Audiovox Corporation (VOXX) is a rarity in our universe: A profitable, undervalued asset play. At its $3.73 close Tuesday, VOXX had a market capitalization of $85.3M.
We estimate the liquidation value to be 50% higher at around $128.4M or $5.60 per share.
Fund Howson Tattersal filed a 13D notice in September last year disclosing a 7.3% holding in the company.
While VOXX has been another perennial inclusion on lists of net-net stocks, we think it’s hard to ignore at this price.
VOXX is an “international distributor and value-added service provider in the accessory, mobile and consumer electronics industries.” The company markets its products under the Audiovox brand name and other brand names, including Acoustic Research, Advent, Ambico, Car Link, Chapman, Code-Alarm, Discwasher, Energizer, Heco, Incaar, Jensen, Mac Audio, Magnat, Movies2Go, Oehlbach, Phase Linear, Prestige, Pursuit, RCA, RCA Accessories, Recoton, Road Gear, Spikemaster and Terk, as well as private labels, through a domestic and international distribution network. See the company’s website here. The company’s investor relations website is here.
The value proposition
VOXX’s sales, operating income and net income increased in the quarter ended November 30, 2008. Net sales for the third quarter were $195.6 million compared to net sales of $183.6 million reported in the comparable prior-year period. Operating income was $10.7 million in the third quarter compared to $6.7 million in the preceding third quarter.
Net income was $6.5 million compared to net income of $4.7 million in the comparable period. This doesn’t tell the full story however as operating activities used cash of $26.7M for the nine months ended November 30, 2008. The company used less cash for its operating activities compared to the prior year period ($92.9M), but it is still a concern for us.
The balance sheet looks interesting (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):
Click to enlargeWe’ve written down VOXX’s receivables by 20% to $144.2M or $6.30 per share and VOXX’s investory by 50% to $74.7M or $3.26 per share to arrive at a total current asset value of $236.7M or $10.35 per share.
Deducting total liabilities gives a net current asset value of $119.1M or $5.21. We’ve discounted $46M in non-current assets to $9.2M or $0.40 per share, which, added to the net current assets, gives a liquidation value of around $128.4M or $5.61 per share.
Off-balance sheet arrangements and contractual obligations
According to its most recent 10Q, VOXX does not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon its financial condition or results of operations.
VOXX has around $42M in contractual cash obligations (including $11M in capital lease obligations and $31M in operating leases), around half of which falls due in the next 5 years and $23.7M falling due after 5 years. VOXX also has another $43M in unconditional purchase obligations falling due in the next 12 months.
Howson Tattersall Investment Counsel Limited filed its 13D notice on September 24, 2008 disclosing a 7.3% holding in VOXX. It seems from the filing that Howson Tattersall paid $18,825,883.44 for 1,508,075 shares in VOXX, giving them an average purchase price around $12.50 per share.
Given that Howson Tattersall has listed in the filing the “Date of Event Which Requires Filing of this Statement” as April 11, 2007, it’s possible that they are an example of the 'reluctant activists' we referred to on Monday.
At $3.73, VOXX is trading at a discount to its net current asset value and around two-thirds of our estimate of its liquidation value of around $5.61 per share. We’ve got no particular insight into the business. The negative operating cash flow is an issue and its near term contractual obligations are significant. That aside, we think VOXX is a reasonable punt and we’re adding it to the Greenbackd Portfolio.
VOXX closed yesterday at $3.73.
The S&P500 Index closed yesterday at 789.17.
[Full Disclosure: We do not have a holding in VOXX. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]