Avalon Holdings (AWX): Value in the Sum of the Parts? Trading at Twice NCAV
This marks the first in a series of research pieces on companies trading at twice net current asset value.
Tiny Ohio based Avalon Holdings hit our radar again the other day. We were intrigued by Avalon’s interesting combination of assets and cash a few years back, but lost track of the company. So many companies, so little time. Upon taking a recent look, we believe that there may be unrecognized value within.
Even with a market cap just north of $26 million, institutions own about 1/3 of Avalon. However, you won’t find any analysts covering the company. There simply isn’t enough Avalon to go around in order to generate interest from the analyst ranks. (Yet another recurring theme with the companies we cover here at Cheapstocks.)
Garbage and Golf
Avalon’s primary revenue source is its waste management business, which generated $29 million of the company’s $34 million in revenue for 2005. Waste management has two segments, disposal (American Waste Management Services), and landfill management (American Landfill Management).
The company also manages two 18 hole golf courses, through its Avalon Lakes Golf Inc subsidiary. One of which, a championship course in Warren, Ohio, the company owns. The other, Squaw Creek Country Club, is operated but not owned by Avalon. In 2005, the golf segment generated $5 million in revenue.
The Fundamentals
Revenue for 2005 was $34 million, up 13% from 2004’s $30 million. Net income was $541,000 up from a loss of $845,000 in 2004. In fact, 2005 was the first positive year on the earnings front since 1999. For the first six months of 2006, revenue has been $18 million and net income $500,000. However, a closer look at these numbers shows that operating income is actually negative, and what is aiding the bottom line is the interest income generated from a relatively large amount of cash and short term investments. Buyer beware, it’s typically not a good sign when your operating businesses need an assist from your cash position in order to put you in the black.
The Balance Sheet
Lets cut to the chase. As of 6/30/06, Avalon had $14.2 million in cash and short-term investments, and less than $250,000 in debt. That’s the equivalent of nearly $3.75 in cash per share, while the stock hovers around $7.00. We recognize that cash is meaningless if a company is burning through it rapidly, but that does not appear to be the case at Avalon.
The Burning Question: What’s an Ohio Golf Course Worth?
We are intrigued by the company ownership of a 200 acre golf course. We don’t purport to know what it might be worth, but believe it may be a potentially valuable asset. We also can’t begin to value the waste management businesses. That leaves us with one question. Are Avalon’s non-cash assets the waste management business, and golf course worth more than $12 million (market cap less cash)? We’ll continue to try and find that answer. We don’t currently hold Avalon shares.
Calculations:
NCAV: $12 million
Mkt Cap: $26.3 million
NCAV/Mkt cap: 2.19
Enterprise Value : $12 million
Book Value Per Share: $9.76
Price/Book : 1.41
Recent Price Action
Avalon has been on a bit of a tear lately. We are not sure what is driving this, but it is important to be aware that tiny companies such as this can be very volatile. When we started writing this column, the stock traded below $6.00, and in one day on volume of less than 40,000 shares, rose above $7.00 intraday. This type of price action could occur on the downside as well. Also, low liquidity stocks such as Avalon may have wide bid/ask spreads.
Postscript: With current shareholder roles hovering at 534 for Class A shares, and 11 for Class B, this company may be a candidate to shrink sharteholder roles below 300, delist, and avoid SarbOx.
*The author does not have a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Friday, 13 October 2006
Wednesday, 4 October 2006
Biloxi Marsh Lands Corp (BLMC) in Forbes, Declares $2.00 Dividend
Tiny pink sheet company Biloxi Marsh Lands hit the big time recently with a mention in Forbes Magazine. Pink sheet companies rarely get that kind of coverage, especially in such financial media giants such as Forbes.
Louisiana based Biloxi, owner of 90000 acres of marshland in St. Bernard Parish, which it leases to natural gas companies, is up 20 percent since we purchased shares back in late June. It’s been no steady ride, though we’ll admit. Such companies tend to trade in a very choppy fashion, up $3.00 one day, down $2.00 the next, followed by flat prices for weeks, and also tend to trade at relatively high bid/ask spreads.
Dividend
The company also recently declared a $2.00 dividend, payable October 12th. This puts the trailing 12 month yield for Biloxi at 10.8 percent percent based on $4.00 in dividends, and a current market price of $34.50
For more on Biloxi, please see our 5/29 report.
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Tiny pink sheet company Biloxi Marsh Lands hit the big time recently with a mention in Forbes Magazine. Pink sheet companies rarely get that kind of coverage, especially in such financial media giants such as Forbes.
Louisiana based Biloxi, owner of 90000 acres of marshland in St. Bernard Parish, which it leases to natural gas companies, is up 20 percent since we purchased shares back in late June. It’s been no steady ride, though we’ll admit. Such companies tend to trade in a very choppy fashion, up $3.00 one day, down $2.00 the next, followed by flat prices for weeks, and also tend to trade at relatively high bid/ask spreads.
Dividend
The company also recently declared a $2.00 dividend, payable October 12th. This puts the trailing 12 month yield for Biloxi at 10.8 percent percent based on $4.00 in dividends, and a current market price of $34.50
For more on Biloxi, please see our 5/29 report.
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Wednesday, 27 September 2006
Bactolac Pharmaceuticals(BTCP)Delists
On September 21, Bactolac, formerly Advanced Nutraceuticals (ANII), filed Form 15 with the SEC. Now delisted, the company trades on the pink sheets under the symbol BTCP.
An interesting ride
The company threatened to halt it's attempt to split 1 for 500 in order to get below the Mendoza Line of shareholders (300), following a flurry of buying in lots of 499 by investors trying to capitalize on the buyout price of $4.00 per share. This forced the company to cough up more cash to buy out the burgeoning number of odd lot shareholders(or 499ers as we've previously referred to them) than it had originally intended. Whether the company was truly serious about halting the transaction due to the additional cash outlay, or whether it was trying to smoke out some 499ers we'll never know for sure.
The reverse split/odd lot buyout leaves the company with 50 shareholders of record, well below the requisite 300 required to delist. With about 9000 shares outstanding, the company's transparency and liquidity are history. Still, we hold shares in this tiny but profitable company, obscene bid/ask spread and all.
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
On September 21, Bactolac, formerly Advanced Nutraceuticals (ANII), filed Form 15 with the SEC. Now delisted, the company trades on the pink sheets under the symbol BTCP.
An interesting ride
The company threatened to halt it's attempt to split 1 for 500 in order to get below the Mendoza Line of shareholders (300), following a flurry of buying in lots of 499 by investors trying to capitalize on the buyout price of $4.00 per share. This forced the company to cough up more cash to buy out the burgeoning number of odd lot shareholders(or 499ers as we've previously referred to them) than it had originally intended. Whether the company was truly serious about halting the transaction due to the additional cash outlay, or whether it was trying to smoke out some 499ers we'll never know for sure.
The reverse split/odd lot buyout leaves the company with 50 shareholders of record, well below the requisite 300 required to delist. With about 9000 shares outstanding, the company's transparency and liquidity are history. Still, we hold shares in this tiny but profitable company, obscene bid/ask spread and all.
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Wednesday, 20 September 2006
Losing Patience with Zapata Corp (ZAP)
Most Zapata investors threw in the towel eons ago. Now, your Cheapstocks editor is on the brink. Truth is, we purchased shares long after many investors had given up. Tales of poor management and too much family involvement by the Glazer clan (there are 5 Glazers on the board) made many investors skeptical of Zapata’s future prospects. We were aware of this situation, but chose to focus on what we viewed as a package of undervalued assets. Chock with cash, and large stakes in two publicly traded companies, Safety Components (formerly SAFY), and Omega Protein (OME), we were confident that value could ultimately be unlocked. Shame on us. Bad management can ruin most companies.
Divesting
Then the selling began. First, Zapata disposed of its 79% share in Safety Components (formerly traded under SAFY) for $51.2 million. The price was a bit disappointing, but did bring in a lot of cash to Zapata, plus, we always believed the bigger gem to be the company’s 58% stake in fish oil producer Omega Protein. Then, Zapata announced plans to sell its stake in Omega. “At what price” we wondered? Omega has an interesting business but suffered due to Hurricane Katrina. Then there was controversy in the Chesapeake Bay area as to how many tons of Menhaden, the source of the company’s products, Zapata could safely harvest without harming the ecosystem. Both situations hurt Omega, and potentially damaged its allure to potential acquirers.
Silence
Then came the long pause. We heard very little about the company’s attempt to sell Omega, which we translated into difficulty finding a buyer. As of 06/30/06, Zapata owned 58 % of Omega, valued at about $94.5 million in terms of the current market cap of Omega. We did not expect Omega to fetch a premium, if anything, large stagnant stakes in publicly traded securities typically sell at a discount.... especially those that are on the block for many months with no takers. And ultimately, a discount it was…
The Transaction
On September 8th, Zapata announced it was selling 9.268 million shares, or 36.8% of Omega Protein, back to Omega for $47.5 million, or $5.125 per share. That’s a 21% discount to the current price. Furthermore, Zapata, which still owns 5.2 million shares, must sell any shares it still owns after 270 days back to Omega for $4.50 per share. The kicker? Omega has 120 days to compete the purchase. Say what? Now the scramble will begin for Zapata to sell its remaining stake. Remember, Zapata could not find a buyer in the first place, and this puts Omega in the catbird seat.
Winners and Losers
Winners
The only potential winners that we see are Omega shareholders, who are able to buy back a significant portion of their company at a discount. If Zapata can’t sell the rest to another entity, and Omega can come up with the cash, the discount gets even better for the remaining shares. However, there may be a negative short-term effect on the current market price of Omega, especially if Zapata finds an outside buyer north of $4.50 per share, but south of the current price.
Losers
"We are excited about the future at Zapata. The sale of our Omega Protein shares represents an important step as we continue to explore ways to enhance shareholder value."
- Avram Glazer, President and Chief Executive Officer of Zapata
Zapata shareholders lose out on this deal. Once Omega is sold, Zapata has no operating businesses left. True, they may have up to $150 million in cash and little if any debt by our estimates, but bad management is still bad management. What will they do with all that cash? We are afraid to ask. While Zapata’s current market cap is $134 million, conceivably less than the ultimate cash on the balance sheet, that gives us little comfort. We have little confidence left in current management.
Perhaps the best way to play it is sell ZAP, and buy OME.
Previous Zapata Research
5/11/05
5/20/05
9/28/05
11/25/05
12/8/05
*The author has a position in Zapata, but does not have a position in Omega. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Most Zapata investors threw in the towel eons ago. Now, your Cheapstocks editor is on the brink. Truth is, we purchased shares long after many investors had given up. Tales of poor management and too much family involvement by the Glazer clan (there are 5 Glazers on the board) made many investors skeptical of Zapata’s future prospects. We were aware of this situation, but chose to focus on what we viewed as a package of undervalued assets. Chock with cash, and large stakes in two publicly traded companies, Safety Components (formerly SAFY), and Omega Protein (OME), we were confident that value could ultimately be unlocked. Shame on us. Bad management can ruin most companies.
Divesting
Then the selling began. First, Zapata disposed of its 79% share in Safety Components (formerly traded under SAFY) for $51.2 million. The price was a bit disappointing, but did bring in a lot of cash to Zapata, plus, we always believed the bigger gem to be the company’s 58% stake in fish oil producer Omega Protein. Then, Zapata announced plans to sell its stake in Omega. “At what price” we wondered? Omega has an interesting business but suffered due to Hurricane Katrina. Then there was controversy in the Chesapeake Bay area as to how many tons of Menhaden, the source of the company’s products, Zapata could safely harvest without harming the ecosystem. Both situations hurt Omega, and potentially damaged its allure to potential acquirers.
Silence
Then came the long pause. We heard very little about the company’s attempt to sell Omega, which we translated into difficulty finding a buyer. As of 06/30/06, Zapata owned 58 % of Omega, valued at about $94.5 million in terms of the current market cap of Omega. We did not expect Omega to fetch a premium, if anything, large stagnant stakes in publicly traded securities typically sell at a discount.... especially those that are on the block for many months with no takers. And ultimately, a discount it was…
The Transaction
On September 8th, Zapata announced it was selling 9.268 million shares, or 36.8% of Omega Protein, back to Omega for $47.5 million, or $5.125 per share. That’s a 21% discount to the current price. Furthermore, Zapata, which still owns 5.2 million shares, must sell any shares it still owns after 270 days back to Omega for $4.50 per share. The kicker? Omega has 120 days to compete the purchase. Say what? Now the scramble will begin for Zapata to sell its remaining stake. Remember, Zapata could not find a buyer in the first place, and this puts Omega in the catbird seat.
Winners and Losers
Winners
The only potential winners that we see are Omega shareholders, who are able to buy back a significant portion of their company at a discount. If Zapata can’t sell the rest to another entity, and Omega can come up with the cash, the discount gets even better for the remaining shares. However, there may be a negative short-term effect on the current market price of Omega, especially if Zapata finds an outside buyer north of $4.50 per share, but south of the current price.
Losers
"We are excited about the future at Zapata. The sale of our Omega Protein shares represents an important step as we continue to explore ways to enhance shareholder value."
- Avram Glazer, President and Chief Executive Officer of Zapata
Zapata shareholders lose out on this deal. Once Omega is sold, Zapata has no operating businesses left. True, they may have up to $150 million in cash and little if any debt by our estimates, but bad management is still bad management. What will they do with all that cash? We are afraid to ask. While Zapata’s current market cap is $134 million, conceivably less than the ultimate cash on the balance sheet, that gives us little comfort. We have little confidence left in current management.
Perhaps the best way to play it is sell ZAP, and buy OME.
Previous Zapata Research
5/11/05
5/20/05
9/28/05
11/25/05
12/8/05
*The author has a position in Zapata, but does not have a position in Omega. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Friday, 15 September 2006
Discovery Partners-Infinity Pharmaceuticals Merger Completed (new ticker INFI)
Decision Time for Net/Net Buyers
When we purchased shares of Discovery Partners, it was because Discovery was not only trading below its NCAV, but at a discount to the cash on its balance sheet. We also saw some promise that the company could get back to profitability, or so we thought. We essentially viewed the purchase as a free one year call on the recovery of the company’s business.
Merger
The game changed when Discovery announced plans to merge with Infinity Pharmaceuticals, a private biotech company. Presumably, these companies saw the merger as a marriage between a company with lots of cash and no products (Discovery) and a company with a little cash, and some products in the pipeline. Now the merger is complete, and the new entity, Infinity Pharmaceuticals, trades under the symbol INFI.
Decision Time?
Just last week, we published a piece “When to sell a Net/Net”, which stated that the time to sell a net/net was when the original reasons you purchased it were no longer true. Believe it or not, we wrote this piece with Discovery Partners in mind. We knew the merger was approaching, we also knew it was decision time.
Torn and Lucky?
Shares of Discovery Partners have been on a nice tear since we purchased in the $2.40 range this past March. Factoring in the 1 for 4 reverse split that went hand in hand with the merger, shares are up about 67% since our purchase. We'd like to believe that gain is a result of our skill as deep value stock pickers. But we value honesty too highly here at Cheap Stocks. We got lucky with this one. Just prior to the completion of the merger, Infinity announced a cancer drug development deal with Medimmune (MEDI) which provides an upfront $70 million payment, with the possibility of up to $430 million in milestone payments. This news lifted the stock 10%, to the $3.50 range, and since the merger, it now trades at $16.00 post the 1 for 4 split, or $4.00 split adjusted.
The Dilemna
We hate being right for the wrong reasons. We have little interest in owning a biotech company, yet this company has some momemtum (Did we use the word momentum?)
with the Medimmune deal as a tailwind. Our net/net is gone, replaced by a cash burning biotech company. Forgive us Ben Graham. Maybe its time for a trailing stop.
Other Discovery Partners Research:
3/17/05
3/03/06
3/17/06
4/12/06
4/25/06
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Decision Time for Net/Net Buyers
When we purchased shares of Discovery Partners, it was because Discovery was not only trading below its NCAV, but at a discount to the cash on its balance sheet. We also saw some promise that the company could get back to profitability, or so we thought. We essentially viewed the purchase as a free one year call on the recovery of the company’s business.
Merger
The game changed when Discovery announced plans to merge with Infinity Pharmaceuticals, a private biotech company. Presumably, these companies saw the merger as a marriage between a company with lots of cash and no products (Discovery) and a company with a little cash, and some products in the pipeline. Now the merger is complete, and the new entity, Infinity Pharmaceuticals, trades under the symbol INFI.
Decision Time?
Just last week, we published a piece “When to sell a Net/Net”, which stated that the time to sell a net/net was when the original reasons you purchased it were no longer true. Believe it or not, we wrote this piece with Discovery Partners in mind. We knew the merger was approaching, we also knew it was decision time.
Torn and Lucky?
Shares of Discovery Partners have been on a nice tear since we purchased in the $2.40 range this past March. Factoring in the 1 for 4 reverse split that went hand in hand with the merger, shares are up about 67% since our purchase. We'd like to believe that gain is a result of our skill as deep value stock pickers. But we value honesty too highly here at Cheap Stocks. We got lucky with this one. Just prior to the completion of the merger, Infinity announced a cancer drug development deal with Medimmune (MEDI) which provides an upfront $70 million payment, with the possibility of up to $430 million in milestone payments. This news lifted the stock 10%, to the $3.50 range, and since the merger, it now trades at $16.00 post the 1 for 4 split, or $4.00 split adjusted.
The Dilemna
We hate being right for the wrong reasons. We have little interest in owning a biotech company, yet this company has some momemtum (Did we use the word momentum?)
with the Medimmune deal as a tailwind. Our net/net is gone, replaced by a cash burning biotech company. Forgive us Ben Graham. Maybe its time for a trailing stop.
Other Discovery Partners Research:
3/17/05
3/03/06
3/17/06
4/12/06
4/25/06
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Tuesday, 12 September 2006
Plum Creek Timber Takes it on the Chin, Temporarily
You've gotta love the way investors react to analyst downgrades. Depending on the particular analyst and downgraded company, this situation can create short-term buy opportunities especially in quality companies. We are not short-term traders here at Cheap Stocks, but we know a temporary market inefficiency when we see it.
Look no further than Plum Creek Timber (PCL), which was downgraded today by Morgan Stanley to "underweight" from "equal weight". Excuse me? What does that mean? Well, it meant something to Mr. Market who proceeded to punish Plum Creek, dropping the stock more than $3.00 at one point in today's trading to $31.21. Cooler heads prevailed, and the stock closed at $33.51, down $.79.
We are still interested in Plum Creek's 7.8 million acres of land, and 4.7% yield, and continue holding the shares. Thank you Wall Street analysts, for continuing to create market opportunities.
Prior Plum Creek Research:
9/17/2005
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
You've gotta love the way investors react to analyst downgrades. Depending on the particular analyst and downgraded company, this situation can create short-term buy opportunities especially in quality companies. We are not short-term traders here at Cheap Stocks, but we know a temporary market inefficiency when we see it.
Look no further than Plum Creek Timber (PCL), which was downgraded today by Morgan Stanley to "underweight" from "equal weight". Excuse me? What does that mean? Well, it meant something to Mr. Market who proceeded to punish Plum Creek, dropping the stock more than $3.00 at one point in today's trading to $31.21. Cooler heads prevailed, and the stock closed at $33.51, down $.79.
We are still interested in Plum Creek's 7.8 million acres of land, and 4.7% yield, and continue holding the shares. Thank you Wall Street analysts, for continuing to create market opportunities.
Prior Plum Creek Research:
9/17/2005
*The author has a position in this stock. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
Sunday, 10 September 2006
Stretching the Net/Net Definition
We hope Ben Graham wouldn't take offense if we loosened up a bit, and took a gander at some "double net/nets"(that's our own Cheap Stocks term), or companies trading at less than two times their net current asset value. Afterall, we've already taken liberties with Ben's philosophy; he preferred companies trading at less than 2/3 of net current asset value, and we tend to focus on those trading below NCAV. Truth be told, it's slim pickings these days to find these companies (not unusual), but we'd thought it would be interesting to see what we could dig up at 2 times NCAV.
What we found was a list of about 300 companies, and below are the top 15 in terms of market cap. In the coming weeks, we'll profile what we believe to be the most interesting.
Company (Ticker)
Ingram Micro (IM)
Tech Data Corp (TECD)
Sycamore Networks (SCMR)
UTStarcom (SCMR)
USEC Inc (USU)
InfoSpace Inc (INSP)
Electro Scientific Industries (ESIO)
Exar Corp (EXAR)
LeapFrog Enterprises (LEAP)
Adaptec Inc (ADPT)
Utilicom Inc (ULCM)
Plug Power Inc (PLUG)
Cohu Inc (COHU)
Farmer Bros (FARM)
Portal Player Inc (PLAY)
Please keep in mind that we are not abandoning the typical formula we use to identify companies trading below their net current asset value. We just like to experiment from time to time. Companies trading at twice (or less) than their NCAV's could still be very cheap....or, they could be cigar butts.
*The author does not have a position in any of the stocks mentioned in this report. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
We hope Ben Graham wouldn't take offense if we loosened up a bit, and took a gander at some "double net/nets"(that's our own Cheap Stocks term), or companies trading at less than two times their net current asset value. Afterall, we've already taken liberties with Ben's philosophy; he preferred companies trading at less than 2/3 of net current asset value, and we tend to focus on those trading below NCAV. Truth be told, it's slim pickings these days to find these companies (not unusual), but we'd thought it would be interesting to see what we could dig up at 2 times NCAV.
What we found was a list of about 300 companies, and below are the top 15 in terms of market cap. In the coming weeks, we'll profile what we believe to be the most interesting.
Company (Ticker)
Ingram Micro (IM)
Tech Data Corp (TECD)
Sycamore Networks (SCMR)
UTStarcom (SCMR)
USEC Inc (USU)
InfoSpace Inc (INSP)
Electro Scientific Industries (ESIO)
Exar Corp (EXAR)
LeapFrog Enterprises (LEAP)
Adaptec Inc (ADPT)
Utilicom Inc (ULCM)
Plug Power Inc (PLUG)
Cohu Inc (COHU)
Farmer Bros (FARM)
Portal Player Inc (PLAY)
Please keep in mind that we are not abandoning the typical formula we use to identify companies trading below their net current asset value. We just like to experiment from time to time. Companies trading at twice (or less) than their NCAV's could still be very cheap....or, they could be cigar butts.
*The author does not have a position in any of the stocks mentioned in this report. This is neither a recommendation to buy or sell this security. All information provided believed to be reliable and presented for information purposes only.
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