I have been trawling through a few stock screens looking for the odd deep value situation to counterbalance the compounders (high ROCE, strong and dependable FCF etc) in my portfolio.
I came across Richardson Electronics (www.RELL.com). Ticker: RELL (Nasdaq)
I don't think this is as cheap as Gencor (GENC) but i will put my rough workings down and will happily respond if anyone has any views / questions.
Is it a net net?
Formula: NCAV = Current Assets - Total Liabilities.
Total Group Current Assets: $192m (of which main items are Cash on B/S: $103m and Current Investments (short term CDs) of $32m. Inventories: $32m, Accounts Receivable: $18m, Income tax receivable $3m)
Using strict Ben Graham methodology we would have to discount the value of the inventories, so lets say they are worth 70c in the $1. Therefore 0.7 * 32 = $22m for the inventories
Therefore adjusted Current assets are $182m
Total Liabilities: $29m (of which the main items are Accounts Payable $12m, Accrued ST liabilities $9m, Non Current Income tax $6m.)
Therefore the NCAV is Current Assets ($182m) minus Total Liabilities ($29m) = $153m
Mkt Cap = $135m
So it is trading at 0.88x NCAV.
Graham then applied a “margin of safety" to the NCAV, by only being prepared to pay 0.66x NCAV.
For RELL this would be 0.66 * 153m = $101m
Current mkt cap $135m
So close, but no cigar
Ok, so is it interesting anyway ?
Well yes and no. Yes from the perspective that cash and near cash account for 98% of your stock price alone. That would seem to limit downside to me.
Also Management has sold assets in the recent past eg June 2011 the RF, Wireless and Power Division was sold to Arrow Electronics for $238m and in May 2007 RELL sold its Security Systems Division to Honeywell for $80m.
Management has been buying back shares with the proceeds of the sales such that the share count in 2014 at 14.1m is 20% lower than in 2010. Tangible Net assets per share stand at $12.28 vs a share price of $9.61.
Is there a catch ?
The financials look interesting but the operating business looks like it is going nowhere.
There are 2 divisions left:
1. Electron Device Group (EDG) – “EDG provides engineered solutions and distributes electronic components to…
