Greenbackd

Amtech Systems Inc (NASDAQ:ASYS) is a new addition to the Greenbackd Portfolio. At its $2.78 closing price yesterday, the company has a market capitalization of $25.3M. We estimate the liquidation value to be almost 60% higher at $40M or $4.40 per share. A private investor, Mr. Richard L. Scott, disclosed a 7.0% holding in July last year. Mr Scott has continued to purchase stock, and, as of February 17 this year, holds 9.1% of ASYS’s outstanding stock. We’re not sure what Mr. Scott has planned for ASYS, but we think the stock is a relatively good bet as it has continued to generate positive operating cash flow and earnings.

About ASYS

ASYS is a supplier of horizontal diffusion furnace systems used for solar (photovoltaic) cell and semiconductor manufacturing. The company operates in two business segments: solar and semiconductor equipment, and polishing supplies, under the brand names Tempress Systems and Bruce Technologies. ASYS also supplies insert carriers to manufacturers of silicon wafers under the PR Hoffman brand, and provides lapping and polishing consumable products, as well as equipment used in various industries. The company’s investor relations website is here.

The value proposition

The summary of our estimate for the company’s liquidation value is set out below (the “Book Value” column shows the assets as they are carried in the financial statements, and the “Liquidating Value” column shows our estimate of the value of the assets in a liquidation):

We estimate ASYS’s liquidation value to be around $40M or $4.40 per share.

Off-balance sheet arrangements and Contractual obligations

According to the company’s most recent 10Q, as of December 31, 2008, ASYS had no off-balance sheet arrangements. The only significant changes in contractual obligations since the end of fiscal 2008 have been purchase obligations in the amount of $6.1M. These purchase obligations consist of outstanding purchase orders for goods and services. While the amount represents purchase agreements, the actual amounts to be paid may be less in the event that any agreements are renegotiated, cancelled or terminated.

The catalyst

Mr. Scott disclosed his initial 7.0% holding in a 13D notice dated July 28, 2008, purchasing $5.4M of stock in ASYS at prices between $8.95 and $9.50. The initial 13D notice contains the standard disclosure for Purpose of Transaction, which we’ve reproduced below:

[Mr. Scott] purchased the Common Stock in open market transactions for general investment purposes. Consistent with such purposes, [Mr. Scott] may seek to engage in future discussions with management of [ASYS] and may make suggestions concerning [ASYS]’s operations, prospects, business and financial strategies, assets and liabilities, business and financing alternatives and such other matters as [Mr. Scott] may deem relevant to his investment in [ASYS]. In addition, [Mr. Scott] may from time to time, depending on prevailing market, economic and other conditions, acquire additional shares of the Common Stock of [ASYS] or engage in discussions with [ASYS] concerning further acquisitions of shares of the Common Stock of [ASYS] or further investments in [ASYS]. [Mr. Scott] intends to review his investment in [ASYS] on a continuing basis and, depending upon the price and availability of shares of the Common Stock, subsequent developments affecting [ASYS], [ASYS]’s business and prospects, other investment and business opportunities available to [Mr. Scott], general stock market and economic conditions, tax considerations and other factors considered relevant, may decide at any time to increase or to decrease the size of his investment in [ASYS].

Mr. Scott has continued to purchase stock in ASYS and has disclosed a 9.1% holding in an amended 13D notice dated February 20, 2009.

Stock repurchase program

According to the most recent 10Q, the company’s board approved a stock repurchase program in December authorizing the repurchase of up to $4M of ASYS’s common stock. If the buy-back is completed at the current stock price, we estimate that the company’s per share liquidation value would increase by around 7% to $4.70.

Conclusion

At its $2.78 close yesterday, ASYS is trading at a little under two-thirds of our estimate of its value in liquidation.  Given that it has continued to generate positive operating cash flow and earnings in a difficult operating environment, we think ASYS represents very good value at a discount to its liquidation value. Management seem to have recognized that the stock is too cheap, and have taken the right steps by authorizing a $4M stock buy-back. Our only criticism is that the buy-back could be bigger. For example, if the buy-back was increased to $10M and stock bought back at the current stock price, the company’s per share liquidation value would increase by 24% to $5.45, leaving ASYS with around $28M in cash and short-term investments. This is a very small criticism, and ASYS has the option to increase the buy-back in subsequent quarters if the stock price continues to trade at a discount to liquidation value. We don’t know anything about Mr. Scott, but we like to see large stockholders increasing their stakes when the stock price drops. We think ASYS is very good value, and that’s why we’re adding it to the Greenbackd Portfolio.

ASYS closed yesterday at $2.78.

The S&P500 Index closed yesterday at 712.87.

[Full Disclosure:  We do not have a holding in ASYS. This is neither a recommendation to buy or sell any securities. All information provided believed to be reliable and presented for information purposes only. Do your own research before investing in any security.]