Value investments, and other random lucubrations

Don’t talk and drive

This New York Times article lead me to two meta-analyses (here and here) which found that there are significant risks to talking while driving, which “appear to be manifested primarily in measures of response time to critical road hazard or stimuli”. “[D]rivers responded about 1/4 of a second later to stimuli in the presence of a cell phone distractor for all studies that were analyzed”, and that number “probably underestimates the behaviour of drivers when not being observed”.

And “hands-free cell phones do not eliminate or substantially reduce those costs”.

I listen to audio books while driving. There is not much research on that, but this study suggests it might not be a good idea either: “In-vehicle activities such as listening to the radio (1.21) or an audio book (1.75) were associated with a small increase in cognitive distraction, the conversation activities of talking to a passenger in the vehicle (2.33) or conversing with a friend on a hand-held (2.45) or hands-free cell phone (2.27) were associated with a moderate increase in cognitive distraction,and the speech-to-text condition (3.06) had a large cognitive distraction rating”.

To other Automodular shareholders:

Justin, who has a very high quality website called HeresyValue, is asking shareholders who have $100k or more invested in the company to email him.

He has a very clear view of what is probably the major risk in this investment (that of management’s interests taking precedence over those of shareholders), and plans to approach the Board and management with the intention of minimizing that risk.

I encourage you to write to him.

Long AM.

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

Automodular is cheap

I’ll explain why by pointing you to what others have written.

I fist learned about this company last year at Oddballstocks. It looked superficially cheap then, but Nate explained that its sources of revenue were at risk. He was right – today it seems like the company will soon have no work left to do.

A company is cheap if the discounted money it will ever make adds up to more than the current asking price. In this case that calculation is easier than usual as this spreadsheet by @Beutty  shows (I just called a guy a beauty! First step on the slippery slope to hell?).

So, today you’re paying $1.56 p/s, for something worth about $2.50 p/s. And maybe, if the stars smile on you and me, possibly more (at the end of this article is a sample of great possible developments – but don’t count on them, you ninny!).

Safety in Value, an unseasoned blogger like me, but unlike me a promising one, has also posted on this company.

Automodular trades as TSE:AM, and as OTCMKTS:AMZKF.

Long AM

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

Jewett-Cameron’s new director is the OWNER of Sequoia Capital!

I swear I’m not lying…but it’s probably not the Sequoia Capital you’re thinking of: The full name of the company Mr. Frank Magdlen owns, together with two other gentlemen, is Sequoia Capital Group, and they do investment banking for small companies.

That sounds good for Jewett, who elected him to the Board a few months ago. Mr. Magdlen, a CFA, also seems to have quite a bit of experience valuing and investing in small companies.

It’s nice to see value investors and investment bankers elected to the boards of undervalued companies when there’s a chance they might prod an apathetic CEO to close the gap between value and price. Jewett’s CEO is the opposite of apathetic (look at the size of the buybacks!), but it’s still nice. 

Long JCTCF. 

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

Jewett-Cameron is still cheap

More good news from Jewett-Cameron (JCTCF): It announced yesterday a new repurchase program for up to 13% of the company. In the recent past, they company has been a greedy repurchaser – since 2009 they’ve bought back 1/3 of the shares outstanding at an average price of $4.3 per new share (I say “new” because the share split 2-for-1 recently), well below the current price of $10, and well below intrinsic value.

I bought the stock a couple of years ago, when it was cheap on an earnings basis, and also traded at close to NCAV. Since then, the price has gone up quite a bit, but so have the earnings.

In the Feb 2013 10-Q it had tangible book value of over $18m (4.3m cash + 14.7m of other current assets + 2m of PPE – 2m of current liabilities). I suppose that in a liquidation the shareholders could get the NCAV of about $16.5m. But the company is very far from a liquidation.

Is it still cheap? Will buybacks at this price make the remaining shareholders richer?

Let’s see. The company is made up of:

  • A wholesaler of wood fences and metal dog kennels, gates, greenhouses, etc, that is growing and on average has made a yearly operating income of $3.5m for the past four fiscal years (which end in August). The op. income of the fist two quarters of the current fiscal year looks much better than that of the same period of last year.
  • A distributor of wood products, a seed seller and processor, and an importer and distributor of industrial tools. Together these three businesses have lost money in the last four fiscal years ($787k of op. income in total for the four years). But, (1) in the last fiscal year they made money ($188k op. income), (2) they did better still in the first two quarters of the current year and (3) the wood distributor used to make quite a bit before the recession, when boat manufacturers were buying their wood (op. income was about $1.7m per year from 2004 to 2006, and a little over $1m in each of 2006 and 2007).

So, today the whole company sells for $26m ($30m mkt cap + $0 debt – $4m cash), or about 6x the $4.5m TTM pre-tax earnings, which have been growing, and might possibly grow a lot more if their wood distribution business eventually improves. This is in a company managed by a CEO (Donald Boone) who owns over 30% of the shares but pays himself only $40k, who has done a great job of containing the costs of the business that is suffering while growing the business that is thriving, and who repurchases shares like a madman when they’re cheap. Can you ask for better management?

Jewett’s reported income is very similar to owner earnings: Its book value today is the same as that of August 2009, and the other line items of both balance sheets also look similar, but in the meantime the company has used $7.1m to repurchase it’s own stock. Meanwhile, during that period net income has added to almost the exact same amount. It’s hard to argue that net income is not real when it’s been taken out of the business and yet the remaining assets continue to produce ever greater earnings.

At this price, I’d say the company is not crazy cheap, but not a bad investment at all.

I, and people whose accounts I manage, own shares of JCTCF.

P.S. Thanks to Whooper Investments, who by the way has also written about Jewett, for the post that made me decide to start a blog. We’ll see how this goes.

Disclaimer: This post, and everything else on this website, is only my opinion, and should not be seen as investment advice.