Nano cap value dividend idea; 05/09/10

CVR( Chicago Rivet & Machine)

Enterprise value is 10.9 million with a market cap 15.45 million.

The stock in my opnion is close to being fairly valued at today’s prices but if operational performance prior 2009 is achieve the stock price should significantly outperform the general market. The company is distressed based on operating results over the past 2 years excluding the most recent quarter. But I believe the balance sheet will help insure the future. The stock is 5.02% off the 52 week high but 48.29% below the 5 year high offering potential mean reversion. The most recent financial results demonstrated that industry economics may be improving and the company’s bleeding may have stopped.

“Revenues for the first quarter of 2010 were $6,761,393, an increase of $2,002,103, or 42.1%, compared with the depressed levels of last year’s first quarter, when the impact of the domestic and global recession was most severe. While the increase in sales is significant and reflects the rebound in automotive production from a year ago, as well as improvement in the overall economic environment, current year sales are still approximately 20% below the first quarter of 2008. The increase in revenue combined with previously instituted cost control measures have resulted in a net profit of $33,869, or $.04 per share, compared with a net loss of $623,861, or $0.65 per share, in the first quarter of 2009.”

Don’t expect this 2.04% current dividend yield idea to move quickly as it trades near its 52 week high. But it’s worth monitoring.

Investment points:

17.50% held by insiders

19.80% growing YOY quarterly revenue

SGA expenses reduced over the past 3 years

Total liabilities reduced from 2007

Gross margins have been declining over the past 2 – 3 years directly impacted by increasing commodity prices

Relatively substantial real estate holdings, 5 manufacturing plants purchased before 2000
Naperville, Illinois ;Tyrone, Pennsylvania; Jefferson, Iowa; Albia, Iowa; Madison Heights, Michigan

Additionally, company owns their headquarters located in Naperville, Illinois

SGA/Revenue at a reasonable level of 22.60%

Share count has remained static over the past 5 years.

Trading at a potential large discount to normalized earnings based on the average 2006 to 2009 operating income to current enterprise value. If operating income returns to the average 06 to 09 levels the stock should eventually rise back over $20with the current dividend.


Anonymous said...

If at fair value then seems unGraham like to speculate over how the stock may or may not perform or whether it will return to it's glory days. Granted, I'm only 55 pages into The Intelligent Investor and maybe beging dogmatic. However, by management's own admission they are in an intensely competitive business. I get a BV of 21.82 and shaving off 25% get $16.37. CVR today closed at $16.20 so agreed not much MOS in that regard. Back of envelope, taking 8 as the low end of their PE range over the past ten years, if they clawed their way back to 2007 results, earing net income of $1.27million they would have a market cap of $10.16 million. They have a $15.65 million market cap now. To justify their current market cap assuming a PE of 8 they would need to earn $1.956 million. I think they only surpassed this back in early 2000. If the market assigns them a PE of 30 they can sustain current market cap on $509K of net income. I can get a prospective 4% dividend (or could last week) off VGK so I don't know I'm seeing a lot that is compelling about CVR based on my extremely diminutive knowledge of value investing. Let be clear though, I absolutely love your blog. Keep up the outstanding work. I bow deeply. -Warren

ShadowStock said...

Hi Warren

I agree with your useful comments and appreciate the insight. After looking at the idea I quickly realized that “The stock in my opinion is close to being fairly valued at today’s prices but if operational performance prior 2009 is achieve the stock price should significantly outperform the general market.” There were many points that would prevent the stock from moving quickly but decided to post as someone may find it useful. It may be in the the circle of competence for some investors.


Anonymous said...

It will definitely be on my watch list to take advantage of in the event of any seismic market events as it looks like in 09 it would have made an excellent cyclical/net net value play. I think if it got down to around 11 it would be 2/3 of NNWC based on quick scan. I'm seeing on cash flow statement they've got about $12M rolling over in CDs. Very healthy B/S. I've already bought one of your stocks. - Warren