Ridley Utilizes Recession to Grow Value

Ridley Inc. (RCL) manufactures and sells animal nutrition products to North American meat, milk and egg producers. As such, it operates in a fairly stable industry, as demand for many feed products tends to hold steady through recessions.

Despite the stability of this industry, and Ridley's role as one of the larger players with $600 million of annual sales, the company is conservatively capitalized with only $13 million of debt compared to equity of $150 million. Meanwhile, the company trades for just $100 million, while it has brought in combined operating cash flow of over $60 million over the last four years.

While the company may seem attractive at these levels, the stock is rather illiquid, meaning institutional investors cannot realistically participate in this opportunity. The company is not that small compared to some of the other stocks we've discussed on this site, but what keeps the stock volume low is the fact that more than 9 million of the company's 14 million shares outstanding are held by Fairfax Financial (FFH), one of the best value-oriented firms out there, as we've previously discussed.

Like Dorel (DIIB.PK), RCL appears to be utilizing the recession to make acquisitions. The acquisitions should add value for shareholders, considering the fact that a value firm like Fairfax is a majority owner. For example, RCL's latest acquisition should allow it to sell its existing products to new customers as well as sell the target's products to RCL's existing customers.

So while most investors apply valuation discounts for both 1) stock liquidity and 2) controlling shareholders, for value investors with long term outlooks this stock could represent ownership in a business at an attractive price where the principal shareholder's views on stock ownership are aligned with those of the individual investor.

Disclosure: Author has a long position in shares of RCL

Comments

[User 459419:]

That is an unbelievable allegation Seasaw! You have no idea what sort of information Mr. Karsan may or may not have. You do not have the right to suggest that someone "deliberately withheld very material information" on the basis of a short email like that which Mr. Karsan sent to you!

Mr. Karsan, I am an active reader and am legally trained. While I cannot make any recommendations to you in this forum, I would like to make you aware of the existence of the tort of defamation. Good luck to you, and keep up the good work.

On Oct 30 07:44 PM seasaw wrote:

> recommend caution when reviewing this author's articles. He published
> an article recommending Ors but deliberately withheld very material
> information. The stock subsequently went up 67% and crashed back
> down close to where it was previously. The article is here at seekingalpha.com/artic....
> My e-mail correspondence with him is:
>
> My e-mail to him:
>
> Mr. Karsan:
>
> I enjoy your articles. They are well done. Regarding your recent
> article on Ors, I was interested in seeing if you had any information
> or knew where to find it concerning the following.
>
> Since Beijing Xingwang Shidal Commerce Co (Xingwang) is Ors’s main
> client and owe the bulk of the account receivables, I am interested
> in:
> (1) the financial status of Xingwang, including their financial statements,
> and the state of their business to determine whether they have and
> will continue to have the ability to pay the accounts receivable;
>
> (2) the level of demand that Xingwang has and will continue to have
> for Ors’s cell phones. Helpful information would be the levels of
> sales and inventory of Xingwang to see whether they have sold all
> the phones and need more or whether they have a backlog and will
> have decreased levels of orders.
>
> Do you have any of this information or know where to obtain it. I
> did send an e-mail to Ors contact on their website, but I have not
> had much success with this in the past with other companies (plus
> I always ask for only publicly available information).
>
> Thank you,
>
> Mr. Karsan's response:
>
> Hi Mark,
>
> I'm afraid I couldn't provide you with any insight on that without
> compromising my own research. Hopefully the company will get back
> to you! Good luck!
>
> -Saj

Oct 30 08:14 PM

[seasaw:]

User 459419: are you Mr. Karsan or a friend of his? I notice that this is your first comment and you are following no one and no one is following you.

In any event, I have just presented the facts. They are contained both in the article Mr. Karsan wrote and the content of his e-mail that I presented, so there is nothing at all unbelievable about it. It is simple English comprehension to understand Mr. Karsan's response, "I'm afraid I couldn't provide you with any insight on that without compromising my own research". However, if you found that impenetrable to understand because of its short length, Mr. Karsan clarified in a subsequent e-mail elucidating what he meant: "I conduct a lot of research for the stocks I buy for my fund. If I were to give away sources and facts that I spent time finding, then I am reducing the value of my research - that is what I meant."

The question you should be asking yourself if you are not Mr. Karsan or a friend of his, is why would someone promote a stock and withhold material information about the stock they were promoting?

Oct 30 11:21 PM

[User 476723:]

Thanks for an interesting article.
Are you sure you got the symbol right, RCL is "
Royal Caribbean Cruises Ltd. (RCL)".

Oct 31 11:29 AM

[Saj Karsan:]

Hi User,

It is RCL, but it trades on the Toronto Exchange. Seeking Alpha replaces my links to the google finance pages with their own, and in this case their link now points to RC Cruises as you point out. Here is the google finance page: www.google.com/finance...

Oct 31 02:34 PM