield: 3.9%
P/E: 23.5
As I sit writing this week’s column, it’s a beautiful day in western Pennslvania, where we are visiting this weekend. As I gaze out over my in-laws beautifully treed property, I am reminded of something my father-in law told me a few years back. It seems that a tree cutter stopped by one day, walked the property (4 acres), and promptly offered him in the neighborhood of $3 thousand for 5 or 6 trees on his property. Funny, I thought, don’t they usually charge you to remove trees from your property? This sounded like a beautiful arrangement. But these weren’t just any trees, they were red oak and ash, more highly sought after than your run of the mill pine trees. But that certainly got me thinking.
Demand for lumber has been strong in this country, thanks to a housing and building boom. Will that trend continue into the near future? Maybe, maybe not. We are guessing that it will slow down, but then again, we are not economists. But timber happens to be Plum Creek’s business, and the company owns a whole lot of land.
You might think that Plum Creek Timber is a little too much on the beaten path for our tastes. Afterall, much of the research we do here at Cheap Stocks is on tiny companies most people have never heard of. But we felt compelled to put in our two cents about Plum Creek. You know how much we love land.
Plum Creek owns a vast amount of timberland in the US, 7.756 million acres, to be exact, according to the company's website. Here's the breakdown by state/acre:
Montana-1,301,000
Arkansas-940,000
Maine-928,000
Georgia-896,000
Missippippi-859,000
Florida-578,000
Louisianna-533,000
Wisconsin-514,000
Oregon-285,000
South Carolina-210,000
Washington-161,000
Oklahoma-132,000
West Virginia-115,000
Alabama-103,000
North Carolina-76,000
Texas-50,000
Idaho-39,000
New Hampshire-33,000
Michigan-3,000
Total:7,756,000
How Much land is 7.8 million acres?
I'm glad you asked. If you recall from past postings, one square mile is 640 acres. So 7.8 million acres is 12,188 square miles, or an area 110 miles by 110 miles. Thats a lot of acres, trees, and ultimately, lumber. Don't get me wrong, I'm not suggesting Plum Creek's lumber is worth anywhere near the handful of red oak and ash trees on my father-in laws property I mentioned earlier. But, having some exposure to lumber in your portfolio is not a bad idea.
More than timber
The company estimates that out of its 7.8 million acres, 1.3 million are "higher and better use timberlands" which may have residential or recreational uses.
Enterprise Value per Acre
Based on an EV of $8.7 billion
Acreage of 7.756 million
EV/Acre= $1,121
Other Businesses
Timber accounted for $694 million of the company's 2004 revenue of 1.528 billion
Other revenue was from:
Real estate:$303 million
Manufacturing(wood products):$518 million
Other(natural resources):$13 million
The bottom line
In 2004, the company earned $339 million, up from 2003's $192 million. The company's tax burden is light (just 7.4 % of income in 2004) because part of the company has REIT status. This is a very profitable company.
Conclusion
This company is not a high flyer. Your editor purchased some shares several weeks ago in the $35 range, not expecting rapid price expansion, but the stock is up 10 percent, mainly because of Katrina, and growing demand for lumber. Don't expect that to continue. What you can expect though, is a nice, 4 percent dividend, exposure to timber, a solidly profitable business, and some nice acreage.
*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.
Price: $38.83
Market Cap: $7.14billion
Enterprise Value: $8.7 billion
Dividend Yield: 3.9%
P/E: 23.5
As I sit writing this week’s column, it’s a beautiful day in western Pennslvania, where we are visiting this weekend. As I gaze out over my in-laws beautifully treed property, I am reminded of something my father-in law told me a few years back. It seems that a tree cutter stopped by one day, walked the property (4 acres), and promptly offered him in the neighborhood of $3 thousand for 5 or 6 trees on his property. Funny, I thought, don’t they usually charge you to remove trees from your property? This sounded like a beautiful arrangement. But these weren’t just any trees, they were red oak and ash, more highly sought after than your run of the mill pine trees. But that certainly got me thinking.
Demand for lumber has been strong in this country, thanks to a housing and building boom. Will that trend continue into the near future? Maybe, maybe not. We are guessing that it will slow down, but then again, we are not economists. But timber happens to be Plum Creek’s business, and the company owns a whole lot of land.
You might think that Plum Creek Timber is a little too much on the beaten path for our tastes. Afterall, much of the research we do here at Cheap Stocks is on tiny companies most people have never heard of. But we felt compelled to put in our two cents about Plum Creek. You know how much we love land.
Plum Creek owns a vast amount of timberland in the US, 7.756 million acres, to be exact, according to the company's website. Here's the breakdown by state/acre:
Montana-1,301,000
Arkansas-940,000
Maine-928,000
Georgia-896,000
Missippippi-859,000
Florida-578,000
Louisianna-533,000
Wisconsin-514,000
Oregon-285,000
South Carolina-210,000
Washington-161,000
Oklahoma-132,000
West Virginia-115,000
Alabama-103,000
North Carolina-76,000
Texas-50,000
Idaho-39,000
New Hampshire-33,000
Michigan-3,000
Total:7,756,000
How Much land is 7.8 million acres?
I'm glad you asked. If you recall from past postings, one square mile is 640 acres. So 7.8 million acres is 12,188 square miles, or an area 110 miles by 110 miles. Thats a lot of acres, trees, and ultimately, lumber. Don't get me wrong, I'm not suggesting Plum Creek's lumber is worth anywhere near the handful of red oak and ash trees on my father-in laws property I mentioned earlier. But, having some exposure to lumber in your portfolio is not a bad idea.
More than timber
The company estimates that out of its 7.8 million acres, 1.3 million are "higher and better use timberlands" which may have residential or recreational uses.
Enterprise Value per Acre
Based on an EV of $8.7 billion
Acreage of 7.756 million
EV/Acre= $1,121
Other Businesses
Timber accounted for $694 million of the company's 2004 revenue of 1.528 billion
Other revenue was from:
Real estate:$303 million
Manufacturing(wood products):$518 million
Other(natural resources):$13 million
The bottom line
In 2004, the company earned $339 million, up from 2003's $192 million. The company's tax burden is light (just 7.4 % of income in 2004) because part of the company has REIT status. This is a very profitable company.
Conclusion
This company is not a high flyer. Your editor purchased some shares several weeks ago in the $35 range, not expecting rapid price expansion, but the stock is up 10 percent, mainly because of Katrina, and growing demand for lumber. Don't expect that to continue. What you can expect though, is a nice, 4 percent dividend, exposure to timber, a solidly profitable business, and some nice acreage.
*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.
Wednesday, September 07, 2005
A Pineapple Company? Clyde, are you crazy?
Maui Land & Pineapple Co
Ticker: MLP
Price: $33.16
Market Cap: $244 million
Enterprise Value: $255 million
Shares Out: 7.23 million
2004 Revenue: $153 million
2004 Net Loss: $.383 million
So, your editor is not crazy after all. There’s more to this company than the $80 million in pineapples they sold in 2004. Actually, pineapples don’t seem to be a very lucrative business for this Hawaii based micro cap-the segment produced an operating loss of $11.3 million in 2004-and sales were down sharply from 2003’s $100.5 million.
Maui Land operates in two other significant segments, besides the yellow fruit: Resort, and Development. Avid Cheap Stocks readers didn’t have to read past the company’s name in order to understand our interest in this company. You’ve already read past postings about Tejon Ranch (California), St. Joes (Florida), PICO Holdings (Nevada), Avoca (Louisiana), JG Boswell (California), and know our fascination with companies holding land. We’ve been building a portfolio of these over the past few years, and Maui Land is the latest addition.
Resort segment: Kapalua Land Company
Nine Miles of Hawaii Beachfront
Part of Maui Land’s 28,200 acres include 22,800 in West Maui, including Kapalua Resort a golf community, which borders the ocean, and boasts 3 beaches, 2 hotels, 3 championship golf courses, 10 restaurants, and 700+ single family homes and condominiums. Oh, did I mention the 9 miles of beachfront property? This segment had operating revenue of $49 million in 2004, and an operating loss of $1.6 million
Development segment
This segment is responsible for the company’s construction, sales and development activities. Revenue for 2004 was $24 million, operating income was $12.7 million
The Land
Of the company’s 28,200 acres, about 5000 (as best we can tell, this is an estimate) are used in the pineapple business. While it’s difficult to estimate what that land and business are worth, we’ll assume the pineapple business is worth .5 times sales. Based on $80 million in 2004 sales, that would value that segment at $40 million. (Keep in mind, this is a guesstimate, as much as we love eating pineapples, we’ve never attempted to value a pineapple operation before.)
Calculations
Backing out $40 million from the company’s current enterprise value:
Enterprise Value: $255
Pineapple Business: $40
Rest of company: $215
EV/Acre calculation
This is a calculation we’ve grown fond of here at Cheap Stocks. In this case we’ll calculate the EV/acre for the non-pineapple land first:
Rest of Company EV: $215
West Maui Acreage: 22,800 acres
EV/Acre: $9429 (actual)
Alternatively, if we use the entire amount of company acreage, not stripping out the pineapple business, we get the following:
Enterprise Value: $255
Total Acreage: 28,200
EV/acre: $9042 (actual)
Buying Hawaii Property Sight Unseen.
We’ve never even been to Hawaii, let alone seen Maui Land and Pineapple’s property or operation. Nonetheless, we were impressed by the numbers. Nine thousand and change per acre for Hawaii land seems like a no-brainer (Did we mention 9 miles of beachfront property?). But, you need to consider the source. We are crazy about land (in certain cases that is) here at Cheap Stocks. That being said, please consider the following: Maui Land’s sales have been relatively flat for years, and earnings are inconsistent at best:
Revenue/Net income (loss) in millions
2004: 153/ (.383)
2003: 151/ 6
2002: 148/ (5.7)
2001: 166/ 7.6
2000: 141/ .452
1999: 147/ 4.7
We encourage you to do your own research. There is other exposure available to Hawaii land in the form of a publicly traded company, namely Alexander and Baldwin (NASDAQ: ALEX). That’s another company we’ve been interested in over the years, they have some nice land holdings, and a profitable shipping business. But we missed the boat (no pun intended) on that one. Now trading in the $50 range, we passed on it in the teens a few years back. Certainly a more high profile name than Maui Land & Pineapple, and worthy of further research. Keep eating pineapples!
*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.
Maui Land & Pineapple Co
Ticker: MLP
Price: $33.16
Market Cap: $244 million
Enterprise Value: $255 million
Shares Out: 7.23 million
2004 Revenue: $153 million
2004 Net Loss: $.383 million
So, your editor is not crazy after all. There’s more to this company than the $80 million in pineapples they sold in 2004. Actually, pineapples don’t seem to be a very lucrative business for this Hawaii based micro cap-the segment produced an operating loss of $11.3 million in 2004-and sales were down sharply from 2003’s $100.5 million.
Maui Land operates in two other significant segments, besides the yellow fruit: Resort, and Development. Avid Cheap Stocks readers didn’t have to read past the company’s name in order to understand our interest in this company. You’ve already read past postings about Tejon Ranch (California), St. Joes (Florida), PICO Holdings (Nevada), Avoca (Louisiana), JG Boswell (California), and know our fascination with companies holding land. We’ve been building a portfolio of these over the past few years, and Maui Land is the latest addition.
Resort segment: Kapalua Land Company
Nine Miles of Hawaii Beachfront
Part of Maui Land’s 28,200 acres include 22,800 in West Maui, including Kapalua Resort a golf community, which borders the ocean, and boasts 3 beaches, 2 hotels, 3 championship golf courses, 10 restaurants, and 700+ single family homes and condominiums. Oh, did I mention the 9 miles of beachfront property? This segment had operating revenue of $49 million in 2004, and an operating loss of $1.6 million
Development segment
This segment is responsible for the company’s construction, sales and development activities. Revenue for 2004 was $24 million, operating income was $12.7 million
The Land
Of the company’s 28,200 acres, about 5000 (as best we can tell, this is an estimate) are used in the pineapple business. While it’s difficult to estimate what that land and business are worth, we’ll assume the pineapple business is worth .5 times sales. Based on $80 million in 2004 sales, that would value that segment at $40 million. (Keep in mind, this is a guesstimate, as much as we love eating pineapples, we’ve never attempted to value a pineapple operation before.)
Calculations
Backing out $40 million from the company’s current enterprise value:
Enterprise Value: $255
Pineapple Business: $40
Rest of company: $215
EV/Acre calculation
This is a calculation we’ve grown fond of here at Cheap Stocks. In this case we’ll calculate the EV/acre for the non-pineapple land first:
Rest of Company EV: $215
West Maui Acreage: 22,800 acres
EV/Acre: $9429 (actual)
Alternatively, if we use the entire amount of company acreage, not stripping out the pineapple business, we get the following:
Enterprise Value: $255
Total Acreage: 28,200
EV/acre: $9042 (actual)
Buying Hawaii Property Sight Unseen.
We’ve never even been to Hawaii, let alone seen Maui Land and Pineapple’s property or operation. Nonetheless, we were impressed by the numbers. Nine thousand and change per acre for Hawaii land seems like a no-brainer (Did we mention 9 miles of beachfront property?). But, you need to consider the source. We are crazy about land (in certain cases that is) here at Cheap Stocks. That being said, please consider the following: Maui Land’s sales have been relatively flat for years, and earnings are inconsistent at best:
Revenue/Net income (loss) in millions
2004: 153/ (.383)
2003: 151/ 6
2002: 148/ (5.7)
2001: 166/ 7.6
2000: 141/ .452
1999: 147/ 4.7
We encourage you to do your own research. There is other exposure available to Hawaii land in the form of a publicly traded company, namely Alexander and Baldwin (NASDAQ: ALEX). That’s another company we’ve been interested in over the years, they have some nice land holdings, and a profitable shipping business. But we missed the boat (no pun intended) on that one. Now trading in the $50 range, we passed on it in the teens a few years back. Certainly a more high profile name than Maui Land & Pineapple, and worthy of further research. Keep eating pineapples!
*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.
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