Weekend Values – January 16, 2011

Posted January 16th, 2011. Filed under Investing Links

As usual, here are a some value investing links from the past few weeks:

DHT Holdings, Inc. (DHT)

Long Thesis. Shipping is an industry I usually avoid, but Whopper Investments makes a good case for DHT Holdings (DHT), a company that operates double-hull tankers in the highly-competitive crude oil shipping market.

The company has a new management team in place after struggling through the economic downturn (basically, by using most of their FCF to continue paying out dividends despite declining business fundamentals).

Based on a recent appraisal, DHT holds ships valued at approx $415m compared to an enterprise value of $440m, meaning investors are picking up the rest of the business and its guaranteed cash flow (due to long-term contracts) for only $25m.

RadioShack (RSH)

Long Thesis. RadioShack managed to survive the economic downturn reasonably well, and now sits on over $700m in cash, or approx. 1/3 of its market cap.

Management has been using this cash pile to buy back shares, repurchasing almost $300m in stock in the past quarter alone.

The company trades at a P/E level of 9 despite stable operating margins and high ROE (averaging almost 20% over the past several years).

Gaming Partners (GPIC)

A stock recently featured on ValueUncovered, Petty Cash provides additional insight into Gaming Partners International (GPIC).

The linked chart tracks GPIC’s improving business fundamentals (CROIC and operating margins) despite significant ups and downs due to the cyclical nature of the business.

The company benefits from a dominant position in its core market (casino chips) with decent tailwinds in the casino sector, which suffered through a sharp correction in 2008/2009.

Diamond Offshore (DO)

Long Thesis. While concerns over drilling in the Gulf of Mexico continue (with new permits unlikely until late 2011 or 2012), the official ban lifted in October 2010, and most drillers have rallied significantly in the past 6 months with one exception: Diamond Offshore (DO).

In 2009, 32% of Diamond’s revenues were from the Gulf of Mexico; that number is down to 21% through the first nine months of 2010. Only 5 rigs remain in the region, with 3 others repurposed to other parts of the world.

The company has generated annualized free cash flow of approx $850m in 2010, with shares priced at only 10 times these depressed free cash flow levels.

DO continues to return cash to shareholders via special quarterly dividends and management remains bullish on the long-term prospects for deepwater operations.

Primus Telecommunications Group (PMUG.OB)

Long Thesis. PMUG recently emerged from Chapter 11 bankruptcy protection (a good signal for additional diligence by value investors) with a repaired balance sheet but depressed valuation due to lack of liquidity and institutional coverage.

The stock is extremely cheap looking at the common valuation metrics: P/FCF – 3.3x, EV/EBITDA – 3.8x, EV/Revenue – 0.38x. PMUG throws off a tremendous amount of cash, with a FCF yield of 31%.

The company also hired a new CEO with tremendous background in the space, who is highly incentivized (via options and restricted shares) to increase the stock price.

Several upcoming catalysts include a relisting on a major exchange (probable in Q1 2011), refinacing of the existing debt load (saving tens of millions of dollars in interest expense), or the possible sale to private equity group or strategic buyer.

Comparable buyout transactions typically occur around 1x LTM revenue or 5x EV/EBITDA, significantly above PMUG’s current price levels.


If you have links or suggestions to detailed analysis from other value investors, please drop me a line using the Contact Form.

I’m always open to ideas from other investors, especially for a thoughtful and well-researched investment articles.


Long GPIC.

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2 Responses so far

  1. Floris says:

    Well add Seahawk to that name, hasn’t done much, and is trading at at least a 50% discount to liquidation value. Expected increase in permits + increase in henry hub gas prices should lift it to breakeven by h1 2010.

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