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Value Scouter(slinj) is value investor who follows value investing school of thoughts. His investment thesis centers around 1) Net-net stock where the company trades significant below liquidation value; 2) company with lasting moat that is trading at discount to its intrinsic value based on one... More
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  • SVU - continuous top line decline?
     A slew of bloggers have written about SVU in recent weeks: (see reference section at the end of the article)
    They looked from perspective of cash flow valuation, dividend perpetuity, debt load/balance sheet safety point of view.  These interesting articles all seem to conclude an asymmetric risk/reward ratio. 

    What I was curious to know coming from a slight different angle, I was interested in the seeming continuous decline of the top line and catalyst for the turnaround.  So let's delve into that.  

    1. continuous decline of top line.
    Top line numbers for SVU has been under pressure since later part of 2008, the decline accelerated early 2010, reaching a record level of 1615, 1170 Q by Q decline for reporting period ending April, June 2010 respectively.  The decline start to slow down in the most recent quarter with a same quarterly decline of 805.  Table below outlined the comparison.  
    Now the most recent quarter bottom line number is dismal due to large non cash write down of good will/intangibles.  So why this continuous write downs?  Well, the decline in share price and market valuation is a driver, but we also know new management come in reign May 2009, and a "big bath" like this by new management team sets a very good stage for later comps.  A quick glance through the press release also shows several key recruits of the executive team over last two quarters, in line with the turnaround story.  

                Q08  Q09     Q10     Delta 08-09 Delta 10-09
    April  10387 10820 9205     -433            1615
    June 13347 12715 11545     632            1170
    Oct   10226  9461   8656      765              805
    Jan   10171  9216   955  

    2. catalyst for the turnaround
    The slow down of decline is backdropped by a few other events that could further help the turnaround story: 
    • management compensation is largely associated with stock incentives;
    • ramp up in save-a-lot segment of the business that has higher margin;
    • divest of non core asset that could further help to pay back debt and free up cash flow;
    • liquidity not a concern for the foreseeable future;
    Turnaround is never easy, it takes competent management team, support of marcoeconomic trend and most importantly, time.  When I see the numerous sell recommendation from wall street analyst and continuous decline of the share price, I get excited.  Is further decline of share price possible?  Yes.  Is SVU at current price a good value? You bet.  With all this, I am a buyer here.  

    Disclaimer:  The author has a long position in SVU at the time of the writeup.  


    Disclosure: I am long SVU.
    Tags: SVU
    Dec 24 11:35 AM | Link | Comment!
  • MHH, CBR and VOL comparison
    Some nice write up are already available on MHH, VOL and CBR, see link below for further research:
    Since they are in similar business, i.e. staffing company for private or government agencies, I decided to take a look at these three companies and compare.
    First off, VOL appears to be quite cheap after the run down last month or so, presumbly due to the delay in 10Q filing which might be related to some past revenue reinstatement. 
    It is losing money for the past few quaters, have not filed the latest 10Q as mentioned above, so the latest info one can gather for VOL is from its quarter ended May 3, 09.  VOL has lots of cash and other short term investment, it has 382 M of net Account receivable.
    However, if you look closely at the their numbers, VOL is hit on non cash items such as impairment and depreciation. It is still cash flow positive, for 6 months ended May 3, 09, it generated 33.2M operation cash flow. 
    With a market cap of 193M on Friday and is still way below the net of current asset less total liability. 
    MHH looks the best among three.  It has very high quality balance sheet numbers.  For instance, cash accounts for 48% of current asset, it is also accounting PPE, good will etc. very conservatively. In addition, MHH has a OI margin of 4.2% the latest quarter, that compared to 2.7% for CBR.  It is also accumulating cash at ~1.3M/Q. The only drawback that appear to me is in a year to year comparison, MHH revenue falls more than that of CBR and VOL (28% vs. 14.5% vs. 20%).  Bigger firms like CBR can weather the recession better, which makes sense. 
    CBR has sequentially improved performance.  Its latest quarter would have generated 0.08 EPS, if the one time charge on law suit settlement was not incurred, and that is an improvement vs. 2Q's 0.07 EPS with comparable revenue numbers.  Its SGA # looks high, but that is more related how does CBR accounts for Cost vs. SGA.  The latest filing for NEO compensation was not that comforting given the "performance", so that is one piece worthy watching.
    In addition, good will accounts a good portion of the balance book and is steadily increasing. The good will size and increase definitely contributed to the trending of equity. 
    In terms of cash flow, CBR generates 61M from operation for 9 month ended 9/30, Another thing going against CBR is that it has increase shares outstanding over the last two quarters by 4million. 
    All in all, MHH and VOL probably are relatively better investment, with MHH has the best safety.  However, slightly improvement in VOL by turning it number into positive could have very positive effect on the price.
    CBR has a few things worth monitoring, but its ~30% cash yield is also tempting.   

    Tags: MHH, CBR, VOL
    Nov 22 9:17 PM | Link | Comment!
  • LVB - Steinway Musical Instrument
    LVB - Steinway Musical Instruments
    The company has 20-30million free cash flow for the last five years except 2008, it currently trades at market cap of 122.5million at today's close after a 2.37% price appreciation. 
    They announced a private placement of 27million at price of $16 per share from Samick, which is 37% primium of Nov. 5 close price.  The proceeds from this private placement will be used to pay down debt and/or acquisition.
    As is, LVB has a fairly healthy balance sheet, with 456.2MM in total asset, of which 302MM is current asset. LVB has total liability of 290MM, and 47MM of this is current liability.  Both current and total liability was done from Dec. 2008.  One thing worthy noting is LVB has a fairly large inventory on its current asset, 168MM currently, meaning it takes 200+ days to move its inventory, so that is quite significant.  However, given LVB's line of business, it is not uncommon to have a large inventory (grand piano takes time to sell, particular high end line).  and a comparison across with historical numbers indicate that the curren inventory level is not of alarm.  Compare with year end inventory from 2008, it is also comparable.
    Coming to income statement, the company has turned profitable this quarter, this is commendable at the current operating environment, which demonstrated the operation discipline the company has in not lowering the price and controlling cost.  compared with 2008, operation expense reduced from 29MM to 18MM, and quarterly comparison for top line decreased 18% vs. 27% in Q2. 

    The recent private placement, overall economic recovery and Steinway's moat in musical instrument industry should be able to drive LVB's EPS back to its historical level of 1.5, which would translate into a target price of 18-22 with normal multiples.  The company used 1.5 MM cash for nine months ended Sept. 2009 from operation, of which 3.4 MM was used for debt repayment.  With condition improves, its rich cash yield would also helps to bring the stock price higher. 

    Disclaimer: The author holds LVB shares at time of writing.
    Tags: LVB
    Nov 09 11:14 PM | Link | Comment!
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