Updates
Been busy lately, sorry for the delay on NUHC. Lately, I've been piling in to VOXX in the 6.50 range, feel there is a lot of value in the low to mid 6's. Thanks to all for the compliments and support on our reading list; this is one of the main reasons I like our readers and the value investing community.
Side note, those of you who have a subscription to Outstanding Investor Digest a new issue, after a year of waiting, has finally been released. Make sure you check your mail boxes.
- JM
Value Reading List
For those of you that read MMB via an RSS feed, please come stop by the website as we've added our recommend value reading list page. We'll continue to add to our reading list as we read more fantastic books we can recommend. The reading list isn't limited to just value investing books either; it also includes other finance books we've found interesting over the years.
Here's the direct link: Direct Link to Value Reading List
-JM
NUHC – Valuation Part III
A couple of interesting things have happened with NUHC over the last month or so. We'll have a post up tomorrow covering the changes.
-JM
Taleb on CNBC
(Hat tip to Joe Koster)
I don't always agree with Taleb, but hes always intriguing to listen to; especially when you consider he's now devoted his life to learning and thinking.
I particularly liked when he refers to California as a hidden liability on the balance sheet of the United States....rather amusing and true.
-JM
Meadow Valley Attempting to Rob the Bank in Broad Daylight
RMX Holdings (AMEX:RMX) is a special situation play that had the potential to offer a nice return to the astute investor. However, Meadow Valley, the majority shareholder, is attempting to screw a majority of the smaller shareholders. In a bold move on May 11, 2010 the Chairman of the Board of Meadow Valley and Managing Principal of Insight Equity, Ted W. Beneski (http://www.insightequity.com/team/ted_beneski.html) sent a letter to the Board of Directors of RMX stating that he feels that RMX should immediately declare a $5,000,000 special dividend (approximately $1.31 per share) to all the existing stockholders and then execute a reverse stock split in which Meadow Valley would be the sole remaining shareholder after the reverse split is completed. All the shareholders, excluding Meadow Valley, would receive an additional $.30 per share under Mr. Beneski’s plan. That brings the total payout to $1.61; that’s 11% below yesterday’s close of $1.80 and below RMX’s 52 week low.
In RMX’s 10-Q filed May 17th management disclosed in the footnotes it had, following the transaction on a proforma basis, $11,964,564.00 in assets ($6,329,716 of which is in cash!) and a mere $10,436.00 in total liabilities. That gives the company a proforma book value of $3.13 per share!
Furthermore, under Mr. Beneski’s plan Meadow Valley would receive the building it currently rents from RMX for free, along with all of RMX’s other assets identified in the proforma balance sheet from note 2 of the most recent 10-Q filing. We can only hope RMX realizes the insanity of Mr. Beneski’s proposed deal and I would encourage all RMX Holdings shareholders to contact the Board of RMX Holdings and express their concern about Mr. Beneski’s plan.
RMX Holdings, Inc. Director Contact Information:
Mr. Bradley E. Larson
Chief Executive Officer & Director
Phone: 602-249-5814
Email: Email Mr. Larson Here
Disclosure: Long RMX
-MR
-JM
NUHC Updated Valuation
Three weeks ago, I provided a long case for the small electronics distributor Nu Horizon Electronics (NUHC). On Thursday, May 6th, NUHC released their year end results and provided us with an updated look at the company. Here is my updated adjusted balance sheet valuation:
NUHC 05-09-10
One of nicest things to come out of the results was this:
"We were able to increase our working capital and improve our inventory turns in fiscal 2010. This improvement, along with the sale or return of Xilinx products, is expected to increase in our cash position which will be used, in part, to reduce our bank debt," concluded Mr. Freudenberg.”
I was really worried they were going to do something insanely stupid with the Xilinx cash (IE: Acquisition spree). Let’s hope they follow through on their word and eliminate the company’s debt.
All in all, NUHC still trades ludicrously cheap compared to its net assets, and continues to provide the investor with a catalyst and margin of safety.
Disclosure: LONG NUHC at time of writing.
-JM
BLZ Valuation
Quick Data:
Net-Net working capital price: .72 (CAD)
Liquidation value: 1.04 (CAD)
Net current asset value: 1.09 (CAD)
(All data obtained from 2009 Annual Report for the year ending on 12/31/2009)
Company Description: “Belzberg Technologies Inc. and its wholly owned subsidiaries is a leading provider of trade execution, order management and routing software for the financial services industry. The Company's customers, who include both broker-dealers and their customers, use Belzberg trading software to buy and sell equities and stock options on a variety of stock exchanges, electronic markets known as ECNs and NASDAQ market makers. The Company's products enable traders to execute and manage large volumes of transactions at high speed, with reliability and security. The Company also operates a floor brokerage that provides the execution of exchange-traded equity and index options on the Chicago Board Options Exchange.” [1]
The Opportunity: Belzberg is operating in a cyclical industry, which is currently in the downturn (See Net Income Chart below). Although in 2009, the Company’s net income was -16.48 million (CAD), its free cash flow was -2.06 million (CAD) implying that a number of the Company’s charges were non-cash. Nonetheless, this has led to a large sell-off in the common stock, which is now trading 26.39% below the “Net-Net” value and 49.04% below our estimated liquidation value for the Company. Also, the Company has approval to repurchase up to 740,000 shares (5% of the fully diluted shares) between December 8, 2009 and December 7, 2010. Additionally, the lowest outstanding options exercise price for the management team is 70 cents (CAD) with a weighted exercise price of 2.11 (CAD). Management should be looking to projects that will create value in order to increase the stock price so that their current options can be profitably exercised. Finally, with no debt and a large amount of cash and cash equivalents we believe that management has the capacity to undertake these projects and ride out the cycle.
Adjusted Balance Sheet Valuation: BLZ Adjusted Balance Sheet
Historical Income Statement Trends:
Disclosure: LONG BLZ at time of writing
-MR
[1] Description is directly from the Company’s latest annual report.
NUHC Valuation
Quick Data:
Net Net working capital price: $4.70
Classic Liquidation value[1]: $2.43
Net current asset value: $7.12
(All data obtained from 01/07/10 10-Q)
Company Description: Nu Horizon Electronics Corp. is a leading global distributor of advanced technology semiconductor, display, illumination, power, system and telecommunication solutions to a wide variety of commercial original equipment manufacturers (OEMs) and electronic manufacturing services providers (EMS). With sales facilities in 54 locations across North America, Europe and Asia and regional logistics centers throughout the globe, Nu Horizons partners with a limited number of best-in-class suppliers to provide in-depth product development, custom logistics and life-cycle support to its customers.[2]
The Opportunity: Since 2008 Nu Horizon has been a small undervalued company flying under the radar with no catalyst to unlock value. On March 1st 2010, Nu Horizon lost it's key distributer Xilinc Inc. which promptly caused the shares to plummet 45%. This over reaction of the market opened up a fantastic buying opportunity, and a possible catalyst to unlock the value in the company. A key caveat to this value was in the press release itself. From the press release dated March 1st 2010,
“Nu Horizons has the right to return all unsold Xilinx inventory to Xilinx, at Xilinx’s expense, for a full refund of the original purchase price. The net value of Xilinx inventories at February 28, 2010 was $41.2 million, inclusive of confirmed orders.”
Not only does this press release give us a more accurate value of the inventory on hand at NUHC, it also allows Nu Horizon to return it for the full $41 million purchase price or sell the remaining inventory and profit further!
Another key component to to the press release was this, “Xilinx product sales were approximately 32% of the Company's total sales for fiscal 2010.” With such a large portion of the companies revenues now non existent NUHC is now forced to play their hand to unlock the value the company (IE: Liquidation, drastic cost reductions, or sale of the business).
Adjusted Balance Sheet Valuation:
NUHC 4-24-10
EPV Valuation: Normally, I'd do an EPV valuation, but given the dramatic loss of a major customer I feel it would discredit any conclusions drawn from it.
NUHC has it's next earnings release on May 5th; we'll keep watching and keep our readers updated on our thoughts. Due to NUHC's large discount from net assets, forced value catalyst, and large discount from book I believe NUHC is one of the more compelling buys in the current market.
Disclosure: LONG NUHC at time of writing
-JM
[1] Security Analysis 1940 p. 580
[2] Sourced from http://www.nuhorizons.com/about/index.asp
MMB Moving to New Server
We're moving servers, so data is being re-uploaded to MMB. Everything should be back to normal within the next 48 hours.
Thanks,
JM