6/10/2012

Closely Held Deep Value and getting cheaper

Hallador Energy Company (HNRG):  Produces and sells steam coal in the USA. Additionally they have ownership interest in Carlisle mine located in western Indiana, 45% equity interest with a Michigan oil and gas company Savoy Energy, 50% interest in natural gas company Sunrise Energy


Although not significant as a percentage of his total ownership the CEO reported insider buying on 06/06/12 for 6,305 shares costing 42,244 at a price of 6.70.

Insiders own 75.97% of the company. 17.80% held by  institutions.
Shares outstanding = 28.32M
Shares in Float = 11.31M
Market value of float =  13,310,000 (current price 7.82) = 104,084,200 
As you can see with the table below, valuations are cheap based on FCF margins, relative valuation based on EV to book, sales or EBITDA.

HNRG is an idea that could have fit in the recent post category by the always outstanding blog posts from
Nate Tobik at Oddballstocks: "Could value investors be the reason a stock's cheap?" and Geoff Gannon at GannononInvesting: "Can you screen shareholder composition"
I believe at the end of the day if a company is building value their efforts will be recognized. We all have examples of possible value traps that have eventually unlocked value with or without management's consent.
A stock will move higher if your value analysis is correct (i hope). This may be realized from a special dividend, introducing a dividend, tender offer, takeover, activist involvement, going private, insider buying reducing the shares available and providing public visibility along with share buybacks. If a company keeps adding value (more cash, book value,sales,dividends,etc)  the market in time will recognize .
As an example I recently experienced with a large company 1 billion in size.  Creating Over Looked Value but still Hated by Wall Street 
P.F. Chang's China Bistro, Inc. (PFCB) was doing all the right things to improve value but the market continued to ignore. So finally they made an offer to go private during May. The offer was about 35% greater than the prior day trading and 60% greater than the introduction price.
GES (Guess Jeans) has also been doing good things but the market has ignored my post(LOL).
Okay GES is not micro cap but felt it was worth the introduction like PFCB (PF Chang).
HNRG did start a dividend June 2010 and the CEO puchased shares on 06/06/12. No I cant know the future movement of this stock but I will look more closely. On a positive note, the unusual shareholder composition has enabled this stock to far outperform their Coal industry peers. 1 year  return for HNRG was -15% compared to the their industry average of -54.19%. They have been able to maintain this positive spread for over 10 years.

1 comment:

Anonymous said...

Thanks. I enjoy your insights, but also appreciate a post that educates. I was just looking at GES yesterday and I think it's up about $3 since your earlier post.
Teresa