Paying down debt, especially in highly leveraged companies never gets the respect or more importantly the increase in the market value it deserves.
Many of these companies made mistakes with poorly financed overpriced acquisitions or just hit bad times with an overly leveraged balance sheet. The market is not quick to forgive or recognize management’s improvements with debt pay downs. Investors are mostly ignoring these dramatic improvements in equity valuation. Some sell off bad assets, refinance debt or allocate the cash flow to accelerate the pay down of debt.
Some obvious improvements are reduction of interest expense, reduced company risk with opportunity to refinance at lower rates, improved debt capacity or new opportunities to improve future capital allocations.
An unintended beneficial consequence in my opinion is a more responsible allocation of future capital as there is little room to waste money
Some companies that may fall into this potential value creating category are
Fortress International (long position) (FIGI.PK) $1.30
At the end of 2007 long term debt per share was ~.68 ($7.9 million) reduced to ~.22 per share (2.9 million) for the most recent quarterly balance sheet. This ~67% reduction in long term debt was accomplished with sale of noncore assets, dramatic expense reduction, allocation of cash generation for debt reduction and significantly improved business operations partially due to new customers and improved economics from the 2007/08 recession. The per share long term debt improvement was significant from .68 (2007) to .22 (current).
Year end 2007 price was $4.85
Additional data:
Market Capitalization: $18,690,000
Enterprise Value: $36.290,700
P/S is ~ .27 historically cheap
On 11/12/10 FIGI.PK posted an outstanding improvements:
Backlog of $35.1 million at September 30, 2010
Cash increased to $11.2 million at September 30, 2010
Revenue of $21.0 million, an increase of 108% over the third quarter of 2009
Gross profit was $3.2 million, an increase of 53% over the third quarter of 2009
Baldwin Technologies (long position) (BLD, Financial) $1.31
At the end of 2007 total debt per share was ~6.76 per share (102.64 million) reduced to ~4.86 per share (75.456 million) for the most recent quarterly balance sheet.
Year end 2007 price was $4.72
Additional data
Industry: Diversified Machinery
Market Capitalization: $20,400,000
Enterprise Value: $81,961,700
P/S is ~ .10 historically deep discount
Reported (11/11/10) results improved
New President and CEO appointed October 1, 2010
Q1 Sales up 6% over prior year
Q1 Orders up 18% over prior year
Gaming Group (MNTG, Financial): $2.50 MTR
At the end of 2007 total debt per share was ~18.15 per share (499.17 million) reduced to ~15.18 per share (417.64 million) for the most recent quarterly balance sheet.
Year end 2007 price was $6.79
Additional data
Industry; Gaming Activities
Large extensive valuable real estate portfolio of land and buildings for gaming activities
Market Capitalization: $54,260,000
Enterprise Value: $430,260,000
P/S is ~ .10 historicall discount
P & F Industries(Long Position) (PFIN, Financial): $3.30
At the end of 2007 total debt per share was ~13.38 per share (48.28 million) reduced to ~10.38 per share (37.38 million) for the most recent quarterly balance sheet.
Year end 2007 price was $5.93
Additional data
Industry; Small Tools & Accessories
Market Capitalization: $11,930,000
Enterprise Value: $11,930,0000
P/S is ~ .20 historical discount
Recent quarterly results (11/12/10) showed an outstanding profitable turn around
improved gross margins
Net income per share for the quarter was .23
As the economy improves the company should be positioned to exploit opportunities
Shadowstock
http://shadowstock.blogspot.com/
Many of these companies made mistakes with poorly financed overpriced acquisitions or just hit bad times with an overly leveraged balance sheet. The market is not quick to forgive or recognize management’s improvements with debt pay downs. Investors are mostly ignoring these dramatic improvements in equity valuation. Some sell off bad assets, refinance debt or allocate the cash flow to accelerate the pay down of debt.
Some obvious improvements are reduction of interest expense, reduced company risk with opportunity to refinance at lower rates, improved debt capacity or new opportunities to improve future capital allocations.
An unintended beneficial consequence in my opinion is a more responsible allocation of future capital as there is little room to waste money
Some companies that may fall into this potential value creating category are
Fortress International (long position) (FIGI.PK) $1.30
At the end of 2007 long term debt per share was ~.68 ($7.9 million) reduced to ~.22 per share (2.9 million) for the most recent quarterly balance sheet. This ~67% reduction in long term debt was accomplished with sale of noncore assets, dramatic expense reduction, allocation of cash generation for debt reduction and significantly improved business operations partially due to new customers and improved economics from the 2007/08 recession. The per share long term debt improvement was significant from .68 (2007) to .22 (current).
Year end 2007 price was $4.85
Additional data:
Market Capitalization: $18,690,000
Enterprise Value: $36.290,700
P/S is ~ .27 historically cheap
On 11/12/10 FIGI.PK posted an outstanding improvements:
Backlog of $35.1 million at September 30, 2010
Cash increased to $11.2 million at September 30, 2010
Revenue of $21.0 million, an increase of 108% over the third quarter of 2009
Gross profit was $3.2 million, an increase of 53% over the third quarter of 2009
Baldwin Technologies (long position) (BLD, Financial) $1.31
At the end of 2007 total debt per share was ~6.76 per share (102.64 million) reduced to ~4.86 per share (75.456 million) for the most recent quarterly balance sheet.
Year end 2007 price was $4.72
Additional data
Industry: Diversified Machinery
Market Capitalization: $20,400,000
Enterprise Value: $81,961,700
P/S is ~ .10 historically deep discount
Reported (11/11/10) results improved
New President and CEO appointed October 1, 2010
Q1 Sales up 6% over prior year
Q1 Orders up 18% over prior year
Gaming Group (MNTG, Financial): $2.50 MTR
At the end of 2007 total debt per share was ~18.15 per share (499.17 million) reduced to ~15.18 per share (417.64 million) for the most recent quarterly balance sheet.
Year end 2007 price was $6.79
Additional data
Industry; Gaming Activities
Large extensive valuable real estate portfolio of land and buildings for gaming activities
Market Capitalization: $54,260,000
Enterprise Value: $430,260,000
P/S is ~ .10 historicall discount
P & F Industries(Long Position) (PFIN, Financial): $3.30
At the end of 2007 total debt per share was ~13.38 per share (48.28 million) reduced to ~10.38 per share (37.38 million) for the most recent quarterly balance sheet.
Year end 2007 price was $5.93
Additional data
Industry; Small Tools & Accessories
Market Capitalization: $11,930,000
Enterprise Value: $11,930,0000
P/S is ~ .20 historical discount
Recent quarterly results (11/12/10) showed an outstanding profitable turn around
improved gross margins
Net income per share for the quarter was .23
As the economy improves the company should be positioned to exploit opportunities
Shadowstock
http://shadowstock.blogspot.com/
