1/16/2011

Mediocre Companies Selling at Cheap Prices

For this weekend I can only introduce one idea based on Ben Graham’s approach of buying mediocre companies selling at cheap prices.

DVL Inc: DVLN.OB
Current price = .14


DVL Inc is a commercial finance company engaged in “the ownership of residual interests in securitized portfolios, the ownership and servicing of a portfolio of secured commercial mortgage loans made to Affiliated Limited Partnerships, the ownership of real estate and the performance of real estate asset management and administrative services.”

DVLN is a profitable company currently selling at 23% of a growing book value with an experienced management team. The book value reported is potentially significantly less than the current market value. 2005 Book value was .31 and now sits at .60. The company’s assets are complex (a quote from managment).


One property on the books worth noting is 8.5 acre retail site located in Kearny, NJ which they “owned for many years” and for which it has been designated as developer by the Town of Kearny. Kearny is a middle class neighborhood with a relatively short commute to Manhattan.

I believe the idea should only be considered by investors willing to hold for a long time and more importantly willing to accept the real potential they go dark. January 28th management will vote for a 1 for 7,500 reverse split. This will enable them to list on the pink sheets and avoid further communication with investors.

I thought the idea was worth discussing given the assets market value to current price discount coupled with recent strong cash flow and potential future monetization of assets as promised by management. 

“grazingbull_2000” a poster on the DVLN.OB message board is extremely knowledgeable and analytical.
 If interested I suggest reading some his posts. on DVLN.OB

http://search.messages.yahoo.com/search?.mbintl=finance&q=grazingbull_2000&action=Search&r=Huiz75WdCYfD_KCA2Dc-&within=author&within=tm

Financial data
Current shares outstanding = 44,770,345
Shares in the public float = 30,880,000
Market Capitalization = 6,267,848
Enterprise Value = 42,452,848

If we subtract out the net receivables from EV the value gets interesting

6,267,848 (MC) – 1,768,000 (Cash) + 37,953,000 (Liabilities) = 42,452,848 (EV) – 49,010,000 (AR) =


-6,557,152



Per Share Data

Price = .14
EV = .95
AR = 1.09
Cash = .03
Long Term Investments = .0146
Total Liabilities = .95

OI = $0.13

Ratios

OI/EV = 13.68%

Average annual OI from 2006 to 2009 to the current EV value = 13.75%

This idea would only make sense if your time horizon is long term and willing to hold an illiquid stock. The risk is directly from management’s recent announcement effecting a 1 for 7,500 reverse split. The vote will be held on January 28, 2011. It was proposed fractional shareholders will receive .14 per share if the vote is approved. Going dark could have many adverse results; over compensation of management, unable to find a market maker willing to trade their stock, zero communication with shareholders.

LONG DVLN.OB

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