September Watchlist Fair Value Updates

This week I analyzed TLF, JCTCF, MPAA, MNRO, CVR, PINC, PETS, SKAS, CSV, NTGR

I was recently looking through my watchlist of stocks that I have written about in the newsletter and was feeling like some of my valuations might be getting stale. So this week I took another look at some of the stocks I wrote up earlier in the year. The net-net stocks were straight forward to update. For the earnings power stocks, I took a look at my previous revenue, operating margin, and discount rate assumptions to see if things have drastically changed. Now that treasury yields have declined a bit, I slightly lowered my discount rates on some of my valuations. Tandy Leather and Jewett-Cameron saw the biggest ratings upgrades because I factored in the property both are attempting to sell. The rest of the stocks didn’t see too drastic of changes, but at least I have some fresh eyes on them.

Tandy Leather Factory

• Last updated in May, previous fair value $4.99

• Latest current assets $50.8M, total liabilities $15.3, add back $6.7 for lease liabilities

• Updated NCAV $42.2M

• Since my original write up I’ve learned that a couple of funds have a large stake in the company and are trying to sell the headquarters/main warehouse located in Ft. Worth

• The property is currently listed for sale (you can find it on LoopNet), other warehouses at 220,000 sqft in size sell for $75-100 per sqft

• conservatively value the property at $75 a sqft gets $16.5M

• Adding the value of the real estate to the NCAV gets an estimated asset value of $58.7M, or $6.95 a share

• Originally I was waiting to Tandy to become a cheaper net-net, but after learning about the real estate being sold I am much more bullish on the stock and will be adding to my portfolio

Jewett-Cameron Trading

• Last updated in May, previous fair value $5.73

• Updated current assets $23.3M, total liabilities $3.3M

• NCAV $20M, or $5.70 a share

• Jewett-Cameron closed down their seed business last year and are trying to sell the property the business resided on

• The property is 11 acres located on the edge of Hillsboro, OR

• One write up estimated the land could be worth $500k an acre, so $5.5M in total

• Add the $5.5M in land to get an estimated asset value $25.5M, or $7.30

• Jewett-Cameron is already trading below their NCAV, so selling the property is an added bonus

• Some activist funds are making noise about JCTCFs management, so that could be bullish too

Motorcar Parts of America

• Last updated May, previous fair value $14.35

• Latest equity value $285.1M, book value $14.50

• In my write up I valued MPAA using a reproduction value approach, which produced a much higher fair value estimate

• In order to be conservative, I handicapped my fair value estimate to the company’s book value

Monro

• Last updated January, previous fair value $27.50

• Previous assumption $1.3B revenue, 9.8% operating margin, 25% tax rate, 10% discount rate

• Margins have been closer to 5%, maybe lower discount rate since treasury yields have came down

• Updating to 7.5% operating margin, 9% discount rate gets $719.2M equity

• Fair value reduced $22.70

• Since writing up the stock it has never gotten quite cheap enough even though it is down quite a bit from its highs last year

Chicago Rivet & Machine

• Last updated January, previous fair value $16.26

• Updated current assets $15.5M, total liabilities $2.1M

• NCAV $13.4M, or $13.90 a share

• This stock has been hovering right above its NCAV all year so it would be nice if traded at more of a discount

Premier

• Last updated January, previous fair value $23.40

• Previously used $1.3B in revenue, 26% operating margin, 25% tax rate, 10% discount rate

• Revenue on track, lower margin to 24%, discount rate 9%

• $2.62B equity value, $22.90 a share

• This company bought back around 20% of its stock earlier in the year which piqued my interest

• PINC is just slightly below my fair value so I’ve been hoping it would trade more at a discount

PetMed Express

• Last updated March, previous fair value $9.70

• Previously used $256M in revenue, 9% operating margin, 25% tax, 12% discount rate

• Updated assumptions to $270 revenue, 5% margin, 25% tax, 12% discount rate, plus $46M in cash on balance sheet

• $130M equity value, $6.30

• This fair value seems a bit more realistic than my previous estimate

• Weak consumer spending and strong competitors make me very unsure of my assumptions, the company could be a melting ice cube

Saker Aviation

• Last updated February, previous fair value $7.65

• Updated $10.6M current assets, $2.1M liabilities

• NCAV $8.5M, $8.50 a share

• It looks like revenue is rebounding, so maybe it would be appropriate to value the company on its earnings instead of a net-net

Carriage Services

• last updated March, previous fair value $27

• CSVs financials seem to be on track from earlier in the year

• Assume $80M in operating profit, $35M in interest expense which is slightly lower than before, 25% tax rate, 8% discount rate

• $422M equity value, $27.40

• This company seems to be a quality microcap but it has constantly been above my fair value estimate

Netgear

• Last updated May, previous fair value $14.98

• Updated current assets $657.6M , $294.7M in liabilities, add back $24.8M for lease liabilities

• NCAV $387.7M, $13.20 a share

• Netgear’s NCAV has decreased, but stock has recently rallied quite a bit after favorable quarterly results