Value Uncovered

Value Uncovered
Contributor since: 2010
Here's my own perspective on CMT:
http://bit.ly/S55vfN
Lots of potential value, but the NAV situation is worrisome...
I don't have a position or opinion myself, but here is a great writeup on BYDDF:
baskervillecapital.com.../
Robin,
The business is showing early signs of stabilizing now that all of the asset impairments are out of the way and CROIC was still above 20% in 2010. The market is pricing in -15% cash flow growth to justify the current price - I just don't see this happening unless they totally blow up a major TV contract.
The producer-for-hire arrangement hasn't done very much but the international growth looks promising.
As things continue to stabilize, management has shown a propensity to return cash to shareholders with strong special dividends or share repurchases.
Stock remains too cheap to ignore, even if the long-term (5-10 yr) view is unfavorable.
Robin,
No real news since the article was published. I feel the stock remains cheap based on current production levels - picking up 1 or 2 of these new defense contracts should be the catalyst for taking the stock up to the next level. However, the defense procurement process is notoriously complex, so it'll be interesting to watch the company's progress.
Hedged In,
Appreciate the vote of confidence. Investing (especially in a place like China) can be a tough field. I always hope that other investors will perform their own due diligence and make their own decisions before putting their hard-earned money to work.
buffettville,
Keep in mind that chips are a repeat sale - they eventually wear out or change designs, requiring the purchase of replacement chips:
From the 10-k:
"Most often a casino will order all of its gaming chips, including replacement chips, from a single supplier. Accordingly, we strive to become the original chip supplier to a casino upon its opening, thereby enhancing our position to receive additional sales when the casino places replacement orders. "
So while new casino openings provide an initial boost, GPIC tends to retain this relationship for future purchases. That's why picking up all 9 new casinos in PA was impressive.
The company has sold several million RFID chips - while I don't have the total number of chips out there (anyone have these statistics?), it appears that GPIC is in great position to capture the benefits as casinos upgrade to the new technology.
TCPS.PK or Technoconcepts is a completely different company.
Techprecision (TPCS.OB) is here:
messages.finance.yahoo...
bilgewash,
No opinion really, I never ended up investing and I'm glad I didn't. It appears that the company is having all kinds of problems - whatever the outcome, there are probably easier investing decisions to go after.
buffettville,
GPIC was granted the exclusive right to sell RFID chips in Jan 2006 so it has been several years. The company doesn't break out the sales breakdown between the various chip types.
The big increases will be driven by new casino openings, not only in the U.S. but across the world - it doesn't matter as much whether these will be RFID chips or regular chips, GPIC will benefit.
I think the new sales channel with IGT should be extremely beneficial as well.
The stock is heavily owned by other institutions including FMR LLC, Intana Management, Royce & Associates, Robeco Investment Management, and Renaissance (all from last year's proxy)
A new institutional investor is a good sign.
Thanks for the comment. I never took a position as the stock didn't fall quite far enough to have a comfortable margin of safety. The stock is up 30% since my article - oh well.
Hester,
Right now, they have a patent that gives them exclusive access to sell RFID chips in the U.S. until 2015. I did some searching around on some of their U.S. competitors and came away less than impressed:
U.S. Playing Card Company:
www.usplayingcard.com/...
Can't find casino chips on their website.
Gemaco:
gemacocasinocards.com/...
Doesn't appear to be nearly the quality to me..
I found another public company based in Asia that currently sells RFID chips there: Entertainment Gaming Asia, INC (EGT)
Their financial results are not pretty:
www.google.com/finance...
GPIC seems far and away the leader in chip design at least in the U.S. and is growing rapidly in Asia. For the latest full year (2009), 45% of orders comes from the U.S. while 41% was from Asia.
I think they will monopolize the new casino business in the U.S. for the foreseeable future, as evidenced by getting orders from all 9 recent Pennsylvania openings.
After 2015 it could be a different story but the stock has some room to appreciate over the next few years.
Ruba,
To be conservative, I'm calculating net cash as follows:
Cash & Equivalents + Marketable Securities - Total Liabilities = Net Cash
From the latest 10-Q:
$6.051 + $16.454 - $9.924 = $12.581 / 8.199 shrs = $1.53 in net cash
If you only consider debt, then you are correct that the company holds approx. $2.75 cash/shr.
It is also important to keep in mind that $15.6m of this cash balance is held by the company's foreign subsidiary, GPI SAS. Permanently transferring this cash balance to the U.S. will be difficult.
From someone who has been told Vegas a bunch of times, I think Vegas will be fine. It truly is an 'experience' more than just a gambling destination - the food, the shows, the shopping, etc.
While they might lose a few weekend gamblers who decide to check out the local casino, I think the big players will continue to frequent Vegas.
There really isn't anyplace even close (at least in the U.S.) - the entire town is setup to support it.
It is a common problem among many of these microcap stocks. I think the website overhaul is a great step in the right direction for presenting the company as a worldwide leader in their market.
blueice,
All investors should perform their own due diligence on every investment.
Thanks for your comments.
Guys,
Still around - as you see from my post above, I had no position in RINO and wrote the article based on the current financials (key: as the financials were reported - the truth is obviously different than it appeared).
It certainly was not designed to be a forensic review of the financial numbers, something Muddy appears to have done a great job at.
Numerical,
There is no doubt that management is being paid well to affect this turnaround - but the stock has responded their efforts.
Both the CEO and CFO received large restricted stock awards for 2010 - we'll see if that continues.
Robin,
Thanks for the comments.
In my article, I mentioned acquisitions as a positive catalyst going forward. However, they ALSO provide the biggest potential for eroding shareholder value if management isn't smart.
Of course I can't say for sure one way or another, but after listening to the last conference calls, I'm impressed with how management is viewing an acquisition strategically - we'll see how it turns out.
The company has burned through cash in its history but has stayed profitable through most of those years. R&D expenses were much higher back in 1999-2003 and Capex went through an increase in 2006-2007 as the company modernized its equipment.
My growth projects certainly don't expect them to become "big earners" - the average growth rate in my valuation above is 3% per year..yet the stock is undervalued based on current production.
In reality, it takes years to build up these strong defense program relationships and the company seems to have done that very well. AMLJ should continue to profit from this hard work going forward.
Tim,
Thanks for the comment. Amcon's margins aren't significantly different than other distributors in this space. Look at CORE as an example.
DIT has higher margins across the board - although the retail segment helps this out somewhat, I think it shows that management is getting the most out of the business.
There is no doubt that the company's core product is in decline (as I mentioned above), but unfortunately it is an addictive product that will never go away.
Consumers will still purchase tobacco despite increased costs, whether from the tobacco manufacturers or government taxation.
DIT has undergone a remarkable turnaround and the CEO has put a significant amount of his net worth into the company by buying a huge block of shares.
The stock is up 30% since my original writeup:
www.valueuncovered.com...
Although it probably isnt going to double in the next year, I think it still has some room to run.
Thanks again for your comments.
Thanks for providing the link - I agree, a very damaging report.
A major risk identified in my article was the CFO turnover, a factor that may have foretold the findings in Muddy's report.
While bottom up analysis on the financial numbers is an important factor, it is also important to look at the company in an holistic manner.
Visiting store locations, speaking with management, talking to customers, etc. can provide feedback above and beyond a high-level look at the financial numbers.
gmcmeen,
As I noted in my original article, it was published in August, before the S/4 filing and therefore was 'speculative' on the reported loan results.
As you can see in the above comments, I updated the exchange ratio after the S/4 was filed.
All investors should do their own due diligence before making investment decisions.
Yea - I wonder if there is some historical data on other liquidations to help estimate actual costs in these type of liquidations?
Or maybe each situation is so different that it would be impossible to find valid or representative comparisons? Not sure, but would love to get my hands on that type of dataset.
RJM2,
Thanks for the comments. I'd love to see a breakdown of the "costs for liquidation" to determine how much possible upside is available - it is just so hard to estimate.
What did you use to come up with the $1-1.5 number?
Based on the most recent S/4 filing for TOBC, the exchange ratio still appears to be .291 based on July 31, 2010 numbers. Delinquent loans for the purpose of the merger calculation were $77.7m.
The merger is supposed to be called off if delinquent loans exceed $90m, so there isn't much margin of safety - this is a big potential risk with the transaction.
The big thing I'm waiting for is the meeting dates for shareholder approvals.
stink726,
I noticed a problem on the JCTCF page as well, but not sure how to remedy the situation. I'll be looking to pick up shares if they pullback from the current territory.
No One Of Consequence,
You are correct - the record date of distribution for NEXC was on September 13. My original article was published well before, as this post was intended as only a summary of last month's positions.
Hope you were able to find value in some of the other posts.
Share repurchases are generally a positive sign, especially when announced, but many companies do not follow through. APT hasn't purchased any shares this year, so management seems to be prudently managing the cash during this period of uncertainty.
The business requires little in the way of capital investments, so the company could use the money to reinvest in R&D or marketing/sales efforts.
I think a broader distribution network will only increase sales in the long run and the company appears to have plenty of growth left in its Building Supply segment.
Margins for the turbine component business are barely breakeven, showing a significant drop in the past 5-10 years. A good sign for me that the repair business is one where the company struggles to have a competitive advantage.
Customer concentration was covered in the article as well.
herman,
I don't think I've ever eaten irradiated food, although I could certainly be mistaken.
Long-term, the economics and health benefits (i.e. reduced airborne diseases) should win out - the question becomes how quickly consumer perceptions will change.
BuddhaHead,
In my research, the capital equipment to start a irradiation facility ranged between $1-$5M, so it is relatively expensive to get started.
I can't imagine there are a large number of suppliers either.
Consumer perception is the largest stumbling block right now at least in the US. Maybe it is different in other countries?
Plan,
Ha, only a few hundred thousand hands under my belt :) Very excited for some of the new legislation that is being introduced to regulate online poker - will make for a very profitable side venture again!
Sophista,
Thanks for the comments. I've read several academic papers on the long-term impact of share buybacks. Although it is a positive move, I don't think it has as much impact as dividends, especially for small-cap stocks with a low float to begin with.
Many of these stocks are so small and ignored by the market that common valuation methods like P/E ratios (which is affected greatly by large buybacks), don't always seem to apply.