Value Uncovered Portfolio Performance - Q1 2012

After lagging the indexes for most of the way, a strong finish helped the portfolio outperform the index during the first quarter of 2012.

In fact, the 15% return was my third-best quarter ever, trailing only two mammoth quarters during the stock market recovery in mid-2009.

As I mentioned in my 2011 year end-review, many of my holdings are extremely illiquid and volatile, and price swings on or near the period closing date can have a big impact on the portfolio’s final performance number.

Portfolio Breakdown

Value Uncovered Portfolio Breakdown - Q1 2012

I continue to examine each holding in the portfolio, and have closed out or substantially reduced a number of legacy positions which have hit price targets or no longer fit into my investment philosophy.

The cash position will almost certainly increase due to buy-outs of several existing positions, so I’m on the hunt for new names and always open to hearing ideas from readers.

Position Updates

International Baler (IBAL) enjoyed a nice run-up after reporting a huge Q1. Sales were up more than 130% QoQ, and total backlog has increased to $7.8m compared to only $3.295m in the prior year. The stock is now up almost 400% since my initial post.

I’ve trimmed back my position significantly over the past quarter, but plan on holding onto the remaining stake – 2012 should be a record year.

Access Plans (APNC) announced a merger agreement with AON Corporation for $3.30/share, subject to certain revisions at closing. The preliminary proxy was filed on March 27, and it shed light on an interesting part of the agreement (emphasis mine):

“Prior to the closing of the Merger, Access Plans may declare a one-time cash dividend of up to $0.10 per share of Access Plans common stock then outstanding payable to Access Plans’ shareholders immediately prior to the closing (the “Special Dividend”). However, the Special Dividend is only permitted if (i) prior to the closing the full amount of the Special Dividend is paid to Access Plans’ transfer agent (for subsequent payment to the Access Plans shareholders) on terms and conditions acceptable to Affinity and (ii) the payment of the Special Dividend does not cause the net cash amount immediately prior to the effective time of the Merger to be less than $15.025 million.”

Merger and closing related expenses are estimated at $2.2m, so the ‘trigger point’ for a special dividend would be $17.225m.

As of 12/31/2011, APNC held $15.64m in net cash. In the previous year, the company generated roughly $8m in cash, or $2m per quarter.

If APNC continues to throw off the same amount of cash, and the merger closes at the end of Q2, those 2 quarters would give the company a cash balance in the $19m range.

If so, it’s likely that at least some (if not all) of the $0.10 dividend will be paid before closing, providing a nice boost even if another suitor does not emerge.

Access Plans is not the only holding that is ‘in play:’ New Frontier (NOOF) is the subject of an apparent bidding war.

The bidding started with an offer of $1.35/share by Longkloof Limited, which owns 15% of NOOF’s shares. Several weeks later, another potential acquirer emerged, with Manwin Holdings offering $1.50/share.

The interest caused NOOF’s management team to hire Avondale Partners to evaluate all alternatives:

“Our Board of Directors remains very enthusiastic about New Frontier Media’s future prospects and has made no decision to sell the Company. However, in keeping with our commitment to act in the best interests of all shareholders, we have decided to undergo a thorough review of strategic alternatives to determine the best opportunities for maximizing shareholder value at this time”

The stock is trading at a premium to the latest offer, so the market is certainly pricing in further action.

Finally, an activist investor emerged at Gaming Partners (GPIC), as Enclave Asset Management wrote a strongly-worded letter to the management team and proposed new board members at the upcoming annual meeting.

The company posted disappointing results for the fiscal year, with EPS falling from $0.54 last year to $0.45.

If nothing else, the quarter was certainly entertaining.



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