Cobra Electronics Corporation (NASDAQ:COBR) is another tiny undervalued asset play with an activist investor – Howson Tattersall Investment Counsel Limited – disclosing a 10% holding in its 13D notice filed September 24 last year. At its $1.11 close yesterday, COBR has a market capitalization of just $7.2M. We estimate that its liquidating value is almost 100% higher at $14.2M or $2.19 per share and the first new addition to the Greenbackd Portfolio for 2009.
About COBR
COBR is a designer and marketer of two-way mobile communications products in the United States, Canada and Europe. The Company has seven product lines: two-way radios, radar detectors, Citizens Band radios, power inverters, mobile navigation, marine consumer electronics, and photo-enforcement and safety detection. The company’s investor relations website is here.
The value proposition
COBR has generated mildly positive earnings for the last three quarters but has generally lost money since 2006. As always, there is some value on the balance sheet (the “Carrying” column shows the assets as they are carried in the financial statements, and the “Liquidating” column shows our estimate of the value of the assets in a liquidation):
COBR’s value in liquidation is predominantly in its $22.8M in receivables, which we have discounted by a fifth to $18.2M or $2.82 per share, and $29.6M in inventory, which we value at $19.8M or $3.06 per share. The other source of value on the balance sheet is COBR’s $27.5M property, plant and equipment, which we’ve written down by half to $13.7M or $2.12 per share. COBR has $14.2M in debt and other substantial liabilities in the amount of $45.8M or $7.08 per share. Deducting COBR’s liabilities from its written down asset value, we estimate COBR’s liquidating value at around $14.2M or $2.19 per share, which is 97% higher than its $1.11 close yesterday.
The catalyst
Howson Tattersall Investment Counsel Limited’s 13D notice filed September 24, 2008 discloses a 10% holding in COBR but little else – it adopts the standard boilerplate in its filing. Howson Tattersall’s website does discuss its equity investment philosophy:
Our equity investment process is based on value investing because it provides a consistent, statistically grounded approach to the analysis of investment opportunities.
…
After narrowing the universe of potential investments to companies with attractive quantitative factors, we undertake independent qualitative research, which is at the core of our selection process. This involves reviewing financial statements and meeting with company management.
Conclusion
While its earnings record is spotty, with a $2.19 liquidating value some 97% higher than its closing price yesterday, COBR is very cheap. We can’t divine Howson Tattersall’s modus operandi from its public documents, which makes it difficult to determine its effectiveness as a catalyst. This doesn’t concern us too much as COBR’s steep statistical discount to its value should provide downside protection which will leave the upside to take care of itself.
Take care to use limit orders if you propose to trade in COBR as the stock is very thinly traded.
COBR closed yesterday at $1.11.
The S&P500 Index closed yesterday at 927.45.
[Disclosure: We don’t have a holding in COBR. 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.]
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