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JakilaTheHun (99.94)

Obscure Company Inc. Analysis

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August 05, 2009 – Comments (13)

Ok, Attempt #2 at creating a personal Microcap Analysis blog.  The first attempt morphed into a discussion on CAPS criteria for rating stocks. (When I wrote "Ignore This" in the title, I knew I was setting myself up for disaster!)

This blog is centralized location to store my personal analysis of unrateable microcap stocks.  I do not write it for an external audience, so it could occasionally sound like gibberish.  You are free to read or comment, but I ask that any discussion be limited to the microcap stocks mentioned in this thread.  If you want to discuss CAPS' criteria for rating stocks, see the first thread

A lot of these companies will come from anticitrade's liquidation value selections.   I have the individual quick DCFs for all these companies stored at home, but they are in a giant file with DCFs of over 100 companies, so this will allow me to more easily recall which microcaps I have analyzed that were not also ratable on TMF.

 

13 Comments – Post Your Own

#1) On August 05, 2009 at 6:54 PM, JakilaTheHun (99.94) wrote:

CE Franklin (CFK):

My adjusted NTA figure was $3.43 after writing off goodwill and some inventories.  Earnings look relatively strong, but cash flows have never been quite as positive.  It looks like working capital balances have been the primary culprit, which probably means rising inventories and receivables.  This could be bad, but I'd have to delve deeper to discern with any level of certainty.

Steady-state free cash flows from 30 cents to 55 cents per share would be realistic, but conservative.  Going more strictly on net income, earnings have been around 70 cents to $1.20 per share. 

11% cost of capital to be moderately conservative.  My most conservative valuation is $7.15 (using 30 cents per share in Year 1 FCFs).  With 54 cents per share, that figure jumps to $10.10.  Earnings of $1 make it jump up to about $16.  

If CAPS would allow me to green thumb, I would.  I give it a conservative probable valuation around $8 and it could very well be worth anywhere from $10 - $18.  Selling under $5.50, it's a reasonably good bet. 

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#2) On August 05, 2009 at 7:18 PM, toopersent (74.63) wrote:

I will be following this to see how it turns out.  Good luck!

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#3) On August 05, 2009 at 7:38 PM, JakilaTheHun (99.94) wrote:

IKONICS (IKNX):

IKNX has been around for a long while.  They were established in the 1950s.  

IKNX has a small amount of intangible assets.  Most of this account consists of patents, licenses, and non-compete agreements.  It is my belief that the patents and licenses probably have significant value.  I'm not sure how to treat "non-compete agreements" to be honest.  Regardless, I decide to write-down intangibles to $0, but I mention this just as a reminder that some of these might not be "circular intangibles" (as I call them) and could be realistically sold on the market.  

I'm actually more worried about their Land & Building account b/c it is rather large.  I'm not sure if it should be written down due to potentially declining property values and I can't find details about the properties, but I assume they are located in Minnesota. 

Overall, I'd write down $2.4 million in assets just to be on the safe side (this is probably very conservative) and that leaves me with adjusted NTA of $9 million or $4.5 per share. 

---

IKNX has high Deprec & Amort'z so their Operating Cash Flows tend to be significantly higher than Net Income.  Net Income seems to fluctuate between about $0.40 and $0.60 per share.  Free cash flows are higher in most years, but in the most recent year, they bought an abnormally large amount of PP&E. 

It's worth noting that earnings were only 3 cents per share in the most recent quarter, which was down from 5 cents the previous year.  The 1st Quarter appears to be their worst quarter traditionally, so I'm not sure if that's cause for concern or not.  

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I'd consider 25 cents per share to be a conservative figure to plug in for a DCF analysis.  Using that figure and an 11% COC, I come up with a valuation of $7.60. 

With a more likely 40 cents per share figure, I come up with a valuation of $9.44.  50 cents = $10.68; 60 cents = $11.91.

Based on this, I'd say the company is worth about $8 which is based on the 40 cents per share, plus a discount for uncertainty.  While I believe this is undervalued, I don't believe it's quite as easy of a buy as CE Franklin above.  I don't see this as undervalued enough for me to personally take on the risk and I'm not sure if this company's growth prospects would make it worthwhile w/o further examination.

 

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#4) On August 05, 2009 at 8:09 PM, JakilaTheHun (99.94) wrote:

CCA Industries (CCA)

Health and beauty product supplier.  On the face of it, they have some major risks; most notably that 44% of their revenues are derived from Wal-Mart (WMT) which is notorious for strong-arming their suppliers.  

After discounting "Other Assets" and some inventories, I come up with Adjusted NTA of about $3 per share.  Their balance sheet actually mostly consists of cash, marketable securities, and receivables, which is good.  

Revenues trending downward; so are profits.  Advertising cutting into earnings. 

Free cash flows look strong.   Earnings between 20 cents - 80 cents per share.  

I used a 12% required rate of return due to higher risks associated with the Wal-Mart deal.  With 10 cents per share in Y1 FCFs (with 3% growth rate), I come up with valuation of $4.10.  This is conservative.  With 20 cents per share, $5.20; 30 cents = $6.31; 40 cents = $7.41.  

This is probably worth about $6.50 based on current earnings, cash flows, assets, and risks.  

It's potentially a good pick-up, but it's one of those where I'd have to do much deeper analysis to reach that conclusion and I see easier buys on the market.   Plus, I really don't like how easy their footing could be pulled away.

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#5) On August 05, 2009 at 8:10 PM, JakilaTheHun (99.94) wrote:

Oops ... CCA Industries (CAW) --- ticker is not "CCA"

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#6) On August 09, 2009 at 10:09 PM, Tastylunch (29.54) wrote:

I love this idea, hope you keep it Jakila

Here's one that you may wish to consider if you don't mind OTC stocks

Boss Holdings BSHI.OB

trading well below NCAV last I checked 

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#7) On August 14, 2009 at 11:19 PM, JakilaTheHun (99.94) wrote:

FortuNet (FNET)

An electronic gaming company that markets items to casinos.  Funny enough, their own overviews in their financial statements are absurdly bearish on their operations.  However, they have an absolute sh@tload of cash on hand and they have put a lot of it into marketable securities.  The company has managed to stay slightly profitable even in what it believes to be a disastrous scenario.  It also paid out an absolutely enormous one-time dividend.

Net tangible assets of $3.87 per share.  Stock sells for $1.17.  Earnings for most recent quarter of about 5 cents per share.  Free cash flows for most recent half-year around 20 cents per share.   Looks like they are still profitable on their main operations (but they aren't earning much off of it).  Still, given the high free cash flows and net assets, no reason it couldn't be worth upwards of $5.

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#8) On August 15, 2009 at 2:38 PM, Tastylunch (29.54) wrote:

JakilaTheHun

RE: FNET

It's a trap!

They paid out most of their cash in a large special dividend after their last earnings.

http://seekingalpha.com/article/153472-why-you-should-look-beyond-earnings-statements

http://seekingalpha.com/article/131983-fortunet-makes-a-fortunate-decision-on-dividends

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#9) On August 15, 2009 at 3:11 PM, JakilaTheHun (99.94) wrote:

Thanks, Tasty.  I actually mentioned that and its part of what makes its statements somewhat confusing to me. 

The May dividend is reflected in their most recent 10-Q filing, which ended on 6/30/09.  The question is whether they've paid another dividend since then.  If you take a look at the chart, you'll see it was trading down towards is current value; then around the last dividend announcement - shot upwards. 

The stock still might be a decent value, funny enough.   I'd have to dig further, though.  I wouldn't buy it because it seems like there's a lot that would be easy to miss, but I'm keeping my eye on it. 

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#10) On August 17, 2009 at 12:38 AM, Tastylunch (29.54) wrote:

Hrm Sorry i missed that sentence in your pitch jakila

The latest balance sheet clears this up the numbers you are refernceing are Pre-dividend which was paid out on 4/24

filed 8/13/09


http://www.sec.gov/Archives/edgar/data/1337899/000117184309000855/f10q_081309.htm

There is now only 6.148 Million In Cash and Total current assets of 10.416 Million. Total Assets of around 21 million

I'd say it's no longer nearly as attractive as it's trading a bit over NCAV.

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#11) On August 25, 2009 at 7:48 AM, JakilaTheHun (99.94) wrote:

Note to self ---

MFRI looks intriguing under $7.  It's well below NTA and appears to be profitable.  Too bad I can't rate it here on CAPS.  I need to do some more digging, but my initial reaction is that this is rather cheap.

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#12) On August 25, 2009 at 8:06 AM, JakilaTheHun (99.94) wrote:

Note to self #2 ---

Seneca Foods (SENEA) looks intriguing; however, due to its lower beta, I question whether it will "outperform" the market in spite of being significantly undervalued. 

I  also don't like the huge number of preferred shares outstanding.  Analyzing companies with a large number of preferred shares is a pain!  It makes everything much more complicated. 

It also seems to stay perpetually undervalued --- I'm not sure if that's because (a) it's a "boring" business, (b) the overly complicated share structure, or (c) I'm wrong.  I'd feel better about it if they paid a dividend, but they don't.  

Still, it does look significantly undervalued and seems to be well managed.  It has historically earned a very healthy return on equity.  I might look into this further.

It's technically ratable on CAPS, but I don't want to rate it b/c of aforementioned possibility that it won't beat S&P.

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#13) On August 27, 2009 at 4:31 AM, JakilaTheHun (99.94) wrote:

Damn, another unratable ticker! 

Constellation Energy Partners (CEP) looks *VERY* intriguing.  Even after a $225 million writedown of their PP&E, I still come up with net tangible assets of over $13 per share.  Earnings fluctuate wildly, as seems to be typical in the oil & gas industries, but cash flows have actually looked pretty good. They have hedged their bets like crazy, which has helped them through the current crisis.

Of course, there's something wrong or it wouldn't be selling below $3, but the market might still be dramatically overreacting here.  

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