A tiddler of a company, Holders Technology (LSE:HDT) entered my net current asset value, NCAV, portfolio in November 2014. Its market capitalisation back then was a mere £1.85m (3.94m shares x 47p). This fell to only £1m in March 2016. Now it is £1.6m (4.06m shares x 40p), or £1.4m at the offer price of 35p.
It recently reported annual results so this is a good time to consider whether to hold, buy some more or sell.
(Earlier Newsletters on Holders Tech: 4th – 6th Nov 2014, 10th Nov 2014, 23rd – 24th Feb 2015, 28th April 2015, 17th – 19th Aug 2015, 3rd – 5th Mar 2016)
Why buy in November 2014
This was not an easy decision. While its NCAV was much higher than MCap, and net assets were more than three times MCap, it had an awful strategy of competing unprofitably in highly competitive markets with its customers in a commanding position to insist on low prices. It had gone through six years of breaking even over that span.
I wrote: “There is a good chance that it will continue in a weak position vis-à-vis customers in its product areas, and therefore this investment will turn out to be a dud. I estimate the probability of this occurring as greater than 50%.”
But if it did sort itself out a multi-bagger return might be in the offing. In the meantime it had plenty of cash reserves, no debt and no-sudden-move managers.
The two duff markets:
1.Supplying manufacturers of printed circuit boards, PCB, with components and machinery
2.LED lighting (started from scratch after the financial crisis)
Net current asset value in May 2014
It had £0.73m of cash compared with its MCap of £1.85m. In addition there was £2.58m in inventories and £2.06 in receivables.
Total liabilities were £1.32m. So a crude NCAV was £4.08m or 104p per share. Even if a large chunk of inventories and receivables were deducted to allow for managerial over-optimism in valuation, NCAV was much higher than MCap.
Another positive: dividend yield was 4.76%
The qualitative factors
Managers?
Before I met the directors to quiz them ab……………….To read the rest of this article, and more like it, subscribe to my premium newsletter Deep Value Shares – click here http://newsletters.advfn.com/deepvalueshares/subscribe-1