SarbOx Avoiders Avoca and Bactolac Pharma Continue To Present Buying Opportunity

Includes: AVOA, BTCA
by: Jon Heller, CFA

Despite the fact that both of these companies are no longer required to file with the SEC, after effectively "going private," both still send shareholders either full (Avoca) or summarical (Bactolac) results.

Avoca, owner of 16,000 acre Avoca Island, reported 2006 net income of $7.998 million, and earnings per share of $992.43 on revenue $12.2 million. The company also paid a $720 dividend. With a current bid price of $6000, the companies current price earnings ratio is 6, and the dividend yield is 12%. While both measures price Avoca at extremely cheap valuations, this is not all that surprising given Avoca's uncertain future revenue stream(primarily royalties from gas wells on Avoca Island), and lack of trading liquidity.

Avoca's balance sheet is strong with cash and securities (both long and short term)of $11.2 million, or $5.36 million ($555 per share) after subtracting out dividends payable, which represent nearly all of the company's liabilities.

Bactolac Pharmaceuticals
Bactolac (formerly Advanced Nutraceuticals), which effected it's GPT (going private transaction) this past fall, reported its first results since the transaction.

Bactolac's 2006 sales rose 22.6% TO $28.1 million, while earnings fell 14% to $1.62 million, or $169,55 per share. Based on a recent bid price of $1300, that equates to a P/E ratio of 7.7.

Bactolac's current book value of $1515 per share is quite impressive, but after backing out goodwill ($7.6 million) tangible book value is $723 per share.

We continue to hold shares in both companies, believing that they will benefit from being outside the purview of Sarbanes Oxley, which is very cost prohibitive for smaller companies.

Keep in mind the liquidity issues inherent in the companies discussed in this report: Avoca has just 8,059 shares outstanding, while Bactolac has 9,255.

Disclosure: the author has a position in both companies mentioned in this report.