DGT Holding Corp (OTC: DGTC) [formerly Del Global Technologies Corp] develops, manufactures and markets medical imaging systems (via its Villa subsidiary in Italy) and power conversion equipment (via its RFI subsidiary in the US). The company trades for P/E (continuing) ex-cash less than 5x and a P/B (Tangible) of ~1x (both adjusted to include $15m cash raised from the recent rights offering and the share splits which occurred subsequent to the last 10-Q).
Like many companies, 2009 marked a low point for the company, with revenues proving to be the low point for the last six years, and earnings turning negative, largely due to one-time legal settlement related to some past employees. Since 2009, the company has been slowly returning to its pre-recession levels, with revenues up and the company returning to profitability. Moreover, the company’s strong free cash flows have returned, showing that the negative FCFFs in 2009 were the result of the litigation and an anomaly for the company.
Though the current financial filings are a bit stale, dating back to October 2010 (the newest 10-Q should be out next week), we are also seeing a rebound in the company’s backlog, which increased 46% from $11.9m to $17.4m last Q.
Beyond its operating performance, there is much more to like about the company. In particular, its other shareholders include several activist and small-cap value funds, including Grace & White (I wasn’t able to turn up a lot about this company, but based on recent filings I've read, I surmise that it is an activist fund with a fundamental focus), and Royce & Associates (a small-cap value fund). Most notably though, is the ownership of Steel Partners, which is led by Warren Lichtenstein, a deep value activist investor. SP owns 46.2% (pdf), and DGTC’s current President & CEO and the Chairman of the Board are SP managing directors. Though SP has been a shareholder since 2002, it only recently increased its ownership to this level, suggesting that it is using the economic recovery as an opportunity to get off the sidelines and move forward with this investment.
My valuation leads me to believe that there is a sufficient margin of safety, though I would love to hear your thoughts, so email me or leave a comment below!
Author Disclosure: Long DGTC