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LVB - Steinway Musical Instrument

|Includes: Steinway Musical Instruments, Inc. (LVB)

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.