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Seth Barkett
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Seth is President of RDA Capital Advisors, a research and advisory firm focused on micro-cap stocks. Prior to founding RDA Capital Advisors, Seth worked as an associate at Storm Lake Capital, a private investment affiliate of Whitebox Advisors. He was involved in buyouts, recapitalizations, and... More
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  • George Risk Industries: A Low-Risk Way To Play A Rebound In Housing

    George Risk Industries (OTCQB:RSKIA) trades at 1.9x EV/EBITDA, making it a steal at $6.03 per share (closing price as of July 25th). The company is also sitting on roughly $25 million of net cash & marketable securities, which provides an excellent margin of safety for a market capitalization of only $30 million. George Risk Industries was incorporated in Colorado in 1967. It designs, manufactures, and sells push-button switches, burglar alarm components and systems, pool alarms, water sensors, and computer keyboards (security products comprised approximately 88% of sales in fiscal year 2011). As residential construction begins to rebound throughout the United States, I believe George Risk Industries will benefit immensely. The company did a good job growing market share during the downturn and is poised for the next cycle.

    Over the last twelve months, the company has generated $10.2 million of sales and $2.88 million of EBITDA. This is up from $8.9 million of sales in fiscal year 2011 (April 30th year-end) and $1.92 million of EBITDA, representing growth of 14.6% and 50% respectively. Capital expenditures at the company have averaged $158k annually over the past five years. Therefore, George Risk Industries has a free cash flow yield of approximately 52% (defined as [(EBITDA - CAPEX) / Enterprise Value].

    Ken Risk, the CEO of George Risk Industries, has proven over the years to be an excellent operator. He owns 58% of the company and is very much aligned with shareholders. The company's relationship with its largest distributor, Honeywell International (NYSE: HON), which accounted for roughly 42% of sales in fiscal year 2011, only appears to be strengthening (evidenced by the 2011 vendor agreement found in the 2011 Annual Report).

    A valuation multiple of 6x EV/EBITDA would boost the share price to $8.38, a gain of 39%. I believe the company's strong balance sheet and near-term growth prospects as well as share buybacks ($1.4 million has been spent over the past five years) and a current dividend yield of 3.8% warrant this valuation multiple.

    Disclosure: I personally own shares of RSKIA. The accounts that I manage also own shares of RSKIA.

    Disclosure: I am long OTCQB:RSKIA.

    Tags: HON, RSKIA, long-ideas
    Jul 27 10:23 AM | Link | Comment!
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