Retail Holdings NV RHDGF
December 31, 2007 - 7:46pm EST by
perspicar744
2007 2008
Price: 8.25 EPS
Shares Out. (in M): 0 P/E
Market Cap (in $M): 43 P/FCF
Net Debt (in $M): 0 EBIT 0 0
TEV ($): 0 TEV/EBIT

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  • Holding Company
  • Manufacturer
  • Asia

Description

Valued below its cash & high quality receivables, you get 56.8% ownership of a business for free.  It trades like private equity, and the company has stated a medium-term goal of liquidating. 

 

There are no operating activities (other than equity ownership in a distributor of consumer durables), and the company has no plans to acquire other operating assets.  Instead it plans to continue share buybacks (having already retired 1/3rd of the shares), pay more dividends, and ultimately pay a liquidating distribution.

 

5.23m fully diluted shares out

$8.25 stock price

$43m market cap, no debt at the parent company

 

There are three principal assets: 

                                                                                                                     Per share

$26.2m in cash (balance sheet cash & equiv., less $1/sh dividend paid)             $5.01

 

$26m of Notes receivable, net of a valuation allowance                                    $4.97

 

56.8% equity interest in Singer Asia                                                                 $7.54 (maybe more)

                                                                                                Total            $17.52 per share

                                                                                                                     112% upside

 

History

This company is the residual entity of the old Singer Sewing Machine company which went into bankruptcy in the late 90s due to fraud perpetrated by a former CEO.  The company emerged in 2000 still heavily levered, and began selling off assets. 

 

Asset Sales

July 2003 – Sold 43.2% of Singer Asia to a private equity firm for $30m.  This implies $39.4m or $7.54 per share of value for their remaining 56.8% stake, before any premium for control.  More info on this asset later.

 

Sept 2004 – Sold its worldwide sewing business & trademarks (for $134.6m) to a division of private equity firm Kolberg & Co.  The consideration included $22.5m of 7 year notes at 10% interest.  1/3rd comes due in 2010 and the balance in 2011.   The notes pay semi-annually and 30% of the interest may be capitalized and added to the balance at the issuers option.

 

June 2005 – Sold Singer Jamaica (for $8.5m) generating additional notes of $5.5m which now have face values of $1.845m at 2.1% interest and $500k at 10%.  These pay quarterly and principal payments start in March 2009 and finish in June 2010.

 

Through these asset sales, the company paid off all of its bank debt, redeemed its preferreds, bought back over 1/3rd of its outstanding equity, and paid a $1.00 per share dividend in July 2007.  The CEO considers the remaining notes money good, though they certainly are not AAA credits.  Though Kolberg & Co is not on the hook, as a parent co to the subsidiary that actually owes the money, it has both its equity capital at stake and a reputational interest in seeing that their subsidiary makes good.

 

Singer Asia

Singer Asia has approximately $270m in sales and is free cash flow positive.  It is a distributor of consumer durable goods (washing machines, refrigerators, etc.) in emerging markets such as Sri Lanka, Thailand, Bangladesh & Pakistan.  This makes them a play on the high growth rates for the emerging consumer class in those countries.    

 

Their biggest market penetration is in Sri Lanka where it has 137 Singer “Plus” retail outlets and 9 Singer “Mega” stores.  The company believes it has 50% market share in Refrigerators, 33% in Washing Machines, and 75% in Sewing Machines.  They offer consumer financing and have 2% of accounts past due over 60 days.

 

In Thailand, they have messed up on consumer lending.  After expanding into consumer loans for Motorcycles/Motorscooters (which are omnipresent in Bangkok due to the traffic snarls), they have run high delinquencies and are now strengthening their technology systems and aiming for more credit-worthy borrowers.  Because of Thailand, 2007 cash flow is in a lull, though for the first half they did $133m in sales up from $122m in the prior year’s period.  Operating Cash Flow was only $6.2m vs. $13.2m prior.  Capital expenditures were $2.4m down from $3.6m.  This $3.8m of six months free cash implies $7.6m annualized at a trough.  Putting 10x on that free cash gives $76m or about where the company traded 43.2% of its equity in 2004.

 

The company intends to enter India next.  

 

 

To get an idea where the parent company is headed, consider this plan from the Chairman who also owns a large piece of stock:

 

Chairman’s Publicly Stated Strategy:

In commenting on the Strategy Statement, [Chairman] Mr. Goodman noted, “We are now at an important decision point in the evolution of Retail Holdings. On emergence from Chapter 11 in September 2000, the Company, then known as Singer N.V., had significant corporate debt and a very substantial negative tangible net asset value. By divesting a minority stake in Singer Asia in 2003, and by divesting the Singer world-wide sewing business and trademark in 2004, the Company has been able to repay all of its corporate debt and create a cash surplus. A portion of this cash has been used to purchase all of the Company’s preferred stock and more than one-third of the Company’s common shares outstanding at inception. As a result of these measures, at the end of 2006, the Company had a positive tangible net asset value [he’s referring to book value] of approximately $67 million, equivalent to approximately $13.20 per share outstanding.

 

“The Retail Holdings’ Board of Directors, after carefully evaluating the Company’s alternatives, has concluded that it is in shareholders’ interest to maximize and monetize the value of the Company’s assets with the medium-term objective of liquidating the Company and distributing the proceeds to shareholders. The Company does not expect to use the cash and borrowing power at its disposal to acquire other operating assets. Rather, the Company anticipates using the existing cash and cash it may realize from the divestment of Singer Asia and repayment of the seller notes, to acquire additional shares, to pay a regular dividend, and, ultimately, to distribute a liquidating dividend to its shareholders.”

 

Seems to me like a safe plan to realize the full value of the assets, with $9.98 per share in cash-able assets protection.

 

Catalyst

- Dividend announcements
- Possible sale of Singer Asia
- More buybacks
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