Automodular liquidation calculation

by It will fluctuate

An alert reader just informed me that the spreadsheet link in my June 5th article on Automodular does not work anymore. That was the crucial bit of the thesis, so now that it’s gone I’ll write my own calculation here.

Based on the March 31 financials we get NCAV, which is likely a good proxy for liquidation value, of $33.2m (27.7m cash+12.5m receivables-total liabilities of 7m. Ignore PPE of 8.8m).

From NCAV, we’ll deduct $6m of termination costs (management’s estimate), and the recently paid dividend of $1.2m.

So if the business had closed its doors on March 31 and liquidated, we might get something around $26m (33.2m of NCAV – 6m of closing costs – 1.2m dividend paid on June 6th).

But Automodular will keep working for Ford until the end of 2014, so we need to add the money it will make until then. Here things get a bit more speculative:

In 2011 and 2012 quarterly after-tax profit averaged $3.6m (that average includes some one-time windmill related work, but that’s not been part of the earnings of the past few quarters, which have still come at $3.6m), capex averaged less than $0.6m, and depreciation about $1.6m. So we get average quarterly owner earnings of $4.6m.

Between March 2013 to year end 2014, when the Ford contract expires, there are 7 quarters: if the company were to make the same $4.6m per quarter in that period, they would end with an additional $32m. Is that a reasonable estimate? I don’t know. Maybe we should assume a straight line earnings decline, and we’d get $15m less. Maybe my capex is too high, since there’ll be no need to keep the plant fit for future years anymore. Who knows? (actually, management probably has some idea, so I will try to ask them – expect an update soon).

Even if that last part of the analysis is speculative, the investment is not. Ben Graham used to say that you don’t need to know the exact IQ of your nephew to know he’s a complete idiot, or something like that.

All you need to justify the gap between the current $33m market cap and the liquidation value of $26m that we came up with above is $7m more of FCF. That looks easy: from March 31 to today, the company has probably already made more than half that amount.

All the extra earnings, and the money that would come from other more far-fetched but still possible outcomes, are pure profit to the investor.

It seems there’s little to loose here, and much to gain.

Long AM.

Disclaimer: Don’t take anything on this website as investment advice.

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