Some of you may recognize this company. Paul Sonkin of Hummingbird Value, noted value investor, owns a large stake in the company. A guru shareholder doesn’t mean one should run out and immediately purchase shares, but it does warrant a review. This type of position is typical Sonkin. Meade Instruments is a very small, illiquid security. The fact that it shows on a Graham NCAV screen is no surprise.
Meade Instruments:
Financials:
2010 Q3 | 2010 Q2 | 2010 Q1 | 2009 Q4 | 2009 Q3 | |
Assets | |||||
Cash and Short Term Investments | 3.47 | 2.12 | 4.43 | 5.89 | 0.35 |
Total Receivables, Net | 5.25 | 6.03 | 3.16 | 2.49 | 18.54 |
Total Inventory | 7.27 | 8.7 | 8.24 | 8.9 | 16.25 |
Prepaid Expenses | 0.34 | 0.39 | 0.74 | 0.55 | 0.53 |
Other Current Assets, Total | 0.0 | 0.3 | 0.5 | 0.7 | 0.0 |
Total Current Assets | 16.32 | 17.54 | 17.06 | 18.53 | 35.67 |
Property/Plant/Equipment, Total - Net | 0.59 | 0.67 | 0.57 | 0.67 | 3.05 |
Goodwill, Net | 0.0 | 0.0 | 0.0 | 0.0 | 1.55 |
Intangibles, Net | 1.09 | 1.13 | 1.18 | 1.22 | 1.36 |
Long Term Investments | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Note Receivable - Long Term | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Other Long Term Assets, Total | 0.2 | 0.18 | 0.18 | 0.16 | 0.19 |
Other Assets, Total | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Total Assets | 18.2 | 19.52 | 18.98 | 20.57 | 41.81 |
Liabilities and Shareholders' Equity | |||||
Accounts Payable | 2.22 | 2.75 | 1.63 | 1.7 | 7.15 |
Payable/Accrued | 0.0 | 0.0 | 0.0 | 0.0 | 0.0 |
Accrued Expenses | 2.63 | 3.11 | 2.82 | 3.33 | 6.58 |
Notes Payable/Short Term Debt | 0.0 | 0.0 | 0.0 | 0.0 | 5.97 |
Current Port. of LT Debt/Capital Leases | 0.0 | 0.0 | 0.0 | 0.0 | 0.17 |
Other Current Liabilities, Total | 0.0 | 0.0 | 0.0 | 0.0 | 0.84 |
Total Current Liabilities | 4.85 | 5.86 | 4.46 | 5.03 | 20.71 |
Total Long Term Debt | 0.0 | 0.0 | 0.0 | 0.0 | 0.48 |
Total Liabilities | 4.86 | 5.87 | 4.46 | 5.03 | 21.74 |
Total market cap is a scant $4.5m (now that’s micro), while net current assets are over $11m - so far, so good. We know that with a valuation this cheap there are certain to be some issues. A quick look at the income statement and we can see some serious in business. Cash flow has turned negative for the past two years signaling further trouble. The statement of cash flow indicates a pretty significant drop in inventories in 2009 – this type of cash flow can only last for so long.
The company clearly is in transition mode – which can often create good opportunities. Currently, they are involved with a restructuring to reduce costs and unload business divisions. The following is an exert from their last 10K;
During the fiscal year ended February 28, 2009, the Company continued the restructuring of its operations to reduce its cost structure in order to return the Company to profitability and to ensure the Company had sufficient working capital to continue operations.
As part of these continuing efforts and the Company’s exploration of strategic alternatives with an investment bank, the Company divested the Simmons, Weaver and Redfield sports optics brand names and associated inventory to three different buyers for aggregate gross cash proceeds of $15.3 million in April and June 2008.
The sale of the Company’s former sport optics brands and associated assets did not qualify as a “Discontinued Operation”as defined by FAS No. 144, “ Accounting for the Impairment or Disposal of Long-Lived Assets ” (“FAS No. 144”) because the operations and cash flows could not be clearly distinguished from the rest of the entity as these brands and inventory were fully integrated into the structure of a much larger business.
In addition, the Company sold its European distribution operations (“Meade Europe”) for gross cash proceeds of approximately $12.4 million on January 27, 2009.[i][/i]
In this type of situation, we would need to talk to management to understand if their plan for future operation is both reasonable and realistic. The company is committing funds to new product development – which indicates management’s belief in the future. If you have extreme patience, this could be worth a closer look.
Disclosure: none.
