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Posts Tagged ‘Howson Tattersall’

Audiovox Corporation (NASDAQ:VOXX) has filed its 10K for the fiscal year ended February 28, 2009.

The stock has risen strongly over recent weeks to close yesterday at $5.93, which gives VOXX a market capitalization of $135.6M. We’ve had an opportunity to review the 10K, and we’ve now slightly reduced our estimate of VOXX’s liquidation value to $117.3M or $5.13 per share. With the stock trading at a premium to our estimate of liquidation value, we’ve decided to exit. We opened the position at $3.73, and the stock closed yesterday at $5.93, which means we’re up 59.0% on an absolute basis. The S&P500 Index closed at 789.17 on the day we opened the position in VOXX and closed yesterday at 909.71, which means we’re up 43.7% on a relative basis.

Post mortem

We started following VOXX (see the post archive here) because it was a profitable, undervalued asset play. When we opened the position, we estimated VOXX’s liquidation value to be around $128.4M or $5.60 per share against a share price of $3.73 and a market capitalization of $85.3M. Howson Tattersal had filed a 13D notice in September last year disclosing a 7.3% holding. We noted that, while VOXX was a perennial inclusion on lists of net-net stocks, we thought it hard to ignore at $3.73. Fast forward to today. The stock is up 59% to $5.93 and the liquidation value is down slightly to $5.13 per share. The updated balance sheet 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):

VOXX Summary 2009 2 28Balance sheet adjustments

  • Cash generation: The company generated $30.0M in operating cash flow in the last year.
  • Off-balance sheet arrangements and contractual obligations: According to its most recent 10K, VOXX does not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon its financial condition or results of operations.VOXX has around $43.4M in contractual cash obligations (including $11M in capital lease obligations and $32M in operating leases), around half of which falls due in the next 5 years and $24.0M falling due after 5 years. VOXX also has another $62M in unconditional purchase obligations falling due in the next 12 months.

Conclusion

We are again reasonably happy with the outcome in VOXX. While Howson Tattersall’s campaign has not been run to its conclusion, we feel that with the stock trading at a premium to VOXX’s liquidation value, and with VOXX’s liquidation value reducing over the last quarter, it is an opportune time to exit.

[Full Disclosure:  We do not have a holding in VOXX. 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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Audiovox Corporation (NASDAQ:VOXX) is a rarity in our universe: a profitable undervalued asset play. At its $3.73 close yesterday, VOXX has a market capitalization of $85.3M. We estimate the liquidation value to be 50% higher at around $128.4M or $5.60 per share. Howson Tattersal filed a 13D notice in September last year disclosing a 7.3% holding. While VOXX has been another perennial inclusion on lists of net-net stocks, we think it’s hard to ignore at this price.

About VOXX

VOXX is an “international distributor and value-added service provider in the accessory, mobile and consumer electronics industries.” The company markets its products under the Audiovox brand name and other brand names, including Acoustic Research, Advent, Ambico, Car Link, Chapman, Code-Alarm, Discwasher, Energizer, Heco, Incaar, Jensen, Mac Audio, Magnat, Movies2Go, Oehlbach, Phase Linear, Prestige, Pursuit, RCA, RCA Accessories, Recoton, Road Gear, Spikemaster and Terk, as well as private labels through a domestic and international distribution network. See the company’s website here. The company’s investor relations website is here.

The value proposition

VOXX’s sales, operating income and net income increased in the quarter ended November 30, 2008. Net sales for the third quarter were $195.6 million compared to net sales of $183.6 million reported in the comparable prior year period. Operating income was $10.7 million in the third quarter compared to $6.7 million in the preceding third quarter. Net income was $6.5 million compared to net income of $4.7 million in the comparable period. This doesn’t tell the full story however as operating activities used cash of $26.7M for the nine months ended November 30, 2008. The company used less cash for its operating activities compared to the prior year period ($92.9M), but it is still a concern for us. The balance sheet looks interesting (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):

voxx-summaryWe’ve written down VOXX’s receivables by 20% to $144.2M or $6.30 per share and VOXX’s investory by 50% to $74.7M or $3.26 per share to arrive at a total current asset value of $236.7M or $10.35 per share. Deducting total liabilities gives a net current asset value of $119.1M or $5.21. We’ve discounted $46M in non-current assets to $9.2M or $0.40 per share, which, added to the net current assets, gives a liquidation value of around $128.4M or $5.61 per share.

Off-balance sheet arrangements and Contractual obligations

According to its most recent 10Q, VOXX does not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would be expected to have a material current or future effect upon its financial condition or results of operations.

VOXX has around $42M in contractual cash obligations (including $11M in capital lease obligations and $31M in operating leases), around half of which falls due in the next 5 years and $23.7M falling due after 5 years. VOXX also has another $43M in unconditional purchase obligations falling due in the next 12 months.

The catalyst

Howson Tattersall Investment Counsel Limited filed its 13D notice on September 24, 2008 disclosing a 7.3% holding in VOXX. It seems from the filing that Howson Tattersall paid $18,825,883.44 for 1,508,075 shares in VOXX, giving them an  average purchase price around $12.50 per share. Given that Howson Tattersall has listed in the filing the “Date of Event Which Requires Filing of this Statement” as April 11, 2007, it’s possible that they are an example of the “reluctant activists” we referred to on Monday.

Conclusion

At $3.73, VOXX is trading at a discount to its net current asset value and around two-thirds of our estimate of its liquidation value of around $5.61 per share. We’ve got no particular insight into the business. The negative operating cash flow is an issue and its near term contractual obligations are significant. That aside, we think VOXX is a reasonable punt and we’re adding it to the Greenbackd Portfolio.

VOXX closed yesterday at $3.73.

The S&P500 Index closed yesterday at 789.17.

[Full Disclosure:  We do not have a holding in VOXX. 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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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-summary

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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