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Meade: Still Destroying Value

December 14, 2011 | About:
AlphaVulture

AlphaVulture

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Meade is an extremely tiny company with a 3.88M market cap that specializes in manufacturing telescopes, binoculars and other optical products. The company was mentioned yesterday at Barel Karsan; and it’s attraction is the balance sheet: it’s currently trading at a 63% discount to net current assets. Some key statistics:

Last Price: 3.16

Shares outstanding: 1.2M

Market Cap: 3.88M

EPS (ttm): -0.42

Price/Tangible book (mrq): 0.37

EV/EBITDA (ttm): -7.14

The earnings that the company report are a bit too pessimistic. They are in the process of writing down goodwill, and the depreciation of property and equipment is also keeping the reported earnings down. At the moment they have almost completely written this down, while no significant capex is planned for the near future. That said: the company is still destroying value. Since the company is not paying dividends or expanding we can simply look at the NCAV/share to get a good idea on the value creation or destruction at the company.

ncav.png

So far they have been unable to turn the business around. The speed of the bleeding has slowed down, but it’s certainly not positive. And while they currently operate with property and equipment that has been written down to just 193K: there is going to be a point in the future were they need to start spending money on capex. Another development that is potentially worrying is that the allowance for doubtful accounts as a percentage of total accounts receivable has dropped significantly. They had an allowance of 408K on total accounts receivable of 3192K previous year while it’s currently 64K for 4077K accounts receivable. There might be a good explanation, but it could also be that the quality of the accounts receivable asset is deteriorating.

Conclusion

If management manages to turn the business around or quickly liquidates the company there is probably a lot of value in MEAD. It might happen, and yes they are in the meantime not destroying value at an alarming pace, but at the same time it’s mostly wishful thinking. There is not a cash flow positive business hiding behind the numbers, or a historical profitable business that’s just having a bad year. At the same time; there should probably be a number were buying MEAD makes sense. What do you think?

Disclosure

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