Gencor Industries - Interesting Net Net. An in depth view.

Friday, Jan 09 2015 by

Gencor Industries (GENC US) $9.41

This is a follow up to my initial piece on Net Nets ( where I mentioned Gencor (GENC US) and follows on from Rupert Hargraves's analysis of “Three Buffet Style Cigar Butt Bargains" on 14/11/2014.

Gencor is a net net for the following reason:

Net Current Asset Value (NCAV)

Cash on B/S: $87.1m

Accounts Receivable minus creditors & customer deposits & Accrued expenses : -$1.5m

Inventories: $13.7m (but lets discount these by 30% for safety = $9.5m)

Long term and short term debt: $0m

Net Current Asset Value (NCAV) $95m

Net Asset Value

Same as above, but add on value of property which is owned : $7.1m (this is for 2 offices / manufacturing facilities in Marquette, Iowa for a 137k sq ft facility and 72 acres and in Orlando, Florida for 215k sq ft facility and 27 acres of land).

Total Net Asset Value: $103m

Shares in Issue: 8m (plus a few options)

Share Price: $9.4

Mkt Cap: $75m


0.78x NCAV

0.72x NAV

0.64x stated Tangible Book Value

Thoughts on the valuation
Cash on the balance sheet accounts for more than the current market cap alone, before we factor in the value of inventories. But the Group also has a breakeven(ish) design / manufacturing operation for asphalt plants. This is definitely worth something in my view

Lets dig into this further

The Operating Business
Gencor Industries “designs, manufactures and sells machinery and related equipment used primarily for the production of asphalt and highway construction materials. The Company's principal core products include asphalt plants, combustion systems and fluid heat transfer systems." (Annual Report, 2014)

First off lets be very clear. Gencor Industries is NOT a good business as defined by most classical definitions of good businesses eg High return on Capital Employed (ROCE). ROCE is poor and inconsistent. Looking back over the last 10 years the Gross Margins have oscillated between a low of 15.8% in 2011 and a high of 26.4% in 2007. These are low GMs and give little protection if trading disappoints. Its an unfair comparison but look at Aggreko which designs and assembles generators: Gross margins >60%. A high quality business.

My first observation is that this implies that Gencor operates in a highly competitive, fragmented industry, with low barriers to entry. Consequently I assume it has little or no pricing power, which is why GMS are low and show considerable variability. Steel is a major raw material and the volatility…

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Gencor Industries, Inc. is a manufacturer of heavy machinery used in the production of highway construction materials, synthetic fuels and environmental control equipment. The Company designs, manufactures and sells machinery and related equipment used primarily for the production of asphalt and highway construction materials. Its geographical segments are United States and Other. The Company's principal products include asphalt plants, combustion systems and fluid heat transfer systems. It also manufactures related asphalt plant equipment, including hot mix storage silos, fabric filtration systems, cold feed bins and other plant components. The Company also manufactures soil remediation machinery, as well as combustion systems for rotary dryers, kilns, fume and liquid incinerators and fuel heaters. Its General Combustion subsidiary also manufactures the Hy-Way heat and Beverley lines of thermal fluid heat transfer systems and specialty storage tanks for an array of industry uses. more »

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Imperial Brands PLC, formerly Imperial Tobacco Group PLC, is a fast-moving consumer goods company. The Company offers a range of cigarettes, fine cut and smokeless tobaccos, papers and cigars. The Company's segments include Growth Markets, USA, Returns Markets North, Returns Markets South and Logistics. The Growth Markets segment includes Iraq, Norway, Russia, Saudi Arabia and Taiwan, and also includes Premium Cigar and Fontem Ventures. The Returns Markets North segment includes Australia, Belgium, Germany, the Netherlands, Poland and the United Kingdom. The Returns Markets South segment includes France, Spain and its African markets, including Algeria, Ivory Coast and Morocco. Its businesses include Tobacco and Logistics. The Tobacco business comprises the manufacture, marketing and sale of tobacco and tobacco-related products. The Logistics business comprises the distribution of tobacco products for tobacco product manufacturers. more »

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Aggreko plc is a United Kingdom-based company, which is a provider of modular, mobile power and related solutions. The Company's segments include Power Solutions and Rental Solutions. The Power Solutions segment provides solutions for power requirements. The Power Solutions segment has two businesses: utility and industrial. The Industrial business operates in emerging markets to develop solutions and then rent its equipment for the customers to operate themselves. The Utility business also serves emerging markets, acting as a power provider, installing and operating modular, mobile power plants. The Rental Solutions segment is a transactional business that offers power adjacencies, such as heating, cooling, oil-free air and load-banks. The Company focuses on a range of sectors, including petrochemicals, oil and gas, events, utilities, manufacturing, services, construction, mining and shipping. more »

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  Is NMQ:GENC fundamentally strong or weak? Find out More »

3 Comments on this Article show/hide all

VegPatch 3rd Mar '16 1 of 3

Shares now up over 49% since I posted this review but didn't buy any.

Just goes to show
1. you should follow the power of your convictions
2. Good things happen to cheap stocks

Totally annoyed with my self for missing this one at the bottom.

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Ramridge 4th Mar '16 2 of 3

Hi VegPatch -
Out of curiosity I ran the Stockopedia Benjamin Graham NCAV Bargain Screen excluding Financials, Energy and Minerals, and found an interesting bunch of 37 stocks.
In the main they are the walking wounded such as Watchstone (ex Quindell), Blur, Adgorithms, Stanley Gibbons, etc. Mostly small and micro caps. I suspect if you do a bit of back testing over a year say, you will find the vast majority of them have dropped value significantly. So to find the one that will sparkle and head north you will need to do a lot more research.
Is the risk/ reward ratio worth the effort? Not convinced.
This is just a view based on a cursory analysis. Happy to be proven wrong.

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VegPatch 4th Mar '16 3 of 3

Definitely Do cursory research. Does the business do something you understand eg make asphalt machinery. Answer "yes" then do some more research. If it does something esoteric like inventing a cure for Lupus then move on.

It's all about filtering. Spend time on those situations where odds are in your favour. Leave the rest to the guys who prefer the lottery tickets.

I would be interested to see your list...

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About VegPatch


A Portfolio Manager with over 15 years experience. Currently looking for a job (please email me if you think I could help your organisation). When not ferrying the kids around or in the veg patch I love analysing shares and taking positions on both the long and the short side. I look for value situations, especially net-nets and undervalued compounders. I believe good / bad management has a massive impact on the outcomes for shareholders. I would not rather do any other job. Email me if you have any interesting ideas that fit into my criteria. more »

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